[Federal Register Volume 67, Number 210 (Wednesday, October 30, 2002)]
[Proposed Rules]
[Pages 66208-66250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: X02-11030]



[[Page 66207]]

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Part II





Securities and Exchange Commission





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17 CFR Parts 210, 228, et al.



 Disclosure Required by Sections 404, 406 and 407 of the Sarbanes-Oxley 
Act of 2002; Proposed Rule

  Federal Register&thnsp/&thnspVol. 67, No. 210&thnsp/
&thnspWednesday, October 30, 2002&thnsp/&thnspProposed Rules  

[[Page 66208]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 210, 228, 229, 240, 249, 270 and 274

[Release Nos. 33–8138; 34–46701; IC–25775; File No. 
S7–40–02]
RIN 3235–AI66


Disclosure Required by Sections 404, 406 and 407 of the Sarbanes-
Oxley Act of 2002

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: We propose to require companies to include a number of new 
disclosures in their Exchange Act filings. First, companies would be 
required to disclose the number and names of persons that the board of 
directors has determined to be the “financial experts” 
serving on the company's audit committee and whether they are 
independent of management, and if not, an explanation of why they are 
not. Second, companies would be required to include an annual internal 
control report of management stating the following: management's 
responsibilities for establishing and maintaining adequate internal 
controls and procedures for financial reporting for the company; 
management's conclusions about the effectiveness of the company's 
internal controls and procedures for financial reporting as of the end 
of the company's most recent fiscal year; and that the company's 
registered public accounting firm has attested to, and reported on, 
management's evaluation of the company's internal controls and 
procedures for financial reporting. Third, companies would be required 
to disclose whether they have adopted a code of ethics that covers 
their principal executive officers and senior financial officers, or if 
they have not, an explanation of why they have not, as well as 
amendments to, and waivers from, the code of ethics relating to any of 
those officers. These proposed rules would implement the requirements 
in sections 404, 406 and 407 of the Sarbanes-Oxley Act of 2002. We also 
propose to make revisions to our recently adopted rules requiring a 
company's principal executive and financial officers to certify the 
company's quarterly and annual reports and requiring the company to 
conduct quarterly evaluations of its disclosure procedures and 
controls. These rules would be amended to require quarterly and annual 
certifications and quarterly evaluations of internal controls and 
procedures for financial reporting. We also would amend the form of the 
principal officers' certification contained in the quarterly and annual 
report forms.

DATES: Comments should be received on or before November 29, 2002.

ADDRESSES: To help us process and review your comments more 
efficiently, comments should be sent by hard copy or e-mail, but not by 
both methods.
    Comments sent by hard copy should be submitted in triplicate to 
Jonathan G. Katz, Secretary, U.S. Securities and Exchange Commission, 
450 Fifth Street, NW., Washington, DC 20549–0609. Comments also 
may be submitted electronically at the following e-mail address: rule-
comments@sec.gov. All comment letters should refer to File No. 
S7–40–02; if e-mail is used, this file number should be 
included in the subject line. Comment letters will be available for 
inspection and copying in the Commission's Public Reference Room, 450 
Fifth Street, NW., Washington, DC 20549–0102. Electronically 
submitted comment letters will be posted on the Commission's Internet 
Web site (http://www.sec.gov).\1\
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    \1\&thnspWe do not edit personal information, such as names or 
electronic mail addresses, from electronic submissions. You should 
submit only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT: Ray Be, Special Counsel, or N. Sean 
Harrison, Special Counsel, Division of Corporation Finance, at (202) 
942–2910, with respect to registered investment companies, Katy 
Mobedshahi, Senior Counsel, Division of Investment Management, at (202) 
942–0721, or with respect to accounting issues, Michael Thompson, 
Professional Accounting Fellow, Office of Chief Accountant, at (202) 
942–4400, U.S. Securities and Exchange Commission, 450 Fifth 
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Street, NW., Washington, DC 20549.

SUPPLEMENTARY INFORMATION: We are proposing amendments to Form 
8–K,\2\ Form 10–K,\3\ Form 10–KSB,\4\ Form 
10–Q,\5\ Form 10–QSB,\6\ Form 20–F,\7\ Form 
40–F,\8\ Form 12b–25,\9\ Rule 12b–25,\10\ Rule 
13a–14,\11\ Rule 13a–15,\12\ Rule 15d–14,\13\ and 
Rule 15d–15\14\ under the Securities Exchange Act of 1934,\15\ 
Regulation S–B,\16\ Regulation S–K&thnsp\17\ and 
Regulation S–X.\18\ We are also proposing amendments to Form 
N–SAR&thnsp\19\ and proposed Form N–CSR&thnsp\20\ under 
the Securities Exchange Act of 1934 and the Investment Company Act of 
1940,\21\ and Rule 30a–2&thnsp\22\ and proposed Rule 30a–3 
under the Investment Company Act of 1940.
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    \2\&thnsp17 CFR 249.308.
    \3\&thnsp17 CFR 249.310.
    \4\&thnsp17 CFR 249.310b.
    \5\&thnsp17 CFR 249.308a.
    \6\&thnsp17 CFR 249.308b.
    \7\&thnsp17 CFR 249.220f.
    \8\&thnsp17 CFR 249.240f.
    \9\&thnsp17 CFR 249.322.
    \10\&thnsp17 CFR 240.12b–25.
    \11\&thnsp17 CFR 240.13a–14.
    \12\&thnsp17 CFR 240.13a–15.
    \13\&thnsp17 CFR 140.15d–14.
    \14\&thnsp17 CFR 240.15d–15.
    \15\&thnsp15 U.S.C. 78a et seq.
    \16\&thnsp17 CFR 228.10 et seq.
    \17\&thnsp17 CFR 229.10 et seq.
    \18\&thnsp17 CFR 210.1–01 et seq.
    \19\&thnsp17 CFR 249.330; 17 CFR 274.101.
    \20\&thnsp17 CFR 249.331; 17 CFR 274.128.
    \21\&thnsp15 U.S.C. 80a–1 et seq.
    \22\&thnsp17 CFR 270.30a–2.
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I. Background

    The strength of the U.S. financial markets depends on investor 
confidence. Recent events involving allegations of misdeeds by 
corporate executives, independent auditors and other market 
participants have undermined that confidence.\23\ In response to this 
threat to the U.S. financial markets, Congress passed, and the 
President signed into law, the Sarbanes-Oxley Act of 2002 (the 
“Sarbanes-Oxley Act”),\24\ which effects sweeping corporate 
disclosure and financial reporting reform.
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    \23\&thnspSee, for example, John Waggoner and Thomas A. 
Fogarty, “Scandals Shred Investors” Faith: Because of 
Enron, Andersen and Rising Gas Prices, the Public Is More Wary Than 
Ever of Corporate America,” USA Today, May 5, 2002, and Louis 
Aguilar, “Scandals Jolting Faith of Investors,” Denver 
Post, June 27, 2002.
    \24\&thnspPub. L. 107–204, 116 Stat. 745 (2002).
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    This release is one of several that the Commission is required to 
issue to implement provisions of the Sarbanes-Oxley Act. In this 
release we propose rules to implement the following three provisions of 
the Sarbanes-Oxley Act:
    &sbull Section 407, requiring the Commission to adopt rules: 
(1) requiring a company to disclose whether its audit committee 
includes at least one member who is a financial expert; and (2) 
defining the term “financial expert”;
    &sbull Section 406, requiring the Commission to adopt rules 
requiring a company to disclose whether it has adopted a code of ethics 
for the company's senior financial officers, and if not, the reasons 
therefor, as well as any changes to, or waiver of any provision of, 
that code of ethics; and
    &sbull Section 404, requiring the Commission to adopt rules 
requiring a company's management to present an internal control report 
in the company's annual report containing: (1) A

[[Page 66209]]

statement of the responsibility of management for establishing and 
maintaining an adequate internal control structure and procedures for 
financial reporting; and (2) an assessment, as of the end of the 
company's most recent fiscal year, of the effectiveness of the 
company's internal control structure and procedures for financial 
reporting. Section 404 also requires the company's registered public 
accounting firm&thnsp\25\ to attest to, and report on, management's 
assessment.
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    \25\&thnspThe term “registered public accounting 
firm” is defined in section 2(a)(12) of the Sarbanes-Oxley Act 
to mean a public accounting firm registered with the Public Company 
Accounting Oversight Board (the “PCAOB”) in accordance 
with the Sarbanes-Oxley Act.
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In connection with our proposed rules to implement the internal control 
report requirements included in section 404 of the Sarbanes-Oxley Act, 
we also propose several conforming revisions to our recently adopted 
certification rules and related requirements.\26\
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    \26\&thnspThese include Exchange Act Rules 13a–14, 
13a–15, 15d–14, 15d–15, Investment Company Act 
Rules 30a–2 and 30a–3, Item 307 of Regulations S–B 
and S–K and the forms of certification included in Forms 
10–Q, 10–QSB, 10–K, 10–KSB, 20–F, 
40–F, N–SAR and N–CSR.
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II. Discussion of Proposals

A. Proposed Disclosure About Financial Experts Serving on a Company's 
Audit Committee

    Many of the recent corporate scandals have centered on the quality 
of a company's financial disclosure. These events have, among other 
things, highlighted problems that can occur as a result of inadequate 
oversight of a company's management and auditors by the company's board 
of directors or audit committee. The Commission historically has 
encouraged companies to establish independent audit committees to 
oversee the work and independence of auditors. For example, in 1972 the 
Commission recommended that companies establish audit committees 
composed of outside directors.\27\ Others have expressed their support 
for independent audit committees, including the National Commission on 
Fraudulent Financial Reporting, also known as the Treadway 
Commission,\28\ and the General Accounting Office.\29\ In 1999, we 
adopted rules requiring companies to disclose whether their audit 
committee members are independent, as defined by the relevant listing 
standards.\30\
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    \27\&thnspAccounting Series Release (ASR) 123 (March 23, 1972).
    \28\&thnspSee the Report of the National Commission on 
Fraudulent Financial Reporting (1987). This commission, also known 
as the Treadway Commission, was sponsored by the AICPA, the American 
Accounting Association, the Financial Executives Institute (now 
Financial Executives International), the Institute of Internal 
Auditor and the National Association of Accountants. Collectively, 
these groups were known as the Committee of Sponsoring 
Organizations, or COSO.
    \29\&thnspGAO, “CPA Audit Quality: Status of Actions 
Taken to Improve Auditing and Financial Reporting of Public 
Companies,” at 5 (GAO/AFMD–89–38, March 1989).
    \30\&thnspRelease No. 34–42266 (Dec. 22, 1999) [64 FR 
73389]. This release addressed numerous issues related to auditor 
independence.
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    In 1998, the New York Stock Exchange, Inc. (the “NYSE”) 
and the National Association of Securities Dealers, Inc. (the 
“NASD”) sponsored a committee to study the effectiveness of 
audit committees. This committee became known as the Blue Ribbon 
Committee on Improving the Effectiveness of Corporate Audit Committees 
(the “Blue Ribbon Committee”). In its 1999 report, the Blue 
Ribbon Committee recognized the importance of the audit committee in 
overseeing the corporate accounting and financial controls and 
reporting of companies.\31\ The Blue Ribbon Committee noted that, 
because of this important role, an audit committee has “a more 
recognizable need for members with accounting and/or related financial 
expertise.” Without some level of financial competence, members 
of an audit committee may be unable to adequately perform their vital 
corporate duties. In response to this report, the NYSE, the NASD,\32\ 
the American Stock Exchange, Inc. (the “AMEX”) and the 
Pacific Exchange, Inc. (the “PCX”) adopted rules regarding 
the composition of listed companies” audit committees.\33\
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    \31\&thnspSee Report and Recommendations of the Blue Ribbon 
Committee on Improving the Effectiveness of Corporate Audit 
Committees (1999).
    \32\&thnspThe NASD rules referred to herein apply to NASDAQ 
listed companies.
    \33\&thnspNYSE Rule 303.01, NASD Rule 4350(d)(2), AMEX Company 
Guide §&thnsp121 and PCX Equities Rule 5.3(b). See also 
Release No. 34–42233 (December 14, 1999) [64 FR 71529], 
Release No. 34–42231 (December 14, 1999) [64 FR 71523], 
Release No. 34–42232 (December 14, 1999) [64 FR 71518], and 
Release No. 34–43941 (February 7, 2001) [66 FR 10545] 
respectively.
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    The NYSE's and the PCX's rules require at least one member of a 
listed company's audit committee to have “accounting or related 
financial management expertise, as the Board of Directors interprets 
such qualification in its business judgment.”&thnsp\34\ The NASD 
and the AMEX have similar rules that require each listed company to 
certify that it has, and will continue to have, at least one member of 
the audit committee that has past employment experience in finance or 
accounting, a professional certification in accounting, or comparable 
experience or background that demonstrates the individual's financial 
sophistication.\35\ These rules provide, by way of example, that a 
person who is or has been a chief executive officer, chief financial 
officer or other senior corporate officer with financial oversight 
responsibilities satisfies this criterion. In addition, all four self-
regulatory organizations require all members of the audit committee to 
be independent and to be (or soon become) financially literate, subject 
to limited exceptions.\36\ While the NYSE and PCX rules permit a 
company's board of directors to interpret the financial literacy 
requirements, the NASD and AMEX rules define financial literacy as 
“the ability to read and understand fundamental financial 
statements, including a company's balance sheet, income statement, and 
cash flow statement.”&thnsp\37\
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    \34\&thnspNYSE Rule 303.01 and PCX Rule 5.3(b).
    \35\&thnspNASD Rule 4350(d)(2) and AMEX Company Guide 
§&thnsp121.
    \36\&thnspFor example, the NASD Manual states that audit 
committee members must become able to read and understand 
fundamental financial statements within a reasonable time after 
being appointed to the audit committee. Similarly, the NYSE listing 
standard require such appointees to become financially literate, as 
that term is interpreted by the board of directors, within a 
reasonable period of time after appointment. Therefore, these rules 
do not require that members be so qualified at the time of 
appointment. Also, in general, with respect to foreign private 
issuers, the self-regulatory organization rules accommodate 
differences in home country practices regarding, among other things, 
audit committee composition. The Sarbanes-Oxley Act does not exempt 
foreign private issuers from the financial expert disclosure 
requirements. Our proposed rules similarly do not include an 
exemption for foreign private issuers.
    \37\&thnspId.
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    Although the NYSE, NASD, AMEX and PCX already have rules regarding 
the financial expertise of audit committee members, not all companies 
that are required to file reports under Sections 13(a) and 15(d) of the 
Exchange Act are subject to these requirements. Furthermore, the 
Sarbanes-Oxley Act directs us to adopt rules defining the term 
“financial expert” and specifies several attributes that we 
must consider in crafting the definition. These attributes are more 
detailed and rigorous than those reflected in the current self-
regulatory organization rules. Therefore, it is possible that a person 
who previously qualified as a financial expert under the broader 
guidelines included in the rules of the self-regulatory organizations 
may not have sufficient expertise and experience to be considered a 
financial expert under our proposed rules.\38\ In particular, our

[[Page 66210]]

proposed rules would require a financial expert to have experience 
preparing or auditing financial statements of a company that files 
reports with us and experience with internal controls and procedures 
for financial reporting (or similar expertise and experience in the 
board of directors' judgment). The proposed disclosure requirements 
regarding audit committee financial experts are described below.
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    \38\&thnspThe NYSE has indicated that it will await the 
Commission's interpretation of the definition of the term 
“financial expert” before proposing amendments to its 
rules. See File No. SR–NYSE–2002–33 (pending 
before the Commission). The NASD has indicated that it intends to 
file rule proposals for the Nasdaq Stock Market with the Commission 
addressing similar issues. Although we will continue to work with 
the self-regulatory organizations to reconcile to the extent 
possible the various definitions of expert.
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1. Proposed Disclosure Requirements
    We propose to add new Item 309 to Regulations S–K and 
S–B. In addition, we propose to add new Item 15(b) to Form 
20–F and new Instruction B.(8) to Form 40–F. These proposed 
items would be identical in substance and entitled, “Audit 
Committee Financial Experts.” The proposed items would require 
companies to disclose:
    &sbull The number and names of persons that the board of 
directors has determined to be the financial experts serving on the 
company's audit committee; and
    &sbull Whether the financial expert or experts are 
“independent,” as that term is used in section 10A(m)(3) of 
the Exchange Act, and if not, an explanation of why they are not.\39\
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    \39\&thnsp15 U.S.C. 78j–1(m)(3). The Sarbanes-Oxley Act 
amended the Exchange Act to add this section.
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If the company does not have a financial expert serving on its audit 
committee, the company must disclose that fact and explain why it has 
no financial expert. For purposes of the proposed disclosure, the term 
“audit committee” would be defined by section 3(a)(58) of 
the Exchange Act.\40\
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    \40\&thnspSection 3(a)(58) of the Exchange Act, as amended by 
the Sarbanes-Oxley Act, defines the term “audit 
committee” as “a committee (or equivalent body) 
established by and amongst the board of directors of an issuer for 
the purpose of overseeing the accounting and financial reporting 
processes of the issuer and audits of the financial statements of 
the issuer; and * * * if no such committee exists with 
respect to an issuer, the entire board of directors of the 
issuer.” 15 U.S.C. 78c(a)(58).
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    Although the Sarbanes-Oxley Act does not specifically require 
disclosure of the number or names of the financial experts,\41\ we 
believe that it is appropriate to propose these requirements. Investors 
likely would be interested in knowing how many financial experts a 
company's board has determined are serving on its audit committee, or 
whether it has determined that all of the audit committee members are 
financial experts. Furthermore, disclosure of the names of the 
company's financial expert or experts would assist investors in 
evaluating the company's annual report and proxy or information 
statement disclosure that describes the background and business 
experience of the company's directors.\42\
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    \41\&thnspThe Sarbanes-Oxley Act only directs the Commission to 
adopt rules requiring disclosure of whether or not the audit 
committee has at least one member who is a financial expert and, if 
not, why. See section 407 of the Sarbanes-Oxley Act.
    \42\&thnspSee Item 401(e) of Regulation S–K and Item 
401(a)(4) of Regulation S–B [17 CFR 229.401(e) and 
228.401(a)(4)].
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    The primary benefit of having a financial expert serving on a 
company's audit committee is that the person, with his or her enhanced 
level of financial sophistication or expertise, can serve as a resource 
for the audit committee as a whole in carrying out its functions.\43\ 
The mere designation of the financial expert should not impose a higher 
degree of individual responsibility or obligation on a member of the 
audit committee. Nor do we intend for the financial expert designation 
to decrease the duties and obligations of other audit committee members 
or the board of directors. Furthermore, in order to avoid any confusion 
in the context of section 11 of the Securities Act,\44\ we do not 
intend for such a person to be considered an expert for purposes of 
section 11 solely as a result of his or her designation as a financial 
expert on the audit committee. The role of the financial expert is to 
assist the audit committee in overseeing the audit process, not to 
audit the company. A conclusion that a financial expert is an 
“expert” for purposes of section 11 might suggest a higher 
level of due diligence than is consistent with the audit committee's 
oversight responsibilities.
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    \43\&thnspSee Report and Recommendations of the Blue Ribbon 
Committee on Improving the Effectiveness of Corporate Audit 
Committees (1999).
    \44\&thnsp15 U.S.C. 77k.
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    Section 407 of the Sarbanes-Oxley Act does not require disclosure 
of whether the financial expert is independent. However, we believe 
that such disclosure may be important to investors. Investors may be 
interested to know, for example, if the only financial expert on the 
audit committee is the company's chief financial officer or another 
individual who is responsible for, or participates in, the preparation 
of the company's financial statements. Therefore, we propose to require 
disclosure of whether the identified financial expert or experts on the 
audit committee are independent, as that term is used in section 
10A(m)(3) of the Exchange Act, and if not, an explanation of why they 
are not. In addition, we intend to propose rules directing the national 
securities exchanges and national securities association to require a 
company to have a completely independent audit committee as a condition 
to listing.\45\
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    \45\&thnspSee section 301 of the Sarbanes-Oxley Act.
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    Some companies do not have boards of directors and therefore do not 
have board audit committees. For example, some limited liability 
companies and limited partnerships that do not have a corporate general 
partner may not have an oversight body that is the equivalent of an 
audit committee. It may be important to investors to be aware that such 
entities do not have such oversight bodies. Therefore, we do not 
propose to exempt these entities from the proposed financial expert 
disclosure requirements. If a limited liability company or limited 
partnership does not have a similar oversight body, it must explain 
that its organizational structure does not provide for such a body and 
that it therefore does not have an audit committee. We do, however, 
propose to exempt asset-backed issuers from this proposed disclosure 
requirement. Because of the nature of these entities, such issuers are 
subject to substantially different reporting requirements. Most 
significantly, such issuers are not required to file financial 
statements like other companies. Therefore, we do not believe 
disclosure of whether such companies have a financial expert on its 
audit committee would be of interest to investors.

Request for Comment

    &sbull Would investors benefit from disclosure of the number 
of the financial experts serving on the company's audit committee? Or 
would it suffice to require disclosure only of whether at least one 
financial expert serves on the audit committee?
    &sbull Do investors need to know the names of the financial 
experts on the audit committee? Would disclosure of the names 
discourage people from serving as financial experts on an audit 
committee?
    &sbull Should the Commission specifically address the issue 
of the degree of individual responsibility, obligation or liability 
under state or federal law of a person designated as a financial expert 
as a result of the designation? If the Commission should address this 
issue, how should it do so?
    &sbull Should we use a term other than “financial 
expert”? For example, would

[[Page 66211]]

the term “audit committee financial expert” be a more 
appropriate title?
    &sbull Is there other relevant information about the 
financial expert or experts that a company should have to disclose? For 
example, should we expand the disclosure required under Item 401(e) of 
Regulations S–K and S–B, as it relates to directors that 
the company has determined to be financial experts? If so, how?
    &sbull Should we require disclosure of whether the financial 
experts are independent, as proposed? If so, should we define 
“independent” in the same manner as the term is used in 
section 10A(m)(3) of the Exchange Act?
    &sbull Should we incorporate an independence requirement into 
the definition of “financial expert” so that any designated 
financial expert must be independent to qualify under the definition?
2. Proposed Definition of “Financial Expert”
    The Sarbanes-Oxley Act requires the Commission, in defining the 
term “financial expert,” to consider whether a person has, 
through education and experience as a public accountant or auditor or a 
principal financial officer, controller,\46\ or principal accounting 
officer of an issuer, or from a position involving the performance of 
similar functions:
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    \46\&thnspThe Sarbanes-Oxley Act uses the term 
“comptroller.” It is our understanding that a 
comptroller position generally is the position in a government 
agency or non-profit organization with oversight responsibilities 
for the agency's or organization's primary accounting function. We 
believe that for-profit organizations typically use the term 
“controller” to describe this function. Therefore, 
throughout this release, we have used the term 
“controller” instead of the term 
“comptroller.”
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    (1) An understanding of generally accepted accounting principles 
and financial statements;
    (2) Experience in: (a) The preparation or auditing of financial 
statements of generally comparable issuers; and (b) the application of 
such principles in connection with the accounting for estimates, 
accruals, and reserves;
    (3) Experience with internal accounting controls; and
    (4) An understanding of audit committee functions.
    The “financial expert” definition included in the 
proposed rules incorporates these four “attributes” with 
several modifications.\47\ We also propose to require the financial 
expert's experience to be related to companies that were, at the time 
he or she held the position, publicly reporting companies. We believe 
this requirement is appropriate because a person with experience as a 
principal financial officer or principal accounting officer of a 
private company may not have been exposed to the reporting requirements 
of public companies.
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    \47\&thnspSee Instructions 1–4 to proposed Item 309 of 
Regulations S–K and S–B. In particular, we propose to 
break the four attributes into five attributes and several changes 
to clarify that the required attributes include experience applying 
generally accepted accounting principles in connection with the 
accounting for estimates, accruals and reserves that are generally 
comparable to those, if any, used in the company's financial 
statements, and experience preparing or auditing financial 
statements that present accounting issues that are generally 
comparable to those raised by the company's financial statements.
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    Moreover, the proposed definition states that the board of 
directors can conclude that a person is a financial expert if, in lieu 
of having experience as a public accountant, auditor, principal 
financial officer, principal accounting officer, or controller, or 
experience in a position involving the performance of similar 
functions, the person has experience in a position that results, in the 
judgment of the board of directors, in the person having similar 
expertise and experience. If the board makes such a determination, it 
would be required to disclose the basis for that determination. To 
qualify as a financial expert, a person would, in all cases, have to 
possess all of the attributes listed in the proposed definition.
    The instructions to proposed Item 309 of Regulations S–K and 
S–B would therefore define the term “financial 
expert” to mean a person who has, through education and 
experience as a public accountant or auditor or a principal financial 
officer, controller, or principal accounting officer of a company that, 
at the time the person held such position, was required to file reports 
pursuant to section 13(a) or 15(d) of the Exchange Act, or experience 
in one or more positions that involve the performance of similar 
functions (or that results, in the judgment of the company's board of 
directors, in the person's having similar expertise and experience), 
the following attributes:
    a. An understanding of generally accepted accounting principles and 
financial statements;
    b. Experience applying such generally accepted accounting 
principles in connection with the accounting for estimates, accruals, 
and reserves that are generally comparable to the estimates, accruals 
and reserves, if any, used in the registrant's financial statements;
    c. Experience preparing or auditing financial statements that 
present accounting issues that are generally comparable to those raised 
by the registrant's financial statements;
    d. Experience with internal controls and procedures for financial 
reporting;&thnsp\48\ and
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    \48\&thnspSection 407 of the Sarbanes-Oxley Act states that, 
among other attributes, the SEC, in defining the term 
“financial expert,” should consider whether a person has 
experience with internal accounting controls. This release proposes 
rules under section 404, which would require an annual report by 
management evaluating the effectiveness of its internal controls and 
procedures for financial accounting (a defined term). We believe 
that this term has substantially the same meaning as “internal 
accounting controls” in section 407. Therefore, we propose to 
use the newly defined term for consistency.
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    e. An understanding of audit committee functions.
    In determining whether a potential financial expert has all of the 
requisite attributes, the board of directors&thnsp\49\ must evaluate 
the totality of an individual's education and experience.\50\ The 
company should consider a variety of factors in making that evaluation, 
including:
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    \49\&thnspSee section II.A.3., Determination by the Board of 
Directors of Who Is a Financial Expert, below.
    \50\&thnspThis approach is consistent with the approach taken 
in NASD and NYSE rules. The NASD requires each issuer to have 
“at least one member of the audit committee that has past 
employment experience in finance and accounting, requisite 
professional certification in accounting, or any other comparable 
experience or background which results in the individual's financial 
sophistication, including being or having been a chief executive 
officer, chief financial officer or other senior officer with 
financial oversight responsibilities.” NASD Rule 
4350(d)(2)(A). Similarly, the NYSE requires at least one member who 
has “accounting or related financial management 
expertise.” NYSE Listed Company Manual 303.01. Both of these 
provisions focus on the level of expertise without providing any 
mechanical formula for determining whether an individual has the 
requisite expertise.
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    &sbull The level of the person's accounting or financial 
education, including whether the person has earned an advanced degree 
in finance or accounting;
    &sbull Whether the person is a certified public accountant, 
or the equivalent, in good standing, and the length of time that the 
person actively has practiced as a certified public accountant, or the 
equivalent;
    &sbull Whether the person is certified or otherwise 
identified as having accounting or financial experience by a recognized 
private body that establishes and administers standards in respect of 
such expertise, whether that person is in good standing with the 
recognized private body, and the length of time that the person has 
been actively certified or identified as having this expertise;
    &sbull Whether the person has served as a principal financial 
officer, controller or principal accounting officer of a company that, 
at the time the person held such position, was required to file reports 
pursuant to section 13(a) or 15(d) of the Exchange Act, and if so, for 
how long;

[[Page 66212]]

    &sbull The person's specific duties while serving as a public 
accountant, auditor, principal financial officer, controller, principal 
accounting officer or position involving the performance of similar 
functions;
    &sbull The person's level of familiarity and experience with 
all applicable laws and regulations regarding the preparation of 
financial statements that must be included in reports filed under 
section 13(a) or 15(d) of the Exchange Act;
    &sbull The level and amount of the person's direct experience 
reviewing, preparing, auditing or analyzing financial statements that 
must be included in reports filed under section 13(a) or 15(d) of the 
Exchange Act;
    &sbull The person's past or current membership on one or more 
audit committees of companies that, at the time the person held such 
membership, were required to file reports pursuant to section 13(a) or 
15(d) of the Exchange Act;
    &sbull The person's level of familiarity and experience with 
the use and analysis of financial statements of public companies; and
    &sbull Whether the person has any other relevant 
qualifications or experience that would assist him or her in 
understanding and evaluating the registrant's financial statements and 
other financial information and to make knowledgeable and thorough 
inquiries whether:
    &sbull The financial statements fairly present the financial 
condition, results of operations and cash flows of the company in 
accordance with generally accepted accounting principles; and
    &sbull The financial statements and other financial 
information, taken together, fairly present the financial condition, 
results of operations and cash flows of the company.
    In the case of a foreign private issuer, the board of directors 
also should consider the person's experience with public companies in 
the foreign private issuer's home country, generally accepted 
accounting principles used by the issuer, and the reconciliation of 
financial statements with U.S. generally accepted accounting 
principles.
    This is not intended to be an exhaustive list of the factors that 
the board of directors should consider in assessing whether a person 
qualifies as a financial expert. Moreover, the proposed rules do not 
specify the number of listed factors that a financial expert should 
satisfy; satisfaction of any specific number of factors would be 
neither necessary nor sufficient for a person to be considered a 
financial expert. Most of these factors require a qualitative 
assessment of a potential expert's level of knowledge or experience.
    The fact that a person previously has served on an audit committee 
would not, by itself, justify the board of directors in 
“grandfathering” that person as a financial expert under 
our proposed definition. Similarly, the fact that a person has 
experience as a public accountant or auditor, or a principal financial 
officer, controller or principal accounting officer or experience in a 
similar position would not, by itself, justify the board of directors 
in deeming the person to be a financial expert. The board of directors 
would have to confirm that these persons have the requisite attributes 
and the right mix of education and experience.
    Some individuals who are particularly knowledgeable and experienced 
in accounting and financial issues may have the requisite attributes 
and mix of knowledge and experience to qualify as financial experts, 
even though they may not have served in one of the specifically 
identified positions. The board of directors would have to determine 
whether an individual's qualifications, in the aggregate, satisfy the 
financial expert definition.
    Because of the significant role the audit committee plays in the 
filing of a public company's financial statement, including the 
preparation and filing of their own report, we would find it hard to 
believe that an accountant serving as a financial expert on an audit 
committee would not be practicing before the Commission.\51\ Therefore, 
any accountant, while suspended or barred from practice under Rule 
102(e)&thnsp\52\ of the Commission's Rules of Practice, generally 
would not be eligible to serve as a financial expert.
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    \51\&thnspSee 17 CFR 201.102(f).
    \52\&thnspSee 17 CFR 201.102(e).
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Request for Comment

    &sbull Should we modify the proposed definition of 
“financial expert” in any way? If so, how?
    &sbull Should we require a financial expert to have direct 
experience preparing or auditing financial statements of reporting 
companies? Should experience reviewing or analyzing such financial 
statements suffice? If so, why?
    &sbull Should a financial expert have to possess all of the 
“attributes” listed in the proposed definition? Should we 
broaden the scope of individuals who may qualify as such an expert?
    &sbull Do the five attributes adequately describe the 
qualities that a financial expert should have? Should we add any 
attributes?
    &sbull Although we do not intend for the list of factors that 
a company should consider in assessing a potential financial expert's 
qualifications to be exhaustive, should we add any factors to the list? 
If so, what other factors should we include? Conversely, should we 
delete any proposed factors from the list? If so, which factors should 
we delete?
    &sbull Should the proposed rules provide for a different 
standard or methodology for assessing a financial expert's 
qualifications? If so, describe the preferred standard or methodology.
3. Determination by the Board of Directors of Who Is a Financial Expert
    The Sarbanes-Oxley Act does not explicitly state who at the company 
should determine whether any of the audit committee members is a 
financial expert. Management is responsible for preparing the financial 
statements. Therefore, it seems inappropriate for management to assess 
the qualifications of audit committee members. Similarly, it does not 
seem appropriate for the members of the audit committee, alone, to 
assess their own qualifications. We believe that the board of directors 
in its entirety, as the most broad-based body within the company, is 
best-equipped to make the decision. Therefore, we propose to require 
the company to disclose the number and names of the persons that the 
board of directors has determined to be the financial expert or experts 
serving on the company's audit committee.
    Certain foreign private issuers have a two-tier board, with one 
tier designated as the management board and the other tier designated 
as the supervisory or non-management board. In this circumstance, we 
believe that the supervisory or non-management board would be the body 
within the company that is best-equipped to make the decision.

