(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

Commission to Consider Sarbanes-Oxley Rulemaking Items

The SEC will consider several rulemaking items at an matter of the open meeting scheduled for January 22, 2003. Many of the measures under consideration relate to the implementation of the Sarbanes-Oxley Act.

Investment Company Measures

Initially, the SEC will consider whether to adopt new rules and a new Form N-CSR, and amendments to existing Investment Company Act and Exchange Act rules and forms. These new rules and form, and rule and form amendments, would require registered management investment companies to file certified shareholder reports on new Form N-CSR and would designate these certified shareholder reports as reports that are required under Sections 13(a) and 15(d) of the Exchange Act and Section 30 of the Investment Company Act.

A registered management investment company's principal executive and financial officers would be required to certify the information contained in its reports on Form N-CSR in the manner specified by Section 302 of the Sarbanes- Oxley Act. The amendments would also remove the requirement that Form N-SAR be certified by a registered investment company's principal executive and financial officers, and would provide that, for registered management investment companies, Form N-SAR would be filed under the Investment Company Act only.

In addition, the amendments would implement Sections 406 and 407 of the Sarbanes-Oxley Act by requiring a registered management investment company to provide disclosure on Form N-CSR or Form N-SAR, as applicable, regarding whether the investment company has adopted a code of ethics for the company's principal executive officer and senior financial officers, and whether the investment company has at least one "audit committee expert "serving on its audit committee, and if so, the name of the expert and whether the expert is independent of management.

Amendments to registration and reporting forms for registered management investment companies, as well as new Investment Company Act Rule 30b1-4 and new Form N-PX will also be considered. These rules would require mutual funds and other registered management investment companies to disclose the policies and procedures that they use to determine how to vote proxies relating to portfolio securities. The rules would also require registered management investment companies to file with the SEC on an annual basis, and make available to shareholders, their proxy voting records.

Investment Advisers Act Rules

A new rule and amendments to the recordkeeping rules for registered investment advisers under the Investment Advisers Act will be considered at the open meeting. The new rule would require investment advisers to adopt proxy voting policies and procedures, describe the policies and procedures to clients and provide clients with copies on request, and disclose how clients can obtain information about how the adviser voted their proxies. The recordkeeping amendments would require advisers to keep certain records regarding client proxies.

Attorney Conduct Standards

The agency will also consider adopting rules to establish standards of professional conduct for attorneys. As proposed, the rules would require an attorney to report evidence of a material violation of securities laws, a material breach of fiduciary duty, or similar material violation by the issuer or by any officer, director, employee or agent of the issuer to the issuer's chief legal officer or the chief executive officer of the company. If these officers do not respond appropriately to the evidence, the rule would require the attorney to report the evidence to the issuer's audit committee, another committee of independent directors or the full board of directors.

Financial Disclosures

Final rules under consideration would require a public company to provide in its filings in the "management's discussion and analysis" section 1) a discussion of off-balance sheet arrangements and 2) a table of payments under specified contractual obligations due in short- and long-term periods. These rules were mandated by Section 401(a) of the Sarbanes-Oxley Act.

Auditor Independence and Recordkeeping

The Commission will also consider adopting amendments to its existing requirements regarding auditor independence. As directed by Section 208(a) of the Sarbanes-Oxley Act, the SEC will consider rules to revise requirements related to independence and non-audit services and to require audit committee pre-approval of services provided by the auditor. The rules would also restrict audit partners on the audit engagement team from providing audit services to the issuer for more than five or seven consecutive years and would prohibit an accounting firm from auditing an issuer's financial statements if certain members of management of that issuer had been members of the accounting firm's audit engagement team within the last year.

The rules would also require that the auditor report certain matters to the audit committee, including "critical" accounting policies used by the issuer. Issuers would be required to disclose to investors information concerning the audit and non-audit services provided and the fees charged by the auditor. In addition, an accountant would not be independent if certain audit partners of the accounting firm, who are members of the engagement team, received compensation based on their selling any service to the client other than audit, review and attest services.

Rules intended to implement Section 802 of the Sarbanes-Oxley Act will also be considered. The rule, if adopted, would specify that auditors should retain records relevant to the audits and reviews of financial statements, including workpapers and other documents for five years.