As filed with the Securities and Exchange Commission on April 20, 2000
Registration No. 333-10015
File No. 811-07763
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 14 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 16 [X]
MASTERS' SELECT FUNDS TRUST
(Exact Name of Registrant as Specified in Charter)
4 ORINDA WAY, SUITE 230-D
ORINDA, CA 94563
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (925) 254-8999
Kenneth E. Gregory
4 Orinda Way, Suite 230-D
Orinda, CA 94563
(Name and Address of Agent for Service)
Copy to:
Julie Allecta, Esq.
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, CA 94104
It is proposed that this filing will become effective (check appropriate box):
[X] Immediately upon filing pursuant to paragraph (b)
[ ] On ______________, pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On ______________, pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On ______________, pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
================================================================================
<PAGE>
As filed with the Securities and Exchange Commission on April 20, 2000
Registration No. 333-10015
File No. 811-07763
================================================================================
Part A
of
Form N-1A
COMBINED REGISTRATION STATEMENT
MASTERS' SELECT FUNDS TRUST
Masters' Select Equity Fund
Masters' Select International Fund
================================================================================
<PAGE>
The Masters' Select Funds
Prospectus
The Masters' Select Equity Fund
The Masters' Select International Fund
April 20, 2000
These securities have not been approved or disapproved by the Securities and
Exchange Commission, nor has the Commission passed upon the accuracy or adequacy
of this prospectus. Any representation to the contrary is a criminal offense.
mastersselectfunds.com
LITMAN/GREGORY FUND ADVISORS, LLC
<PAGE>
CONTENTS
The Masters' Select Equity Fund............................................. 2
The Masters' Select International Fund...................................... 5
The Funds in Detail - Elements Common to Both Funds......................... 9
The Masters' Select Equity Fund in Detail................................... 11
The Masters' Select International Fund in Detail............................ 15
Shareholder Services........................................................ 20
Financial Highlights........................................................ 28
For More Information........................................................ 29
1
<PAGE>
THE MASTERS' SELECT EQUITY FUND
OBJECTIVE
The objective of the Fund is long-term growth of capital; that is, the increase
in the value of your investment over the long term.
PRINCIPAL STRATEGIES
The Advisor believes that it is possible to identify investment managers who
will deliver superior returns relative to their peer groups, over a market
cycle. The Advisor also believes that most stock pickers have a few select
stocks in which they have a high degree of confidence. In the case of certain
skilled stock pickers, the Advisor believes a portfolio of their "highest
confidence" stocks will outperform their more diversified portfolios over a
market cycle. Based on these beliefs, the Fund's strategy is to engage six
proven investment managers as sub-advisors, each to invest in the securities of
companies that they believe have strong appreciation potential. Each manager
runs a portion of the overall fund portfolio by independently managing a
portfolio composed of between 5 and 15 stocks. The Fund will primarily invest in
the securities of large and small sized U.S. companies, although the managers
will have limited flexibility to invest in the securities of foreign companies.
By executing this strategy the Fund seeks to:
* combine the efforts of several experienced, world class managers, all with
superior track records,
* access the favorite stock-picking ideas of each manager at any point in
time,
* deliver a portfolio that is prudently diversified in terms of stocks
(typically 65 to 90) and industries while still allowing each manager to
run portfolio segments focused on only his or her favorite stocks, and
* further diversify across different-sized companies and stock-picking styles
by including managers with a variety of stock-picking disciplines.
PRINCIPAL RISKS
Investment in stocks exposes shareholders of the Fund to the risk of losing
money if the value of the stocks held by the Fund declines during the period an
investor owns shares in the Fund. As with all mutual funds that invest in common
stocks, the value of an individual's investment will fluctuate daily in response
to the performance of the individual stocks held in the Fund.
Though not a small-cap fund the Fund will invest a portion of its assets in the
securities of small companies. The prices of small companies' stocks are
generally more volatile than the prices of large companies' stocks. This is
because small companies may be more reliant on a few products, services or key
personnel, which can be riskier than owning larger companies with more diverse
product lines and structured management. In addition, because small companies
have fewer shares of stock outstanding, the ability to trade their securities
quickly may be affected by a lack of buyers and sellers in these stocks. This
lack of liquidity increases the Fund's risk to adverse market movements in the
prices of these stocks.