Request for Comment

    &sbull Will investors find this information useful? Is there 
more useful information on how financial experts are determined?
    &sbull Should our rules require the company to disclose the 
persons who are responsible for making the financial expert 
determination on behalf of the company? Is the board of directors the 
appropriate body to make such determination?
4. Impracticability of a “Bright-Line” Test
    We considered, but do not propose, a “bright-line” test 
for making the financial expert determination that

[[Page 66213]]

eliminates all elements of subjectivity. We do not believe that such a 
test would best further the purposes of the statute. Our proposed 
“financial expert” definition requires a qualifying 
individual to possess all of the specified attributes, and in that 
respect, does provide somewhat of a “bright-line” by 
setting forth several fairly specific and objective standards to limit 
the pool of potential financial expert candidates. The 
“factors” also provide guidance to assist the board of 
directors in making the financial expert determination. Clearly, 
certain factors such as level of education and years spent in a 
financial position are important indicia of whether an individual has 
such knowledge and experience.
    However, we are not convinced that any bright-line rule or fixed 
formula that requires a financial expert to have specific academic 
credentials or a specific number of years of service in a financial or 
accounting position can ensure that an individual has the level of 
understanding and experience required by the statute. As the Blue 
Ribbon Committee stated regarding corporate governance and audit 
committees, “one size doesn't fit all.”&thnsp\53\ Indeed, 
the more complicated the business, the greater the need for a higher 
threshold of financial expertise. Therefore, we believe that a bright-
line test would be inappropriate for such determinations.
---------------------------------------------------------------------------

    \53\&thnspSee Report and Recommendations of the Blue Ribbon 
Committee on Improving the Effectiveness of Corporate Audit 
Committees, at 7 (1999).
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Request for Comment

    &sbull Should we create a bright-line test for the definition 
of “financial expert'? If so, what should the test be?
5. Location of Disclosure
    The Sarbanes-Oxley Act expressly states that companies must include 
the financial expert disclosure in their periodic reports required 
pursuant to section 13(a) or 15(d) of the Exchange Act. We propose to 
require companies to include the new disclosure in their annual reports 
on Forms 10–K&thnsp\54\ and 10–KSB.\55\ We do not propose 
to require companies to also include this disclosure in their quarterly 
reports because we think that annual disclosure would adequately 
fulfill investors' informational needs. In this regard, we note that 
our pending Form 8–K proposals would require a company to 
disclose the arrival or departure of a director.\56\ This information 
would be included in part III of those forms. Consequently, the company 
could incorporate this information by reference from its definitive 
proxy or information statement that involves an election of directors, 
if the company voluntarily chooses to include this information in its 
proxy or information statement and then files such statement with the 
Commission no later than 120 days after the end of the fiscal year 
covered by the Form 10–K or 10–KSB.\57\ We also propose to 
require this disclosure in annual reports filed by a foreign private 
issuer on Form 20–F&thnsp\58\ and by a Canadian issuer on Form 
40–F.\59\
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    \54\&thnspReferenced in 17 CFR 249.310.
    \55\&thnspReferenced in 17 CFR 249.310b.
    \56\&thnspTherefore if, for example, a director who is the 
audit committee financial expert resigned or was removed from the 
board one month after the company filed its annual report, the 
company would have to disclose this event on a Form 8–K filed 
within two business days after the director's departure. See Release 
No. 33–8106 (June 17, 2002) [67 FR 42914]. The proposals in 
that release have not yet been adopted. The proposals do not require 
disclosure of whether the departing director is a financial expert. 
We are seeking comment on whether we should require such disclosure.
    \57\&thnspSee General Instruction E(3) to Form 10–KSB [17 
CFR 249.310b] and General Instruction G(3) to Form 10–K [17 
CFR 249.310].
    \58\&thnspReferenced in 17 CFR 249.220f.
    \59\&thnspReferenced in 17 CFR 249.240f.
---------------------------------------------------------------------------

Request for Comment

    &sbull Should we also require the proposed financial expert 
disclosure to appear in the company's proxy or information statement? 
Is this information relevant to a security holder's decision to vote 
for a particular director or to elect, approve or ratify the choice of 
an independent public accountant?
    &sbull Should we require the company to also disclose this 
information in its quarterly reports?
    &sbull Should we also require such disclosure in registration 
statements filed under the Securities Act?
    &sbull Should the company have to disclose specifically the 
arrival or departure of a financial expert promptly after the 
occurrence of the event? If so, should we modify our Form 8–K 
proposed item regarding the arrival and departure of a director to also 
require a company to disclose whether the departing director was, or 
arriving director will be, a financial expert serving on the company's 
audit committee? Should a company make appropriate disclosures if: a 
financial expert leaves the audit committee, but remains on the board 
of directors; or an existing director joins the audit committee as a 
financial expert? Should a company only have to file a Form 8–K 
if it previously disclosed in its annual report that it had a financial 
expert and now has none?
    &sbull A company currently may not have an audit committee 
member who qualifies as a financial expert under the proposed 
definition but may intend to seek one. In such a case, the proposed 
rules would require a company to disclose that it does not have a 
financial expert on its audit committee. However, the company could 
explain that it is searching for a qualified individual to serve on its 
audit committee. Should we provide companies with a transition period 
to find such a person? If so, what would be an appropriate transition 
period?
6. Registered Investment Companies
    We are proposing to implement section 407 of the Sarbanes-Oxley Act 
with respect to registered management investment companies by adding 
disclosure requirements similar to those in proposed Item 309 of 
Regulation S–K to proposed Form N–CSR.\60\ Proposed Item 4 
of Form N–CSR would require a registered management investment 
company to disclose annually: (i) The number and names of persons that 
the board of directors has determined to be the financial experts 
serving on the investment company's audit committee; (ii) whether the 
financial expert or experts are independent, and if not, an explanation 
of why they are not; and (iii) if the investment company does not have 
a financial expert serving on its audit committee, the fact that there 
is no financial expert and an explanation of why it has no financial 
expert.\61\ In addition, the investment company would be required to 
disclose the basis for a determination by its board of directors that a 
person is a financial

[[Page 66214]]

expert if, in lieu of having experience as a public accountant, 
auditor, principal financial officer, principal accounting officer, or 
controller, or experience in a position involving the performance of 
similar functions, the person has experience in a position that 
results, in the judgment of the board, in the person having similar 
experience and expertise.\62\ We are proposing the same definition of 
“financial expert” for investment companies as for 
operating companies, except that we are not including the factor 
relevant to foreign private issuers.\63\
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    \60\&thnspReferenced in 17 CFR 249.331 and 274.128. A 
management investment company is an investment company other than a 
unit investment trust or face-amount certificate company. See 
section 4 of the Investment Company Act [15 U.S.C. 80a–4]. A 
unit investment trust (“UIT”) is “an investment 
company which (A) is organized under a trust indenture, contract of 
custodianship or agency, or similar instrument, (B) does not have a 
board of directors, and (C) issues only redeemable securities, each 
of which represents an undivided interest in a unit of specified 
securities; but does not include a voting trust.” Section 4(2) 
of the Investment Company Act [15 U.S.C. 80a–4(2)]. A face-
amount certificate company is an investment company that engages or 
proposes to engage in the business of issuing certain face-amount 
certificates. Section 4(1) of the Investment Company Act [15 U.S.C. 
80a–4(1)].
    \61\&thnspThe proposed amendments would add similar disclosure 
requirements applicable to small business investment companies 
(“SBICs”) to Item 102P3 of Form N–SAR. Proposed 
Instruction (b) to Item 102P3 of Form N–SAR (referenced in 17 
CFR 249.330 and 274.101). SBICs are investment companies that are 
licensed as SBICs under the Small Business Investment Act of 1958. 
We are proposing to add financial expert disclosure requirements for 
SBICs to Form N–SAR because SBICs would not be required to 
file reports on proposed Form N–CSR.
    \62\&thnspProposed Instruction 3 to Item 4 of proposed Form 
N–CSR; proposed Instruction (b)(3) to Item 102P3 of Form 
N–SAR.
    \63\&thnspProposed Instructions 2 and 4 to Item 4 of proposed 
Form N–CSR.
---------------------------------------------------------------------------

    A financial expert would be considered to be 
“independent” if he or she: (i) meets the criteria set 
forth in section 10A(m)(3)(B)(i) of the Exchange Act; and (ii) is not 
an “interested person” of the investment company as defined 
in section 2(a)(19) of the Investment Company Act of 1940.\64\ We have 
substituted the section 2(a)(19) test for the criteria set forth in 
section 10A(m)(3)(B)(ii) of the Exchange Act, which would apply to 
operating companies and require that the audit committee member not be 
an affiliated person of the issuer or any subsidiary in order to be 
considered “independent.” The section 2(a)(19) test is more 
appropriate for registered investment companies because it is tailored 
to capture the broad range of affiliations with investment advisers, 
principal underwriters, and others that are relevant to 
“independence” in the case of investment companies.
---------------------------------------------------------------------------

    \64\&thnspProposed Item 4 of proposed Form N–CSR.
---------------------------------------------------------------------------

    The proposed disclosure requirements would apply to all registered 
management investment companies, regardless of whether they are 
required to file reports under section 13(a) or 15(d) of the Exchange 
Act. They would not apply to unit investment trusts, which are 
unmanaged investment companies that hold specified securities and, 
unlike managed investment companies, are not required to provide 
shareholder reports containing audited financial statements.

Request for Comment

    &sbull Should the definition of “financial 
expert” be modified for investment companies? Are the factors 
that are relevant in determining whether someone is a “financial 
expert” different for investment companies?
    &sbull What definition of “independence” should 
the disclosure requirements apply with respect to financial experts? 
Should the definition incorporate the criteria set forth in section 
10A(m)(3)(B)(i) of the Exchange Act and section 2(a)(19) of the 
Investment Company Act, as proposed, or a different test, for example, 
the test used for operating companies?
    &sbull Should disclosure with respect to financial experts on 
an investment company's audit committee be required annually, as 
proposed? Should this disclosure be required on each report on Form 
N–CSR or N–SAR, i.e., semi-annually?
    &sbull For investment companies that would be required to 
file reports on proposed Form N–CSR, should the financial experts 
disclosure be required on Form N–CSR or Form N–SAR? Should 
small business investment companies, which otherwise would not be 
required to file proposed Form N–CSR, be required to use Form 
N–CSR for this purpose?

B. Proposed Code of Ethics Disclosure

1. Proposed Rules Compared to Section 406 of the Sarbanes-Oxley Act
    Section 406(a) of the Sarbanes-Oxley Act directs the Commission to 
issue rules requiring a company that is subject to the reporting 
requirements of section 13(a) or 15(d) of the Exchange Act to disclose 
whether or not the company has adopted a code of ethics for its senior 
financial officers that applies to the company's principal financial 
officer and controller or principal accounting officer, or persons 
performing similar functions. The Sarbanes-Oxley Act states that the 
rules also must require companies that have not adopted such a code of 
ethics to explain why they have not done so.
    The Act defines the term “code of ethics,” as used in 
section 406, to mean such standards as are reasonably necessary to 
promote:
    &sbull Honest and ethical conduct, including the ethical 
handling of actual or apparent conflicts of interest between personal 
and professional relationships;
    &sbull Full, fair, accurate, timely and understandable 
disclosure in the periodic reports required to be filed by the issuer; 
and
    &sbull Compliance with applicable governmental rules and 
regulations.
    Section 406(b) of the Sarbanes-Oxley Act further directs the 
Commission to require a company subject to the Exchange Act reporting 
requirements to immediately disclose on Form 8–K, or by Internet 
or other electronic means of dissemination, any change in, or waiver 
of, a provision of its code of ethics for its senior financial 
officers.
    Although section 406 of the Sarbanes-Oxley Act focuses on whether 
or not a company has adopted a code of ethics applicable to its senior 
financial officers, we believe that it is appropriate to propose rules 
that also apply to a company's principal executive officer. Investors 
not only have an interest in knowing whether a public company holds its 
senior financial officers to certain ethical standards, but also 
whether a public company holds its principal executive officer to 
ethical standards as well. Therefore, we believe that it is consistent 
with the purposes of the Sarbanes-Oxley Act to extend the scope of 
section 406 to also include a company's principal executive officer. 
Specifically, we propose to require a company to disclose whether it 
has adopted a written code of ethics that applies to its principal 
executive officer, principal financial officer, principal accounting 
officer or controller, or persons performing similar functions. We also 
propose to broaden the definition of the term “code of 
ethics” used in section 406 of the Sarbanes-Oxley Act to include 
three additional factors described in more detail below.
2. Description of the Proposed Code of Ethics Disclosure Requirements
    We propose to add new Item 406 to Regulations S–B and 
S–K, new Item 15(c) to Form 20–F and new Instruction B.(9) 
to Form 40–F to require a company subject to the Exchange Act 
reporting requirements to disclose:
    &sbull Whether the company has adopted a written code of 
ethics that applies to the company's principal executive officer, 
principal financial officer, principal accounting officer or 
controller, or persons performing similar functions;&thnsp\65\ and
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    \65\&thnspWe expect that many companies already have a code of 
ethics that applies to these officers, as well as additional 
officers, directors and employees. We encourage companies to apply 
the code of ethics to as broad a spectrum of personnel and 
affiliates as practicable.
---------------------------------------------------------------------------

    &sbull If the company has not adopted such a code of ethics, 
the reasons it has not done so.
    For purposes of this new disclosure item, we would define the term 
“code of ethics” to mean a codification of standards that 
is reasonably designed to deter wrongdoing and to promote:&thnsp\66\
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    \66\&thnspThe Sarbanes-Oxley Act section 406(c) definition of 
the term “code of ethics” does not include the phrase 
“to deter wrongdoing” that we have incorporated into 
proposed Item 406 of Regulations S–K and S–B, but we 
think that it is appropriate to expand the definition in this 
manner. Although codes of ethics typically are designed to promote 
high standards of ethical conduct, they also generally seek to 
instruct those to whom they apply as to improper or illegal conduct 
or activity and to prohibit such conduct or activity.
---------------------------------------------------------------------------

    (1) Honest and ethical conduct, including the ethical handling of 
actual

[[Page 66215]]

or apparent conflicts of interest between personal and professional 
relationships;
    (2) Avoidance of conflicts of interest, including disclosure to an 
appropriate person or persons identified in the code&thnsp&thnsp\67\ 
of any material transaction or relationship that reasonably could be 
expected to give rise to such a conflict;
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    \67\&thnspUnder our proposal, although the company would retain 
discretion to determine the identity of the appropriate person or 
persons, such person should not be involved in the matter giving 
rise to the conflict of interest. Furthermore, we believe the person 
identified in the code should have sufficient status within the 
company to engender respect for the code and the authority to 
adequately deal with the persons subject to the code regardless of 
their stature in the company.
---------------------------------------------------------------------------

    (3) Full, fair, accurate, timely, and understandable disclosure in 
reports and documents that a company files with, or submits to, the 
Commission and in other public communications made by the company;
    (4) Compliance with applicable governmental laws, rules and 
regulations;&thnsp\68\
---------------------------------------------------------------------------

    \68\&thnspWe propose to add “laws” to this prong of 
the proposed definition. The Sarbanes-Oxley Act section 406(c) 
definition refers only to compliance with applicable governmental 
rules and regulations. This language also is intended to ensure 
compliance with other provisions of the Sarbanes-Oxley Act, 
including “up-the-ladder” reporting by lawyers, 
“whistleblower” protection and the enhanced conflict of 
interest provisions.
---------------------------------------------------------------------------

    (5) The prompt internal reporting to an appropriate person or 
persons identified in the code of violations of the code;&thnsp\69\ 
and
---------------------------------------------------------------------------

    \69\&thnspThe concerns regarding the identification of 
appropriate persons for the reporting of potential conflicts of 
interest discussed above would similarly apply to the reporting of 
violations of the code.
---------------------------------------------------------------------------

    (6) Accountability for adherence to the code.
    The second, fifth and sixth prongs of this proposed definition 
supplement the requirements specified by section 406 of the Sarbanes-
Oxley Act. We believe that these items are consistent with the 
objectives of that section. A comprehensive code of ethics should set 
forth guidelines requiring avoidance of conflicts of interests and 
material transactions or relationships involving potential conflicts of 
interests without proper approval. Moreover, an effective code of 
ethics should describe the company's system for the internal reporting 
of code violations.\70\ The code also should state clearly the 
consequences for non-adherence to code provisions.
---------------------------------------------------------------------------

    \70\&thnspThere are a number of provisions in the Sarbanes-
Oxley Act that require internal reporting of events. We believe that 
it is incumbent upon public companies to coordinate these 
requirements.
---------------------------------------------------------------------------

    In addition to providing the required disclosure, a company also 
would have to file a copy of its ethics code as an exhibit to its 
annual report.\71\ We believe investors would find such disclosure 
useful.
---------------------------------------------------------------------------

    \71\&thnspSee proposed Item 601(b)(14) of Regulations S–K 
and S–B. Section 406 of the Sarbanes-Oxley Act does not state 
that our rules must require a company to file a copy of the code of 
ethics as an exhibit to its annual report, but we think investors 
may be interested in examining the actual code itself, given that 
codes are likely to vary significantly from one company to another.
---------------------------------------------------------------------------

Request for Comment

    &sbull Should the rules address whether a company has a code 
of ethics that applies to its principal executive officer, as proposed, 
or should the rules track the language of section 406 of the Sarbanes-
Oxley Act and require a company only to disclose whether it has a code 
of ethics that applies to its senior financial officers?
    &sbull Should we expand the definition of “code of 
ethics,” as proposed, or should the definition adhere to the 
language in section 406(c) of the Sarbanes-Oxley Act? Are there other 
ethical principles that should be included in the definition?
    &sbull Should the rules cover a broader group of officers? If 
so, which group of officers should they cover? Should the general 
counsel be covered? Should all executive officers be 
covered?&thnsp\72\
---------------------------------------------------------------------------

    \72\&thnspExchange Act Rule 3b–7 [17 CFR 240.3b–7] 
defines the term “executive officer” as a registrant's 
president, any vice president of the registrant in charge of a 
principal business unit, division or function (such as sales, 
administration or finance), any other officer who performs a policy-
making function or any other person who performs similar policy-
making functions for the registrant. Executive officers of 
subsidiaries may be deemed executive officers of the registrant if 
they perform such policy-making functions for the registrant.
---------------------------------------------------------------------------

    &sbull Should the proposed rules require a company to 
disclose whether it has a code of ethics that applies to its directors? 
Do most companies have a code of ethics that applies to the board of 
directors? Does the same code of ethics generally apply to the 
company's executive officers and its directors?
    &sbull Should we require the company to describe its 
procedures to ensure compliance with the code of ethics?
    &sbull Should we require the company to describe its 
procedures for granting a waiver from a provision of its code of 
ethics?
    &sbull Should we require the company to disclose the date of 
adoption of its code of ethics and the date of the most recent update 
or the company's frequency of review of the code?
    &sbull Should the company have to file the code of ethics as 
an exhibit to its annual report as proposed? If not, should we also 
require the company to describe the principal topics that the code 
addresses?
    &sbull Should we require disclosure regarding the existence 
of a code of ethics in our other reports and registration statements, 
including our Securities Act and Exchange Act registration statements?
3. Content of the Code of Ethics
    The proposed rules do not specify every detail that the company 
must address in its code of ethics, or prescribe any specific language 
that the code of ethics must include. They further do not specify the 
procedures that the company should develop, or the types of sanctions 
that the company should impose, to ensure compliance with its code of 
ethics. We believe that ethics codes do, and should, vary from company 
to company and that decisions as to the specific provisions of the 
code, compliance procedures and disciplinary measures for ethical 
breaches are best left to the company. In addition, such an approach is 
consistent with our disclosure-based regulatory scheme.
    Many companies already maintain codes of ethics or conduct.\73\ 
These codes often contain specific policies and restrictions 
addressing, among other things, such issues as insider trading and 
conflicts of interest. The proposed rules would not require a company 
to adopt a code of ethics if it has not already done so, or to amend 
its existing code of ethics, but they would require a company that does 
not have a code of ethics that meets the definition in the rule for the 
specified officers to explain why it does not have such a code. A pre-
existing ethics code may satisfy the requirements of proposed Item 406, 
but a company should review its code upon our adoption of final rules 
to determine whether the code meets all of the standards included in 
the rules' definition of a “code of ethics.” If a company 
has a code, but it does not satisfy all parts of the definition, the 
company would not be able to affirm that it has the type of code 
contemplated by the rules.
---------------------------------------------------------------------------

    \73\&thnspOn August 16, 2002, NYSE submitted proposed new 
listing standards that would, among other things, require all NYSE 
listed companies to adopt a code of business conduct and ethics 
consistent with the principles enumerated in the listing standards. 
See File No. SR–NYSE–2002–33. The NASD has 
indicated that it intends to propose new listing standards that 
would require a code of conduct for NASDAQ listed companies.
---------------------------------------------------------------------------

4. Types of Companies That Would Be Subject to the Proposed Code of 
Ethics Disclosure Requirements and Location of the Disclosure
    All companies that file Form 10–K or 10–KSB reports 
would be subject to the proposed disclosure requirement.\74\ We

[[Page 66216]]

also propose to require this disclosure in annual reports filed by a 
foreign private issuer on Form 20–F and by a Canadian issuer on 
Form 40–F.
---------------------------------------------------------------------------

    \74\&thnspThis disclosure would be required by Item 10 of Form 
10–K and Item 9 of Form 10–KSB.
---------------------------------------------------------------------------

Request for Comment

    &sbull Should we require a company to also provide the 
proposed code of ethics disclosure in its quarterly reports? Should 
such disclosure be made in a company's proxy and information 
statements? Should it be disclosed in Securities Act registration 
statements?
    &sbull Should the requirement apply to foreign private 
issuers, as proposed? If not, why?
5. Proposed Form 8–K or Internet Disclosure Regarding Changes to, 
or Waivers From, the Code of Ethics
    Section 406(b) of the Sarbanes-Oxley Act directs us to require 
“immediate disclosure” by a company of any change to, or 
waiver from, the company's code of ethics for its senior financial 
officers.\75\ As discussed above, we propose to require the basic 
ethics code disclosure with respect to a company's principal executive 
officer as well as to its senior financial officers. We therefore also 
propose to require current disclosure regarding changes to, or the 
company's grant of a waiver from, a provision of the code of ethics 
that applies to these same persons.
---------------------------------------------------------------------------

    \75\&thnspUnder the proposed rules this would also include an 
implicit waiver due to inaction on the part of the company with 
respect to a reported or known violation of a code provision.
---------------------------------------------------------------------------

    On June 17, 2002, we proposed amendments to Form 8–K that 
would expand significantly the number of disclosure items triggering a 
Form 8–K filing requirement and accelerate the Form 8–K 
filing deadline.\76\ In those proposals, we stated that we were 
reviewing possible changes by self-regulatory organizations to their 
corporate governance provisions, including changes that would require a 
company to promptly disclose any revision that it makes to its code of 
ethics, or ethics waiver that it grants.
---------------------------------------------------------------------------

    \76\&thnspSee Release No. 33–8106 (June 17, 2002) [67 FR 
42914].
---------------------------------------------------------------------------

    In light of the directive in section 406(b), we propose to add an 
item to the list of Form 8–K triggering events to require 
disclosure of the following:
    &sbull A change to a company's code of ethics that applies to 
the specified officers; or
    &sbull A grant of a waiver of an ethics code provision to a 
specified officer.\77\
---------------------------------------------------------------------------

    \77\&thnspSee proposed Item 5.05 to Form 8–K. In Release 
No. 33–8106, we proposed to reorganize and renumber the Form 
8–K items as part of our Form 8–K proposals. The 
proposed Item 5.05 designation is consistent with the renumbering 
scheme proposed in that release.
---------------------------------------------------------------------------

    If choosing to provide the required disclosure on Form 8–K, 
the company would have to file the report within two business days 
after it made the change or granted the waiver.\78\ As an alternative 
to reporting this information on Form 8–K, section 406(b) of the 
Sarbanes-Oxley Act contemplates a company's use of the Internet as a 
method of disseminating this disclosure.\79\ Many companies maintain 
websites to provide information about themselves to the public. A 
company's website is often an obvious place for investors to find 
information about a company.\80\ We therefore propose to allow a 
company to use its own Internet website, if it has a website, as an 
alternative means of disseminating the proposed required disclosure 
about changes in, or waivers from, its code of ethics.\81\ Under the 
proposed rules, a company would be able to take advantage of the 
Internet dissemination option only if it had disclosed in its most 
recently filed annual report on Form 10–K or 
10–KSB:&thnsp\82\
---------------------------------------------------------------------------

    \78\&thnspA two business day filing period is consistent with 
the accelerated filing deadline that we proposed in Release No. 
33–8106.
    \79\&thnspSection 406(b) of the Sarbanes-Oxley Act states that 
our rules should require a company to report this disclosure on Form 
8–K or by “dissemination by the Internet or by other 
electronic means.” Our proposed rules would permit optional 
dissemination of the required disclosure through the company's 
website; it is not clear whether there are “other electronic 
means” that would result in widespread dissemination of the 
disclosure that would be accessible by a company's investors and 
potential investors. This release seeks comment on that issue.
    \80\&thnspWe are allowing website disclosure in these limited 
circumstances consistent with the terms of section 406 of the 
Sarbanes-Oxley Act. The present proposal does not indicate that the 
Commission deems website postings as sufficient to broadly and 
simultaneously disseminate information to the public in other 
contexts.
    \81\&thnspA company choosing to post proposed disclosure about 
a change to its code of ethics on its website also would have to 
post a copy of the amended provision on its website.
    \82\&thnspSee proposed Item 406(b) of Regulations S–K and 
S–B. Because investors may not expect these disclosures to be 
made on the company's website in lieu of a Form 8–K filing, we 
are proposing to require a company to provide investors with advance 
notice that it may choose to use this option. Otherwise, investors 
may be confused regarding the location of this disclosure.
---------------------------------------------------------------------------

    &sbull That it intends to disclose these events on its 
Internet website, and
    &sbull Its Internet website address.
    If a company elects to disclose this information on its website, it 
would have to do so within the same two-business day time period that 
we propose to require for Form 8–K filings. In addition, we 
propose that a company electing to provide disclosure in this manner 
would have to make the disclosure available on its website for a period 
of at least 12 months after it initially posts the disclosure. Although 
the proposed rules would permit a company to remove information from 
its website after the 12-month posting period, we propose to require 
the company to retain this disclosure for a period of not less than 
five years and to make it available to the Commission or its staff upon 
request.\83\ We propose a 12-month period because we believe that it 
would be inappropriate to allow a company to comply with this provision 
by only briefly posting the disclosure on its website. Reports on Form 
8–K are available to the public indefinitely after filing with 
the Commission.
---------------------------------------------------------------------------

    \83\&thnspProposed Item 406 of Regulations S–B and 
S–K.
---------------------------------------------------------------------------

Request for Comment

    &sbull Are there any privacy concerns that we should consider 
that would warrant narrowing the disclosure requirements regarding a 
grant of a waiver from the code?
    &sbull Is a “waiver” a sufficiently distinct and 
formal event that the obligation to disclose will not present any 
difficulties of interpretation? Should we modify the requirement to 
ensure that “de facto, post hoc” waivers of codes'granted 
or acceded to after the occurrence of the “violation” are 
reported?
    &sbull Should companies that use the Internet for these 
disclosures also be required to have technology that allows investors 
to be notified by e-mail when new information is posted to the website?
    &sbull Should we require the filing of a Form 8–K 
regardless of whether a company provides the proposed disclosure on its 
website? Do investors need access to this information for longer than 
12 months? How can we permit Internet disclosure and maintain a lasting 
public record of the information?
    &sbull Should we specify where and how this disclosure should 
appear on a company's website if the company opts for the website 
method of dissemination?
    &sbull Are there other means of electronic dissemination that 
our proposed rules should permit?
    &sbull Should we require a company choosing to disclose 
information about ethics code changes or waivers through its Internet 
website to provide advance notice in the company's annual report of its 
intent to satisfy the disclosure requirements in this manner, as 
proposed?
    &sbull Should we require all Exchange Act reporting companies 
to disclose their website addresses? If so, should we

[[Page 66217]]

specify the location of this disclosure? For example, should it have to 
appear on the front cover of all periodic and current reports, along 
with the company's street address? Should a company have to disclose 
its website address in, or on the front cover of, all of its Exchange 
reports? Proxy and information statements? Exchange Act registration 
statements? Securities Act registration statements?

Foreign Private Issuers

    Foreign private issuers are not required to file current reports on 
Form 8–K.\84\ Instead, they are required to file under the cover 
of Form 6–K&thnsp\85\ copies of all information that the foreign 
private issuer: makes, or is required to make, public under the laws of 
its jurisdiction of incorporation; files, or is required to file, under 
the rules of any stock exchange; or otherwise distributes to its 
security holders.\86\ We do not propose to change these reporting 
requirements. We are proposing changes to Form 20–F and 
40–F that would require a foreign private issuer to disclose any 
change to its code of ethics made during the foreign private issuer's 
past fiscal year that applies to the foreign private issuer's senior 
officers. The foreign private issuer additionally would have to file 
the change as an exhibit to Form 20–F or 40–F. Under the 
proposals, a foreign private issuer also would have to disclose any 
grant of a waiver from the code by the company to one of these 
officers, that occurred during the foreign private issuer's last fiscal 
year. A foreign private issuer could also make the disclosure under 
cover of a Form 6–K or on its Internet website. We plan to 
strongly encourage foreign private issuers to make these disclosures 
promptly.
---------------------------------------------------------------------------

    \84\&thnspSee Exchange Act Rules 13a–11 and 15d–11 
[17 CFR 240.13a–11 and 15d–11].
    \85\&thnspReferenced in 17 CFR 249.306.
    \86\&thnspSee Exchange Act Rule 13a–16 [17 CFR 
240.13a–16].
---------------------------------------------------------------------------

Request for Comment

    &sbull Should we require foreign private issuers to file 
disclosure about ethics code changes and waivers within two days under 
cover of Form 6–K? Should we otherwise require a foreign private 
issuer to promptly disclose ethics code changes and waivers?
6. Registered Investment Companies
    We are proposing to amend Forms N–SAR and N–CSR to 
require a registered investment company to:
    &sbull Disclose annually whether each of the investment 
company, its investment adviser, and its principal underwriter has 
adopted a written code of ethics that applies to the principal 
executive officer, principal financial officer, principal accounting 
officer or controller, or persons performing similar functions of, 
respectively, the investment company, its investment adviser, and its 
principal underwriter;\87\
---------------------------------------------------------------------------

    \87\&thnspSee proposed Instructions (a)(1) and (a)(7) to Item 
102P3 of Form N–SAR; proposed Item 3(a) and proposed 
instruction to Item 3(a) of proposed Form N–CSR. In the case 
of a UIT, the code of ethics disclosure requirements would apply 
with respect to the UIT's sponsor, depositor, trustee, and principal 
underwriter. Proposed Item 133(a) of Form N–SAR.
---------------------------------------------------------------------------

    &sbull If the investment company, its investment adviser, or 
its principal underwriter has not adopted a code of ethics, explain why 
it has not done so;\88\
---------------------------------------------------------------------------

    \88\&thnspProposed Item 133(a) and Instruction (a)(1) to Item 
102P3 of Form N–SAR; proposed Item 3(a) of Form N–CSR.
---------------------------------------------------------------------------

    &sbull If the investment company, its investment adviser, or 
its principal underwriter has, during the period covered by the report, 
amended or granted a waiver from any code of ethics applicable to the 
investment company's, investment adviser's, or principal underwriter's 
principal executive officer, principal financial officer, principal 
accounting officer or controller, or persons performing similar 
functions, provide a brief description of the amendment or waiver in 
the investment company's report on proposed Form N–CSR or Form 
N–SAR, as applicable. In the alternative, the investment company 
may disclose this information on its Internet website within two 
business days after the occurrence of the amendment or waiver, if the 
investment company has disclosed in its most recently filed report on 
Form N–SAR or N–CSR its intention to provide disclosure in 
this manner and its Internet address, it makes the information 
available on its website for a 12-month period, and it retains the 
information for a period of not less than six years following the end 
of the fiscal year in which the amendment or waiver 
occurred;&thnsp\89\ and
---------------------------------------------------------------------------

    \89\&thnspProposed Item 133(b) and (c), proposed Instructions 
(a)(2) and (a)(3) to Item 102P3 and proposed Instruction (c) to Item 
133 of Form N–SAR; proposed Item 3(b) and 3(c) and proposed 
Instruction 3 to Item 3 of proposed Form N–CSR.
---------------------------------------------------------------------------

    &sbull Include any written code of ethics and amendment to 
that code of ethics as an exhibit to the investment company's reports 
on Form N–CSR or N–SAR.\90\
---------------------------------------------------------------------------

    \90\&thnspItem 134(b) and proposed Instruction (a)(4) to Item 
102P3 of Form N–SAR; proposed Item 6(b) of proposed Form 
N–CSR.

