• 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

• The financial statements and other financial information, taken together, fairly present the financial condition, results of operations and cash flows of the company.

The CFA examination program addresses all components of the financial expert definition suggested in Section 407 of the Sarbanes-Oxley Act. By the time one is awarded the CFA designation, he or she has mastered the fundamentals of financial analysis, including generally accepted accounting principles, and financial statements. This mastery requires the ability to apply accounting principles and analyze financial statements that include, for example, accounting estimates, accruals, and reserves. Through the CFA examination program, the CFA charterholder also learns to ask the "hard" questions when conducting financial analysis; part of the training involves developing an approach where financial presentations are not accepted at face value, but must be supported through solid and valid analysis that the information being presented fairly presents the financial condition of the company.

In order to be considered for the CFA designation, a candidate must have accrued at least three years of acceptable professional experience in financial analysis, investment management, securities analysis, and other similar areas. To obtain the CFA designation, a candidate in the program must pass a rigorous series of exams on a broad spectrum of subjects relevant to the knowledge required of a financial expert under this proposal. Included in the range of subjects that must be mastered before award of the charter are:

• Ethical and professional standards;

• Economics;

• Financial statement analysis;

• Analysis of equity investments;

• Analysis of debt investments;

• Analysis of derivatives;

• Quantitative methods; and

• Analysis of alternative investments.

Moreover, other regulatory areas, such as fiduciary duties, disclosures of conflicts, personal trading, misrepresentations, insider trading, suitability of investments, supervisory responsibility and trade allocation are all tested repeatedly at each of the three levels of the CFA exam.

In addition to possessing the knowledge that qualifies charterholders as financial experts, the CFA charterholder brings an additional commitment to high ethical standards that is central to addressing the concerns giving rise to the Sarbanes-Oxley Act. The CFA examination program tests an individual's ability to apply knowledge of applicable laws and regulations, as well as the AIMR Code of Ethics and Standards of Professional Conduct (Code and Standards) to recognize and avoid unprofessional practice and violations of standards where issues may not be clear (e.g., conflicts of interest, compensation, inside information, corporate governance, proxies, and the "prudent expert rule").

To remain in good standing and retain the right to use the CFA designation, charterholders must comply with the AIMR Code and Standards in their day-to-day practice in the investment industry, or risk losing their charter. As a rule, charterholders must attest annually in writing to compliance with this strict Code and Standards. Sanctions for failure to report and for non-compliance with the Code and Standards include reprimands and suspensions, and in some instances, revocation of the charter.

While we understand the specific references in the Sarbanes-Oxley Act to those having experience as a public accountant, auditor, principal financial officer, controller, or principal accounting officer of an issuer in its discussion of financial expert, we urge the SEC to recognize other specific groups and designations that fully meet, both in terms of substance and spirit, the financial expert criteria considered by Congress, and endorsed by the SEC. Otherwise, we fear that issuers will hesitate to consider others, although well-qualified, not specifically referenced in the Act or proposed rule, for fear that, judged in hindsight, their selection may be called into question. While leaving the discretion to the Board of Directions to make its determinations in accordance with the factors outlined in the proposed rule, we thus encourage the SEC to include in its final rule examples of specific groups or designations that should be acceptable determinations.

Heightened Scrutiny

We are concerned that the position of "financial expert" will carry an expectation of heightened performance, and thus greater exposure to legal liability. Although the rule itself does not set a different liability standard for those deemed to be financial experts, we think the public perception may be that someone deemed to be an expert should be held to a different standard. Consequently, those very individuals who are well-qualified to serve in that position may be reticent to accept the responsibility and associated liability.

We therefore urge the SEC to include in the final rule a safe harbor or other language that makes clear that financial experts will not be held to a higher standard or exposed to additional liability by virtue of being identified as a financial expert. Instead, we believe that all members of the Audit Committee should be held to a comparable fiduciary standard.

II. Code of Ethics

We understand that the SEC has been directed through the Sarbanes-Oxley Act to require a company to disclose whether it has adopted a code of ethics for its senior financial officers, and also address any deviations from that code of ethics. Presumably, this requirement is intended to raise the consciousness of senior management by establishing written standards, while generally raising investor confidence. Certainly there is merit in formulating and adhering to a code of ethics aimed at establishing and maintaining fair and honest behavior in the corporate and investment management areas.

As noted above, AIMR members are governed by a Code of Ethics and Standards of Practice that are designed to ensure the highest ethical standards in the investment management industry. The Code of Ethics forms the basis for ethical conduct and requires all members to

• Act with integrity, competence, dignity, and in an ethical manner when dealing with the public, clients, prospects, employers, employees, and fellow members.

• Practice and encourage others to practice in a professional and ethical manner that will reflect credit on members and their profession.

• Strive to maintain and improve their competence and the competence of others in the profession.

• Use reasonable care and exercise independent judgment.

We also think it is noteworthy that certain of AIMR's Standards of Practice specifically address the very behavior this proposal seeks to address through a corporate code of ethics. Specifically, the SEC proposes to define the term "code of ethics" as a codification of standards that is reasonably designed to deter wrongdoing and to promote, among other things:

1. Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships.

   • Standard II B prohibits the engaging in professional conduct involving dishonesty, fraud, deceit, or misrepresentation or the committing of any act that reflects adversely on an AIMR member's honesty, trustworthiness, or professional conduct.

