United States: SEC Addresses Principal Officer Certifications and Codes of Ethics

At an open meeting held January 22, 2003, the Securities and Exchange Commission ("SEC") adopted new rules 30a-3 and 30d-1 under the Investment Company Act of 1940 (the "Act"), a series of rule amendments under both the Securities Exchange Act of 1934 and the Act, new Form N-CSR and amendments to Form N-SAR. The actions taken by the SEC implement certain requirements prescribed under the Sarbanes-Oxley Act and impact registered investment companies. Most notably, however, the new rules and amendments do not require Form N-SAR filings for unit investment trusts ("UITs") to be certified, as had been previously proposed.

As we noted in a prior memorandum we sent last fall, the proposed certification requirement would have applied to Form N-SAR filings for unit investment trusts and would have been made by the principal executive officer(s) and principal financial officer(s) or persons performing similar functions for UITs. In carving out UITs from that requirement, the SEC staff felt that the certification was unnecessary given that "Form N-SAR filings provide limited information and are not directed to investors."

At the meeting, neither the Commissioners nor the SEC staff expressly addressed whether the sponsors of UITs would be required to make disclosures in Form N-SAR filings or elsewhere regarding the sponsor’s code of ethics. However, we understand that the proposed code of ethics disclosure requirement will be dropped for sponsors of UITs.

The SEC’s actions will require mutual funds to file certified shareholder reports on new Form N-CSR and require the principal executive and financial officers (or persons performing similar functions) for mutual funds to certify all of the information contained in the Form N-CSR in the manner specified by Section 302 of the Sarbanes-Oxley Act of 2002. Mutual funds must also disclose in either their Form N-CSR or Form N-SAR filings whether they have a code of ethics and at least one "audit committee financial expert" serving on their audit committee.

No indications were given at the meeting as to the timing of the implementation (e.g., effective dates or phase-in periods, etc.) of Form N-CSR, amendments to Form N-SAR, or any of the new or amended rules. We understand, however, that the amendments to Form N-SAR will become effective 30 days after their publication in the Federal Register, and that the Form N-CSR filing and certification requirements will be effective for filings for periods ending on or after 30 days after the rules are published in the Federal Register. If this is true, then for mutual funds with calendar year fiscal years (such as funds underlying variable insurance products), the certification requirement will not apply to filings for the December 31, 2002 period.

The SEC release discussing the actions taken January 22nd should be available shortly. We expect to provide another memorandum to interested clients further explaining those actions as soon as the release becomes available.