The proposed disclosure requirements would apply to all registered 
investment companies, regardless of whether they are required to file 
reports under section 13(a) or 15(d) of the Exchange Act. Management 
investment companies generally would provide the required disclosure on 
proposed Form N–CSR, and small business investment companies and 
unit investment trusts would provide the required disclosure on Form 
N–SAR.\91\ The proposed amendments would apply the same 
definition of a code of ethics that we are proposing for operating 
companies.\92\
---------------------------------------------------------------------------

    \91\&thnspSee proposed Item 3 of proposed Form N–CSR 
(management investment companies, other than SBICs); proposed 
Instruction (a) to Item 102P3 of Form N–SAR (SBICs); proposed 
Items 133 and 134(b) of Form N–SAR (UITs).
    \92\&thnspProposed Instruction (a)(6) to Item 102P3 and 
proposed Instruction (b) to Item 133 of Form N–SAR; proposed 
Instruction 2 to Item 3 of proposed Form N–CSR. See Section 
II.B.2. above, “Description of the Proposed Code of Ethics 
Disclosure Requirements.”
---------------------------------------------------------------------------

    We recognize that Investment Company Act Rule 17j–1 currently 
requires investment companies, and their investment advisers and 
principal underwriters, to adopt codes of ethics designed to prevent 
fraud resulting from personal trading in securities by portfolio 
managers and other employees.\93\ The amendments we are proposing today 
would address a broader range of conduct, including disclosure provided 
in filings with the Commission; compliance with governmental laws, 
rules and regulations; and ethical conduct generally, including the 
handling of actual or apparent conflicts of interest. As a result, we 
believe that the proposals should apply with equal force to investment 
companies and operating companies. However, to the extent that an 
investment company, or its investment adviser or principal underwriter, 
is considering implementing new or changed code of ethics provisions as 
a result of today's proposals, it may wish to incorporate these 
provisions, together with its existing code of ethics under Rule 
17j–1, into a single comprehensive code of ethics.\94\
---------------------------------------------------------------------------

    \93\&thnsp17 CFR 270.17j–1.
    \94\&thnspProposed General Instruction D to Form N–CSR 
would permit a registered management investment company to 
incorporate its code of ethics by reference from another document, 
such as the fund's registration statement. See Item 23(p) of Form 
N–1A; Item 24.2.r of Form N–2; Item 28(b)(17) of Form 
N–3 (requiring codes of ethics required by Rule 17j–1 to 
be filed as exhibits to registration statements).
---------------------------------------------------------------------------

    The proposed disclosure requirements would generally cover the same 
entities covered by Rule 17j–1 (investment companies, investment 
advisers, principal underwriters) because these are the entities with 
respect to which conflicts of interest and other ethical issues are 
most likely to arise. Like Rule 17j–1, the proposed amendments 
would cover the code of ethics of an

[[Page 66218]]

investment company's principal underwriter only if: (i) The principal 
underwriter is an affiliated person of the investment company or the 
investment company's investment adviser; or (ii) an officer, director, 
or general partner of the principal underwriter serves as an officer, 
director, or general partner of the investment company or of its 
investment adviser.\95\ Unit investment trusts do not have a corporate-
type management structure, but rather are created by a sponsor or 
depositor that accumulates a portfolio of securities and deposits them 
with a trustee under the terms of a trust indenture. Therefore, a unit 
investment trust would not be required to disclose whether it has a 
code of ethics because it has no officers. Rather, for unit investment 
trusts, we are proposing to require disclosure with respect to codes of 
ethics of the trust's sponsor, depositor, trustee or principal 
underwriter.\96\ For unit investment trusts, the proposed amendments 
would cover the code of ethics of a principal underwriter only if: (i) 
The principal underwriter is an affiliated person of the trust or the 
trust's sponsor, depositor, or trustee; or (ii) an officer, director, 
or general partner of the principal underwriter serves as an officer, 
director, or general partner of the trust's sponsor, depositor, or 
trustee.\97\
---------------------------------------------------------------------------

    \95\&thnspProposed Instruction 1 to Item 3 of proposed Form 
N–CSR; proposed Instruction (a)(5) to Item 102P3 of Form 
N–SAR. See also Investment Company Act Rule 17j–1(c)(3) 
[17 CFR 270.17j-1(c)(3)].
    \96\&thnspProposed Items 133 and 134(b) of Form N–SAR.
    \97\&thnspProposed Instruction (a) to Item 133 of Form 
N–SAR.
---------------------------------------------------------------------------

Request for Comment

    &sbull Is the proposed definition of a code of ethics 
appropriate? Are there any modifications that should be made to this 
definition in the case of investment companies?
    &sbull Do the proposed code of ethics disclosure requirements 
cover the appropriate entities, in addition to the registered 
investment company itself? Should any entities be removed, or should 
other entities (e.g., the administrator) be added?
    &sbull Do the code of ethics disclosure requirements cover 
the appropriate individuals at those entities? Should any of these 
individuals be removed, or should other individuals be added?
    &sbull Should we require registered investment companies, 
like domestic operating companies, to use Form 8–K to disclose 
amendments to, or waivers of, a code of ethics within two business 
days? Or is our proposed approach of requiring periodic reporting of 
this information on Form N–CSR or Form N–SAR appropriate? 
Should we propose a separate form for prompt reporting of this 
information? If we require periodic reporting of amendments and waivers 
on Forms N–CSR and N–SAR, is the proposed alternative 
option for disclosure of amendments and waivers on the investment 
company's Internet website within two business days necessary or 
appropriate?
    &sbull For what period of time should we require an 
investment company to retain information about amendments to, or 
waivers from, codes of ethics, if it elects to post this information on 
its website? Should the retention period be not less than six years 
from the end of the fiscal year in which the amendment or waiver 
occurred, which would be consistent with the standard retention period 
for investment company records, or should it be some other period?\98\
---------------------------------------------------------------------------

    \98\&thnspSee Investment Company Act Rule 31a–2 [17 CFR 
270.31a–2] (requiring retention by registered investment 
companies of various types of records for not less than six years).
---------------------------------------------------------------------------

C. Management's Internal Controls and Procedures for Financial 
Reporting

1. Management's Internal Control Report
    Section 404 of the Sarbanes-Oxley Act directs the Commission to 
prescribe rules that would require each annual report that a company, 
other than a registered investment company,\99\ files pursuant to 
Section 13(a) or 15(d) of the Exchange Act to contain an internal 
control report: (1) Stating management's responsibilities for 
establishing and maintaining adequate internal control structure and 
procedures for financial reporting; and (2) containing an assessment, 
as of the end of the company's most recent fiscal year, of the 
effectiveness of the company's internal controls and procedures for 
financial reporting.\100\
---------------------------------------------------------------------------

    \99\&thnspSection 404 of the Sarbanes-Oxley Act, and any rules 
of the Commission under section 404, do not apply to any registered 
investment company. Section 405 of the Sarbanes-Oxley Act. See 
section II.C.4 below “Registered Investment Companies.”
    \100\&thnspSection 404 also requires every registered public 
accounting firm that prepares or issues an audit report for a 
company to attest to, and report on, the assessment made by the 
management of a company.
---------------------------------------------------------------------------

    Twice in the past, the Commission has proposed an internal control 
report requirement. First, in 1979, following enactment of the Foreign 
Corrupt Practices Act (“FCPA”),\101\ we proposed rules that 
would have required a company to annually disclose certain information 
about its internal accounting controls.\102\ The proposed rules would 
have required a company's management to state its opinion as to whether 
the company's systems of internal accounting control provided 
reasonable assurance that:
---------------------------------------------------------------------------

    \101\&thnspTitle I of Pub. L. 95–213 (1977). Partially 
codified in 15 U.S.C. 78m(b)(2), these provisions require issuers, 
with securities registered under section 12 of the Exchange Act, to 
make and keep books, records, and accounts, which, in reasonable 
detail, accurately and fairly reflect the transactions and 
dispositions of the assets of the issuer; and to devise and maintain 
a system of internal accounting control sufficient to provide 
reasonable assurances that: (i) transactions are executed in 
accordance with management's general or specific authorization; (ii) 
transactions are recorded as necessary (a) to permit preparation of 
financial statements in conformity with generally accepted 
accounting principles or any other criteria applicable to such 
statements, and (b) to maintain accountability for assets; (iii) 
access to assets is permitted only in accordance with management's 
general or specific authorization; and (iv) the recorded 
accountability for assets is compared with the existing assets at 
reasonable intervals and appropriate action is taken with respect to 
any differences.
    \102\&thnspRelease No. 34–15772 (April 30, 1979) [44 FR 
26702].
---------------------------------------------------------------------------

    &sbull Transactions were executed in accordance with 
management's general and specific authorization;
    &sbull Transactions were recorded as necessary: (a) To permit 
preparation of financial statements in conformity with generally 
accepted accounting principles (or other applicable criteria); and (b) 
to maintain accountability for assets;
    &sbull Access to assets was permitted in accordance with 
management's general or specific authorization; and
    &sbull The recorded accountability for assets was compared 
with the existing assets at reasonable intervals and appropriate action 
was taken with respect to any differences.

The proposed rules also would have required an independent public 
accountant to examine and report on management's statement.
    Commenters criticized the 1979 proposal for the scope and content 
of the proposed management statement, and its close correlation to the 
FCPA requirements. Many commenters viewed the proposal as requiring a 
report on compliance with the law. Others pointed to the significant 
voluntary and private-sector initiatives that had been undertaken in 
this area and urged us not to preempt such efforts by promulgating 
formal legal requirements. While we did not agree with all of the 
commenters' concerns, the Commission at that time decided not to 
proceed with the rulemaking to allow existing voluntary and private-
sector initiatives for public reporting on internal accounting control 
to continue to develop. In 1980, the Commission formally withdrew the 
proposal.\103\
---------------------------------------------------------------------------

    \103\&thnspRelease No. 34–16877 (June 6, 1980) [45 FR 
40134].

---------------------------------------------------------------------------

[[Page 66219]]

    Following the recommendations of the Treadway Commission, the 
Commission again proposed rules in 1988 that would have required 
companies to include in their annual reports a report of management's 
responsibilities with respect to financial reporting, including its 
responsibilities for the company's internal control system, and an 
assessment of the effectiveness of that system.\104\ Our 1988 proposal 
differed from the 1979 proposal in several respects. Under the 1988 
proposal, management's report would have been signed on behalf of the 
company's principal executive, financial, and accounting officers, and 
would have contained:
---------------------------------------------------------------------------

    \104\&thnspRelease No. 34–25925 (July 19, 1988) [53 FR 
28009].
---------------------------------------------------------------------------

    &sbull A description of management's responsibilities for the 
preparation of the company's financial statements and other financial 
information included in a document containing the financial statements;
    &sbull A description of management's responsibilities for 
establishing and maintaining a system of internal control directly 
related to, and designed to provide reasonable assurance as to the 
integrity and reliability of, financial reporting;
    &sbull An assessment of the effectiveness of the company's 
system of internal control that encompassed material matters; and
    &sbull A statement of how management responded to any 
significant recommendations concerning its system of internal controls 
made by its internal auditors and its independent accountants.
    Our 1988 proposal attempted to avoid a direct correlation with the 
FCPA by including a materiality threshold and focusing on the company's 
entire system of internal controls, rather than just its internal 
accounting controls. We received more than 180 comment letters in 
response to the 1988 proposal, with a majority of commenters supporting 
it. Many commenters, however, expressed concern over being required to 
disclose management's response to significant auditor recommendations 
on the management report. Furthermore, several commenters noted that 
private sector organizations were working to develop standards for 
reporting on the effectiveness of a company's internal controls.\105\ 
The Commission did not act on the proposals.
---------------------------------------------------------------------------

    \105\&thnspCommittee of Sponsoring Organizations of the 
Treadway Commission, Internal Control—Integrated Framework, 
(August 1992) (the “COSO Report”).
---------------------------------------------------------------------------

    In light of the mandates of the Sarbanes-Oxley Act, we again are 
proposing to require companies to include a report on their internal 
controls and procedures for financial reporting in their annual 
reports.

a. Proposed Disclosure

    We propose to amend Item 307 of Regulations S–K and 
S–B, as well as Forms 20–F and 40–F, to require a 
company's annual report to include an internal control report of 
management that includes:
    &sbull A statement of management's responsibilities for 
establishing and maintaining adequate internal controls and procedures 
for financial reporting;
    &sbull Conclusions about the effectiveness of the company's 
internal controls and procedures for financial reporting based on 
management's evaluation of those controls and procedures in accordance 
with Exchange Act Rule 13a–15 or 15d–15, as of the end of 
the company's most recent fiscal year;&thnsp\106\ and
---------------------------------------------------------------------------

    \106\&thnspA proposed instruction to Item 307 of Regulations 
S–K and S–B, Item 15(a) of Form 20–F and 
Instruction B.(7) of Form 40–F states that if the conclusions 
of the company's principal executive and financial officers are 
reflected in management's conclusions disclosed in the internal 
control report, the company does not have to include any separate 
disclosure required by Item 307(a) (or relevant provision in the 
foreign forms) regarding the conclusions of those officers about the 
effectiveness of the company's internal controls and procedures for 
financial reporting in its report for its fourth fiscal quarter. 
Another proposed instruction to those provisions states that the 
company is encouraged, but not required, to include the disclosure 
required by Item 307(b) (or relevant provision in the foreign forms) 
for the company's fourth fiscal quarter in the annual internal 
control report, rather than disclose this information separately.
---------------------------------------------------------------------------

    &sbull A statement that the registered public accounting firm 
that prepared or issued the company's audit report relating to the 
financial statements included in the company's annual report has 
attested to, and reported on, management's evaluation of the company's 
internal controls and procedures for financial reporting.

The proposed amendments do not specify the exact content of the 
proposed management report, as this likely would result in boilerplate 
responses of little value. We believe that management should tailor the 
report to the company's circumstances.

 b. Internal Controls and Procedures for Financial Reporting

    A key aspect of management's responsibility for the preparation of 
financial information is its responsibility to establish and maintain 
an internal control system.\107\ On August 29, 2002, we issued a 
release adopting new Exchange Act Rules 13a–14 and 15d–14 
to implement section 302 of the Sarbanes-Oxley Act. In that release we 
stated that the term “internal controls”&thnsp\108\ as 
used in section 302 of the Sarbanes-Oxley Act is a pre-existing concept 
that pertains to a company's financial reporting and control of its 
assets.\109\ However, because there are a variety of different 
definitions of the term “internal controls” and its meaning 
has changed over time, there continues to be confusion regarding the 
meaning and scope of the term.
---------------------------------------------------------------------------

    \107\&thnspSee American Institute of Certified Public 
Accountants (AICPA), Codification of Statements on Auditing 
Standards (AU) 319.53, “Internal Control in a Financial 
Statement Audit.”
    \108\&thnspIn this release we use the term “internal 
controls” and “internal control structure” 
synonymously.
    \109\&thnspSee Release No. 33–8124 (August 29, 2002) [67 
FR 57276].
---------------------------------------------------------------------------

    One of the first attempts to define internal controls was reflected 
in 1958 in the Statement on Auditing Procedure No. 29, in which the 
Committee on Auditing Procedure of the AICPA subdivided the definition 
of internal control into the following two components: 
“administrative control” and “accounting 
control.”&thnsp\110\ This statement explained that the term 
“accounting control” related directly to the safeguarding 
of assets and the reliability of financial records. Examples included 
systems of transaction authorization and approval, physical controls 
over assets, and the plan of organization for separating duties 
concerned with record-keeping from duties concerned with operations or 
asset custody. “Administrative control” was defined as 
mainly concerning operational efficiency or adherence to managerial 
policies. Examples included statistical analyses, performance reports, 
training programs, and quality-control procedures.
---------------------------------------------------------------------------

    \110\&thnspSee Committee on Auditing Procedure, AICPA, 
Statement on Auditing Procedure No. 29, “Scope of the 
Independent Auditor's Review of Internal Control” (1958).
---------------------------------------------------------------------------

    In 1972, the Statement on Auditing Procedure No. 54 redefined the 
administrative control and accounting control concepts.\111\ SAP No. 54 
defined administrative control as the plan of organization, procedures, 
and records concerned with the decision processes leading to 
management's authorization of transactions. Accounting control was 
defined as a plan of organization and the procedures and records that 
are concerned with the safeguarding of assets and the reliability of 
financial records and consequently are designed to provide reasonable 
assurance that:
---------------------------------------------------------------------------

    \111\&thnspSee Committee on Auditing Procedure, AICPA, 
Statement on Auditing Procedure No. 54. The FCPA codified the 
accounting control provisions of SAP No. 54, see note 58.

---------------------------------------------------------------------------

[[Page 66220]]

    &sbull Transactions are executed in accordance with 
management's general or specific authorization;
    &sbull Transactions are recorded as necessary (1) to permit 
preparation of financial statements in conformity with generally 
accepted accounting principles; and (2) to maintain accountability for 
assets;
    &sbull Access to assets is permitted only by management's 
authorization; and
    &sbull The recorded accountability for assets is compared 
with the existing assets at reasonable intervals and appropriate action 
is taken with respect to any differences.
    In 1992, the Committee of Sponsoring Organizations of the Treadway 
Commission (“COSO”) undertook an extensive study of 
internal control. COSO defined internal control as “a process, 
effected by an entity's board of directors, management and other 
personnel, designed to provide reasonable assurance regarding the 
achievement of objectives' in three categories—effectiveness and 
efficiency of operations, reliability of financial reporting, and 
compliance with applicable laws and regulations. COSO further stated 
that internal control over each of these objectives consisted of the 
control environment, risk assessment, control activities, information 
and communication, and monitoring. In 1995, the AICPA's Auditing 
Standards Board in Statement on Auditing Standards No. 78 codified this 
definition of internal controls.\112\
---------------------------------------------------------------------------

    \112\&thnspAuditing Standards Board, AICPA, Statement on 
Auditing Standards No. 78, “Consideration of Internal Control 
in a Financial Statement Audit: An Amendment to SAS No. 55” 
(1995).
---------------------------------------------------------------------------

    We believe that the purpose of internal controls and procedures for 
financial reporting is to ensure that companies have processes designed 
to provide reasonable assurance that:
    &sbull The company's transactions are properly authorized;
    &sbull The company's assets are safeguarded against 
unauthorized or improper use; and
    &sbull The company's transactions are properly recorded and 
reported to permit the preparation of the registrant's financial 
statements in conformity with generally accepted accounting principles. 
We believe that these objectives are embodied in the definition of the 
term “internal controls” as the term is defined in AICPA's 
Codification of Statements on Auditing Standards (AU) section 319 and 
is consistent with section 103 of the Sarbanes-Oxley Act.\113\ 
Accordingly, we propose to refer to AU section 319 to define currently 
internal controls and procedures for financial reporting, pending 
action by the Public Company Accounting Oversight Board.\114\ The 
proposed definition would state that the term “internal controls 
and procedures for financial reporting” means controls that 
pertain to the preparation of financial statements for external 
purposes that are fairly presented in conformity with generally 
accepted accounting principles as addressed by the Codification of 
Statements on Auditing Standards 319 or any superseding definition or 
other literature that is issued or adopted by the Public Company 
Accounting Oversight Board.
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    \113\&thnspAmong other things, section 103 of the Act [Pub. L. 
107–204 103] directs the Public Company Accounting Oversight 
Board to adopt auditing standards that would require all registered 
public accounting firms to present in each audit report or in a 
separate report: (1) The scope of the auditor's testing of the 
internal control structure and procedures of the issuer; (2) the 
findings of the auditor from such testing; (3) the auditor's 
evaluation of whether such internal control structure and procedures 
include maintenance of records that in reasonable detail accurately 
and fairly reflect the transactions and dispositions of the assets 
of the issuer, provide reasonable assurance that transactions are 
recorded as necessary to permit preparation of financial statements 
in accordance with generally accepted accounting principles, and 
that receipts and expenditures of the issuer are being made only in 
accordance with authorizations of management and directors of the 
issuer; and (4) a description, at a minimum, of material weaknesses 
in such internal controls, and of any material noncompliance found 
on the basis of such testing.
    \114\&thnspWe believe that this definition integrates the 
various concepts of internal control into a unified concept that is 
widely understood by the accounting profession and issuers.
---------------------------------------------------------------------------

Request for Comment

    &sbull Should we propose a definition of internal controls 
and procedures for financial reporting? If so, is the proposed 
definition appropriate?
    &sbull Should we define the term using AICPA's Codification 
of Statements on Auditing Standards Section 319 definition? If not, are 
there any other definitions we should use?
    &sbull Should we propose specific disclosure criteria and 
standards for the management report? If so, what disclosure criteria 
and standards should we consider?
2. Attestation to, and Report on, Management's Internal Control Report 
by the Company's Auditor
    Section 404(b) of the Sarbanes-Oxley Act requires every registered 
public accounting firm that prepares or issues an audit report for an 
issuer other than a registered investment company&thnsp\115\ to attest 
to, and report on, management's assessment of the issuer's internal 
controls and procedures for financial reporting. The attestation and 
report required by section 404(b) must be made in accordance with 
standards for attestation engagements “issued or adopted” 
by the Public Company Accounting Oversight Board (the 
“PCAOB”).
---------------------------------------------------------------------------

    \115\&thnspSee section 405 of the Sarbanes-Oxley Act, which 
states that rules under section 404 of the Act shall not apply to 
registered investment companies.
---------------------------------------------------------------------------

    We are proposing amendments to Regulation S–X to reference 
the attestation report that will be prepared by registered public 
accounting firms and to require a company to file the attestation in 
annual reports on Forms 10–K, 10–KSB, 20–F and 
40–F.\116\ Section 404(b) of the Sarbanes-Oxley Act does not 
require filing of the attestation report, but we believe that it is 
essential in satisfying the purposes of this provision of the Sarbanes-
Oxley Act to require a company to file both the internal control report 
and auditor's attestation report in its annual report.
---------------------------------------------------------------------------

    \116\&thnspSee proposed Items 210.1–02(b) and 
210.2–02(d) of Regulation S–X.
---------------------------------------------------------------------------

Request for Comment

    &sbull If we adopt the proposed amendments before the PCAOB 
is operational, should we delay effectiveness of the rules until such 
time as attestation engagements standards are issued or adopted by the 
PCAOB?
    &sbull Should the company have to file the attestation report 
as part of the annual report? If so, should the report have to appear 
in a particular part of the annual report? Where?
3. Quarterly Evaluation of Internal Controls and Procedures for 
Financial Reporting
    On August 29, 2002, we adopted new Exchange Act Rules 13a–14 
and 15d–14 to implement section 302 of the Sarbanes-Oxley Act. 
These rules require the principal executive and financial officers of 
reporting companies to certify the information in their companies' 
quarterly and annual reports. Specifically, new Rules 13a–14 and 
15d–14 require each of these officers to disclose that:
    &sbull He or she has reviewed the report;
    &sbull Based on his or her knowledge, the report does not 
contain any untrue statement of a material fact or omit to state a 
material fact necessary in order to make the statements made, in light 
of the circumstances under which such statements were made, not 
misleading with respect to the period covered by the report;
    &sbull Based on his or her knowledge, the financial 
statements, and other financial information included in the report, 
fairly present in all material respects the

[[Page 66221]]

financial condition, results of operations and cash flows of the issuer 
as of, and for, the periods presented in the report;
    &sbull He or she and the other certifying officers:
    (1) Are responsible for establishing and maintaining 
“disclosure controls and procedures” (a newly-defined term 
reflecting the concept of controls and procedures related to disclosure 
embodied in section 302(a)(4) of the Sarbanes-Oxley Act) for the 
issuer;
    (2) Have designed such disclosure controls and procedures to ensure 
that material information is made known to them, particularly during 
the period in which the periodic report is being prepared;
    (3) Have evaluated the effectiveness of the issuer's disclosure 
controls and procedures as of a date within 90 days prior to the filing 
date of the report; and
    (4) Have presented in the report their conclusions about the 
effectiveness of the disclosure controls and procedures based on the 
required evaluation as of that date;
    &sbull He or she and the other certifying officers have 
disclosed to the issuer's auditors and to the audit committee of the 
board of directors (or persons fulfilling the equivalent function):
    (1) All significant deficiencies and material weaknesses in the 
design or operation of internal controls (a pre-existing term relating 
to internal controls regarding financial reporting) which could 
adversely affect the issuer's ability to record, process, summarize and 
report financial data and have identified for the issuer's auditors any 
material weaknesses in internal controls; and
    (2) Any fraud, whether or not material, that involves management or 
other employees who have a significant role in the issuer's internal 
controls; and
    &sbull He or she and the other certifying officers have 
indicated in the report whether or not there were significant changes 
in internal controls or in other factors that could significantly 
affect internal controls subsequent to the date of their evaluation, 
including any corrective actions with regard to significant 
deficiencies and material weaknesses.
    For purposes of the Exchange Act Rules 13a–14 and 
15d–14, “disclosure controls and procedures” are 
defined as controls and other procedures of an issuer that are designed 
to ensure that information required to be disclosed by the issuer in 
the reports filed or submitted by it under the Exchange Act&thnsp\117\ 
is recorded, processed, summarized and reported, within the time 
periods specified in the Commission's rules and forms.\118\ 
“Disclosure controls and procedures” include, without 
limitation, controls and procedures designed to ensure that information 
required to be disclosed by an issuer in its Exchange Act reports is 
accumulated and communicated to the issuer's management, including its 
principal executive and financial officers, as appropriate to allow 
timely decisions regarding required disclosure.
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    \117\&thnspThese reports include quarterly reports on Form 
10–Q or 10–QSB, annual reports on Form 10–K, 
10–KSB, 20–F or 40–F, current reports, definitive 
proxy materials filed under section 14(a) of the Exchange Act [15 
U.S.C. 78n(a)], definitive information statements filed under 
section 14(c) of the Exchange Act [15 U.S.C. 78n(c)] and amendments 
to any of these reports or documents.
    \118\&thnspSee Exchange Act Rules 13a–14(c) and 
15d–14(c).
---------------------------------------------------------------------------

    We also adopted new Item 307 of Regulations S–K and 
S–B&thnsp\119\ to require disclosure in the company's annual and 
quarterly reports about the principal officers' evaluation of the 
company's disclosure controls and procedures and whether or not there 
have been significant changes to the company's internal 
controls—disclosure that the principal officers must certify that 
they have made.
---------------------------------------------------------------------------

    \119\&thnspIn addition, we adopted corresponding amendments to 
Forms 20–F and 40–F for private foreign issuers. See 17 
CFR 249.220f and 17 CFR 249.240f.
---------------------------------------------------------------------------

    Regarding internal controls and procedures for financial reporting, 
our recently adopted rules require the company's principal executive 
and financial officers to disclose “any significant changes in 
the company's internal controls or in other factors that could 
significantly affect these controls subsequent to the date of their 
evaluation, including any corrective actions with respect to 
significant deficiencies and material weaknesses.” Despite the 
reference to an evaluation in this disclosure requirement, our rules 
currently do not require the company's principal executive and 
financial officers, or the company itself, to conduct periodic 
evaluations of the company's internal controls. New Exchange Act Rules 
13a–15 and 15d–15 do, however, require a company to conduct 
a quarterly evaluation of the company's disclosure controls and 
procedures.
    As explained above, section 404 of the Sarbanes-Oxley Act directs 
us to propose and adopt rules that would require management to annually 
assess the company's internal control structure and procedures for 
financial reporting. Section 404 contemplates only an annual evaluation 
of the company's internal controls. A company's officers already must 
certify to significant changes to internal controls as required by 
section 302 of the Sarbanes-Oxley Act.
    To provide a basis for this quarterly disclosure about changes to 
the company's internal controls and procedures for financial reporting, 
and to create symmetry between our requirements for periodic 
evaluations of both the company's disclosure controls and procedures 
and its internal controls and procedures for financial reporting, we 
propose to require the company's management to evaluate the 
effectiveness of the design and operation of the company's internal 
controls and procedures for financial reporting, as well as its 
disclosure controls and procedures, with respect to each annual and 
quarterly report that it is required to file under the Exchange 
Act.\120\ In addition, we propose to modify the requirement in Exchange 
Act Rules 13a–15 and 15d–15 that the evaluation be 
conducted within the 90-day period prior to the filing date of the 
quarterly or annual report, to require that the evaluation be made as 
of the end of the period covered by the report.\121\ We are also 
proposing conforming changes&thnsp\122\ to Exchange Act Rules 
13a–14, 13a–15, 15d–14 and 15d–15 and the form 
of certification in Forms

[[Page 66222]]

10–Q, 10–QSB, 10–K, 10–KSB, 20–F and 
40–F.
---------------------------------------------------------------------------

    \120\&thnspRules 13a–15(b) and 15d–15(b). As 
originally adopted, Rules 13a–15 and 15d–15 required the 
company to carry out this evaluation under the supervision of, and 
with the participation of the company's management, including the 
company's principal executive and financial officers. To better 
reconcile this requirement with the proposed rules under section 404 
of the Sarbanes-Oxley Act, we propose to revise these rules to state 
more directly that company's management, rather than the company 
itself, must undertake the required evaluations with the 
participation of the principal executive and financial officers.
    \121\&thnspRules 13a–15(b) and 15d–15(b).
    \122\&thnspWe have also made several clarifying amendments. In 
particular, the current certification would require management to 
disclose significant deficiencies to the auditors and audit 
committee, and identify material weaknesses to the auditors. The 
accounting literature states that a “reportable 
condition” is one that represents significant deficiencies in 
the design or operation of internal control. AICPA Codification of 
Statements on Auditing Standards, section 325. A material weakness 
is a reportable condition of a magnitude discussed in the 
literature. Id. Therefore, material weaknesses are a subset of 
significant deficiencies. To clarify, and amplify, that significant 
weaknesses, including material weaknesses must be disclosed to the 
auditor and audit committee, we have proposed clarifying language. 
We have also added language to clarify that the certifying officers 
need not personally design the company's controls and procedures, 
and may have such controls and procedures designed under their 
supervision. In so doing, we recognize that the certifying officers 
may not have appropriate expertise to do so, and in such case should 
obtain assistance from third parties. We have also clarified that 
the reports conclusions must be based on the certifying officers' 
evaluation as of the end of the period covered by the report.
---------------------------------------------------------------------------

Request for Comment

    &sbull Should we propose changes to Exchange Act Rules 
13a–14, 13a–15, 15d–14 and 15d–15 to require 
periodic evaluations of both the company's disclosure controls and 
procedures and its internal controls and procedures for financial 
reporting?
4. Federal Deposit Insurance Act Internal Control Reports
    In 1993, the Federal Deposit Insurance Corporation (FDIC) adopted 
rules implementing section 36 of the Federal Deposit Insurance 
Act&thnsp\123\ that requires, among other things, an insured 
depository institution with total assets of $500 million or more to 
prepare an annual management report that contains:
---------------------------------------------------------------------------

    \123\&thnsp12 U.S.C. 1831m.
---------------------------------------------------------------------------

    &sbull A statement of management's responsibilities for 
preparing the institution's annual financial statements, for 
establishing and maintaining an adequate internal control structure and 
procedures for financial reporting, and for complying with designated 
laws and regulations relating to safety and soundness;\124\ and
---------------------------------------------------------------------------

    \124\&thnspThe designated laws and regulations are federal laws 
and regulations concerning loans to insiders and federal and state 
laws and regulations concerning dividend restrictions. See 12 CFR 
part 363, appendix A, guideline 12.
---------------------------------------------------------------------------

    &sbull Management's assessment of the effectiveness of the 
institution's internal control structure and procedures for financial 
reporting as of the end of the fiscal year and the institution's 
compliance with the designated laws and regulations during the fiscal 
year.\125\
---------------------------------------------------------------------------

    \125\&thnspSee 12 CFR 363.2, adopted in 58 FR 31332.