   • Standard III C requires compliance with any prohibitions on activities imposed by the employer if a conflict of interest exists.

   • Standard IV B.1 requires members to act for the benefit of their clients and place their clients' interests before their own.

   • Standard IV B. 4 requires that personal transactions in securities or other investments for clients and employers have priority over transactions where a member is the beneficial owner.

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.

   • With respect to conflicts of interest, Standard IV B. 7 requires the disclosure of matters, including beneficial ownership of securities and other investments that could reasonably be expected to impair the ability to make unbiased and objective recommendations.

3. Compliance with applicable governmental laws, rules and regulations.

   • Standard I requires members to maintain knowledge of and comply with all applicable laws, rules, and regulations of any government, governmental agency, or regulatory organizations, among others, and to not knowingly participate or assist in any violation of such laws, rules or regulations.

4. The prompt internal reporting to an appropriate person or persons identified in the code of violations of the code.

   • Standard III requires members to disclose to their employers all matters, including beneficial ownership of securities or other investments, that reasonably could be expected to interfere with their duty to their employer or ability to make unbiased and objective recommendations.

5. Accountability for adherence to the code.

   • As noted above, AIMR members must annually attest to adherence to the Code of Ethics and accompanying Standards of Practice or risk sanctions, including in some cases, revocation of the CFA charter.

In accordance with above, we readily endorse the use of a code of ethics and standards of practice for certain professions and industries. Through the establishment of industry-wide codes of ethics and standards, the marketplace tends to regulate over time the actions of participants. We believe that strong principles with focused goals provide a solid framework.

We understand that company codes of ethics may range from narrow to extremely detailed and "boilerplate" documents that would provide little meaningful information to the average investor. In those cases, we question the utility of requiring disclosure of a company's internal code of ethics. We appreciate the SEC's desire to provide companies with flexibility to fashion their own codes of ethics. To be meaningful, both internally and as a disclosure document, we believe that the code must blend principles with enough specificity to capture certain kinds of undesirable behavior. Thus, we encourage the final rule to discourage the use of verbose or boilerplate codes and to provide more guidance on the specific types of behavior that should be addressed.

Ultimately, we believe that the effectiveness of codes of ethics requires personal and corporate commitment, as much as regulations. Numerous companies have instituted internal corporate codes that set policies for employee behavior, ranging from traditional "Chinese walls" to personal trading policies. The actual effectiveness of these codes or standards, however, appears to pivot not on the creation or publication of these codes to outside sources, but on the maintenance of a corporate culture that fosters high ethical standards and punishes offenders.

III. Internal Controls and Procedures

As proposed, a company's annual report would have to contain an internal controls report that establishes management's responsibility for creating and maintaining adequate controls and procedures for financial reporting, conclusions about the effectiveness of these controls and procedures based on management's evaluations, and a statement by the company's accountant addressing management's evaluation. We support this approach.

In fact, we encourage the SEC to consider going a step farther in adding a requirement that the auditor's report provide information about the assessment of risks, involving the issuer's business transactions and activities, and how the auditor considered those risks in performing its audit of the issuer's financial statements. As part of the auditing process, and in order for an auditor to adequately assess a company's ability to deal with potential risk areas, it must evaluate that company's internal controls and procedures that address those areas. We believe that investors, creditors and other users who rely on a company's audited financial statements would gain from public disclosure of the auditor's assessment of management's internal control procedures.

The establishment of an internal control system is integral to providing reasonable assurances about the reliability of financial reporting, the efficiency of operations, and the compliance with all applicable laws and regulations. The assessment of this system takes into account, among other things, the company's environment (e.g., organizational structure, integrity and ethical values, operating style), as well as potential risk areas (e.g., corporate restructurings, rapid growth, foreign operations). Thus, the auditor's evaluation of the sufficiency of these controls may well indicate potential weaknesses that could affect a company's immediate or long-term financial health. We believe that all users of financial statements are entitled to receive that information.

CONCLUSION

We generally support the approaches taken in this proposal to implement provisions of the Sarbanes-Oxley Act, subject to the reservations and suggestions noted above. In particular, we recommend that the final rule make patently clear that the Board of Directors can determine that those without specific "hands-on" experience in the preparation or actual auditing of financial statements, or with internal accounting controls can qualify as a financial expert. If we can provide additional information, please do not hesitate to contact Deborah Lamb at 770.971.7010, da-lamb@msn.com or Linda Rittenhouse at 434.951.5333, linda.rittenhouse@aimr.org.

Sincerely,

/s/ Deborah A. Lamb Deborah A. Lamb Chair, U.S. Advocacy Committee

/s/ Linda L. Rittenhouse Linda L. Rittenhouse Staff, AIMR Advocacy

Cc: Members of the U.S. Advocacy Committee
Rebecca T. McNally, CFA, PhD.,
Vice President-AIMR Professional Standards and Advocacy

____________________________ With headquarters in Charlottesville, VA and regional offices in Hong Kong and London, the Association for Investment Management and Research® is a non-profit professional association of over 61,000 financial analysts, portfolio managers, and other investment professionals in 114 countries of which 48,800 are holders of the Chartered Financial Analyst® (CFA®) designation. AIMR's membership also includes 117 affiliated societies and chapters in 37 countries. AIMR is internationally renowned for its rigorous CFA curriculum and examination program, which had more than 100,000 candidates from 143 nations enrolled for the June 2002 exam.

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