The FDIC's rules additionally require the institution's independent 
public accountant to examine, and attest to, management's assertions 
concerning the effectiveness of the institution's internal controls 
over financial reporting.\126\
---------------------------------------------------------------------------

    \126\&thnsp12 CFR 363.3.
---------------------------------------------------------------------------

    Furthermore, the FDIC's rules permit an insured depository 
institution that is the subsidiary of a holding company to satisfy its 
internal control report requirement with an internal control report of 
the consolidated holding company's management if:
    &sbull Services and functions comparable to those required of 
the subsidiary by section 36 of the Federal Deposit Insurance Act are 
provided at the holding company level; and
    &sbull The subsidiary has, as of the beginning of its fiscal 
year, total assets of less than $5 billion, or total assets of $5 
billion or more and a composite rating of 1 or 2 under the Uniform 
Financial Institutions Rating System.\127\
---------------------------------------------------------------------------

    \127\&thnspThis rating is more commonly known as the CAMELS 
rating, which addresses Capital adequacy, Asset quality, Management, 
Earnings, Liquidity, and Sensitivity to market risk. See 12 CFR 
363.1(b)(2).
---------------------------------------------------------------------------

    Bank and thrift holding companies that are required to file reports 
under section 13(a) or 15(d) of the Exchange Act would be subject to 
the internal control reporting requirements that we are proposing 
today. Although our proposed amendments are similar to the FDIC's 
internal control report requirements, our proposed rules differ in a 
few respects.\128\
---------------------------------------------------------------------------

    \128\&thnspMost notably, proposed Item 307(b) and (c) of 
Regulations S–K and S–B would not require a statement of 
compliance with laws and regulations as is required by FDIC Rule 
363.2 [12 CFR 363.2].
---------------------------------------------------------------------------

    We are coordinating with the FDIC and other federal banking 
regulators to eliminate, to the extent possible, any unnecessary 
duplication between our proposed internal control report and the FDIC's 
internal control report requirements. We expect to provide further 
guidance on this subject in our release adopting final rules under 
section 404 of the Sarbanes-Oxley Act.
5. Registered Investment Companies
    Section 404 of the Sarbanes-Oxley Act does not apply to registered 
investment companies, and we are not proposing to extend any of the 
requirements that would implement section 404 to registered investment 
companies.\129\ We are, however, proposing to make the following 
technical changes to our rules and forms implementing section 302 of 
the Sarbanes-Oxley Act for registered investment companies in order to 
conform to the rule changes that we are proposing for operating 
companies and for other reasons.
---------------------------------------------------------------------------

    \129\&thnspSee section 405 of the Sarbanes-Oxley Act 
(“Nothing in section 401, 402, or 404, the amendments made by 
those sections, or the rules of the Commission under those sections 
shall apply to any investment company registered under section 8 of 
the Investment Company Act of 1940 (15 U.S.C. 80a–8).”). 
The provisions that would not extend to registered investment 
companies include proposed amendments to Item 307(a) of Regulation 
S–K, Exchange Act rules 13a–14(b)(4)(iii) and (iv), 
13a–15(b), 15a–14(b)(4)(iii) and (iv), and 
15d–15(b) (disclosure of effectiveness of internal controls 
and procedures for financial reporting); proposed Item 307(c) of 
Regulation S–K (management report on internal controls); and 
proposed Item 210.2–02(d) of Regulation S–X (attestation 
to, and report on, management's internal control report).
---------------------------------------------------------------------------

    &sbull Exchange Act Rules 13a–15(c) and 
15d–15(c), Paragraph (b)(4)(iii) of Investment Company Act Rule 
30a–2, and proposed Investment Company Act Rule 30a–3(b). 
The proposed amendments would specify that an investment company's 
management must evaluate the effectiveness of its disclosure controls 
and procedures, with the participation of the principal executive and 
financial officers, as of the end of the period covered by each report 
filed on Form N–SAR or Form N–CSR.
    &sbull Paragraph (d) of Investment Company Act Rule 
30a–2. The proposed amendments would include the same definition 
of “internal controls and procedures for financial 
reporting” that we are proposing in Exchange Act Rules 
13a–14(d) and 15d–14(d).
    &sbull Instruction (a)(i) to Item 77Q3 of Form N–SAR 
and Item 5(a) of proposed Form N–CSR. The proposed amendments 
would require the disclosure about the evaluation of the investment 
company's disclosure controls and procedures by the investment 
company's management to be as of the end of the period covered by the 
report being filed.
    &sbull Paragraph (b)(4)(vi) of Investment Company Act Rule 
30a–2, Instruction (a)(ii) of Item 77Q3 of Form N–SAR, and 
Item 5(b) of proposed Form N–CSR. The proposed amendments would 
require disclosure of any significant changes to the registrant's 
internal controls and procedures for financial reporting made during 
the period covered by the report.
    &sbull Item 6(a) of proposed Form N–CSR; paragraphs 1, 
2, and 3 of the certification in instruction (a)(iii) to Item 77Q3 of 
Form N–SAR; and paragraphs 1, 2, and 3 of the certification 
section of proposed Form N–CSR. The proposed amendments would 
expressly require the shareholder reports to be filed as an exhibit to 
proposed Form N–CSR rather than as an Item response,\130\ and 
would also revise the form of certification in Forms N–SAR and 
N–CSR to make clear that the report being certified includes any 
exhibits.
---------------------------------------------------------------------------

    \130\&thnspThe proposed amendments would delete Item 1 of 
proposed Form N–CSR.
---------------------------------------------------------------------------

    &sbull Paragraph (b)(4) of Investment Company Act Rule 
30a–2, paragraph 4 of the certification in Instruction (a)(iii) 
to item 77Q3 of Form N–SAR, and paragraph 4 of the certification 
section of proposed Form N–CSR. The proposed amendments would 
require the signing officers to state that they are responsible for 
establishing and maintaining internal controls and procedures for 
financial reporting, and that they have disclosed to the investment 
company's auditors and audit committee all significant deficiencies in 
the design and operation of internal controls and procedures for 
financial reporting which could adversely affect the investment 
company's ability to record, process, summarize and report financial 
information required to be disclosed in the reports that it files or 
submits under

[[Page 66223]]

both the Securities Exchange Act and the Investment Company Act.
    &sbull Exchange Act Rule 12b–25(a) and (b)(2)(ii) and 
Form 12b–25.\131\ The proposed amendments would require an 
investment company to file a Form 12b–25 if it will not be able 
to file a report on proposed Form N–CSR in a timely manner. 
Filing of a Form 12b–25 would provide the investment company with 
an automatic extension of time to file proposed Form N–CSR of up 
to 15 calendar days following the prescribed due date.
---------------------------------------------------------------------------

    \131\&thnspReferenced in 17 CFR 249.322.
---------------------------------------------------------------------------

    &sbull General Instruction E of proposed Form N–CSR. A 
proposed technical amendment would clarify that terms used in Form 
N–CSR have meanings as defined in the Investment Company Act of 
1940 and the rules and regulations thereunder.

Request for Comment

    &sbull Should any rules regarding internal controls and 
procedures for financial reporting be applied to registered investment 
companies? If so, which specific rules and procedures should apply?
    &sbull When we adopted the certification rules implementing 
section 302 of the Sarbanes-Oxley Act, we stated that a single 
evaluation of the effectiveness of the disclosure controls and 
procedures for a series fund or family of investment companies could be 
used in multiple certifications for the funds in the series or family, 
as long as the evaluation had been performed within 90 days of the date 
of the certified report.\132\ What is the effect of today's proposed 
changes requiring that the evaluation be as of the end of the period 
covered by the report on the ability to use a single evaluation for a 
series fund or family of investment companies where the funds have 
different fiscal years? Should we adopt the approach of today's 
proposal, retain the approach that we previously adopted, or adopt a 
different approach?
---------------------------------------------------------------------------

    \132\&thnspSee Release No. 33–8124 (Aug. 28, 2002) [67 FR 
57276, 57282 n. 86].
---------------------------------------------------------------------------

6. Transition Period for Compliance With Rules Regarding Evaluations 
of, and Reports and Attestations on, Internal Controls and Procedures 
for Financial Reporting
    The annual internal controls report by management, as well as the 
related attestation and report on management's evaluation by auditors 
are proposed new requirements. Although we believe that management and 
auditors currently review such controls and procedures in conjunction 
with a company's annual audit, we understand that in many cases such 
reviews may not be as thorough or as detailed as the proposed rules 
would require. We expect that companies and their auditors will require 
substantial time to develop processes under relevant standards and to 
train appropriate personnel to ensure compliance with these 
requirements imposed by the Sarbanes-Oxley Act. Similarly, companies 
and accounting firms likely will need additional time to actually 
perform these activities.
    The Sarbanes-Oxley Act does not impose a deadline for compliance 
with section 404. Rather, the wording of this section contemplates 
action by both the PCAOB as well as registered public accounting firms. 
Specifically, the statute requires that auditor attestations conform 
with standards for attestation engagements adopted by the PCAOB. We 
therefore believe that Congress did not intend for the provisions of 
this section to take effect until the PCAOB has established the 
relevant attestation standards.\133\ Accordingly, we propose to delay 
the effectiveness of our rules under section 404 to enable the PCAOB to 
act and other relevant parties to prepare for compliance.
---------------------------------------------------------------------------

    \133\&thnspSuch standards would be subject to approval by the 
Commission.
---------------------------------------------------------------------------

    Specifically, we propose that the rules under section 404, if 
adopted, would apply to companies whose fiscal years end on or after 
September 15, 2003. This should provide the PCAOB sufficient time to 
adopt standards for attestation engagements, as well as for companies 
and auditors to prepare for the expected increase in workload.
    We would not require companies to provide such reports or 
attestations before the proposed date of effectiveness. However, to the 
extent that a company desires to provide voluntarily an annual report 
on the effectiveness of its internal controls and procedures for 
financial reporting, we believe that existing accounting literature 
should be followed. Similarly, although we do not require attestations 
by auditors before the proposed rules become effective, we believe that 
to the extent such attestations are made, accountants would perform 
such attestations in conformity with existing accounting literature 
regarding attestation engagements, including section 501 of the AICPA's 
Statement on Standards for Attestation Engagements.
    Similarly, we believe that the effectiveness of changes to 
certifications by management in a company's annual and quarterly 
reports also should be delayed until the company has had the 
opportunity to perform the comprehensive evaluation of internal 
controls and procedures for financial reporting contemplated by section 
404. Therefore, we propose that management need not provide the 
proposed amended certifications until the first annual report in which 
the company includes the internal control report required under section 
404. Accordingly, until a company is required to provide such report, 
it need only provide certifications as adopted on August 29, 2002.\134\
---------------------------------------------------------------------------

    \134\&thnspSee Release No. 33–8124 (August 29, 2002) [67 
FR 57276].
---------------------------------------------------------------------------

Request for Comment

    &sbull What transition period do companies and registered 
public accounting firms need to prepare to perform these undertakings? 
Is the compliance date we propose adequate? If not, what date should we 
adopt?

D. Asset-Backed Securities Issuers

    In the release adopting the certification requirements,\135\ we 
noted that issuers of asset-backed securities have a reporting 
obligation under either sections 13(a) or 15(d) of the Exchange Act, at 
least for a period of time. Because of the nature of asset-backed 
issuers, the staff of the Division of Corporation Finance has granted 
requests allowing asset-backed issuers to file modified reports under 
the Exchange Act.\136\ The modified reporting structure for asset-
backed issuers allows issuers or depositors to file modified annual 
reports on Form 10–K and to file reports on Form 8–K tied 
to payments on the underlying assets in the trust. These reports 
include a copy of the servicing or distribution report required by the 
issuer's governing documents and information on the performance of the 
assets, payments on the asset-backed securities and any other material 
developments that affect the issuer. Because the information included 
in these reports for asset-backed issuers differs significantly from 
that provided by other issuers, as well as the structure of asset-
backed issuers we are proposing to exclude them from the disclosure 
requirements under proposed Items 307, 309 and 406 of Regulation 
S–K and S–B.
---------------------------------------------------------------------------

    \135\&thnspId.
    \136\&thnspSee, for example, Release No. 34–16520 
(January 23, 1980) (order granting application pursuant to section 
12(h) of the Exchange Act [15 U.S.C. 78l(h)] of Home Savings and 
Loan Association); Release No. 34–14446 (February 6, 1978) 
(order granting application pursuant to section 12(h) of Bank of 
America National Trust and Savings Association); Bay View 
Securitization Corporation (January 15, 1998); and Key Bank USA, 
National Association (May 9, 1997).

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[[Page 66224]]

E. General Request for Comment

    We request and encourage any interested person to submit comments 
regarding:
    (1) The proposed changes that are the subject of this release,
    (2) Additional or different changes, or
    (3) Other matters that may have an effect on the proposals 
contained in this release.
We request comment from the point of view of registrants, investors and 
other users of information about the proposals. With regard to any 
comments, we note that such comments are of greatest assistance to our 
rulemaking initiative if accompanied by supporting data and analysis of 
the issues addressed in those comments.

III. Paperwork Reduction Act

    Form 10–K, Form 10–KSB, Form 20–F, Form 
40–F, Form 10–Q, Form 10–QSB, Form 8–K, and 
Form 12b–25 under the Exchange Act, Regulation S–K, 
Regulation S–B, and Forms N–SAR and N–CSR under the 
Exchange Act and the Investment Company Act contain “collection 
of information” requirements within the meaning of the Paperwork 
Reduction Act of 1995.\137\ We are submitting a request for approval of 
the proposed revisions to these requirements to the Office of 
Management and Budget (“OMB”) for review in accordance with 
44 U.S.C. 3507(d) and 5 CFR 1320.11. An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a currently valid control number.
---------------------------------------------------------------------------

    \137\&thnsp44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

Periodic Reporting Requirements

    Form 10–K (OMB Control No. 3235–0063) prescribes 
information that a registrant must disclose annually to the market 
about its business. Form 10–KSB (OMB Control No. 3235–0420) 
prescribes information that a registrant that is a “small 
business issuer” as defined under our rules must disclose 
annually to the market about its business. Form 20–F (OMB Control 
No. 3235–0288) prescribes information that a registrant that is a 
foreign private issuer must disclose annually to the market about its 
business. Form 40–F (OMB Control No. 3235–0381) prescribes 
information that a registrant that is eligible to use that form must 
disclose annually to the market about its business.
    Form 10–Q (OMB Control No. 3235–0070) prescribes 
information that a registrant must disclose quarterly to the market 
about its business. Form 10–QSB (OMB Control No. 3235–0416) 
prescribes information that a registrant that is a “small 
business issuer” as defined under our rules must disclose 
quarterly to the market about its business.
    We are proposing to add several disclosure requirements to these 
forms relating to: (1) Whether a financial expert serves on a company's 
audit committee; (2) the existence of a company code of ethics for 
specified officers, and (3) management's assessment of the 
effectiveness of a company's internal controls and procedures for 
financial reporting. These proposals would increase the amount of 
information that a registrant must compile and disclose in these forms. 
With respect to the first two items, the information in these required 
disclosures should be readily available to the management of a 
registrant. Therefore, we expect the burden to compile and report this 
information to be minimal. The third item requires management to 
evaluate the effectiveness of the company's internal controls and 
procedures for financial reporting. We expect that performing these 
acts will impose a substantially greater burden than the other two 
disclosure requirements.
    Financial Expert. This proposed disclosure requirement would 
increase the disclosure burden by requiring a registrant to report the 
number and names of persons that the board of directors has determined 
to be financial experts on its audit committee as well as whether the 
expert is independent, and if not, an explanation of why they are not. 
It would not require a registrant to have a financial expert on its 
audit committee. Item 401 of Regulations S–K and S–B 
already requires registrants to ascertain and disclose the business 
experience of all of its directors. The inquiry that registrants should 
make to satisfy this disclosure requirement should assist the 
registrant in determining whether a particular director is a financial 
expert under the rules. If the registrant does not have a financial 
expert, the rule only requires that the registrant explain why it does 
not have such a person on its audit committee. Therefore, we believe 
the added burden of the proposed rule would be minimal. For purposes of 
the PRA, we estimate that the proposed disclosure requirements 
regarding financial experts will result in a minimal incremental 
increase of 0.5 burden hours per issuer in connection with preparing 
each annual report.
    Code of Ethics. The proposed rule would require a registrant to 
disclose whether it has adopted a written code of ethics for its 
principal executive officer, principal financial officer, principal 
accounting officer or controller, or persons serving similar functions. 
If it has not, it must explain why. The proposed rule would not require 
any company to adopt such a code of ethics. Management should be 
readily able to determine whether or not its company has adopted a code 
of ethics. In certain cases, the required disclosure would require 
minimal analysis regarding why the company does not have a code. In 
addition, in the first year, registrants must file a copy of the code 
with the Commission. In the case of large manuals that must be filed, 
we expect a small added cost to file such a document on EDGAR. In 
addition, we estimate that the disclosure requirements regarding codes 
of ethics will also cause a minimal increase of 0.5 burden hours per 
issuer in connection with each annual report.
    Management Assessment of Internal Controls and Procedures for 
Financial Reporting. The proposed rules would require management to 
assess its internal controls and procedures for financial reporting 
every quarter. In addition, registrants must provide an internal 
control report in its annual report as well as obtain an attestation on 
that evaluation from the independent accountant that audited its 
financial statements. The performance of, and report on, the assessment 
will impose costs on registrants. This requirement would not apply to 
registered investment companies.
    Although we expect such evaluation to impose a burden on companies, 
they are already required to evaluate on a quarterly basis the 
company's disclosure controls and procedures. We believe that a 
significant portion of internal controls and procedures for financial 
reporting are included in disclosure controls and procedures. We 
already received OMB approval for the added burden of evaluating 
disclosure controls and procedures. Therefore, for purposes of this 
release, we need only consider the added incremental burden imposed on 
companies by the evaluation of that portion of internal controls and 
procedures for financial reporting that is not subsumed by the 
disclosure controls and procedures evaluation. In that submission, we 
estimated that the evaluation of disclosure controls and procedures 
would add a burden on each issuer of 5 hours per quarterly and annual 
report. We estimate that the proposed rules would impose and additional 
5 burden hours per issuer in connection with each quarterly and annual 
report. We do not have any data to support this estimate. However,

[[Page 66225]]

because much of the burden is subsumed in the previous estimate, we 
believe an estimate of 5 burden hours per quarter is conservative. In 
addition, in conjunction with annual reports, a company must provide an 
internal control report. Although the burden of the evaluation has 
already been considered, the company must compile its conclusions into 
a publicly disclosed report. We expect that preparation of this report 
would add an additional 5 hours in conjunction with the annual report.
    For PRA purposes, we do not need to consider the added burden to 
the company of obtaining an attestation on that internal control report 
by the company's auditor. The Sarbanes-Oxley Act currently requires 
companies to obtain such an attestation. Our proposed rules do not 
establish standards for the contents or format of such attestation. In 
addition, the proposed rules requiring attestation would not be 
effective until the PCAOB has had the opportunity to establish such 
standards. The proposed rules would establish no requirements beyond 
those required by the Sarbanes-Oxley Act except the requirement that 
the attestation be filed. We do consider the incremental increase in 
burden caused by this proposed requirement. We estimate that the costs 
of filing such an attestation report would be minimal. Similar to our 
estimates regarding disclosure of readily known information, such as 
the existence of a code of ethics, we estimate that such filing would 
create an added burden of 0.5 hours.
    The burden hours for complying with these proposed requirements are 
set forth below in the following table. Estimates regarding burden 
within the company, for third party services, and for professional 
costs were obtained by contacting a number of law firms and other 
persons regularly involved in completing the forms.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               $300
                                                   Annual        Total hours/         Total              75%               25%        professional
                                                       responses          form       burden&thnsp\1\  company&thnsp\2\   professional        cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
10–K........................................           9,384             11.5          107,916          80,937           26,979          8,093,700
10–KSB......................................           3,789             11.5           43,574          32,680.5         10,893.5        3,268,050
20–F........................................           1,096             11.5           12,604           3,151            9,453          2,835,900
40–F........................................             127             11.5            1,461             365.25         1,095.75         328,725
10–Q........................................          26,746              5            133,730         100,297.5         33,432.5       10,029,750
10–QSB......................................          11,608              5             58,040          43,530           14,510         4,353,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\&thnspAnnual Responses × Total Hours per Form.
\2\&thnspThe staff estimated the average number of hours each entity spends completing the form, and the average hourly rate for outside securities
  counsel, by contacting a number of law firms and other persons regularly involved in completing the forms. For Forms 20–F and 40–F, we
  estimate that 25% of the burden is imposed on the company and 75% of the burden is attributed to costs of third parties.

    Our current OMB inventories and requested burden estimates are 
presented in the following table.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Current hour    Expected hour  Total expected   Current cost    Expected cost  Total expected
                                                         burden         increase         burden          burden         increase          cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
10–K..............................................      12,337,614          80,937      12,418,551       1,233,761       8,093,700   1,241,854,700
10–KSB............................................       3,435,676        32,680.5     3,468,356.5     343,568,000       3,268,050     346,836,050
20–F..............................................         583,248           3,151         586,399     524,496,000       2,835,900     527,331,900
40–F..............................................             175          365.25          440.25    440.5138,500         328,725         467,225
10–Q..............................................       3,109,223       100,297.5     3,209,520.5     310,922,000      10,029,750     320,951,750
10–QSB............................................       1,279,782          43,530       1,323.312     127,978,000       4,353,000     132,331,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

Form 8–K
    Form 8–K (OMB Control No. 3235–0060) prescribes 
information about significant events that a registrant must disclose on 
a current basis. Form 8–K also may be used, at a registrant's 
option, to report any events that the registrant deems to be of 
importance to shareholders. Companies also may use the form to disclose 
the nonpublic information required to be disclosed by Regulation 
FD.\138\ We are proposing to require disclosure in the Form 8–K 
of any change in, or waiver of any provision of, a company code of 
ethics for senior executive officers. Alternatively, companies may 
disclose the required information on their websites.
---------------------------------------------------------------------------

    \138\&thnsp17 CFR 243.100–103.
---------------------------------------------------------------------------

    We currently estimate that Form 8–K results in a total annual 
compliance burden of 627,300 hours and an annual cost of $81,377,000. 
We estimate the number of Form 8–K filers to be 13,200, based on 
the actual number of Form 10–K and 10–KSB filers during the 
2001 fiscal year. For purposes of this analysis, we estimate that the 
number of reports on Form 8–K filed is 276,800.\139\ We estimate 
that each entity spends, on average, approximately 5 hours completing 
the form. We note that a company need not file a Form 8–K to 
report these events if it discloses the information on its Internet 
website. If a company elects to disclose such information only on its 
website, the proposed rules would require the company to keep such 
information on its website for 12 months and to keep such disclosure 
for five years. We estimate that the cost of disclosing and maintaining 
the information on a company's website would be no more than the cost 
to file a Form 8–K. Therefore, for a particular reporting event, 
whether disclosed on Form 8–K or through a company's website, we 
estimate the burden would be 5 hours. We estimate that 75% of the 
burden is prepared by the company and that 25% of the burden is 
prepared by outside counsel retained by the company at an average cost 
of $300 per hour. The staff estimated the average number of hours each 
entity spends completing the form, and the average hourly rate for 
outside securities counsel, by contacting a number of law firms and 
other persons regularly involved in completing the forms.
---------------------------------------------------------------------------

    \139\&thnspThis number assumes adoption of the proposals in 
Release No. 33–8090 (April 12, 2002) [67 FR 19914] If adopted, 
those proposals would cause companies to file estimated additional 
215,500 Form 8–K reports each year.
---------------------------------------------------------------------------

    Under the proposals, we estimate that, on average, completing and 
filing a Form 8–K if the proposed new disclosure items are 
adopted would require the same amount of time currently spent by 
entities completing the form—approximately 5 hours. We believe 
that changes to a company's code of ethics and waivers from a code

[[Page 66226]]

will be relatively rare events. Therefore, we expect that on average, a 
company will file a Form 8–K to report such an event once every 
three years, resulting in a total increase of 4,400 filings on Form 
8–K per year. The additional filings would result in an added 
annual burden of 16,500 hours (4,400 × 5 × .75 = 16,500) 
and a total annual burden of 643,800 (627,300 + 16,500). We estimate 
that, if the proposals are adopted, the additional filings would result 
in an added annual cost of $1,650,000 (4,400 × 5 × .25 
× $300 = $1,650,000) and a total annual cost to issuers of 
$83,027,000 ($81,377,000 + $1,650,000 = $83,027,000).
Regulation S–K and Regulation S–B
    Regulation S–K (OMB Control No. 3235–0071) includes the 
requirements that a registrant must provide in filings under both the 
Securities Act and the Exchange Act. Regulation S–B (OMB Control 
No. 3235–0417) includes the requirements that a small business 
issuer must provide in filings under the Securities Act and the 
Exchange Act.
    The proposed changes to these items would create new items under 
Regulation S–K and Regulation S–B. However, the filing 
requirements themselves are included in Form 10–K, Form 
10–KSB, Form 10–Q, Form 10–QSB, Form 20–F, Form 
40–F, and Form 8–K. We have reflected the burden for these 
new requirements in the burden estimate for those forms. These items in 
Regulation S–K and Regulation S–B do not impose any 
separate burden. We assign one burden hour each to Regulations 
S–B and S–K for administrative convenience to reflect the 
fact that these regulations do not impose any direct burden on 
companies.
Investment Company Forms
    Form N–SAR (OMB Control No. 3235–0330) under the 
Exchange Act and the Investment Company Act is used by registered 
investment companies to file periodic reports with the Commission. We 
estimate that 4500 investment companies, including 798 unit investment 
trusts and 2 small business investment companies, currently file 
reports on Form N–SAR. The current estimated total compliance 
burden of Form N–SAR is 154,450 hours. Unit investment trusts 
would be required to make the proposed disclosure regarding codes of 
ethics on Form N–SAR, and small business investment companies 
would be required to make the proposed disclosure regarding codes of 
ethics and financial experts on Form N–SAR. We estimate that the 
proposed disclosure requirements will increase the annual burden of 
filing Form N–SAR by 0.5 hours per unit investment trust, and by 
1.0 hour per small business investment company. Therefore, the new 
estimated total compliance burden of filing Form N–SAR would be 
154,851 hours.
    We issued a release proposing Form N–CSR on August 30, 2002, 
pursuant to section 8(a) of the Investment Company Act [15 U.S.C. 
80a–8] and section 13 of the Securities Exchange Act [15 U.S.C. 
78m]. Proposed Form N–CSR would be used by registered management 
investment companies to file certified shareholder reports with the 
Commission. We estimate that 3700 registered management investment 
companies would be required to file reports on Form N–CSR, and 
the total compliance burden for Form N–CSR would be 111,000 
hours, excluding the amendments proposed in this release. We estimate 
that the proposed disclosure requirements would increase the annual 
burden of filing Form N–CSR by 1.0 hours per management 
investment company. Therefore, the new estimated total compliance 
burden of filing Form N–CSR would be 114,700 hours.
    Form 12b–25 (OMB Control No. 3235–0058) was adopted 
pursuant to sections 13, 15, and 23 of the Exchange Act. Form 
12b–25 provides notice to the Commission and the marketplace that 
a public company will be unable to file a required report in a timely 
manner. If certain conditions are met, the company will be granted an 
automatic filing extension. The proposed amendments would permit 
investment companies to use Form 12b–25 for the purpose of 
obtaining extensions with respect to filing Form N–CSR. We 
estimate that Form 12b–25 results in a total annual compliance 
burden currently of 31,750 hours, and that each entity using Form 
12b–25 spends, on average, approximately 2.5 hours completing the 
form. Currently, 168 investment companies use Form 12b–25 to 
obtain extensions of time for filing Form N–SAR. We estimate that 
the same number of investment companies annually would use Form 
12b–25 to obtain extensions of filing Form N–CSR, resulting 
in a new total compliance burden of 32,170 hours.
    Compliance with the revised disclosure requirements would be 
mandatory. Responses to the disclosure requirements would not be kept 
confidential.
    Pursuant to 44 U.S.C. 3506(c)(2)(B), we solicit comments to: (i) 
Evaluate whether the proposed collection of information is necessary 
for the proper performance of the functions of the agency, including 
whether the information will have practical utility; (ii) evaluate the 
accuracy of our estimate of the burden of the proposed collection of 
information; (iii) determine whether there are ways to enhance the 
quality, utility, and clarity of the information to be collected; and 
(iv) evaluate whether there are ways to minimize the burden of the 
collection of information on those who are to respond, including 
through the use of automated collection techniques or other forms of 
information technology. In addition, we solicit any comments on this 
analysis.
    Persons submitting comments on the collection of information 
requirements should direct the comments to the Office of Management and 
Budget, Attention: Desk Officer for the Securities and Exchange 
Commission, Office of Information and Regulatory Affairs, Washington, 
DC 20503, and should send a copy to Jonathan G. Katz, Secretary, 
Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549–0609, with reference to File No. S7–40–02. 
Requests for materials submitted to OMB by the Commission with regard 
to these collections of information should be in writing, refer to File 
No. S7–40–02, and be submitted to the Securities and 
Exchange Commission, Records Management, Office of Filings and 
Information Services. OMB is required to make a decision concerning the 
collection of information between 30 and 60 days after publication of 
this release. Consequently, a comment to OMB is assured of having its 
full effect if OMB receives it within 30 days of publication.

IV. Costs and Benefits

    The Sarbanes-Oxley Act requires us to propose most of the 
requirements discussed in this release. These changes will affect all 
companies reporting under section 13(a) and 15(d) of the Exchange Act, 
including foreign private issuers and small business issuers, and 
certain of the proposed changes will affect registered investment 
companies. We recognize that any implementation of the Sarbanes-Oxley 
Act will likely result in costs as well as benefits and have an effect 
on the economy. We are sensitive to the costs and benefits of the 
proposed rules, if adopted. We discuss these costs and benefits below.

A. Benefits

    One of the main goals of the Sarbanes-Oxley Act is to improve 
investor confidence in the financial markets. These proposals are among 
many required by the Sarbanes-Oxley Act. They seek to achieve the 
Sarbanes-Oxley Act's goals by providing greater

[[Page 66227]]

transparency regarding issues such as the competency of audit committee 
members, compliance of senior financial officers with ethics codes of 
conduct, and the adequacy of a company's internal controls and 
procedures for financial reporting. By increasing transparency 
regarding key aspects of corporate activities and conduct, the 
proposals are designed to improve the quality of information available 
to investors. Greater transparency should assist the market in properly 
valuing securities, which leads to more efficient allocation of capital 
resources.
    In addition to the requirements under the Sarbanes-Oxley Act, we 
are proposing additional requirements. First, the proposal regarding 
disclosure of whether a company has a financial expert on its audit 
committee would require disclosure of the names and number of the 
financial experts on an audit committee and whether those persons are 
independent of management. We think that investors would benefit from 
this disclosure by being able to consider it when reviewing the 
disclosure currently required about all directors' past business 
experience. The proposal to require companies to file copies of their 
codes of ethics would allow investors to better understand the ethical 
principles that guide executives of companies in which they invest. 
With respect to registered investment companies, these code of ethics 
disclosure requirements would apply to a registrant's investment 
adviser and principal underwriter also, and, in the case of a unit 
investment trust, would apply to the trust's sponsor, depositor and 
trustee. The proposals also would require companies, other than 
investment companies, to make quarterly evaluations of their internal 
controls and procedures for financial reporting. In addition to the 
above stated benefits of greater transparency, to the extent companies 
currently do not perform such evaluations, we believe that the proposed 
requirements would increase the effectiveness of such controls, which 
would increase the overall quality of financial disclosures in publicly 
filed reports, as well as companies' internal operations.

B. Costs

    The proposals would require companies to disclose additional 
information about financial experts on a company's audit committee and 
the existence of a code of conduct for financial executives. This 
information is readily available to management and the board of 
directors of a company. Therefore, we expect that the cost of compiling 
and reporting this information should be minimal. The proposals would 
also require management to assess its system of controls and the 
independent public accountant to attest to, and report on, that 
assessment.
    As stated above, in limited instances, we propose to require more 
disclosure than mandated by the Sarbanes-Oxley Act. For example, if 
adopted, we expect that companies will incur added costs to disclose 
the names of financial experts, file codes of ethics in the first year 
of the rules' effectiveness, and disclose in their periodic reports 
that they intend to disclose changes in, and waivers from, their codes 
of ethics via their websites in lieu of publicly filing such disclosure 
on Form 8–K, or in the case of registered investment companies, 
Form NSAR or Form N–CSR.
    With respect to the additional disclosures related to financial 
experts, we believe the added burden would be minimal. We do not expect 
that the disclosure of the names of the financial experts itself would 
increase the legal obligations or potential liability of such 
individuals. In addition, for companies other than investment 
companies, the proposed rules would require a quarterly evaluation of a 
company's internal controls and procedures for financial reporting. We 
believe the costs of such evaluations would be mitigated by the fact 
that companies are already required to perform such evaluations of 
their disclosure controls and procedures. In several aspects, these 
disclosure controls and procedures would overlap with internal controls 
and procedures. To the extent that companies would already be 
evaluating particular controls and procedures, there would be no added 
cost.
    We also note that we are proposing to require registered investment 
companies to provide disclosure of any codes of ethics of certain of 
their principal service providers. This additional disclosure may 
impose certain costs. We note, however, that investment companies, 
pursuant to Investment Company Act Rule 17j–1, must already 
provide disclosure regarding the codes of ethics of their investment 
advisers and principal underwriters that are required under the rule 
with respect to the personal trading of their employees. We estimate 
the additional costs to investment companies in complying with these 
provisions would be limited. Furthermore, although investment companies 
are not subject to section 404 of the Sarbanes-Oxley Act, we are 
proposing certain technical amendments to our rules and forms 
implementing section 302 of the Sarbanes-Oxley Act. We estimate that 
these technical amendments will not result in any additional costs to 
investment companies.
    We believe that these additional requirements are necessary to 
implement the purposes of the Sarbanes-Oxley Act and pose minimal 
additional burden on companies. Such costs do not include the costs 
imposed on companies by the Sarbanes-Oxley Act itself. Rather, they 
reflect the costs of our proposed requirements beyond the requirements 
of the Sarbanes-Oxley Act. For purposes of the Paperwork Reduction Act, 
we have estimated that these required activities and reporting will 
result in an approximate cost of $65,000,000.
    We request comment on issues related to this cost-benefit analysis. 
In particular, are there additional benefits and costs associated with 
the proposed rules? We are especially interested in obtaining data 
regarding the estimated cost of the proposed internal control 
evaluation and auditor attestation requirements, as we expect that 
these costs could be significant. Please provide any quantitative data 
on which you rely in formulating your comments.

V. Effect on Efficiency, Competition and Capital Formation

    Section 23(a)(2)&thnsp\140\ of the Exchange Act requires us, when 
adopting rules under the Exchange Act, to consider the impact that any 
new rule would have on competition. In addition, section 23(a)(2) 
prohibits us from adopting any rule that would impose a burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Exchange Act.
---------------------------------------------------------------------------

    \140\&thnsp15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    The proposed amendments are intended to increase transparency 
regarding the competence of the audit committee, the application of 
ethics codes of conduct to certain of a company's executive officers, 
and the adequacy of a company's internal controls and procedures for 
financial reporting. We anticipate that these proposals would enhance 
the proper functioning of the capital markets by giving investors 
greater insight into the inner workings of public companies. This 
increases the competitiveness of companies participating in the U.S. 
capital markets. However, because only companies subject to the 
reporting requirements of sections 13 and 15 of the Exchange Act (and 
all registered investment companies with respect to the financial 
expert and code of ethics disclosure requirements) would be required to 
make the disclosures in this proposal, competitors not subject to

[[Page 66228]]

those reporting requirements potentially could gain an informational 
advantage.
    We request comment on whether the proposed amendments, if adopted, 
would impose a burden on competition. Commenters are requested to 
provide empirical data and other factual support for their views if 
possible.
    Section 2(b)&thnsp\141\ of the Securities Act and section 
3(f)&thnsp\142\ of the Exchange Act require us, when engaging in 
rulemaking where we are required to consider or determine whether an 
action is necessary or appropriate in the public interest, to consider, 
in addition to the protection of investors, whether the action will 
promote efficiency, competition, and capital formation. The proposed 
amendments would enhance our reporting requirements. The purpose of the 
amendments is to increase transparency of the inner workings of public 
companies. This should improve investors' ability to make informed 
investment and voting decisions. Informed investor decisions generally 
promote market efficiency and capital formation. As noted above, 
however, the proposals could have certain indirect consequences, which 
could adversely impact their ability to raise capital. The possibility 
of these effects and their magnitude if they were to occur are 
difficult to quantify.
---------------------------------------------------------------------------

    \141\&thnsp15 U.S.C. 77b(b).
    \142\&thnsp15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    We request comment on whether the proposed amendments, if adopted, 
would promote efficiency, competition, and capital formation. 
Commenters are requested to provide empirical data and other factual 
support for their views if possible.

VI. Initial Regulatory Flexibility Analysis

    This Initial Regulatory Flexibility Analysis has been prepared in 
accordance with 5 U.S.C. 603. It relates to proposed revisions to 
Exchange Act Form 10–K, Form 10–KSB, Form 10–Q, Form 
10–QSB, Form 20–F, Form 40–F, Form 8–K, Form 
12b–25, Rule 12b–25, Rule 13a–14, Rule 13a–15, 
Rule 15d–14 and Rule 15d–15 under the Exchange Act and 
Regulation S–K and Regulation S–B and Exchange Act and 
Investment Company Act Form N–SAR and Form N–CSR, Rule 
30a–2 and Rule 30a–3 under the Investment Company Act.

A. Reasons for the Proposed Action

    We are proposing these disclosure requirements to comply with the 
mandate of, and fulfill the purposes underlying the provisions of, the 
Sarbanes-Oxley Act of 2002.

B. Objectives

    The proposals are intended to enhance investor confidence in the 
fairness and integrity of the securities markets by increasing 
transparency regarding the expertise of the audit committee, the ethics 
codes of that apply to companies' principal executive officer and 
senior financial officers, and the adequacy of a company's internal 
controls and procedures for financial reporting. We believe that these 
proposals would help investors to understand and assess the inner-
workings of public companies.

C. Legal Basis

    We are proposing the amendments to Form 10–K, Form 
10–KSB, Form 10–Q, Form 10–QSB, Form 20–F, Form 
40–F, Form 8–K, Form N–SAR, Form N–CSR, Form 
12b–25, Rule 12b–25, Rule 13a–14, Rule 13a–15, 
Rule 15d–14, Rule 15d–15, Rule 30a–2, Rule 
30a–3, Regulation S–K and Regulation S–B under the 
authority set forth in sections 5, 6, 7, 10, 17 and 19 of the 
Securities Act, sections 12, 13, 15, 23 and 36 of the Exchange Act, 
sections 8, 30, 31 and 38 of the Investment Company Act, and sections 
3(a), 404, 406 and 407 of the Sarbanes-Oxley Act of 2002.

D. Small Entities Subject to the Proposed Revisions

    The proposed changes would affect issuers that are small entities. 
Exchange Act Rule 0–10(a)&thnsp\143\ defines an issuer, other 
than an investment company, to be a “small business” or 
“small organization” if it had total assets of $5 million 
or less on the last day of its most recent fiscal year. As of February 
20, 2002, we estimated that there were approximately 2,500 issuers, 
other than investment companies, that may be considered small entities. 
We estimate that there are 225 registered investment companies that may 
be considered small entities. The proposed revisions would apply to any 
small entity that is subject to Exchange Act reporting requirements.
---------------------------------------------------------------------------

    \143\&thnsp17 CFR 240.0–10(a).
---------------------------------------------------------------------------

E. Reporting, Recordkeeping, and Other Compliance Requirements

    The proposals would require companies to disclose information 
regarding whether a financial expert serves on the audit committee, the 
ethics codes companies have created that apply to certain senior 
officers, and the adequacy of a company's internal controls and 
procedures for financial reporting. All small entities that are subject 
to the reporting requirements of section 13(a) or 15(d) of the Exchange 
Act (and all small entities that are registered investment companies, 
with respect to the code of ethics and financial expert disclosure 
requirements) would be subject to these amendments. Because reporting 
companies already file the forms proposed to be amended, no additional 
professional skills beyond those currently possessed by these filers 
would be necessary to prepare the proposed new disclosure. We expect 
that reporting information in response to these new disclosure items 
would increase costs incurred by small entities because they would 
require these entities to compile and report more information. In 
addition, to the extent that some small entities may have difficulty 
attracting qualified financial experts onto their boards, such negative 
disclosure may have an impact on the market price of their securities. 
We expect that the added cost of the quarterly evaluations of internal 
controls and procedures for financial reporting would be mitigated by 
the fact that such entities currently are required to evaluate their 
disclosure controls and procedures. In large part, we believe there is 
significant overlap between these two types of controls and procedures. 
We have calculated for purposes of the Paperwork Reduction Act that 
each company, including a small entity, would be subject to an added 
annual reporting burden of up to 26 hours and an estimated annual 
average cost of up to $2,650 for disclosure assistance from outside 
counsel as a result of the amendments.

F. Duplicative, Overlapping, or Conflicting Federal Rules

    The proposed disclosure would not duplicate, overlap, or conflict 
with other federal rules. The Federal Deposit Insurance Corporation has 
in place rules that, among other things, require insured depository 
institutions with total assets of $500 million or more to prepare an 
annual internal control report of management containing information 
similar to information that would be required under the proposed rules. 
Insured depository institutions would not be subject to the proposed 
disclosure requirements; however, the FDIC's rules permit an insured 
depository institution that is the subsidiary of a holding company to 
satisfy its internal control report requirement with an internal 
control report of the consolidated holding company. Bank and thrift 
holding companies that are required to file reports under section 13(a) 
or 15(d) of the Exchange Act would be subject to the disclosure 
requirements under the proposed rules. We are coordinating

[[Page 66229]]

with the FDIC and other federal banking regulators to eliminate, to the 
extent possible, any unnecessary duplication between our proposed 
disclosure and the FDIC's annual internal control report requirements. 
There are no other requirements that companies file or provide similar 
information.

G. Significant Alternatives

    The Regulatory Flexibility Act directs the Commission to consider 
significant alternatives that would accomplish the stated objective, 
while minimizing any significant adverse impact on small entity 
issuers. In connection with the proposed revisions, we considered the 
following alternatives: (a) The establishment of differing compliance 
or reporting requirements or timetables that take into account the 
resources available to small entities; (b) the clarification, 
consolidation, or simplification of the reporting requirements for 
small entities; (c) the use of performance rather than design 
standards; and (d) an exemption from coverage of the requirements, or 
any part thereof, for small entities.
    We believe that different compliance or reporting requirements or 
timetables for small entities would interfere with achieving the 
primary goal of increasing transparency of corporate activities and 
internal procedures. We do, however, solicit comment on whether small 
business issuers, which is a broader category of issuers than small 
entities,\144\ should be subject to fewer disclosure requirements than 
other issuers. Although we generally believe that an exemption for 
small entities from coverage of the proposed revisions is not 
appropriate and inconsistent with the policies underlying the Sarbanes-
Oxley Act, we solicit comment on the propriety of a complete or partial 
exemption from the requirements for small business issuers. We also 
think that the current and proposed disclosure requirements are clear 
and straightforward. The proposed new financial expert and code of 
ethics disclosure requirements would require brief disclosure. The 
proposed annual internal control requirement would require more. 
Therefore, it does not seem necessary to develop separate requirements 
for small entities. We have used design rather than performance 
standards in connection with the proposed revisions because we want 
this disclosure to appear in a specific type of disclosure filing so 
that investors will know where to find the information. We also want 
the information to be filed electronically with us using the EDGAR 
filing system. We do not believe that performance standards for small 
entities would be consistent with the purpose of the proposed 
revisions.
---------------------------------------------------------------------------

    \144\&thnspItem 10 of Regulation S–B (17 CFR 228.10) 
defines a small business issuer as a company that has revenues of 
less than $25 million, is a U.S. or Canadian issuer, is not an 
investment company, and has a public float of less than $25 million. 
Also, if it is a majority owned subsidiary, the parent corporation 
also must be a small business issuer. Rule 0–10 of the 
Exchange Act (17 CFR 240.10) defines a small entity for purposes of 
the Regulatory Flexibility Act as a company that, on the last day of 
its most recent fiscal year, had total assets of $5 million or less.
---------------------------------------------------------------------------

H. Solicitation of Comments

    We encourage the submission of comments with respect to any aspect 
of this Initial Regulatory Flexibility Analysis. In particular, we 
request comments regarding: (i) The number of small entity issuers that 
may be affected by the proposed revisions; (ii) the existence or nature 
of the potential impact of the proposed revisions on small entity 
issuers discussed in the analysis; and (iii) how to quantify the impact 
of the proposed revisions. Commenters are asked to describe the nature 
of any impact and provide empirical data supporting the extent of the 
impact. Such comments will be considered in the preparation of the 
Final Regulatory Flexibility Analysis, if the proposed revisions are 
adopted, and will be placed in the same public file as comments on the 
proposed amendments themselves.

VII. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (“SBREFA”),\145\ a rule is “major” 
if it has resulted, or is likely to result in:
---------------------------------------------------------------------------

    \145\&thnspPub. L. 104–121, Title II, 110 Stat. 857 
(1996).
---------------------------------------------------------------------------

    &sbull An annual effect on the economy of $100 million or 
more;
    &sbull A major increase in costs or prices for consumers or 
individual industries; or
    &sbull Significant adverse effects on competition, investment 
or innovation.
    Commenters should provide empirical data on (a) the annual effect 
on the economy; (b) any increase in costs or prices for consumers or 
individual industries; and (c) any effect on competition, investment or 
innovation. We request your comments on the reasonableness of this 
estimate.

VIII. Statutory Basis

    We are proposing the amendments to Securities Exchange Act Form 
10–K, Form 10–KSB, Form 10–Q, Form 10–QSB, Form 
20–F, Form 40–F, Form 8–K, Form 12b–25, 
Securities Exchange Act and Investment Company Act Form N–SAR and 
Form N–CSR, Securities Exchange Act Rule 12b–25, Rule 
13a–14, Rule 13a–15, Rule 15d–14 and Rule 
15d–15, Investment Company Act Rule 30a–2 and Rule 
30a–3, and Regulations S–B, S–K and S–X 
pursuant to sections 5, 6, 7, 10, 17 and 19 of the Securities Act, as 
amended, sections 12, 13, 15, 23 and 36 of the Securities Exchange Act, 
as amended, sections 8, 30, 31 and 38 of the Investment Company Act, as 
amended, and sections 3(a), 404, 406 and 407 of the Sarbanes-Oxley Act 
of 2002.

Text of the Proposed Amendments

List of Subjects

17 CFR Part 210

    Accountants, Accounting, Reporting and recordkeeping requirements, 
Securities.

17 CFR Part 228

    Reporting and recordkeeping requirements, Securities, Small 
businesses.

17 CFR Parts 229, 240 and 249

    Reporting and recordkeeping requirements, Securities.

17 CFR Parts 270 and 274

    Investment companies, Reporting and recordkeeping requirements, 
Securities.

    For the reasons set out above, we propose to amend title 17, 
chapter II of the Code of Federal Regulations as follows:

PART 210—FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL 
STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 
1934, PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, INVESTMENT 
COMPANY ACT OF 1940, INVESTMENT ADVISERS ACT OF 1940, AND ENERGY 
POLICY AND CONSERVATION ACT OF 1975

    1. The authority citation for Part 210 is amended by adding the 
following citations:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z–2, 
77z–3, 77aa(25), 77aa(26), 78c, 78j–1, 78l, 78m, 78n, 
78o(d), 78q, 78u–5, 78w(a), 78ll, 78mm, 79e(b), 79j(a), 79n, 
79t(a), 80a–8, 80a–20, 80a–29, 80a–30, 
80a–37(a), 80b–3, 80b–11 unless otherwise noted.

    Section 210.1–02 is also issued under secs. 3(a) and 404, 
Pub. L. No. 107–204, 116 Stat. 745.
    Section 210.2–02 is also issued under secs. 3(a) and 404, 
Pub. L. No. 107–204, 116 Stat. 745.

    2. Amend §&thnsp210.1–02 by:
    a. Removing the authority citation following 
§&thnsp210.1–02;

[[Page 66230]]

    b. Redesignating paragraphs (a) through (bb) as (b) through (cc); 
and
    c. Adding new paragraph (a) to read as follows:


§&thnsp210.1–02  Definition of terms used in Regulation 
S–X (17 CFR part 210).

    (a) Accountant's attestation. The term accountant's attestation 
means a document in which a registered public accounting firm expresses 
an opinion concerning a registrant's assertion about the effectiveness 
of its internal controls and procedures for financial reporting in 
accordance with standards for attestation engagements. The attestation 
indicates the scope of the accountant's examination and sets forth the 
accountant's opinion as to whether the registrant's assertion about the 
effectiveness of its internal controls and procedures for financial 
reporting is fairly stated, in all material respects, or includes an 
opinion to the effect that an overall opinion cannot be expressed. When 
an overall opinion cannot be expressed, the registered public 
accounting firm must explain why it is unable to express such an 
opinion.
* * * * *
    3. Amend §&thnsp210.2–02 by:
    a. Revising the section heading;
    b. Revising the headings of paragraphs (a), (b), (c) and (d); and
    c. Adding new paragraph (f).
    The additions and revisions read as follows.


§&thnsp210.2–02  Accountants' reports and attestations.

    (a) Technical requirements for accountants' reports. 
* * *
    (b) Representations as to the audit included in accountants' 
reports. * * *
    (c) Opinions to be expressed in accountants' reports. 
* * *
    (d) Exceptions identified in accountants' reports. * * *
* * * * *
    (f) Accountants' attestations. Every registered public accounting 
firm that issues or prepares an accountant's report for a registrant, 
other than an investment company registered under section 8 of the 
Investment Company Act of 1940 (15 U.S.C. 80a–8), must examine, 
attest to, and report separately on, the internal control report of 
management concerning the effectiveness of the registrant's internal 
controls and procedures for financial reporting. The accountant's 
attestation shall be dated, signed manually, identify the period 
covered by the report and clearly state the opinion of the accountant 
as to whether the registrant's disclosure about the effectiveness of 
its internal controls and procedures for financial reporting is fairly 
stated in all material respects, or must include an opinion to the 
effect that an overall opinion cannot be expressed. If an overall 
opinion cannot be expressed, explain why.

PART 228—INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS 
ISSUERS

    4. The authority citation for Part 228 is revised to read as 
follows:

    Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 
77z–2, 77z–3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 
77hhh, 77jjj, 77nnn, 77sss, 78l, 78m, 78n, 78o, 78u–5, 78w, 
78ll, 78mm, 80a–8, 80a–29, 80a–30, 80a–37 
and 80b–11.
    Section 228.307 is also issued under secs. 3(a), 302 and 404, 
Pub. L. No. 107–204, 116 Stat. 745.
    Section 228.309 is also issued under secs. 3(a) and 407, Pub. L. 
No. 107–204, 116 Stat. 745.
    Section 228.406 is also issued under secs. 3(a) and 406, Pub. L. 
No. 107–204, 116 Stat. 745.

    5. Revise §&thnsp228.307 to read as follows:


§&thnsp228.307  (Item 307) Controls and procedures.

    (a) Evaluation of disclosure controls and procedures and internal 
controls and procedures for financial reporting. Disclose the 
conclusions of the small business issuer's principal executive officer 
or officers and principal financial officer or officers, or persons 
performing similar functions, about the effectiveness of the small 
business issuer's disclosure controls and procedures and internal 
controls and procedures for financial reporting based on management's 
evaluation of these controls and procedures in accordance with 
§§&thnsp240.13a–15 or 240.15d–this chapter as of 
the end of the period covered by the quarterly or annual report that 
includes the disclosure required by this paragraph.
    (b) Changes to internal controls and procedures for financial 
reporting.
    Disclose any significant changes to the small business issuer's 
internal controls and procedures for financial reporting made during 
the period covered by the quarterly or annual report that includes the 
disclosure required by this paragraph, including any actions taken to 
correct significant deficiencies and material weaknesses in the small 
business issuer's internal controls and procedures for financial 
reporting.
    (c) Report on management's responsibilities. Furnish an internal 
control report of management that includes:
    (1) A statement of management's responsibilities for establishing 
and maintaining adequate internal controls and procedures for financial 
reporting for the small business issuer;
    (2) Conclusions about the effectiveness of the small business 
issuer's internal controls and procedures for financial reporting based 
on management's evaluation of those controls and procedures in 
accordance with §§&thnsp240.13a–15 or 240.15d–15 
of this chapter as of the end of the small business issuer's most 
recent fiscal year;
    (3) A statement that the registered public accounting firm that 
prepared or issued the small business issuer's audit report relating to 
the financial statements included in the report containing the 
disclosure required by this Item has attested to, and reported on, 
management's evaluation of the small business issuer's internal 
controls and procedures for financial reporting; and
    (4) The attestation report of the registered public accounting firm 
that audited or reviewed the financial statements included in the 
annual report containing the disclosure required by this Item.

Instructions to Item 307

    1. A small business issuer that is an Asset-Backed Issuer (as 
defined in §&thnsp240.13a–14(g) and 
§&thnsp240.15d–14(g) of this chapter) is not required to 
disclose the information required by this Item.
    2. For purposes of this Item, the terms “disclosure controls 
and procedures” and “internal controls and procedures for 
financial reporting” shall have the meanings specified in 
§&thnsp240.13a–14 and §&thnsp240.15d–14 of this 
chapter.
    3. If the conclusions of the small business issuer's principal 
executive and financial officers are reflected in the conclusions 
disclosed pursuant to paragraph (c)(2) of this Item, the small business 
issuer does not have to include any separate disclosure required by 
paragraph (a) of this Item regarding the effectiveness of the small 
business issuer's internal controls and procedures for financial 
reporting as of the end of the small business issuer's most recent 
fiscal year.
    4. The small business issuer is encouraged, but not required, to 
include the annual report disclosure required by paragraph (b) of this 
Item in the internal control report required by paragraph (c) of this 
Item, rather than disclosing it elsewhere in the annual report.
    6. Add §&thnsp228.309 to read as follows:


§&thnsp228.309  (Item 309) Audit committee financial experts.

    Disclose the number and names of the persons that the small 
business issuer's board of directors has determined to be

[[Page 66231]]

the financial expert or experts serving on the small business issuer's 
audit committee, as defined in section 3(a)(58) of the Exchange Act (15 
U.S.C. 78c(a)(58)). Also disclose whether the financial expert or 
experts are independent, as that term is used in section 10A(m)(3) of 
the Exchange Act (15 U.S.C. 78j–1(m)(3)) and if not, an 
explanation of why they are not. If the small business issuer's board 
of directors has not determined that a financial expert is serving on 
its audit committee, the small business issuer must disclose that fact 
and explain why it does not have such an expert.

Instructions to Item 309

    1. For purposes of the determination by the board of directors 
under this Item 309, the term “financial expert” means a 
person who has, through education and experience as a public accountant 
or auditor, or a principal financial officer, controller, or principal 
accounting officer, of a company that, at the time the person held such 
position, was required to file reports pursuant to section 13(a) or 
15(d) of the Exchange Act (15 U.S.C. 78m(a) and 78o(d)), or experience 
in one or more positions that involve the performance of similar 
functions (or that results, in the judgment of the board of directors, 
in the person's having similar expertise and experience), the following 
attributes:
    a. An understanding of generally accepted accounting principles and 
financial statements;
    b. Experience applying such generally accepted accounting 
principles in connection with the accounting for estimates, accruals, 
and reserves that are generally comparable to the estimates, accruals 
and reserves, if any, used in the small business issuer's financial 
statements;
    c. Experience preparing or auditing financial statements that 
present accounting issues that are generally comparable to those raised 
by the small business issuer's financial statements;
    d. Experience with internal controls and procedures for financial 
reporting; and
    e. An understanding of audit committee functions.
    2. If the board of directors has determined that a person is a 
financial expert because, in the board's judgment, he or she has 
similar expertise and experience to those enumerated, the small 
business issuer must disclose the basis for that determination.
    3. In evaluating the education and experience of a person, the 
board of directors should consider the following factors in the 
aggregate:
    a. The level of the person's accounting or financial education, 
including whether the person has earned an advanced degree in finance 
or accounting;
    b. Whether the person is a certified public accountant, or the 
equivalent, in good standing, and the length of time that the person 
actively has practiced as a certified public accountant, or the 
equivalent;
    c. Whether the person is certified or otherwise identified as 
having accounting or financial experience by a recognized private body 
that establishes and administers standards in respect of such 
expertise, whether that person is in good standing with the recognized 
private body, and the length of time that the person has been actively 
certified or identified as having this expertise;
    d. Whether the person has served as a principal financial officer, 
controller or principal accounting officer of a company that, at the 
time the person held such position, was required to file reports 
pursuant to section 13(a) or 15(d) of the Exchange Act, and if so, for 
how long;
    e. The person's specific duties while serving as a public 
accountant, auditor, principal financial officer, controller, principal 
accounting officer or position involving the performance of similar 
functions;
    f. The person's level of familiarity and experience with all 
applicable laws and regulations regarding the preparation of financial 
statements that must be included in reports filed under section 13(a) 
or 15(d) of the Exchange Act;
    g. The level and amount of the person's direct experience 
reviewing, preparing, auditing or analyzing financial statements that 
must be included in reports filed under section 13(a) or 15(d) of the 
Exchange Act;
    h. The person's past or current membership on one or more audit 
committees of companies that, at the time the person held such 
membership, were required to file reports pursuant to section 13(a) or 
15(d) of the Exchange Act;
    i. The person's level of familiarity and experience with the use 
and analysis of financial statements of public companies;
    j. Whether the person has any other relevant qualifications or 
experience that would assist him or her in understanding and evaluating 
the small business issuer's financial statements and other financial 
information and to make knowledgeable and thorough inquiries whether:
    i. The financial statements fairly present the financial condition, 
results of operations and cash flows of the small business issuer in 
accordance with generally accepted accounting principles; and
    ii. The financial statements and other financial information, taken 
together, fairly present the financial condition, results of operations 
and cash flows of the small business issuer; and
    k. In the case of a foreign private issuer, the person's level of 
experience in respect of public companies in the foreign private 
issuer's home country, generally accepted accounting principles used by 
the issuer, and the reconciliation of financial statements with U.S. 
generally accepted accounting principles.
    4. Although the board of directors should consider the factors 
listed in Instruction 3, those factors are not replacements for, and a 
financial expert must satisfy, all of the attributes listed in 
Instruction 1 to this Item.
    5. In the case of foreign private issuers with two-tier boards of 
directors, for purposes of this Item 309, the term “board of 
directors” means the supervisory or non-management board.
    6. A small business issuer that is an Asset-Backed Issuer (as 
defined in §&thnsp240.13a–14(g) and 
§&thnsp240.15d–14(g) of this chapter) is not required to 
disclose the information required by this Item.
    7. Add §&thnsp228.406 to read as follows:


§&thnsp228.406  (Item 406) Code of ethics.

    (a) Disclose whether the small business issuer has adopted a 
written code of ethics that applies to the small business issuer's 
principal executive officer, principal financial officer, principal 
accounting officer or controller, or persons performing similar 
functions. If the small business issuer has not adopted such a code of 
ethics, explain why it has not done so.
    (b) If the small business issuer plans to elect to disclose any 
amendments to, or waivers from, its code of ethics on its Internet 
website, disclose the small business issuer's Internet address and its 
intention to disclose these events on its website. If the small 
business issuer elects to disclose this information through its 
website, it must make such information available for at least a 12-
month period. Following the 12-month period, the small business issuer 
must retain the information for a period of five years. Upon request, 
the small business issuer must furnish to the Commission or its staff a 
copy of any or all information retained pursuant to this requirement.

Instructions to Item 406

    1. For purposes of this Item 406, the term “code of 
ethics” means a codification of such standards that is

[[Page 66232]]

reasonably designed to deter wrongdoing and to promote:
    (a) Honest and ethical conduct, including the ethical handling of 
actual or apparent conflicts of interest between personal and 
professional relationships;
    (b) Avoidance of conflicts of interest, including disclosure to an 
appropriate person or persons identified in the code of any material 
transaction or relationship that reasonably could be expected to give 
rise to such a conflict;
    (c) Full, fair, accurate, timely, and understandable disclosure in 
reports and documents that a registrant files with, or submits to, the 
Commission and in other public communications made by the small 
business issuer;
    (d) Compliance with applicable governmental laws, rules and 
regulations;
    (e) The prompt internal reporting to an appropriate person or 
persons identified in the code of violations of the code; and
    (f) Accountability for adherence to the code.
    2. A small business issuer that is an Asset-Backed Issuer (as 
defined in §&thnsp240.13a–14(g) and 
§&thnsp240.15d–14(g) of this chapter) is not required to 
disclose the information required by this Item.
    8. Amend §&thnsp228.601 by:
    a. Removing the “No exhibit required” designation for 
exhibit (14) and adding “Code of ethics” in its place in 
the Exhibit Table;
    b. Removing “N/A” corresponding to exhibit (14) under 
all captions in the Exhibit Table;
    c. Adding an “X” corresponding to exhibit (14) under 
the caption “Exchange Act Forms,” “8–K and 
“10–KSB” in the Exhibit Table; and
    d. Adding the text of paragraph (b)(14).
    The addition reads as follows:


§&thnsp228.601  (Item 601) Exhibits.

* * * * *
    (b) Description of exhibits. * * *
    (14) Code of ethics. Any written code of ethics, or amendment to 
that code of ethics, that applies to the small business issuer's 
principal executive officer, principal financial officer, principal 
accounting officer or controller, or persons performing similar 
functions, subject to disclosure under Item 406 of Regulation S–B 
(§&thnsp228.406) or Item 5.05 of Form 8–K 
(§&thnsp249.308 of this chapter).
* * * * *

PART 229—STANDARD INSTRUCTIONS FOR FILING FORMS UNDER 
SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY 
POLICY AND CONSERVATION ACT OF 1975—REGULATION S–K

    9. The authority citation for Part 229 is revised to read as 
follows:

    Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 
77z–2, 77z–3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 
77hhh, 77iii, 77jjj, 77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 
78o, 78u–5, 78w, 78ll(d), 78mm, 79e, 79n, 79t, 80a–8, 
80a–29, 80a–30, 80a–31(c), 80a–37, 
80a–38(a) and 80b–11, unless otherwise noted.
    Section 229.307 is also issued under secs. 3(a), 302 and 404, 
Pub. L. 107–204, 116 Stat. 745.
    Section 229.309 is also issued under secs. 3(a) and 407, Pub. L. 
107–204, 116 Stat. 745.
    Section 229.406 is also issued under secs. 3(a) and 406, Pub. L. 
107–204, 116 Stat. 745.
    Section 229.601 is also issued under secs. 3(a) and 406, Pub. L. 
107–204, 116 Stat. 745.

    10. Revise §&thnsp229.307 to read as follows.


§&thnsp229.307  (Item 307) Controls and procedures.

    (a) Evaluation of disclosure controls and procedures and internal 
controls and procedures for financial reporting. Disclose the 
conclusions of the registrant's principal executive officer or officers 
and principal financial officer or officers, or persons performing 
similar functions, about the effectiveness of the registrant's 
disclosure controls and procedures and internal controls and procedures 
for financial reporting based on management's evaluation of these 
controls and procedures in accordance with 
§§&thnsp240.13a–15 and 240.15d–15 of this 
chapter as of the end of the period covered by the quarterly or annual 
report that includes the disclosure required by this paragraph.
    (b) Changes to internal controls and procedures for financial 
reporting. Disclose any significant changes to the registrant's 
internal controls and procedures for financial reporting made during 
the period covered by the quarterly or annual report that includes the 
disclosure required by this paragraph, including any actions taken to 
correct significant deficiencies and material weaknesses in the 
registrant's internal controls and procedures for financial reporting.
    (c) Report on management's responsibilities. Furnish an internal 
control report of management that includes:
    (1) A statement of management's responsibilities for establishing 
and maintaining adequate internal controls and procedures for financial 
reporting for the registrant;
    (2) Conclusions about the effectiveness of the registrant's 
internal controls and procedures for financial reporting based on 
management's evaluation of those controls and procedures in accordance 
with §§&thnsp240.13a–15 or 240.15d–15 of this 
chapter as of the end of the registrant's most recent fiscal year;
    (3) A statement that the registered public accounting firm that 
prepared or issued the registrant's audit report relating to the 
financial statements included in the report containing the disclosure 
required by this Item has attested to, and reported on, management's 
evaluation of the registrant's internal controls and procedures for 
financial reporting; and
    (4) The attestation report of the registered public accounting firm 
that audited or reviewed the financial statements included in the 
annual report containing the disclosure required by this Item.

Instructions to Item 307

    1. A registrant that is an Asset-Backed Issuer (as defined in 
§&thnsp240.13a–14(g) and §&thnsp240.15d–14(g) 
of this chapter) is not required to disclose the information required 
by this Item.
    2. For purposes of this Item, the terms “disclosure controls 
and procedures” and “internal controls and procedures for 
financial reporting” shall have the meanings specified in 
§&thnsp240.13a–14 and §&thnsp240.15d–14 of this 
chapter.
    3. If the conclusions of the registrant's principal executive and 
financial officers are reflected in the conclusions disclosed pursuant 
to paragraph (c)(2) of this Item, the registrant does not have to 
include any separate disclosure required by paragraph (a) of this Item 
regarding the effectiveness of the registrant's internal controls and 
procedures for financial reporting as of the end of the registrant's 
most recent fiscal year.
    4. The registrant is encouraged, but not required, to include the 
annual report disclosure required by paragraph (b) of this Item in the 
internal control report required by paragraph (c) of this Item, rather 
than disclosing it elsewhere in the annual report.
    11. Add §&thnsp229.309 to read as follows:


§&thnsp229.309  (Item 309) Audit committee financial experts.

    Disclose the number and names of the persons that the registrant's 
board of directors has determined to be the financial experts serving 
on the registrant's audit committee, as defined in section 3(a)(58) of 
the Exchange Act (15 U.S.C. 78c(a)(58)). Also disclose

[[Page 66233]]

whether the financial expert or experts are independent as that term is 
used in section 10A(m)(3) of the Exchange Act (15 U.S.C. 
78j–1(m)(3)), and if not, an explanation of why they are not. If 
the registrant's board of directors has not determined that a financial 
expert is serving on its audit committee, the registrant must disclose 
that fact and explain why it does not have such an expert.

Instructions to Item 309

    1. For purposes of the determination by the board of directors 
under this Item 309, the term “financial expert” means a 
person who has, through education and experience as a public accountant 
or auditor, or a principal financial officer, controller, or principal 
accounting officer, of a company that, at the time the person held such 
position, was required to file reports pursuant to section 13(a) or 
15(d) of the Exchange Act (15 U.S.C. 78m(a) and 78o(d)), or experience 
in one or more positions that involve the performance of similar 
functions (or that results, in the judgment of the board of directors, 
in the person's having similar expertise and experience), the following 
attributes:
    a. An understanding of generally accepted accounting principles and 
financial statements;
    b. Experience applying such generally accepted accounting 
principles in connection with the accounting for estimates, accruals, 
and reserves that are generally comparable to the estimates, accruals 
and reserves, if any, used in the registrant's financial statements;
    c. Experience preparing or auditing financial statements that 
present accounting issues that are generally comparable to those raised 
by the registrant's financial statements;
    d. Experience with internal controls and procedures for financial 
reporting; and
    e. An understanding of audit committee functions.
    2. If the board of directors has determined that a person is a 
financial expert because, in the board's judgment, he or she has 
similar expertise and experience to those enumerated, the registrant 
must disclose the basis for that determination.
    3. In evaluating the education and experience of a person, the 
board of directors should consider the following factors in the 
aggregate:
    a. The level of the person's accounting or financial education, 
including whether the person has earned an advanced degree in finance 
or accounting;
    b. Whether the person is a certified public accountant, or the 
equivalent, in good standing, and the length of time that the person 
actively has practiced as a certified public accountant, or the 
equivalent;
    c. Whether the person is certified or otherwise identified as 
having accounting or financial experience by a recognized private body 
that establishes and administers standards in respect of such 
expertise, whether that person is in good standing with the recognized 
private body, and the length of time that the person has been actively 
certified or identified as having this expertise;
    d. Whether the person has served as a principal financial officer, 
controller or principal accounting officer of a company that, at the 
time the person held such position, was required to file reports 
pursuant to section 13(a) or 15(d) of the Exchange Act, and if so, for 
how long;
    e. The person's specific duties while serving as a public 
accountant, auditor, principal financial officer, controller, principal 
accounting officer or position involving the performance of similar 
functions;
    f. The person's level of familiarity and experience with all 
applicable laws and regulations regarding the preparation of financial 
statements that must be included in reports filed under section 13(a) 
or 15(d) of the Exchange Act;
    g. The level and amount of the person's direct experience 
reviewing, preparing, auditing or analyzing financial statements that 
must be included in reports filed under section 13(a) or 15(d) of the 
Exchange Act;
    h. The person's past or current membership on one or more audit 
committees of companies that, at the time the person held such 
membership, were required to file reports pursuant to section 13(a) or 
15(d) of the Exchange Act;
    i. The person's level of familiarity and experience with the use 
and analysis of financial statements of public companies;
    j. Whether the person has any other relevant qualifications or 
experience that would assist him or her in understanding and evaluating 
the registrant's financial statements and other financial information 
and to make knowledgeable and thorough inquiries whether:
    i. The financial statements fairly present the financial condition, 
results of operations and cash flows of the registrant in accordance 
with generally accepted accounting principles; and
    ii. The financial statements and other financial information, taken 
together, fairly present the financial condition, results of operations 
and cash flows of the registrant; and
    k. In the case of a foreign private issuer, the person's level of 
experience in respect of public companies in the foreign private 
issuer's home country, generally accepted accounting principles used by 
the issuer, and the reconciliation of financial statements with U.S. 
generally accepted accounting principles.
    4. Although the board of directors should consider the factors 
listed in Instruction 3, those factors are not replacements for, and a 
financial expert must satisfy, all of the attributes listed in 
Instruction 1 to this Item.
    5. In the case of foreign private issuers with two-tier boards of 
directors, for purposes of this Item 309, the term “board of 
directors” means the supervisory or non-management board.
    6. A registrant that is an Asset-Backed Issuer (as defined in 
§&thnsp240.13a–14(g) and §&thnsp240.15d–14(g) 
of this chapter) is not required to disclose the information required 
by this Item.
    12. Add §&thnsp229.406 to read as follows:


§&thnsp229.406  (Item 406) Code of ethics.

    (a) Disclose whether the registrant has adopted a written code of 
ethics that applies to the registrant's principal executive officer, 
principal financial officer, principal accounting officer or 
controller, or persons performing similar functions. If the registrant 
has not adopted such a code of ethics, explain why it has not done so.
    (b) If the registrant plans to elect to disclose any amendments to, 
or waivers from, its code of ethics on its Internet website, disclose 
the registrant's Internet address and its intention to disclose these 
events on its website. If the registrant elects to disclose this 
information through its website, it must make such information 
available for at least a 12-month period. Following the 12-month 
period, the registrant must retain the information for a period of not 
less than five years. Upon request, the registrant must furnish to the 
Commission or its staff a copy of any or all information retained 
pursuant to this requirement.

Instructions to Item 406

    1. For purposes of this Item 406, the term “code of 
ethics” means a codification of such standards that is reasonably 
designed to deter wrongdoing and to promote:
    (a) Honest and ethical conduct, including the ethical handling of 
actual or apparent conflicts of interest between personal and 
professional relationships;
    (b) Avoidance of conflicts of interest, including disclosure to an 
appropriate

[[Page 66234]]

person or persons identified in the code of any material transaction or 
relationship that reasonably could be expected to give rise to such a 
conflict;
    (c) Full, fair, accurate, timely, and understandable disclosure in 
reports and documents that a registrant files with, or submits to, the 
Commission and in other public communications made by the registrant;
    (d) Compliance with applicable governmental laws, rules and 
regulations;
    (e) The prompt internal reporting to an appropriate person or 
persons identified in the code of violations of the code; and
    (f) Accountability for adherence to the code.
    2. A registrant that is an Asset-Backed Issuer (as defined in 
§&thnsp240.13a–14(g) and §&thnsp240.15d–14(g) 
of this chapter) is not required to disclose the information required 
by this Item.
    13. Amend §&thnsp229.601 by:
    a. Removing the “reserved” designation for exhibit (14) 
and adding “Code of ethics” in its place in the Exhibit 
Table;
    b. Removing “N/A” corresponding to exhibit (14) under 
all captions in the Exhibit Table;
    c. Adding an “X” corresponding to exhibit (14) under 
the caption “Exchange Act Forms”, “8–K” 
and “10–K” in the Exhibit Table; and
    d. Adding the text of paragraph (b)(14).
    The addition reads as follows:


§&thnsp229.601  (Item 601) Exhibits.

* * * * *
    (b) Description of exhibits. * * *
    (14) Code of ethics. Any written code of ethics, or amendment to 
that code of ethics, that applies to the registrant's principal 
executive officer, principal financial officer, principal accounting 
officer or controller, or persons performing similar functions, subject 
to disclosure under Item 406 of Regulation S–K 
(§&thnsp229.406) or Item 5.05 of Form 8–K 
(§&thnsp249.308 of this chapter).
* * * * *

PART 240—GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE 
ACT OF 1934

    14. The authority citation for Part 240 is amended by revising the 
specific authority for “Section 240.13a–15” and 
“Section 240.15d–15” and adding an authority in 
numerical order to read as follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z–2, 
77z–3, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 
78g, 78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 
78p, 78q, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 79q, 79t, 
80a–20, 80a–23, 80a–29, 80a–37, 80b–3, 
80b–4 and 80b–11, unless otherwise noted.
* * * * *
    Section 240.13a–15 is also issued under secs. 3(a), 302 
and 404, Pub. L. 107–204, 116 Stat. 745.
* * * * *
    Section 240.14a–101 is also issued under secs. 3(a) and 
407, Pub. L. 107–204, 116 Stat. 745.
* * * * *
    Section 240.15d–15 is also issued under secs. 3(a), 302 
and 404, Pub. L. 107–204, 116 Stat. 745.
* * * * *

    15. As proposed in 67 FR 42914, amend §&thnsp240.12b–25 
by revising the section heading and paragraphs (a) and (b)(2)(ii) to 
read as follows:


§&thnsp240.12b–25  Notification of inability to timely file 
all or any required portion of a Form 10–K, 10–KSB, 
20–F, 11–K, N–SAR, N–CSR, 10–Q, 
10–QSB or 8–K.

    (a) If all or any required portion of an annual or transition 
report on Form 10–K, 10–KSB, 20–F or 11–K (17 
CFR 249.310, 249.310b, 249.220f or 249.311), or a quarterly or 
transition report on Form 10–Q or 10–QSB (17 CFR 249.308a 
or 249.308b), or a current report on Form 8–K (17 CFR 249.308) 
required to be filed pursuant to sections 13 or 15(d) of the Act (15 
U.S.C. 78m or 78o(d)) and rules thereunder, or if all or any portion of 
a semi-annual, annual or transition report on Form N–SAR or 
N–CSR (17 CFR 274.101 or 274.128 of this chapter) required to be 
filed pursuant to sections 13 or 15(d) of the Act or section 30 of the 
Investment Company Act of 1940 (15 U.S.C. 80a–29) and the rules 
thereunder is not filed within the time period prescribed for such 
report, the registrant, no later than one business day after the due 
date for such report, shall file a Form 12b–25 (17 CFR 249.322 of 
this chapter) with the Commission which shall contain disclosure of its 
inability to file the report timely and the reasons therefor in 
reasonable detail.
    (b) * * *
    (1) * * *
    (2) * * *
    (i) * * *
    (ii) The subject annual report, semi-annual report or transition 
report on Form 10–K, 10–KSB, 20–F, 11–K, 
N–SAR, or N–CSR, or portion thereof, will be filed no later 
than the fifteenth calendar day following the prescribed due date; or 
the subject quarterly report or transition report on Form 10–Q or 
10–QSB, or portion thereof, will be filed no later than the fifth 
calendar day following the prescribed due date; or the subject current 
report on Form 8–K, or portion thereof, will be filed no later 
than the second business day following the prescribed due date and, in 
the case of Form 8–K, specifying the Item number or numbers to be 
included in the filing; and
    16. Amend §&thnsp240.13a–14 by:
    a. Revising paragraph (b)(4);
    b. Redesignating paragraphs (d), (e), (f) and (g) as paragraphs 
(e), (f), (g) and (h); and
    c. Adding new paragraph (d).
    The revisions and additions read as follows:


§&thnsp240.13a–14  Certification of disclosure in annual 
and quarterly reports.

* * * * *
    (b) * * *
    (4) He or she and the other certifying officers are responsible for 
establishing and maintaining disclosure controls and procedures and 
internal controls and procedures for financial reporting (as such terms 
are defined in paragraphs (c) and (d) of this section) for the issuer 
and have:
    (i) Designed such disclosure controls and procedures, or caused 
such disclosure controls and procedures to be designed under their 
supervision, to ensure that material information relating to the 
issuer, including its consolidated subsidiaries, is made known to them 
by others within those entities, particularly during the period in 
which periodic reports are being prepared;
    (ii) Designed such internal controls and procedures for financial 
reporting, or caused such internal controls and procedures for 
financial reporting to be designed under their supervision, to provide 
reasonable assurances that the registrant's financial statements are 
fairly presented in conformity with generally accepted accounting 
principles;
    (iii) Evaluated the effectiveness of the registrant's disclosure 
controls and procedures and internal controls and procedures for 
financial reporting as of the end of the period covered by the report 
(“Evaluation Date”);
    (iv) Presented in the report their conclusions about the 
effectiveness of the disclosure controls and procedures and internal 
controls and procedures for financial reporting, in each case based on 
their evaluation as of the Evaluation Date;
    (v) Disclosed to the registrant's auditors and the audit committee 
of the board of directors (or persons fulfilling the equivalent 
function):
    (A) All significant deficiencies and material weaknesses in the 
design or operation of internal controls and procedures for financial 
reporting which could adversely affect the registrant's

[[Page 66235]]

ability to record, process, summarize and report financial information 
required to be disclosed by the registrant in the reports that it files 
or submits under the Act (15 U.S.C. 78a et seq.), within the time 
periods specified in the Commission's rules and forms; and
    (B) Any fraud, whether or not material, that involves management or 
other employees who have a significant role in the registrant's 
internal controls and procedures for financial reporting; and
    (vi) Indicated in the report any significant changes in the 
registrant's internal controls and procedures for financial reporting 
or in other factors that could significantly affect internal controls 
and procedures for financial reporting made during the period covered 
by the report, including any actions taken to correct significant 
deficiencies and material weaknesses in the registrant's internal 
controls and procedures for financial reporting.
* * * * *
    (d) For purposes of this section and §&thnsp240.13a–15, 
the term internal controls and procedures for financial reporting means 
controls that pertain to the preparation of financial statements for 
external purposes that are fairly presented in conformity with 
generally accepted accounting principles as addressed by the 
Codification of Statements on Auditing Standards §&thnsp319 or 
any superseding definition or other literature that is issued or 
adopted by the Public Company Accounting Oversight Board.
* * * * *
    17. Amend §&thnsp240.13a–15 by:
    a. Revising the section heading and paragraph (b); and
    b. Adding paragraph (c).
    The revisions and addition read as follows:


§&thnsp240.13a–15  Controls and procedures.

* * * * *
    (b) In connection with each report, including transition reports, 
filed on Form 10–Q, Form 10–QSB, Form 10–K, Form 
10–KSB, Form 20–F or Form 40–F 
(§§&thnsp249.308a, 249.308b, 249.310, 249.310b, 249.220f or 
249.240f of this chapter) under section 13(a) of the Act (15 U.S.C. 
78m(a)), other than a report filed by an Asset-Backed Issuer (as 
defined in §&thnsp240.13a–14), the issuer's management must 
conduct an evaluation, with the participation of the issuer's principal 
executive officer or officers and principal financial officer or 
officers, or persons performing similar functions, of the 
effectiveness, as of the end of the period covered by the report, of 
the design and operation of the issuer's disclosure controls and 
procedures and the issuer's internal controls and procedures for 
financial reporting.
    (c) In connection with each report, including transition reports, 
filed on Form N–CSR (§§&thnsp249.331 and 274.128 of 
this chapter) or Form N–SAR (§§&thnsp249.330 and 
274.101 of this chapter) that requires certification under 
§&thnsp270.30a–2 of this chapter, the issuer's management 
must conduct an evaluation, with the participation of the issuer's 
principal executive officer or officers and principal financial officer 
or officers, or persons performing similar functions, of the 
effectiveness, as of the end of the period covered by the report, of 
the design and operation of the issuer's disclosure controls and 
procedures.
    18. Amend §&thnsp240.15d–14 by:
    a. Revising paragraph (b)(4);
    b. Redesignating paragraphs (d), (e), (f) and (g) as paragraphs 
(e), (f), (g) and (h); and
    c. Adding new paragraph (d).
    The revisions and additions read as follows:


§&thnsp240.15d–14  Certification of disclosure in annual 
and quarterly reports.

* * * * *
    (b) * * *
    (4) He or she and the other certifying officers are responsible for 
establishing and maintaining disclosure controls and procedures and 
internal controls and procedures for financial reporting (as such terms 
are defined in paragraphs (c) and (d) of this section) for the issuer 
and have:
    (i) Designed such disclosure controls and procedures, or caused 
such disclosure controls and procedures to be designed under their 
supervision, to ensure that material information relating to the 
issuer, including its consolidated subsidiaries, is made known to them 
by others within those entities, particularly during the period in 
which periodic reports are being prepared;
    (ii) Designed such internal controls and procedures for financial 
reporting, or caused such internal controls and procedures for 
financial reporting to be designed under their supervision, to provide 
reasonable assurances that the registrant's financial statements are 
fairly presented in conformity with generally accepted accounting 
principles;
    (iii) Evaluated the effectiveness of the registrant's disclosure 
controls and procedures and internal controls and procedures for 
financial reporting as of the end of the period covered by the report 
(“Evaluation Date”);
    (iv) Presented in the report their conclusions about the 
effectiveness of the disclosure controls and procedures and internal 
controls and procedures for financial reporting, in each case based on 
their evaluation as of the Evaluation Date;
    (v) Disclosed to the registrant's auditors and the audit committee 
of the board of directors (or persons fulfilling the equivalent 
function):
    (A) All significant deficiencies and material weaknesses in the 
design or operation of internal controls and procedures for financial 
reporting which could adversely affect the registrant's ability to 
record, process, summarize and report financial information required to 
be disclosed by the registrant in the reports that it files or submits 
under the Act (15 U.S.C. 78a et seq.), within the time periods 
specified in the Commission's rules and forms; and
    (B) Any fraud, whether or not material, that involves management or 
other employees who have a significant role in the registrant's 
internal controls and procedures for financial reporting; and
    (vi) Indicated in the report any significant changes in the 
registrant's internal controls and procedures for financial reporting 
or in other factors that could significantly affect internal controls 
and procedures for financial reporting made during the period covered 
by the report, including any actions taken to correct significant 
deficiencies and material weaknesses in the registrant's internal 
controls and procedures for financial reporting.
* * * * *
    (d) For purposes of this section and §&thnsp240.15d–15, 
the term internal controls and procedures for financial reporting means 
controls that pertain to the preparation of financial statements for 
external purposes that are fairly presented in conformity with 
generally accepted accounting principles as addressed by the 
Codification of Statements on Auditing Standards §&thnsp319 or 
any superseding definition or other literature that is issued or 
adopted by the Public Company Accounting Oversight Board.
* * * * *
    19. Amend §&thnsp240.15d–15 by:
    a. Revising the section heading and paragraph (b); and
    b. Adding paragraph (c).
    The revisions and addition read as follows:


§&thnsp240.15d–15  Controls and procedures.

* * * * *
    (b) In connection with each report, including transition reports, 
filed on

[[Page 66236]]

Form 10–Q, Form 10–QSB, Form 10–K, Form 10–KSB, 
Form 20–F or Form 40–F (§§&thnsp249.308a, 
249.308b, 249.310, 249.310b, 249.220f or 249.240f of this chapter) 
under section 15(d) of the Act (15 U.S.C. 78o(d)), other than a report 
filed by an Asset-Backed Issuer (as defined in 
§&thnsp240.15d–14), the issuer's management must conduct an 
evaluation, with the participation of the issuer's principal executive 
officer or officers and principal financial officer or officers, or 
persons performing similar functions, of the effectiveness, as of the 
end of the period covered by the report, of the design and operation of 
the issuer's disclosure controls and procedures and the issuer's 
internal controls and procedures for financial reporting.
    (c) In connection with each report, including transition reports, 
filed on Form N–CSR (§§&thnsp249.331 and 274.128 of 
this chapter) or Form N–SAR (§§&thnsp249.330 and 
274.101 of this chapter) that requires certification under 
§&thnsp270.30a–2 of this chapter, the issuer's management 
must conduct an evaluation, with the participation of the issuer's 
principal executive officer or officers and principal financial officer 
or officers, or persons performing similar functions, of the 
effectiveness, as of the end of the period covered by the report, of 
the design and operation of the issuer's disclosure controls and 
procedures.

PART 249—FORMS, SECURITIES EXCHANGE ACT OF 1934

    20. The authority citation for Part 249 is revised to read as 
follows:

    Authority: 15 U.S.C. 78a et seq., unless otherwise noted.

    Section 249.220f is also issued under secs. 3(a), 302, 404 and 
407, Pub. L. 107–204, 116 Stat. 745.
    Section 249.240f is also issued under secs. 3(a), 302, 404 and 
407, Pub. L. 107–204, 116 Stat. 745.
    Section 249.308 is also issued under 15 U.S.C. 80a–29 and 
secs. 3(a), 302 and 404, Pub. L. 107–204, 116 Stat. 745.
    Section 249.308a is also issued under secs. 3(a), 302 and 404, 
Pub. L. 107–204, 116 Stat. 745.
    Section 249.308b is also issued under secs. 3(a), 302 and 404, 
Pub. L. 107–204, 116 Stat. 745.
    Section 249.310 is also issued under secs. 3(a), 302, 404 and 
407, Pub. L. 107–204, 116 Stat. 745.
    Section 249.310b is also issued under secs. 3(a), 302, 404 and 
407, Pub. L. 107–204, 116 Stat. 745.
    Section 249.326(T) is also issued under 15 U.S.C. 78m(f)(1).
    Section 249.330 is also issued under secs. 3(a), 302, 406, and 
407, Pub. L. 107–204, 116 Stat. 745.
    Section 249.331 is also issued under secs. 3(a), 302, 406, and 
407, Pub. L. 107–204, 116 Stat. 745.

    21. As proposed in 67 FR 42914, amend Form 8–K (referenced in 
§&thnsp249.308) by adding Item 5.05 to read as follows:

    Note: The text of Form 8–K does not, and this amendment 
will not, appear in the Code of Federal Regulations.

Form 8–K

Current Report

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
* * * * *
Item 5.05. Amendments to the Registrant's Code of Ethics, or Waiver of 
a Provision of the Code of Ethics
    If the registrant has amended its code of ethics that applies to 
its principal executive officer, principal financial officer, principal 
accounting officer or controller, or persons performing similar 
functions or granted a waiver, including an implicit waiver, from a 
provision of the code of ethics to one of these officers or persons, 
the registrant must briefly describe the nature of the amendment or 
waiver. Disclosure regarding waivers must include the name of the 
person to whom the waiver was granted, and the date of the waiver.

Instruction

    The registrant does not need to provide any information pursuant to 
this Item if it discloses the required information on its Internet 
website within two business days following the date of the amendment or 
waiver and the registrant has disclosed in its most recently filed 
annual report its Internet address and intention to provide disclosure 
in this manner. If the registrant elects to disclose the information 
required by this Item through its website, such information must remain 
available on the website for at least a 12-month period. Following the 
12-month period, the registrant must retain the information for a 
period of not less than five years. Upon request, the registrant must 
furnish to the Commission or its staff a copy of any or all information 
retained pursuant to this requirement.
* * * * *
    22. Amend Form 10–Q (referenced in §&thnsp249.308a) by:
    a. Revising Item 4 in Part I—Financial Information; and
    b. Revising the “Certifications” section.
    The revisions read as follows:

    Note: The text of Form 10–Q does not, and this amendment 
will not, appear in the Code of Federal Regulations.

Form 10–Q

* * * * *

Part I—Financial Information

* * * * *
Item 4. Controls and Procedures
    Furnish the information required by Item 307(a) and (b) of 
Regulation S–K (§&thnsp229.307(a) and (b) of this chapter).
* * * * *

Certifications*

    I, [identify the certifying individual], certify that:
    1. I have reviewed this quarterly report on Form 10–Q of 
[identify registrant];
    2. Based on my knowledge, this report does not contain any untrue 
statement of a material fact or omit to state a material fact necessary 
to make the statements made, in light of the circumstances under which 
such statements were made, not misleading with respect to the period 
covered by this report;
    3. Based on my knowledge, the financial statements, and other 
financial information included in this report, fairly present in all 
material respects the financial condition, results of operations and 
cash flows of the registrant as of, and for, the periods presented in 
this report;
    4. The registrant's other certifying officers and I are responsible 
for establishing and maintaining disclosure controls and procedures and 
internal controls and procedures for financial reporting (as defined in 
Exchange Act Rules 13a–14 and 15d–14) for the registrant 
and we have:
    (a) Designed such disclosure controls and procedures, or caused 
such disclosure controls and procedures to be designed under our 
supervision, to ensure that material information relating to the 
issuer, including its consolidated subsidiaries, is made known to us by 
others within those entities, particularly during the period in which 
this report is being prepared;
    (b) Designed such internal controls and procedures for financial 
reporting, or caused such internal controls and procedures for 
financial reporting to be designed under their supervision, to provide 
reasonable assurances that the registrant's financial statements are 
fairly presented in conformity with generally accepted accounting 
principles;
    (c) Evaluated the effectiveness of the registrant's disclosure 
controls and

[[Page 66237]]

procedures and internal controls and procedures for financial reporting 
as of the end of the period covered by this report (“Evaluation 
Date”);
    (d) Presented in this report our conclusions about the 
effectiveness of the disclosure controls and procedures and internal 
controls and procedures for financial reporting based on our evaluation 
as of the Evaluation Date;
    (e) Disclosed to the registrant's auditors and the audit committee 
of the board of directors (or persons fulfilling the equivalent 
function):
    (i) All significant deficiencies and material weaknesses in the 
design or operation of internal controls and procedures for financial 
reporting which could adversely affect the registrant's ability to 
record, process, summarize and report financial information required to 
be disclosed by the registrant in the reports that it files or submits 
under the Act (15 U.S.C. 78a et seq.), within the time periods 
specified in the U.S. Securities and Exchange Commission's rules and 
forms; and
    (ii) Any fraud, whether or not material, that involves management 
or other employees who have a significant role in the registrant's 
internal controls and procedures for financial reporting; and
    (f) Indicated in this report any significant changes in the 
registrant's internal controls and procedures for financial reporting 
or in other factors that could significantly affect internal controls 
and procedures for financial reporting made during the period covered 
by this report, including any actions taken to correct significant 
deficiencies and material weaknesses in the registrant's internal 
controls and procedures for financial reporting.

Date:------------------------------------------------------------------

&fxsp0----------------------------------------------------------------
  [Signature]

&fxsp0----------------------------------------------------------------
   [Title]

    *&thnspProvide a separate certification for each principal 
executive officer and principal financial officer of the registrant. 
See Rules 13a–14 and 15d–14. The required certification 
must be in the exact form set forth above.
    23. Amend Form 10–QSB (referenced in §&thnsp249.308b) 
by:
    a Revising Item 3 in Part I—Financial Information; and
    b. Revising the “Certifications” section.
    The revisions read as follows:

    Note: The text of Form 10–QSB does not, and this amendment 
will not, appear in the Code of Federal Regulations.

Form 10–QSB

* * * * *

Part I—Financial Information

* * * * *
Item 3. Controls and Procedures
    Furnish the information required by Item 307(a) and (b) of 
Regulation S–B (§&thnsp228.307(a) and (b) of this chapter).
* * * * *

Certifications*

    I, [identify the certifying individual], certify that:
    1. I have reviewed this quarterly report on Form 10–QSB of 
[identify registrant];
    2. Based on my knowledge, this report does not contain any untrue 
statement of a material fact or omit to state a material fact necessary 
to make the statements made, in light of the circumstances under which 
such statements were made, not misleading with respect to the period 
covered by this report;
    3. Based on my knowledge, the financial statements, and other 
financial information included in this report, fairly present in all 
material respects the financial condition, results of operations and 
cash flows of the small business issuer as of, and for, the periods 
presented in this report;
    4. The small business issuer's other certifying officers and I are 
responsible for establishing and maintaining disclosure controls and 
procedures and internal controls and procedures for financial reporting 
(as defined in Exchange Act Rules 13a–14 and 15d–14) for 
the small business issuer and we have:
    (a) Designed such disclosure controls and procedures, or caused 
such disclosure controls and procedures to be designed under our 
supervision, to ensure that material information relating to the 
issuer, including its consolidated subsidiaries, is made known to us by 
others within those entities, particularly during the period in which 
this report is being prepared;
    (b) Designed such internal controls and procedures for financial 
reporting, or caused such internal controls and procedures for 
financial reporting to be designed under their supervision, to provide 
reasonable assurances that the small business issuer's financial 
statements are fairly presented in conformity with generally accepted 
accounting principles;
    (c) Evaluated the effectiveness of the small business issuer's 
disclosure controls and procedures and internal controls and procedures 
for financial reporting as of the end of the period covered by this 
report (“Evaluation Date”);
    (d) Presented in this report our conclusions about the 
effectiveness of the disclosure controls and procedures and internal 
controls and procedures for financial reporting based on our evaluation 
as of the Evaluation Date;
    (e) Disclosed to the small business issuer's auditors and the audit 
committee of the board of directors (or persons fulfilling the 
equivalent function):
    (i) All significant deficiencies and material weaknesses in the 
design or operation of internal controls and procedures for financial 
reporting which could adversely affect the small business issuer's 
ability to record, process, summarize and report financial information 
required to be disclosed by the small business issuer in the reports 
that it files or submits under the Act (15 U.S.C. 78a et seq.), within 
the time periods specified in the U.S. Securities and Exchange 
Commission's rules and forms; and
    (ii) Any fraud, whether or not material, that involves management 
or other employees who have a significant role in the small business 
issuer's internal controls and procedures for financial reporting; and
    (f) Indicated in this report any significant changes in the small 
business issuer's internal controls and procedures for financial 
reporting or in other factors that could significantly affect internal 
controls and procedures for financial reporting made during the period 
covered by this report, including any actions taken to correct 
significant deficiencies and material weaknesses in the small business 
issuer's internal controls and procedures for financial reporting.

Date:------------------------------------------------------------------

&fxsp0----------------------------------------------------------------
  [Signature]

&fxsp0----------------------------------------------------------------
   [Title]

    *&thnspProvide a separate certification for each principal 
executive officer and principal financial officer of the small business 
issuer. See Rules 13a–14 and 15d–14. The required 
certification must be in the exact form set forth above.
    24. Amend Form 20–F (referenced in §&thnsp249.220f) by:
    a. Adding Item 15;
    b. Redesignating paragraph 10 of “Instructions as to 
Exhibits” as paragraph 11;
    c. Adding new paragraph 10 to “Instructions as to 
Exhibits”; and
    d. Revising the “Certifications” section.

[[Page 66238]]

    The additions and revisions read as follows:

    Note: The text of Form 20–F does not, and this amendment 
will not, appear in the Code of Federal Regulations.

Form 20–F

* * * * *
Item 15 Certain Disclosures
(a) Controls and Procedures
    (1) Evaluation of Disclosure Controls and Procedures and Internal 
Controls and Procedures for Financial Reporting. Disclose the 
conclusions of the registrant's principal executive officer or officers 
and principal financial officer or officers, or persons performing 
similar functions, about the effectiveness of the registrant's 
disclosure controls and procedures and internal controls and procedures 
for financial reporting based on management's evaluation of these 
controls and procedures in accordance with 
§§&thnsp240.13a–15 or 240.15d–15 of this chapter 
as of the end of the period covered by the annual report that includes 
the disclosure required by this paragraph.
    (2) Changes to Internal Controls and Procedures for Financial 
Reporting. Disclose any significant changes to the registrant's 
internal controls and procedures for financial reporting made during 
the period covered by the annual report that includes the disclosure 
required by this paragraph, including any actions taken to correct 
significant deficiencies and material weaknesses in the registrant's 
internal controls and procedures for financial reporting.
    (3) Report on management's responsibilities. Furnish an internal 
control report of management that includes:
    (i) A statement of management's responsibilities for establishing 
and maintaining adequate internal controls and procedures for financial 
reporting for the registrant;
    (ii) Conclusions about the effectiveness of the registrant's 
internal controls and procedures for financial reporting based on 
management's evaluation of those controls and procedures in accordance 
with §§&thnsp240.13a–15 or 240.15d–15 of this 
chapter as of the end of the registrant's most recent fiscal year;
    (iii) A statement that the registered public accounting firm that 
prepared or issued the registrant's audit report relating to the 
financial statements included in the report containing the disclosure 
required by this Item has attested to, and reported on, management's 
evaluation of the registrant's internal controls and procedures for 
financial reporting; and
    (iv) The attestation report of the registered public accounting 
firm that audited or reviewed the financial statements included in the 
annual report containing the disclosure required by this Item 15(a)(3).

Instructions to Item 15(a)

    1. You do not need to provide the information called for by this 
Item 15(a) unless you are using this form as an annual report.
    2. A registrant that is an Asset-Backed Issuer (as defined in 
§&thnsp240.13a–14(g) and §&thnsp240.15d–14(g)) 
is not required to disclose the information required by this Item 
15(a).
    3. For purposes of this Item, the terms “disclosure controls 
and procedures” and “internal controls and procedures for 
financial reporting” shall have the meanings specified in 
§&thnsp240.13a–14 and §&thnsp240.15d–14 of this 
chapter.
    4. If the conclusions of the registrant's principal executive and 
financial officers are reflected in the conclusions disclosed pursuant 
to paragraph (c)(2) of this Item, the registrant does not have to 
include any separate disclosure required by paragraph (a) of this Item 
regarding the effectiveness of the registrant's internal controls and 
procedures for financial reporting as of the end of the registrant's 
most recent fiscal year.
    5. The registrant is encouraged, but not required, to include the 
annual report disclosure required by paragraph (a)(2) of this Item in 
the internal control report required by paragraph (a)(3) of this Item, 
rather than disclosing it elsewhere in the annual report.
(b) Audit Committee Financial Experts
    Disclose the number and names of the persons that the registrant's 
board of directors has determined to be the financial experts serving 
on the registrant's audit committee, as defined in section 3(a)(58) of 
the Exchange Act. Also disclose whether the financial expert or experts 
are independent as that term is used in section 10A(m)(3) of the 
Exchange Act, and if not, an explanation of why they are not. If the 
registrant's board of directors has not determined that a financial 
expert is serving on its audit committee, the registrant must disclose 
that fact and explain why it does not have such an expert.

Instructions to Item 15(b)

    1. You do not need to provide the information called for by this 
Item 15(b) unless you are using this form as an annual report.
    2. For purposes of the determination by the board of directors 
under this Item 15(b), the term “financial expert” means a 
person who has, through education and experience as a public accountant 
or auditor, or a principal financial officer, controller, or principal 
accounting officer, of a company that, at the time the person held such 
position, was required to file reports pursuant to section 13(a) or 
15(d) of the Exchange Act, or experience in one or more positions that 
involve the performance of similar functions (or that result, in the 
judgment of the board of directors, in the person's having similar 
expertise and experience), the following attributes:
    a. An understanding of financial statements and generally accepted 
accounting principles used by the registrant in its primary financial 
statements;
    b. Experience applying such generally accepted accounting 
principles in connection with the accounting for estimates, accruals, 
and reserves that are generally comparable to the estimates, accruals 
and reserves, if any, used in the registrant's financial statements;
    c. Experience preparing or auditing financial statements that 
present accounting issues that are generally comparable to those raised 
by the registrant's financial statements;
    d. Experience with internal controls and procedures for financial 
reporting; and
    e. An understanding of audit committee functions.
    3. If the board of directors has determined that a person is a 
financial expert because, in the board's judgment, he or she has 
similar expertise and experience to those enumerated, the registrant 
must disclose the basis for that determination.
    4. In evaluating the education and experience of a person, the 
board of directors should consider the following factors in the 
aggregate:
    a. The level of the person's accounting or financial education, 
including whether the person has earned an advanced degree in finance 
or accounting;
    b. Whether the person is a certified public accountant, or the 
equivalent, in good standing, and the length of time that the person 
actively has practiced as a certified public accountant, or the 
equivalent;
    c. Whether the person is certified or otherwise identified as 
having accounting or financial experience by a recognized private body 
that establishes and administers standards in respect of such 
expertise, whether that person is in good standing with the recognized

[[Page 66239]]

private body, and the length of time that the person has been actively 
certified or identified as having this expertise;
    d. Whether the person has served as a principal financial officer, 
controller or principal accounting officer of a company that, at the 
time the person held such position, was required to file reports 
pursuant to section 13(a) or 15(d) of the Exchange Act, and if so, for 
how long;
    e. The person's specific duties while serving as a public 
accountant, auditor, principal financial officer, controller, principal 
accounting officer or position involving the performance of similar 
functions;
    f. The person's level of familiarity and experience with all 
applicable laws and regulations regarding the preparation of financial 
statements that must be included in reports filed under section 13(a) 
or 15(d) of the Exchange Act;
    g. The level and amount of the person's direct experience 
reviewing, preparing, auditing or analyzing financial statements that 
must be included in reports filed under section 13(a) or 15(d) of the 
Exchange Act;
    h. The person's past or current membership on one or more audit 
committees of companies that, at the time the person held such 
membership, were required to file reports pursuant to section 13(a) or 
15(d) of the Exchange Act;
    i. The person's level of familiarity and experience with the use 
and analysis of financial statements of public companies;
    j. Whether the person has any other relevant qualifications or 
experience that would assist him or her in understanding and evaluating 
the registrant's financial statements and other financial information 
and to make knowledgeable and thorough inquiries whether:
    i. The financial statements fairly present the financial condition, 
results of operations and cash flows of the registrant in accordance 
with generally accepted accounting principles; and
    ii. The financial statements and other financial information, taken 
together, fairly present the financial condition, results of operations 
and cash flows of the registrant; and
    k. The person's level of experience with reconciliation of 
financial statements with U.S. generally accepted accounting 
principles.
    5. Although the board of directors should consider the factors 
listed in Instruction 4, those factors are not replacements for, and a 
financial expert must satisfy, all of the attributes listed in 
Instruction 2 to this Item 15(b).
    6. In the case of foreign private issuers with two-tier boards of 
directors, for purposes of this Item 15(b), the term “board of 
directors” means the supervisory or non-management board.
    7. A registrant that is an Asset-Backed Issuer (as defined in 
§&thnsp240.13a–14(g) and §&thnsp240.15d–14(g) 
of this chapter) is not required to disclose the information required 
by this Item.
(c) Code of Ethics
    (1) Disclose whether the registrant has adopted a written code of 
ethics that applies to the registrant's principal executive officer, 
principal financial officer, principal accounting officer or 
controller, or persons performing similar functions. If the registrant 
has not adopted such a code of ethics, explain why it has not done so.
    (2) If, during the last fiscal year, the registrant has amended its 
code of ethics that applies to its principal executive officer, 
principal financial officer, principal accounting officer or 
controller, or persons performing similar functions, or granted a 
waiver from a provision of the code of ethics to one of these officers 
or persons, the registrant must briefly describe the nature of the 
amendment or waiver. Disclosure regarding waivers must include the name 
of the person to whom the waiver was granted, and the date of the 
waiver.

Instructions to Item 15(c)

    1. You do not need to provide the information called for by this 
Item 15(c) unless you are using this form as an annual report.
    2. A registrant that is an Asset-Backed Issuer (as defined in 
§&thnsp240.13a–14(g) and §&thnsp240.15d–14(g) 
of this chapter) is not required to disclose the information required 
by this Item 15(c).
    3. For purposes of this Item 15(c), the term “code of 
ethics” means a codification of such standards that is reasonably 
designed to deter wrongdoing and to promote:
    a. Honest and ethical conduct, including the ethical handling of 
actual or apparent conflicts of interest between personal and 
professional relationships;
    b. Avoidance of conflicts of interest, including disclosure to an 
appropriate person or persons identified in the code of any material 
transaction or relationship that reasonably could be expected to give 
rise to such a conflict;
    c. Full, fair, accurate, timely, and understandable disclosure in 
reports and documents that a registrant files with, or submits to, the 
Commission and in other public communications made by the registrant;
    d. Compliance with applicable governmental laws, rules and 
regulations;
    e. The prompt internal reporting to an appropriate person or 
persons identified in the code of violations of the code; and
    f. Accountability for adherence to the code.
* * * * *

Certifications*

    I, [identify the certifying individual], certify that:
    1. I have reviewed this annual report on Form 20–F of 
[identify registrant];
    2. Based on my knowledge, this report does not contain any untrue 
statement of a material fact or omit to state a material fact necessary 
to make the statements made, in light of the circumstances under which 
such statements were made, not misleading with respect to the period 
covered by this report;
    3. Based on my knowledge, the financial statements, and other 
financial information included in this report, fairly present in all 
material respects the financial condition, results of operations and 
cash flows of the registrant as of, and for, the periods presented in 
this report;
    4. The registrant's other certifying officers and I are responsible 
for establishing and maintaining disclosure controls and procedures and 
internal controls and procedures for financial reporting (as defined in 
Exchange Act Rules 13a–14 and 15d–14) for the registrant 
and we have:
    (a) Designed such disclosure controls and procedures, or caused 
such disclosure controls and procedures to be designed under our 
supervision, to ensure that material information relating to the 
issuer, including its consolidated subsidiaries, is made known to us by 
others within those entities, particularly during the period in which 
this report is being prepared;
    (b) Designed such internal controls and procedures for financial 
reporting, or caused such internal controls and procedures for 
financial reporting to be designed under their supervision, to provide 
reasonable assurances that the registrant's financial statements are 
fairly presented in conformity with generally accepted accounting 
principles;
    (c) Evaluated the effectiveness of the registrant's disclosure 
controls and procedures and internal controls and procedures for 
financial reporting as of the end of the period covered by this report 
(“Evaluation Date”);
    (d) Presented in this report our conclusions about the 
effectiveness of

[[Page 66240]]

the disclosure controls and procedures and internal controls and 
procedures for financial reporting based on our evaluation as of the 
Evaluation Date;
    (e) Disclosed to the registrant's auditors and the audit committee 
of the board of directors (or persons fulfilling the equivalent 
function):
    (i) All significant deficiencies and material weaknesses in the 
design or operation of internal controls and procedures for financial 
reporting which could adversely affect the registrant's ability to 
record, process, summarize and report financial information required to 
be disclosed by the registrant in the reports that it files or submits 
under the Act (15 U.S.C. 78a et seq.), within the time periods 
specified in the U.S. Securities and Exchange Commission's rules and 
forms; and
    (ii) Any fraud, whether or not material, that involves management 
or other employees who have a significant role in the registrant's 
internal controls and procedures for financial reporting; and
    (f) Indicated in this report any significant changes in the 
registrant's internal controls and procedures for financial reporting 
or in other factors that could significantly affect internal controls 
and procedures for financial reporting made during the period covered 
by this report, including any actions taken to correct significant 
deficiencies and material weaknesses in the registrant's internal 
controls and procedures for financial reporting.

Date:------------------------------------------------------------------

&fxsp0----------------------------------------------------------------
  [Signature]

&fxsp0----------------------------------------------------------------
   [Title]

    *&thnspProvide a separate certification for each principal 
executive officer and principal financial officer of the registrant. 
See Rules 13a–14 and 15d–14. The required certification 
must be in the exact form set forth above.

Instructions as to Exhibits

* * * * *
    10. Any written code of ethics, or amendment to that code of 
ethics, that applies to the registrant's principal executive officer, 
principal financial officer, principal accounting officer or 
controller, or persons performing similar functions, subject to 
disclosure under Item 15(c) of this Form.
* * * * *
    25. Amend Form 40–F (referenced in §&thnsp249.240f) by:
    a. Adding paragraphs (7), (8) and (9) to General Instruction B; and
    b. Revising the “Certifications” section.
    The additions and revisions read as follows.

    Note: The text of Form 40–F does not, and this amendment 
will not, appear in the Code of Federal Regulations.

Form 40–F

* * * * *

General Instructions

* * * * *

B. Information To Be Filed on This Form

* * * * *
(7) Controls and Procedures
    (a) Evaluation of Disclosure Controls and Procedures and Internal 
Controls and Procedures for Financial Reporting. Disclose the 
conclusions of the registrant's principal executive officer or officers 
and principal financial officer or officers, or persons performing 
similar functions, about the effectiveness of the registrant's 
disclosure controls and procedures and internal controls and procedures 
for financial reporting based on management's evaluation of these 
controls and procedures in accordance with 
§§&thnsp240.13a–15 or 240.15d–15 of this chapter 
as of the end of the period covered by the annual report that includes 
the disclosure required by this paragraph.
    (b) Changes to Internal Controls and Procedures for Financial 
Reporting. Disclose any significant changes to the registrant's 
internal controls and procedures for financial reporting made during 
the period covered by the annual report that includes the disclosure 
required by this paragraph, including any actions taken to correct 
significant deficiencies and material weaknesses in the registrant's 
internal controls and procedures for financial reporting.
    (c) Report on management's responsibilities. Furnish an internal 
control report of management that includes:
    (1) A statement of management's responsibilities for establishing 
and maintaining adequate internal controls and procedures for financial 
reporting for the registrant;
    (2) Conclusions about the effectiveness of the registrant's 
internal controls and procedures for financial reporting based on 
management's evaluation of those controls and procedures in accordance 
with §§&thnsp240.13a–15 of 240.15d–15 of this 
chapter as of the end of the registrant's most recent fiscal year;
    (3) A statement that the registered public accounting firm that 
prepared or issued the registrant's audit report relating to the 
financial statements included in the report containing the disclosure 
required by this Instruction B.(7)(c) has attested to, and reported on, 
management's evaluation of the registrant's internal controls and 
procedures for financial reporting;
    (4) The attestation report of the registered public accounting firm 
that audited or reviewed the financial statements included in the 
annual report containing the disclosure required by this Instruction 
B.(7)(c).

Notes to Instruction B.(7)

    1. You do not need to provide the information called for by this 
Instruction B.(7) unless you are using this form as an annual report.
    2. A registrant that is an Asset-Backed Issuer (as defined in 
§&thnsp240.13a–14(g) and §&thnsp240.15d–14(g)) 
is not required to disclose the information required by this 
Instruction B.(7).
    3. For purposes of this Instruction B.(7), the terms 
“disclosure controls and procedures” and “internal 
controls and procedures for financial reporting” shall have the 
meanings specified in §&thnsp240.13a–14 and 
§&thnsp240.15d–14 of this chapter.
    4. If the conclusions of the registrant's principal executive and 
financial officers are reflected in the conclusions disclosed pursuant 
to paragraph (c)(2) of this Instruction B.(7), the registrant does not 
have to include any separate disclosure required by paragraph (a) of 
this Item regarding the effectiveness of the registrant's internal 
controls and procedures for financial reporting as of the end of the 
registrant's most recent fiscal year.
    5. The registrant is encouraged, but not required, to include the 
annual report disclosure required by paragraph (b) of this Instruction 
B.(7) in the internal control report required by paragraph (c) of this 
Instruction B.(7), rather than disclosing it elsewhere in the annual 
report.
(8) Audit Committee Financial Experts
    (a) Disclose the number and names of the persons that the board of 
directors has determined to be the financial experts serving on the 
registrant's audit committee, as defined in section 3(a)(58) of the 
Exchange Act. Also disclose whether the financial expert or experts are 
independent as that term is used in section 10A(m)(3) of the Exchange 
Act, and if not, an explanation of why they are not. If the 
registrant's board of directors has not determined that a financial 
expert is serving on its audit committee, the registrant must disclose 
that fact and explain why it does not have such an expert.

[[Page 66241]]

Notes to Instruction B.(8)

    1. You do not need to provide the information called for by this 
Instruction B.(8) unless you are using this form as an annual report.
    2. For purposes of the determination by the board of directors 
under this Instruction B.(8), the term “financial expert” 
means a person who has, through education and experience as a public 
accountant or auditor, or a principal financial officer, controller, or 
principal accounting officer, of a company that, at the time the person 
held such position, was required to file reports pursuant to section 
13(a) or 15(d) of the Exchange Act, or experience in one or more 
positions that involve the performance of similar functions (or that 
result, in the judgment of the board of directors, in the person's 
having similar expertise and experience), the following attributes:
    a. An understanding of financial statements and generally accepted 
accounting principles used by the registrant in its primary financial 
statements;
    b. Experience applying such generally accepted accounting 
principles in connection with the accounting for estimates, accruals, 
and reserves that are generally comparable to the estimates, accruals 
and reserves, if any, used in the registrant's financial statements;
    c. Experience preparing or auditing financial statements that 
present accounting issues that are generally comparable to those raised 
by the registrant's financial statements;
    d. Experience with internal controls and procedures for financial 
reporting; and
    e. An understanding of audit committee functions.
    3. If the board of directors has determined that a person is a 
financial expert because, in the board's judgment, he or she has 
similar expertise and experience to those enumerated, the registrant 
must disclose the basis for that determination.
    4. In evaluating the education and experience of a person, the 
board of directors should consider the following factors in the 
aggregate:
    a. The level of the person's accounting or financial education, 
including whether the person has earned an advanced degree in finance 
or accounting;
    b. Whether the person is a certified public accountant, or the 
equivalent, in good standing, and the length of time that the person 
actively has practiced as a certified public accountant, or the 
equivalent;
    c. Whether the person is certified or otherwise identified as 
having accounting or financial experience by a recognized private body 
that establishes and administers standards in respect of such 
expertise, whether that person is in good standing with the recognized 
private body, and the length of time that the person has been actively 
certified or identified as having this expertise;
    d. Whether the person has served as a principal financial officer, 
controller or principal accounting officer of a company that, at the 
time the person held such position, was required to file reports 
pursuant to section 13(a) or 15(d) of the Exchange Act, and if so, for 
how long;
    e. The person's specific duties while serving as a public 
accountant, auditor, principal financial officer, controller, principal 
accounting officer or position involving the performance of similar 
functions;
    f. The person's level of familiarity and experience with all 
applicable laws and regulations regarding the preparation of financial 
statements that must be included in reports filed under section 13(a) 
or 15(d) of the Exchange Act;
    g. The level and amount of the person's direct experience 
reviewing, preparing, auditing or analyzing financial statements that 
must be included in reports filed under section 13(a) or 15(d) of the 
Exchange Act;
    h. The person's past or current membership on one or more audit 
committees of companies that, at the time the person held such 
membership, were required to file reports pursuant to section 13(a) or 
15(d) of the Exchange Act;
    i. The person's level of familiarity and experience with the use 
and analysis of financial statements of public companies;
    j. Whether the person has any other relevant qualifications or 
experience that would assist him or her in understanding and evaluating 
the registrant's financial statements and other financial information 
and to make knowledgeable and thorough inquiries whether:
    i. The financial statements fairly present the financial condition, 
results of operations and cash flows of the registrant in accordance 
with generally accepted accounting principles; and
    ii. The financial statements and other financial information, taken 
together, fairly present the financial condition, results of operations 
and cash flows of the registrant; and
    k. The person's level of experience with reconciliation of 
financial statements with U.S. generally accepted accounting 
principles.
    5. Although the board of directors should consider the factors 
listed in Note 4, those factors are not replacements for, and a 
financial expert must satisfy, all of the attributes listed in Note 2 
to this Instruction B.(8).
    6. In the case of foreign private issuers with two-tier boards of 
directors, for purposes of this Instruction B.(8), the term 
“board of directors” means the supervisory or non-
management board.
    7. A registrant that is an Asset-Backed Issuer (as defined in 
§&thnsp240.13a–14(g) and §&thnsp240.15d–14(g) 
of this chapter) is not required to disclose the information required 
by this Instruction B.(8).
(9) Code of Ethics
    (a) Disclose whether the registrant has adopted a written code of 
ethics that applies to the registrant's principal executive officer, 
principal financial officer, principal accounting officer or 
controller, or persons performing similar functions. Such code of 
ethics, or amendment to that code of ethics, must be attached as an 
exhibit and filed with this Form. If the registrant has not adopted 
such a code of ethics, explain why it has not done so.
    (b) If, during the last fiscal year, the registrant has amended its 
code of ethics that applies to its principal executive officer, 
principal financial officer, principal accounting officer or 
controller, or persons performing similar functions, or granted a 
waiver from a provision of the code of ethics to one of these officers 
or persons, the registrant must briefly describe the nature of the 
amendment or waiver. Disclosure regarding waivers must include the name 
of the person to whom the waiver was granted, and the date of the 
waiver.

Notes to Instruction B.(9)

    1. You do not need to provide the information called for by this 
Instruction B.(9) unless you are using this form as an annual report.
    2. A registrant that is an Asset-Backed Issuer (as defined in 
§&thnsp240.13a–14(g) and §&thnsp240.15d–14(g) 
of this chapter) is not required to disclose the information required 
by this Instruction B.(9).
    3. For purposes of the required disclosures, the term “code 
of ethics” means a codification of such standards that is 
reasonably designed to deter wrongdoing and to promote:
    (a) Honest and ethical conduct, including the ethical handling of 
actual or apparent conflicts of interest between personal and 
professional relationships;
    (b) Avoidance of conflicts of interest, including disclosure to an 
appropriate person or persons identified in the code of any material 
transaction or relationship that reasonably could be expected to give 
rise to such a conflict;

[[Page 66242]]

    (c) Full, fair, accurate, timely, and understandable disclosure in 
reports and documents that a registrant files with, or submits to, the 
Commission and in other public communications made by the registrant;
    (d) Compliance with applicable governmental laws, rules and 
regulations;
    (e) The prompt internal reporting to an appropriate person or 
persons identified in the code of violations of the code; and
    (f) Accountability for adherence to the code.
* * * * *

Certifications*

    I, [identify the certifying individual], certify that:
    1. I have reviewed this annual report on Form 40–F of 
[identify registrant];
    2. Based on my knowledge, this report does not contain any untrue 
statement of a material fact or omit to state a material fact necessary 
to make the statements made, in light of the circumstances under which 
such statements were made, not misleading with respect to the period 
covered by this report;
    3. Based on my knowledge, the financial statements, and other 
financial information included in this report, fairly present in all 
material respects the financial condition, results of operations and 
cash flows of the registrant as of, and for, the periods presented in 
this report;
    4. The registrant's other certifying officers and I are responsible 
for establishing and maintaining disclosure controls and procedures and 
internal controls and procedures for financial reporting (as defined in 
Exchange Act Rules 13a–14 and 15d–14) for the registrant 
and we have:
    (a) Designed such disclosure controls and procedures, or caused 
such disclosure controls and procedures to be designed under our 
supervision, to ensure that material information relating to the 
issuer, including its consolidated subsidiaries, is made known to us by 
others within those entities, particularly during the period in which 
this report is being prepared;
    (b) Designed such internal controls and procedures for financial 
reporting, or caused such internal controls and procedures for 
financial reporting to be designed under their supervision, to provide 
reasonable assurances that the registrant's financial statements are 
fairly presented in conformity with generally accepted accounting 
principles;
    (c) Evaluated the effectiveness of the registrant's disclosure 
controls and procedures and internal controls and procedures for 
financial reporting as of the end of the period covered by this report 
(“Evaluation Date”);
    (d) Presented in this report our conclusions about the 
effectiveness of the disclosure controls and procedures and internal 
controls and procedures for financial reporting based on our evaluation 
as of the Evaluation Date;
    (e) Disclosed to the registrant's auditors and the audit committee 
of the board of directors (or persons fulfilling the equivalent 
function):
    (i) All significant deficiencies and material weaknesses in the 
design or operation of internal controls and procedures for financial 
reporting which could adversely affect the registrant's ability to 
record, process, summarize and report financial information required to 
be disclosed by the registrant in the reports that it files or submits 
under the Act (15 U.S.C. 78a et seq.), within the time periods 
specified in the U.S. Securities and Exchange Commission's rules and 
forms; and
    (ii) Any fraud, whether or not material, that involves management 
or other employees who have a significant role in the registrant's 
internal controls and procedures for financial reporting; and
    (f) Indicated in this report any significant changes in the 
registrant's internal controls and procedures for financial reporting 
or in other factors that could significantly affect internal controls 
and procedures for financial reporting made during the period covered 
by this report, including any actions taken to correct significant 
deficiencies and material weaknesses in the registrant's internal 
controls and procedures for financial reporting.

Date:------------------------------------------------------------------

&fxsp0----------------------------------------------------------------
  [Signature]

&fxsp0----------------------------------------------------------------
   [Title]

    *&thnspProvide a separate certification for each principal 
executive officer and principal financial officer of the registrant. 
See Rules 13a–14 and 15d–14. The required certification 
must be in the exact form set forth above.
    26. Amend Form 10–K (referenced in §&thnsp249.310) by:
    a. Revising Item 10 in Part III;
    b. Redesignating Item 15 as Item 16 in Part IV;
    c. Adding new Item 15 to Part III; and
    d. Revising the “Certifications” section.
    The revisions and additions read as follows:

    Note: The text of Form 10–K does not, and this amendment 
will not, appear in the Code of Federal Regulations.

Form 10–K

Annual Report Pursuant to Section 13 or 15(d) of the Securities 
Exchange Act of 1934
* * * * *

Part III

* * * * *
Item 10. Directors and Executive Officers of the Registrant
    Furnish the information required by Items 401, 405 and 406 of 
Regulation S–K (§§&thnsp229.401, 229.405 and 229.406 
of this chapter).
* * * * *
Item 15. Audit Committee Financial Experts
    Furnish the information required by Item 309 of Regulation 
S–K (§&thnsp229.309 of this chapter).
* * * * *

Certifications*

    I, [identify the certifying individual], certify that:
    1. I have reviewed this annual report on Form 10–K of 
[identify registrant];
    2. Based on my knowledge, this report does not contain any untrue 
statement of a material fact or omit to state a material fact necessary 
to make the statements made, in light of the circumstances under which 
such statements were made, not misleading with respect to the period 
covered by this report;
    3. Based on my knowledge, the financial statements, and other 
financial information included in this report, fairly present in all 
material respects the financial condition, results of operations and 
cash flows of the registrant as of, and for, the periods presented in 
this report;
    4. The registrant's other certifying officers and I are responsible 
for establishing and maintaining disclosure controls and procedures and 
internal controls and procedures for financial reporting (as defined in 
Exchange Act Rules 13a–14 and 15d–14) for the registrant 
and we have:
    (a) Designed such disclosure controls and procedures, or caused 
such disclosure controls and procedures to be designed under our 
supervision, to ensure that material information relating to the 
issuer, including its consolidated subsidiaries, is made known to us by 
others within those entities, particularly during the period in which 
this report is being prepared;
    (b) Designed such internal controls and procedures for financial 
reporting, or caused such internal controls and procedures for 
financial reporting to be

[[Page 66243]]

designed under their supervision, to provide reasonable assurances that 
the registrant's financial statements are fairly presented in 
conformity with generally accepted accounting principles;
    (c) Evaluated the effectiveness of the registrant's disclosure 
controls and procedures and internal controls and procedures for 
financial reporting as of the end of the period covered by this report 
(“Evaluation Date”);
    (d) Presented in this report our conclusions about the 
effectiveness of the disclosure controls and procedures and internal 
controls and procedures for financial reporting based on our evaluation 
as of the Evaluation Date;
    (e) Disclosed to the registrant's auditors and the audit committee 
of the board of directors (or persons fulfilling the equivalent 
function):
    (i) All significant deficiencies and material weaknesses in the 
design or operation of internal controls and procedures for financial 
reporting which could adversely affect the registrant's ability to 
record, process, summarize and report financial information required to 
be disclosed by the registrant in the reports that it files or submits 
under the Act (15 U.S.C. 78a et seq.), within the time periods 
specified in the U.S. Securities and Exchange Commission's rules and 
forms; and
    (ii) Any fraud, whether or not material, that involves management 
or other employees who have a significant role in the registrant's 
internal controls and procedures for financial reporting; and
    (f) Indicated in this report any significant changes in the 
registrant's internal controls and procedures for financial reporting 
or in other factors that could significantly affect internal controls 
and procedures for financial reporting made during the period covered 
by this report, including any actions taken to correct significant 
deficiencies and material weaknesses in the registrant's internal 
controls and procedures for financial reporting.

Date:------------------------------------------------------------------

&fxsp0----------------------------------------------------------------
  [Signature]

&fxsp0----------------------------------------------------------------
   [Title]

    *&thnspProvide a separate certification for each principal 
executive officer and principal financial officer of the registrant. 
See Rules 13a–14 and 15d–14. The required certification 
must be in the exact form set forth above.
* * * * *
    29. Amend Form 10–KSB (referenced in §&thnsp249.310b) 
by:
    a. Revising Item 9 in Part III;
    b. Adding Item 15 in Part III; and
    c. Revising the “Certifications” section.
    The revisions and addition read as follows:

    Note: The text of Form 10–KSB does not, and this amendment 
will not, appear in the Code of Federal Regulations.

Form 10–KSB

[ ] Annual Report Pursuant to Section 13 or 15(d) of the 
Securities Exchange Act of 1934
* * * * *

Part III

* * * * *
Item 9. Directors and Executive Officers of the Registrant
    Furnish the information required by Items 401, 405 and 406 of 
Regulation S–B (§§&thnsp228.401, 228.405, and 228.406 
of this chapter).
* * * * *
Item 15. Audit Committee Financial Experts
    Provide the information required by Item 309 of Regulation 
S–B (§&thnsp228.309 of this chapter).
* * * * *

Certifications*

    I, [identify the certifying individual], certify that:
    1. I have reviewed this annual report on Form 10–KSB of 
[identify registrant];
    2. Based on my knowledge, this report does not contain any untrue 
statement of a material fact or omit to state a material fact necessary 
to make the statements made, in light of the circumstances under which 
such statements were made, not misleading with respect to the period 
covered by this report;
    3. Based on my knowledge, the financial statements, and other 
financial information included in this report, fairly present in all 
material respects the financial condition, results of operations and 
cash flows of the small business issuer as of, and for, the periods 
presented in this report;
    4. The small business issuer's other certifying officers and I are 
responsible for establishing and maintaining disclosure controls and 
procedures and internal controls and procedures for financial reporting 
(as defined in Exchange Act Rules 13a–14 and 15d–14) for 
the small business issuer and we have:
    (a) Designed such disclosure controls and procedures, or caused 
such disclosure controls and procedures to be designed under our 
supervision, to ensure that material information relating to the 
issuer, including its consolidated subsidiaries, is made known to us by 
others within those entities, particularly during the period in which 
this report is being prepared;
    (b) Designed such internal controls and procedures for financial 
reporting, or caused such internal controls and procedures for 
financial reporting to be designed under their supervision, to provide 
reasonable assurances that the small business issuer's financial 
statements are fairly presented in conformity with generally accepted 
accounting principles;
    (c) Evaluated the effectiveness of the small business issuer's 
disclosure controls and procedures and internal controls and procedures 
for financial reporting as of the end of the period covered by this 
report (“Evaluation Date”);
    (d) Presented in this report our conclusions about the 
effectiveness of the disclosure controls and procedures and internal 
controls and procedures for financial reporting based on our evaluation 
as of the Evaluation Date;
    (e) Disclosed to the small business issuer's auditors and the audit 
committee of the board of directors (or persons fulfilling the 
equivalent function):
    (i) All significant deficiencies and material weaknesses in the 
design or operation of internal controls and procedures for financial 
reporting which could adversely affect the small business issuer's 
ability to record, process, summarize and report financial information 
required to be disclosed by the small business issuer in the reports 
that it files or submits under the Act (15 U.S.C. 78a et seq.), within 
the time periods specified in the U.S. Securities and Exchange 
Commission's rules and forms; and
    (ii) Any fraud, whether or not material, that involves management 
or other employees who have a significant role in the small business 
issuer's internal controls and procedures for financial reporting; and
    (f) Indicated in this report any significant changes in the small 
business issuer's internal controls and procedures for financial 
reporting or in other factors that could significantly affect internal 
controls and procedures for financial reporting made during the period 
covered by this report, including any actions taken to correct 
significant deficiencies and material weaknesses in the small business 
issuer's internal controls and procedures for financial reporting.

Date:------------------------------------------------------------------


[[Page 66244]]

-----------------------------------------------------------------------
&fxsp0----------------------------------------------------------------
  [Signature]

&fxsp0----------------------------------------------------------------
   [Title]

    *&thnspProvide a separate certification for each principal 
executive officer and principal financial officer of the small business 
issuer. See Rules 13a–14 and 15d–14. The required 
certification must be in the exact form set forth above.
* * * * *
    30. Amend §&thnsp249.322 by revising paragraph (a) to read as 
follows:


§&thnsp249.322  Form 12b–25—Notification of late 
filing.

    (a) This form shall be filed pursuant to 
§&thnsp240.12b–25 of this chapter by issuers who are unable 
to file timely all or any required portion of an annual or transition 
report on Form 10–K and Form 10–KSB, 20–F, or 
11–K (§§&thnsp249.310, 249.310b, 249.220f or 249.311) 
or a quarterly or transition report on Form 10–Q and Form 
10–QSB (§§&thnsp249.308a and 249.308b) or a current 
report on Form 8–K (§&thnsp249.308) pursuant to section 13 
or 15(d) of the Act (15 U.S.C. 78m or 78o(d)) or a semi-annual, annual 
or transition report on Form N–SAR or Form N–CSR (17 CFR 
274.101 or 274.128) pursuant to section 13 or 15(d) of the Act or 
section 30 of the Investment Company Act of 1940 (15 U.S.C. 
80a–29). The filing shall consist of a signed original and three 
conformed copies, and shall be filed with the Commission at Washington, 
DC 20549, no later than one business day after the due date for the 
periodic report in question. Copies of this form may be obtained from 
“Publications,” Securities and Exchange Commission, 450 5th 
Street, NW., Washington, DC 20549 and at our Web site at http://
www.sec.gov.
* * * * *
    31. Amend Form 12b–25 (referenced in §&thnsp249.322) 
by:
    a. Revising the preamble;
    b. Revising paragraph (b) of Part II; and
    c. Revising Part III to read as follows:

    Note: The text of Form 12b–25 does not, and this amendment 
will not, appear in the Code of Federal Regulations.

Form 12b–25

Notification of Late Filing

(Check One): &lowbarm Form 10–K &lowbarm Form 20–F 
&lowbarm Form 11–K &lowbarm Form 10–Q &lowbarm Form 
8–K &lowbarm Form N–SAR &lowbarm Form N–CSR
* * * * *

Part II—Rules 12b–25(b) and (c)

* * * * *
    (b) The subject annual report, semi-annual report, transition 
report on Form 10–K, Form 20–F, Form 11–K, Form 
N–SAR or Form N–CSR, or portion thereof, will be filed on 
or before the fifteenth calendar day following the prescribed due date; 
or the subject quarterly report or transition report on Form 
10–Q, or portion thereof, will be filed on or before the fifth 
calendar day following the prescribed due date; or the subject current 
report on Form 8–K will be filed on or before the second business 
day following the prescribed due date; and
* * * * *

Part III—Narrative

    State below in reasonable detail why Forms 10–K, 20–F, 
11–K, 10–Q, 8–K, N–SAR, N–CSR, or the 
transition report or portion thereof, could not be filed within the 
prescribed time period.
* * * * *

PART 270—RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 
1940

    32. The general authority citation for part 270 is revised to read 
as follows:

    Authority: 15 U.S.C. 80a–1 et seq., 80a–34(d), 
80a–37, and 80a–39, unless otherwise noted;
* * * * *
    33. Amend §&thnsp270.30a–2 by:
    a. Revising paragraph (b)(4);
    b. Removing paragraphs (b)(5) and (b)(6); and
    c. Adding paragraph (d).
    The revisions and additions read as follows:


§&thnsp270.30a–2  Certification of disclosure in annual and 
semi-annual reports.

* * * * *
    (b) * * *
    (4) He or she and the other certifying officers are responsible for 
establishing and maintaining disclosure controls and procedures and 
internal controls and procedures for financial reporting (as such terms 
are defined in paragraphs (c) and (d) of this section) for the 
investment company and have:
    (i) Designed such disclosure controls and procedures, or caused 
such disclosure controls and procedures to be designed under their 
supervision, to ensure that material information relating to the 
investment company, including its consolidated subsidiaries, is made 
known to them by others within those entities, particularly during the 
period in which periodic reports are being prepared;
    (ii) Designed such internal controls and procedures for financial 
reporting, or caused such internal controls and procedures for 
financial reporting to be designed under their supervision, to provide 
reasonable assurances that the investment company's financial 
statements are fairly presented in conformity with generally accepted 
accounting principles;
    (iii) Evaluated the effectiveness of the investment company's 
disclosure controls and procedures as of the end of the period covered 
by the report (“Evaluation Date”);
    (iv) Presented in the report their conclusions about the 
effectiveness of the disclosure controls and procedures based on their 
evaluation as of the Evaluation Date; and
    (v) Disclosed to the investment company's auditors and the audit 
committee of the board of directors (or persons fulfilling the 
equivalent function):
    (A) All significant deficiencies and material weaknesses in the 
design or operation of internal controls and procedures for financial 
reporting which could adversely affect the investment company's ability 
to record, process, summarize, and report financial information 
required to be disclosed by the investment company in the reports that 
it files or submits under the Securities Exchange Act of 1934 (15 
U.S.C. 78a et seq.) and the Investment Company Act of 1940 (15 U.S.C. 
80a–1 et seq.), within the time periods specified in the 
Commission's rules and forms; and
    (B) Any fraud, whether or not material, that involves management or 
other employees who have a significant role in the investment company's 
internal controls and procedures for financial reporting; and
    (vi) Indicated in the report any significant changes in the 
investment company's internal controls and procedures for financial 
reporting or in other factors that could significantly affect internal 
controls and procedures for financial reporting made during the period 
covered by the report, including any actions taken to correct 
significant deficiencies and material weaknesses in the investment 
company's internal controls and procedures for financial reporting.
* * * * *
    (d) For purposes of this section, the term internal controls and 
procedures for financial reporting means controls that pertain to the 
preparation of financial statements for external purposes that are 
fairly presented in conformity with generally accepted accounting 
principles as addressed by the Codification of Statements on Auditing 
Standards §&thnsp319 or any superseding definition or other 
literature that is issued or adopted by the Public Company Accounting 
Oversight Board.

[[Page 66245]]

    34. Amend §&thnsp270.30a–3 (as proposed in 67 FR 57298 
(9/9/02)) by revising paragraph (b) to read as follows:


§&thnsp270.30a–3  Disclosure controls and procedures 
related to preparation of required filings.

* * * * *
    (b) In connection with each report, including transition reports, 
that requires certification under §&thnsp270.30a–2, the 
registered investment company's management must conduct an evaluation, 
with the participation of the registered investment company's principal 
executive officer or officers and principal financial officer or 
officers, or persons performing similar functions, of the 
effectiveness, as of the end of the period covered by the report, of 
the design and operation of the registered investment company's 
disclosure controls and procedures.

PART 274—FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 
1940

    35. The authority citation for Part 274 is revised to read as 
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 
78n, 78o(d), 80a–8, 80a–24, 80a–26, and 
80a–29, unless otherwise noted.
    Section 274.101 is also issued under secs. 3(a), 302, 406, and 
407, Pub. L. No. 107–204, 116 Stat. 745.
    Section 274.128 is also issued under secs. 3(a), 302, 406, and 
407, Pub. L. No. 107–204, 116 Stat. 745.

PART 249—FORMS, SECURITIES EXCHANGE ACT OF 1934

PART 274—FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 
1940

    36. Amend Form N–SAR (referenced in 
§§&thnsp249.330 and 274.101) by:
    a. Revising the reference “133” in item 6 to read 
“134”;
    b. Redesignating item 133 as item 134;
    c. Adding new item 133;
    d. Revising newly redesignated item 134;
    e. Revising the reference “items 77 and 102” in 
paragraph (1) of General Instruction D, “Preparation of 
Report,” to read “items 77, 102, and 134(b)”;
    f. Revising the reference “133” in the fifth 
paragraph of General Instruction A to read “134”;
    g. Revising paragraphs (a)(i) and (a)(ii) of sub-item 77Q3 in 
Instructions to Specific Items;
    h. Revising the Certification contained in paragraph (a)(iii) of 
sub-item 77Q3 in Instructions to Specific Items;
    i. Designating the current Instruction to sub-item 102P3 as 
Instruction (c);
    j. Adding Instructions (a) and (b) to sub-item 102P3;
    k. Adding an Instruction to item 133;
    l. Revising the Instruction to newly redesignated item 134; and
    m. Revising the reference “133” in the Instructions 
to the Signature Page to read “134.”

    These additions and revisions read as follows:

    Note: The text of Form N–SAR does not, and this amendment 
will not, appear in the Code of Federal Regulations.

Form N–SAR
* * * * *
Item 133: Code of Ethics
    (a) Disclose whether each of the registrant's sponsor, depositor, 
trustee, and principal underwriter has adopted a written code of ethics 
that applies to the principal executive officer, principal financial 
officer, principal accounting officer or controller, or persons 
performing similar functions of, respectively, the registrant's 
sponsor, depositor, trustee, and principal underwriter. If any of the 
registrant's sponsor, depositor, trustee, and principal underwriter has 
not adopted such a code of ethics, explain why it has not done so.
    (b) If the registrant's sponsor, depositor, trustee, or principal 
underwriter has amended its code of ethics that applies to its 
principal executive officer, principal financial officer, principal 
accounting officer or controller, or persons performing similar 
functions, or granted a waiver, including an implicit waiver, from a 
provision of the code of ethics to one of these officers or persons, 
the registrant must briefly describe the nature of the amendment or 
waiver. Disclosure regarding waivers must include the name of the 
person to whom the waiver was granted, and the date of the waiver.
    (c) If the registrant plans to elect to disclose any amendments to, 
or waivers from, its sponsor's, depositor's, trustee's, or principal 
underwriter's codes of ethics on the registrant's Internet website, 
disclose the registrant's Internet address and its intention to 
disclose these events on its website.
Item 134
    Include the following exhibits:
    (a)The certifications required by rule 30a–2 under the 
Investment Company Act (17 CFR 270.30a–2).
    (b) Any written code of ethics, or amendment to that code of 
ethics, that applies to the principal executive officer, principal 
financial officer, principal accounting officer or controller, or 
persons performing similar functions of registrant's sponsor, 
depositor, trustee, or principal underwriter, subject to disclosure 
under Item 133 of this Form.
* * * * *

Instructions to Specific Items

* * * * *
Sub-Item 77Q3
* * * * *
    (a) * * *
    (i) Disclose the conclusions of the registrant's principal 
executive officer or officers and principal financial officer or 
officers, or persons performing similar functions, about the 
effectiveness of the registrant's disclosure controls and procedures 
(as defined in rule 30a–2(c) under the Act (17 CFR 
270.30a–2(c))) based on management's evaluation of these controls 
and procedures in accordance with Rule 13a–15(c) or 
15d–15(c) under the 1934 Act (17 CFR 240.13a–15(c) or 
15d–15(c)) and Rule 30a–3(b) under the Act (17 CFR 
270.30a–3(b)) as of the end of the period covered by the report 
that includes the disclosure required by this paragraph.
    (ii) Disclose any significant changes to the registrant's internal 
controls and procedures for financial reporting (as defined in rule 
30a–2(d) under the Act (17 CFR 270.30a–2(d))) made during 
the period covered by the report that includes the disclosure required 
by this paragraph, including any actions taken to correct significant 
deficiencies and material weaknesses in the registrant's internal 
controls and procedures for financial reporting.
    (iii) * * *

Certifications

    I, [identify the certifying individual], certify that:
    1. I have reviewed this report on Form N–SAR, including 
exhibits, of [identify registrant];
    2. Based on my knowledge, this report, including exhibits, does not 
contain any untrue statement of a material fact or omit to state a 
material fact necessary to make the statements made, in light of the 
circumstances under which such statements were made, not misleading 
with respect to the period covered by this report;
    3. Based on my knowledge, the financial information included in 
this report, including exhibits, and the financial statements on which 
the financial information is based, fairly present in all material 
respects the financial condition, results of operations, changes in net 
assets, and cash flows (if the financial statements are required to 
include a statement of cash flows) of the registrant as of, and for, 
the periods presented in this report;

[[Page 66246]]

    4. The registrant's other certifying officers and I are responsible 
for establishing and maintaining disclosure controls and procedures and 
internal controls and procedures for financial reporting (as defined in 
rule 30a–2(c) and (d) under the Investment Company Act) for the 
registrant and we have:
    (a) Designed such disclosure controls and procedures, or caused 
such disclosure controls and procedures to be designed under our 
supervision, to ensure that material information relating to the 
registrant, including its consolidated subsidiaries, is made known to 
us by others within those entities, particularly during the period in 
which this report is being prepared;
    (b) Designed such internal controls and procedures for financial 
reporting, or caused such internal controls and procedures for 
financial reporting to be designed under our supervision, to provide 
reasonable assurances that the registrant's financial statements are 
fairly presented in conformity with generally accepted accounting 
principles;
    (c) Evaluated the effectiveness of the registrant's disclosure 
controls and procedures as of the end of the period covered by this 
report (“Evaluation Date”);
    (d) Presented in this report our conclusions about the 
effectiveness of the disclosure controls and procedures based on our 
evaluation as of the Evaluation Date;
    (e) Disclosed to the registrant's auditors and the audit committee 
of the board of directors (or persons fulfilling the equivalent 
function):
    (i) All significant deficiencies and material weaknesses in the 
design or operation of internal controls and procedures for financial 
reporting which could adversely affect the registrant's ability to 
record, process, summarize, and report financial information required 
to be disclosed by the registrant in the reports that it files or 
submits under the Securities Exchange Act of 1934 and the Investment 
Company Act of 1940, within the time periods specified in the U.S. 
Securities and Exchange Commission's rules and forms; and
    (ii) Any fraud, whether or not material, that involves management 
or other employees who have a significant role in the registrant's 
internal controls and procedures for financial reporting; and
    (f) Indicated in this report any significant changes in the 
registrant's internal controls and procedures for financial reporting 
or in other factors that could significantly affect internal controls 
and procedures for financial reporting made during the period covered 
by this report, including any actions taken to correct significant 
deficiencies and material weaknesses in the registrant's internal 
controls and procedures for financial reporting.

Date:------------------------------------------------------------------

&fxsp0----------------------------------------------------------------
  [Signature]

&fxsp0----------------------------------------------------------------
   [Title]

* * * * *
Sub-Item 102P3
* * * * *
    Instructions: (a)(1) Disclose whether each of the registrant, its 
investment adviser, and its principal underwriter has adopted a written 
code of ethics that applies to the principal executive officer, 
principal financial officer, principal accounting officer or 
controller, or persons performing similar functions of, respectively, 
the registrant, its investment adviser, and its principal underwriter. 
If any of the registrant, its investment adviser, and its principal 
underwriter has not adopted such a code of ethics, explain why it has 
not done so.
    (2) If the registrant, its investment adviser, or its principal 
underwriter has amended its code of ethics that applies to its 
principal executive officer, principal financial officer, principal 
accounting officer or controller, or persons performing similar 
functions, or granted a waiver, including an implicit waiver, from a 
provision of the code of ethics to one of these officers or persons, 
the registrant must briefly describe the nature of the amendment or 
waiver. Disclosure regarding waivers must include the name of the 
person to whom the waiver was granted, and the date of the waiver. The 
registrant does not need to provide any information pursuant to this 
paragraph (a)(2) if it discloses the required information on its 
Internet website within two business days following the date of the 
amendment or waiver and the registrant has disclosed in its most 
recently filed report on this form its Internet address and intention 
to provide disclosure in this manner. If the amendment or waiver occurs 
on a Saturday, Sunday, or holiday on which the Commission is not open 
for business, then the two business day period shall begin to run on 
and include the first business day thereafter. If the registrant elects 
to disclose this information through its website, such information must 
remain available on the website for at least a 12-month period. The 
registrant must retain the information for a period of not less than 
six years following the end of the fiscal year in which the amendment 
or waiver occurred. Upon request, the registrant must furnish to the 
Commission or its staff a copy of any or all information retained 
pursuant to this requirement.
    (3) If the registrant plans to elect to disclose any amendments to, 
or waivers from, its code of ethics, or its investment adviser's or 
principal underwriter's codes of ethics, on the registrant's Internet 
website, disclose the registrant's Internet address and its intention 
to disclose these events on its website.
    (4) Include any written code of ethics, or amendment to that code 
of ethics, that applies to the principal executive officer, principal 
financial officer, principal accounting officer or controller, or 
persons performing similar functions of the registrant, its investment 
adviser, or its principal underwriter, subject to disclosure under 
paragraphs (a)(1) and (a)(2) of this Instruction.
    (5) The requirements of paragraphs (a)(1) through (a)(4) of this 
Instruction do not apply with respect to a code of ethics of any 
principal underwriter of the registrant unless:
    (i) The principal underwriter is an affiliated person of the 
registrant or the registrant's investment adviser; or
    (ii) An officer, director, or general partner of the principal 
underwriter serves as an officer, director, or general partner of the 
registrant or of the registrant's investment adviser.
    (6) For purposes of this Instruction 102P3(a), the term “code 
of ethics” means a codification of such standards that is 
reasonably designed to deter wrongdoing and to promote:
    (i) Honest and ethical conduct, including the ethical handling of 
actual or apparent conflicts of interest between personal and 
professional relationships;
    (ii) Avoidance of conflicts of interest, including disclosure to an 
appropriate person or persons identified in the code of any material 
transaction or relationship that reasonably could be expected to give 
rise to such a conflict;
    (iii) Full, fair, accurate, timely, and understandable disclosure 
in reports and documents that are filed with, or submitted to, the 
Commission and in other public communications;
    (iv) Compliance with applicable governmental laws, rules and 
regulations;
    (v) The prompt internal reporting to an appropriate person or 
persons identified in the code of violations of the code; and
    (vi) Accountability for adherence to the code.
    (7) The information required by paragraph (a)(1) of this 
Instruction is

[[Page 66247]]

only required for a report on this form filed for the registrant's 
fiscal year.
    (b)(1) Disclose the number and names of the persons that the 
registrant's board of directors has determined to be the financial 
experts serving on the registrant's audit committee, as defined in 
section 3(a)(58) of the 1934 Act, as of the end of the period covered 
by the report. Also disclose whether the financial expert or experts 
are “independent,” and if not, an explanation of why they 
are not. For this purpose, a financial expert would be considered to be 
“independent” if he or she (i) meets the criteria set forth 
in section 10A(m)(3)(B)(i) of the 1934 Act; and (ii) is not an 
“interested person” of the investment company as defined in 
section 2(a)(19) of the Act. If the registrant's board of directors has 
not determined that a financial expert is serving on its audit 
committee, the registrant must disclose that fact and explain why it 
does not have such an expert.
    (2) For purposes of the determination by the board of directors 
under this Instruction 102P3(b), the term “financial 
expert” means a person who has, through education and experience 
as a public accountant or auditor, or a principal financial officer, 
controller, or principal accounting officer, of a company that, at the 
time the person held such position, was required to file reports 
pursuant to section 13(a) or 15(d) of the 1934 Act, or experience in 
one or more positions that involve the performance of similar functions 
(or that results, in the judgment of the board of directors, in the 
person's having similar expertise and experience), the following 
attributes:
    (i) An understanding of generally accepted accounting principles 
and financial statements;
    (ii) Experience applying such generally accepted accounting 
principles in connection with the accounting for estimates, accruals, 
and reserves that are generally comparable to the estimates, accruals, 
and reserves, if any, used in the registrant's financial statements;
    (iii) Experience preparing or auditing financial statements that 
present accounting issues that are generally comparable to those raised 
by the registrant's financial statements;
    (iv) Experience with internal controls and procedures for financial 
reporting; and
    (v) An understanding of audit committee functions.
    (3) If the board of directors has determined that a person is a 
financial expert because, in the board's judgment, he or she has 
similar expertise and experience to those enumerated, the registrant 
must disclose the basis for that determination.
    (4) In evaluating the education and experience of a person, the 
board of directors should consider the following factors in the 
aggregate:
    (i) The level of the person's accounting or financial education, 
including whether the person has earned an advanced degree in finance 
or accounting;
    (ii) Whether the person is a certified public accountant, or the 
equivalent, in good standing, and the length of time that the person 
actively has practiced as a certified public accountant, or the 
equivalent;
    (iii) Whether the person is certified or otherwise identified as 
having accounting or financial experience by a recognized private body 
that establishes and administers standards in respect of such 
expertise, whether that person is in good standing with the recognized 
private body, and the length of time that the person has been actively 
certified or identified as having this expertise;
    (iv) Whether the person has served as a principal financial 
officer, controller, or principal accounting officer of a company that, 
at the time the person held such position, was required to file reports 
pursuant to section 13(a) or 15(d) of the 1934 Act, and if so, for how 
long;
    (v) The person's specific duties while serving as a public 
accountant, auditor, principal financial officer, controller, principal 
accounting officer or position involving the performance of similar 
functions;
    (vi) The person's level of familiarity and experience with all 
applicable laws and regulations regarding the preparation of financial 
statements that must be included in reports filed under section 13(a) 
or 15(d) of the 1934 Act;
    (vii) The level and amount of the person's direct experience 
reviewing, preparing, auditing, or analyzing financial statements that 
must be included in reports filed under section 13(a) or 15(d) of the 
1934 Act;
    (viii) The person's past or current membership on one or more audit 
committees of companies that, at the time the person held such 
membership, were required to file reports pursuant to section 13(a) or 
15(d) of the 1934 Act;
    (ix) The person's level of familiarity and experience with the use 
and analysis of financial statements of public companies; and
    (x) Whether the person has any other relevant qualifications or 
experience that would assist him or her in understanding and evaluating 
the registrant's financial statements and other financial information 
and to make knowledgeable and thorough inquiries whether: (A) the 
financial statements fairly present the financial condition, results of 
operations, and cash flows of the registrant in accordance with 
generally accepted accounting principles; and (B) the financial 
statements and other financial information, taken together, fairly 
present the financial condition, results of operations, and cash flows 
of the registrant.
    (5) Although the board of directors should consider the factors 
listed in paragraph (b)(4) of this Instruction, those factors are not 
replacements for, and a financial expert must satisfy, all of the 
attributes listed in paragraph (b)(2) of this Instruction.
    (c) * * *
* * * * *
Item 133
* * * * *
    Instructions: (a) The requirements of Item 133 do not apply with 
respect to a code of ethics of any principal underwriter of the 
registrant unless:
    (1) The principal underwriter is an affiliated person of the 
registrant or the registrant's sponsor, depositor, or trustee; or
    (2) An officer, director, or general partner of the principal 
underwriter serves as an officer, director, or general partner of the 
registrant's sponsor, depositor, or trustee.
    (b) For purposes of Item 133, the term “code of ethics” 
means a codification of such standards that is reasonably designed to 
deter wrongdoing and to promote:
    (1) Honest and ethical conduct, including the ethical handling of 
actual or apparent conflicts of interest between personal and 
professional relationships;
    (2) Avoidance of conflicts of interest, including disclosure to an 
appropriate person or persons identified in the code of any material 
transaction or relationship that reasonably could be expected to give 
rise to such a conflict;
    (3) Full, fair, accurate, timely, and understandable disclosure in 
reports and documents that are filed with, or submitted to, the 
Commission and in other public communications;
    (4) Compliance with applicable governmental laws, rules and 
regulations;
    (5) The prompt internal reporting to an appropriate person or 
persons identified in the code of violations of the code; and
    (6) Accountability for adherence to the code.
    (c) The registrant does not need to provide any information 
pursuant to

[[Page 66248]]

paragraph (b) of this Item if it discloses the required information on 
its Internet website within two business days following the date of the 
amendment or waiver and the registrant has disclosed in its most 
recently filed report on this form its Internet address and intention 
to provide disclosure in this manner. If the amendment or waiver occurs 
on a Saturday, Sunday, or holiday on which the Commission is not open 
for business, then the two business day period shall begin to run on 
and include the first business day thereafter. If the registrant elects 
to disclose this information through its website, such information must 
remain available on the website for at least a 12-month period. The 
registrant must retain the information for a period of not less than 
six years following the end of the fiscal year in which the amendment 
or waiver occurred. Upon request, the registrant must furnish to the 
Commission or its staff a copy of any or all information retained 
pursuant to this requirement.
Item 134
    In responding to sub-item 134(a), include the exhibit required by 
instruction (a) for sub-item 77Q3. The registrant may omit paragraph 3 
of the certification required by instruction (a)(iii).
* * * * *
    37. Amend Form N–CSR (referenced in 
§§&thnsp249.331 and 274.128; as proposed in 67 FR 57298 (9/
9/02) and 67 FR 60828 (9/26/02)) by:

    a. Revising General Instruction D;
    b. Redesignating General Instruction E as General Instruction F;
    c. Adding new General Instruction E;
    d. Removing Item 1;
    e. Redesignating Items 2, 3, and 4 as Items 1, 2, and 5;
    f. Adding new Items 3, 4 and 6;
    g. Revising newly redesignated Item 5; and
    h. Revising the “Certifications” section, to read as 
follows:

    Note: The text of Form N–CSR does not, and this amendment 
will not, appear in the Code of Federal Regulations

Form N–CSR

* * * * *

General Instructions

* * * * *

D. Incorporation by Reference

    A registrant may incorporate by reference information required by 
Item 6(b), but no other Items of the Form shall be answered by 
incorporating any information by reference. All incorporation by 
reference must comply with the requirements of this Form and the 
following rules on incorporation by reference: Rule 10(d) of Regulation 
S–K under the Securities Act of 1933 [17 CFR 229.10(d)] (general 
rules on incorporation by reference, which, among other things, 
prohibit, unless specifically required by this Form, incorporating by 
reference a document that includes incorporation by reference to 
another document, and limits incorporation to documents filed within 
the last 5 years, with certain exceptions); Rule 303 of Regulation 
S–T [17 CFR 232.303] (specific requirements for electronically 
filed documents); Rules 12b–23 and 12b–32 under the 
Securities Exchange Act of 1934 (additional rules on incorporation by 
reference for reports filed pursuant to Sections 13 and 15(d) of the 
Securities Exchange Act of 1934); and Rules 0–4, 8b–23, and 
8b–32 under the Investment Company Act of 1940 [17 CFR 
270.0–4, 270.8b–23, and 270.8b–32] (additional rules 
on incorporation by reference for investment companies).

E. Definitions

    Unless the context clearly indicates the contrary, terms used in 
this Form N–CSR have meanings as defined in the Investment 
Company Act of 1940 and the rules and regulations thereunder. Unless 
otherwise indicated, all references in the form to statutory sections 
or to rules are sections of the Investment Company Act of 1940 and the 
rules and regulations thereunder.
* * * * *
Item 3. Code of Ethics
    (a) Disclose whether, as of the end of the period covered by the 
report, each of the registrant, its investment adviser, and its 
principal underwriter has adopted a written code of ethics that applies 
to the principal executive officer, principal financial officer, 
principal accounting officer or controller, or persons performing 
similar functions of, respectively, the registrant, its investment 
adviser, and its principal underwriter. If any of the registrant, its 
investment adviser, and its principal underwriter has not adopted such 
a code of ethics, explain why it has not done so.
    Instruction. The information required by this Item 3(a) is only 
required in a report on this Form N–CSR that is required by Item 
6(a) to include a copy of an annual report transmitted to stockholders.
    (b) If the registrant, its investment adviser, or its principal 
underwriter has, during the period covered by the report, amended its 
code of ethics that applies to its principal executive officer, 
principal financial officer, principal accounting officer or 
controller, or persons performing similar functions or granted a 
waiver, including an implicit waiver, from a provision of the code of 
ethics to one of these officers or persons, the registrant must briefly 
describe the nature of the amendment or waiver. Disclosure regarding 
waivers must include the name of the person to whom the waiver was 
granted, and the date of the waiver.
    (c) If the registrant plans to elect to disclose any amendments to, 
or waivers from, its code of ethics, or its investment adviser's or 
principal underwriter's codes of ethics, on the registrant's Internet 
website, disclose the registrant's Internet address and its intention 
to disclose these events on its website.
    Instructions. 1. The requirements of this Item 3 do not apply with 
respect to a code of ethics of any principal underwriter of the 
registrant unless:
    (a) The principal underwriter is an affiliated person of the 
registrant or the registrant's investment adviser; or
    (b) An officer, director, or general partner of the principal 
underwriter serves as an officer, director, or general partner of the 
registrant or of the registrant's investment adviser.
    2. For purposes of this Item 3, the term “code of 
ethics” means a codification of such standards that is reasonably 
designed to deter wrongdoing and to promote:
    (a) Honest and ethical conduct, including the ethical handling of 
actual or apparent conflicts of interest between personal and 
professional relationships;
    (b) Avoidance of conflicts of interest, including disclosure to an 
appropriate person or persons identified in the code of any material 
transaction or relationship that reasonably could be expected to give 
rise to such a conflict;
    (c) Full, fair, accurate, timely, and understandable disclosure in 
reports and documents that are filed with, or submitted to, the 
Commission and in other public communications;
    (d) Compliance with applicable governmental laws, rules and 
regulations;
    (e) The prompt internal reporting to an appropriate person or 
persons identified in the code of violations of the code; and
    (f) Accountability for adherence to the code.
    3. The registrant does not need to provide any information pursuant 
to this Item if it discloses the required information on its Internet 
website within two business days following the date of the amendment or 
waiver and the registrant has disclosed in its most recently filed 
report on this Form N–CSR its Internet address and intention to

[[Page 66249]]

provide disclosure in this manner. If the amendment or waiver occurs on 
a Saturday, Sunday, or holiday on which the Commission is not open for 
business, then the two business day period shall begin to run on and 
include the first business day thereafter. If the registrant elects to 
disclose this information through its website, such information must 
remain available on the website for at least a 12-month period. The 
registrant must retain the information for a period of not less than 
six years following the end of the fiscal year in which the amendment 
or waiver occurred. Upon request, the registrant must furnish to the 
Commission or its staff a copy of any or all information retained 
pursuant to this requirement.
Item 4. Audit Committee Financial Experts
    Disclose the number and names of the persons that the registrant's 
board of directors has determined to be the financial experts serving 
on the registrant's audit committee, as defined in section 3(a)(58) of 
the Securities Exchange Act of 1934, as of the end of the period 
covered by the report. Also disclose whether the financial expert or 
experts are “independent,” and if not, an explanation of 
why they are not. For this purpose, a financial expert would be 
considered to be “independent” if he or she (i) meets the 
criteria set forth in section 10A(m)(3)(B)(i) of the Securities 
Exchange Act of 1934; and (ii) is not an “interested 
person” of the investment company as defined in section 2(a)(19) 
of the Investment Company Act of 1940. If the registrant's board of 
directors has not determined that a financial expert is serving on its 
audit committee, the registrant must disclose that fact and explain why 
it does not have such an expert.
    Instructions. 1. The information required by this Item 4 is only 
required in a report on this Form N-CSR that is required by Item 6(a) 
to include a copy of an annual report transmitted to stockholders.
    2. For purposes of the determination by the board of directors 
under this Item 4, the term “financial expert” means a 
person who has, through education and experience as a public accountant 
or auditor, or a principal financial officer, controller, or principal 
accounting officer, of a company that, at the time the person held such 
position, was required to file reports pursuant to section 13(a) or 
15(d) of the Securities Exchange Act of 1934, or experience in one or 
more positions that involve the performance of similar functions (or 
that results, in the judgment of the board of directors, in the 
person's having similar expertise and experience), the following 
attributes:
    a. An understanding of generally accepted accounting principles and 
financial statements;
    b. Experience applying such generally accepted accounting 
principles in connection with the accounting for estimates, accruals, 
and reserves that are generally comparable to the estimates, accruals, 
and reserves, if any, used in the registrant's financial statements;
    c. Experience preparing or auditing financial statements that 
present accounting issues that are generally comparable to those raised 
by the registrant's financial statements;
    d. Experience with internal controls and procedures for financial 
reporting; and
    e. An understanding of audit committee functions.
    3. If the board of directors has determined that a person is a 
financial expert because, in the board's judgment, he or she has 
similar expertise and experience to those enumerated, the registrant 
must disclose the basis for that determination.
    4. In evaluating the education and experience of a person, the 
board of directors should consider the following factors in the 
aggregate:
    a. The level of the person's accounting or financial education, 
including whether the person has earned an advanced degree in finance 
or accounting;
    b. Whether the person is a certified public accountant, or the 
equivalent, in good standing, and the length of time that the person 
actively has practiced as a certified public accountant, or the 
equivalent;
    c. Whether the person is certified or otherwise identified as 
having accounting or financial experience by a recognized private body 
that establishes and administers standards in respect of such 
expertise, whether that person is in good standing with the recognized 
private body, and the length of time that the person has been actively 
certified or identified as having this expertise;
    d. Whether the person has served as a principal financial officer, 
controller, or principal accounting officer of a company that, at the 
time the person held such position, was required to file reports 
pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 
1934, and if so, for how long;
    e. The person's specific duties while serving as a public 
accountant, auditor, principal financial officer, controller, principal 
accounting officer or position involving the performance of similar 
functions;
    f. The person's level of familiarity and experience with all 
applicable laws and regulations regarding the preparation of financial 
statements that must be included in reports filed under section 13(a) 
or 15(d) of the Securities Exchange Act of 1934;
    g. The level and amount of the person's direct experience 
reviewing, preparing, auditing, or analyzing financial statements that 
must be included in reports filed under section 13(a) or 15(d) of the 
Securities Exchange Act of 1934;
    h. The person's past or current membership on one or more audit 
committees of companies that, at the time the person held such 
membership, were required to file reports pursuant to section 13(a) or 
15(d) of the Securities Exchange Act of 1934;
    i. The person's level of familiarity and experience with the use 
and analysis of financial statements of public companies; and
    j. Whether the person has any other relevant qualifications or 
experience that would assist him or her in understanding and evaluating 
the registrant's financial statements and other financial information 
and to make knowledgeable and thorough inquiries whether: (i) the 
financial statements fairly present the financial condition, results of 
operations and cash flows of the registrant in accordance with 
generally accepted accounting principles; and (ii) the financial 
statements and other financial information, taken together, fairly 
present the financial condition, results of operations, and cash flows 
of the registrant.
    5. Although the board of directors should consider the factors 
listed in Instruction 4, those factors are not replacements for, and a 
financial expert must satisfy, all of the attributes listed in 
Instruction 2 to this Item.
Item 5. Controls and Procedures
    (a) Disclose the conclusions of the registrant's principal 
executive officer or officers and principal financial officer or 
officers, or persons performing similar functions, about the 
effectiveness of the registrant's disclosure controls and procedures 
(as defined in rule 30a–2(c) under the Investment Company Act of 
1940 (17 CFR 270.30a–2(c))) based on management's evaluation of 
these controls and procedures in accordance with Rule 13a–15(c) 
or 15d–15(c) under the Securities Exchange Act of 1934 (17 CFR 
240.13a–15(c) or 240.15d–15(c)) and Rule 30a–3(b) 
under the Investment Company Act of 1940 (17 CFR 270.30a–3(b)) as 
of the end of the period covered

[[Page 66250]]

by the report that includes the disclosure required by this paragraph.
    (b) Disclose any significant changes to the registrant's internal 
controls and procedures for financial reporting (as defined in rule 
30a–2(d) under the Investment Company Act of 1940 (17 CFR 
270.30a–2(d))) made during the period covered by the report that 
includes the disclosure required by this paragraph, including any 
actions taken to correct significant deficiencies and material 
weaknesses in the registrant's internal controls and procedures for 
financial reporting.

Item 6. Exhibits

    File the exhibits listed below as part of this Form. Letter or 
number the exhibits in the sequence indicated.
    (a) A copy of the report transmitted to stockholders pursuant to 
Rule 30e–1 under the Investment Company Act of 1940 (17 CFR 
270.30e–1).
    (b) Any written code of ethics, or amendment to that code of 
ethics, that applies to the principal executive officer, principal 
financial officer, principal accounting officer or controller, or 
persons performing similar functions of the registrant, its investment 
adviser, or its principal underwriter, subject to disclosure under Item 
3.
* * * * *

Certifications*

    I, [identify the certifying individual], certify that:
    1. I have reviewed this report on Form N–CSR, including 
exhibits, of [identify registrant];
    2. Based on my knowledge, this report, including exhibits, does not 
contain any untrue statement of a material fact or omit to state a 
material fact necessary to make the statements made, in light of the 
circumstances under which such statements were made, not misleading 
with respect to the period covered by this report;
    3. Based on my knowledge, the financial statements, and other 
financial information included in this report, including exhibits, 
fairly present in all material respects the financial condition, 
results of operations, changes in net assets, and cash flows (if the 
financial statements are required to include a statement of cash flows) 
of the registrant as of, and for, the periods presented in this report;
    4. The registrant's other certifying officers and I are responsible 
for establishing and maintaining disclosure controls and procedures and 
internal controls and procedures for financial reporting (as defined in 
rule 30a–2(c) and (d) under the Investment Company Act of 1940) 
for the registrant and we have:
    (a) Designed such disclosure controls and procedures, or caused 
such disclosure controls and procedures to be designed under our 
supervision, to ensure that material information relating to the 
registrant, including its consolidated subsidiaries, is made known to 
us by others within those entities, particularly during the period in 
which this report is being prepared;
    (b) Designed such internal controls and procedures for financial 
reporting, or caused such internal controls and procedures for 
financial reporting to be designed under our supervision, to provide 
reasonable assurances that the registrant's financial statements are 
fairly presented in conformity with generally accepted accounting 
principles;
    (c) Evaluated the effectiveness of the registrant's disclosure 
controls and procedures as of the end of the period covered by this 
report (“Evaluation Date”);
    (d) Presented in this report our conclusions about the 
effectiveness of the disclosure controls and procedures based on our 
evaluation as of the Evaluation Date;
    (e) Disclosed to the registrant's auditors and the audit committee 
of the board of directors (or persons fulfilling the equivalent 
function):
    (i) All significant deficiencies and material weaknesses in the 
design or operation of internal controls and procedures for financial 
reporting which could adversely affect the registrant's ability to 
record, process, summarize, and report financial information required 
to be disclosed by the registrant in the reports that it files or 
submits under the Securities Exchange Act of 1934 and the Investment 
Company Act of 1940, within the time periods specified in the U.S. 
Securities and Exchange Commission's rules and forms; and
    (ii) Any fraud, whether or not material, that involves management 
or other employees who have a significant role in the registrant's 
internal controls and procedures for financial reporting; and
    (f) Indicated in this report any significant changes in the 
registrant's internal controls and procedures for financial reporting 
or in other factors that could significantly affect internal controls 
and procedures for financial reporting made during the period covered 
by this report, including any actions taken to correct significant 
deficiencies and material weaknesses in the registrant's internal 
controls and procedures for financial reporting.

Date:------------------------------------------------------------------

&fxsp0----------------------------------------------------------------
  [Signature]

&fxsp0----------------------------------------------------------------
   [Title]
    *&thnspProvide a separate certification for each principal 
executive officer and principal financial officer of the registrant. 
See Rule 30a–2 under the Investment Company Act of 1940 (17 CFR 
270.30a–2). The required certification must be in the exact form 
set forth above.

    By the Commission.

    Dated: October 22, 2002.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02–27302 Filed 10–29–02; 8:45 am]
BILLING CODE 8010–01–P