Though primarily a U.S. equity fund, the Fund may invest a portion of its assets
in foreign securities, the stocks and bonds of companies based outside of the
United States. The Fund is exposed to higher risk in owning these securities
because each country has its own rules regarding accounting practices,
government regulation, and government economic policies, which may differ from
the rules and policies that U.S. companies are subject to. In addition, the Fund
will, at times, be exposed to foreign currency fluctuations as the result of its
foreign holdings.
2
<PAGE>
PAST PERFORMANCE
The following chart depicts the performance for the life of the Fund. The chart
illustrates the risk of investing in the Fund by showing the fluctuations in its
annual returns. Please keep in mind that past performance cannot guarantee
future returns.
1997 29.11% During the periods shown to the left, the highest and lowest
quarterly returns earned by the Fund were:
1998 14.90% HIGHEST: 21.49% QTR. ENDED 12/31/98
1999 26.45% LOWEST: 17.11% QTR. ENDED 9/30/98
The following table compares the Fund's performance over time with the Wilshire
5000, an unmanaged broad market index of stock performance and the Lipper
Multi-Cap Core Index, which measures the performance of the 30 largest multi-cap
core equity mutual funds as determined by Lipper Analytical Services, Inc.
AVERAGE ANNUAL RETURN
ONE YEAR ENDED SINCE INCEPTION
12/31/99 (12/31/96)
-------- ----------
MASTERS' SELECT EQUITY FUND 26.45% 23.33%
WILSHIRE 5000 INDEX 23.82% 26.13%
LIPPER MULTI - CAP CORE 20.79% 21.88%
FEES AND EXPENSES
Expenses are one of several factors to consider when investing in a mutual fund.
There are usually two types of expenses involved: shareholder transaction
expenses, such as sales loads and transaction fees, and annual operating
expenses, such as advisory fees. The Fund has no front-end or deferred sales
loads, and imposes no shareholder transaction fees. The following table
illustrates the fees and expenses you might pay over time as an investor in the
Fund.
SHAREHOLDER FEES (PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Loads None
180-Day Redemption Fee* 2%
Transfer Fees None
* You will be charged a 2% fee if you redeem shares of this Fund within 180
days of purchase.
ANNUAL OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
Management Fee 1.10%
Distribution (12b-1) Fee None
Other Operating Expenses(1) 0.18%
-----
Total Annual Fund Operating Expenses 1.28%
Less: Fees waived(2) (0.02)%
-----
NET OPERATING EXPENSES 1.26%
=====
- ----------
(1) Significant other expenses include custody, fund accounting, transfer
agency, legal, audit, administration.
(2) The Advisor has contractually agreed to waive .02% of the Management Fee
through December 31, 2000.
3
<PAGE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
$128 $404 $700 $1,543
MANAGEMENT
The Advisor to the Fund is Litman/Gregory Fund Advisors, LLC. The Advisor has
ultimate responsibility for the investment performance of the Fund due to its
responsibility to oversee the investment managers and recommend their hiring,
termination and replacement. The following table provides a description of the
six investment managers. A detailed discussion of the management structure of
the Fund begins on Page 10.
<TABLE>
<CAPTION>
INVESTMENT
TARGET EXPERIENCE/
INVESTMENT ALLOCATION OF RELEVANT FUND SIZE OF STOCK-PICKING
MANAGER FUND ASSETS EXPERIENCE COMPANIES STYLE
------- ----------- ---------- --------- -----
<S> <C> <C> <C> <C>
SHELBY DAVIS 20% Over 30 years/ Mostly large Growth at a
AND New York companies reasonable price
CHRISTOPHER DAVIS Venture Fund
since 1969
FOSTER FRIESS 10% Over 25 years/ Small and High earnings
AND TEAM Brandywine mid-sized growth
Fund since 1986 companies
MASON HAWKINS 20% Over 20 years/ All sizes, but Value and global,
Longleaf Partners mostly large and may invest up to
Fund since 1987 mid-sized 50% in foreign
securities
BILL MILLER 20% Since 1981/ All sizes but Eclectic-
Legg Mason Value mostly large and may invest in
Trust since 1984 mid sized traditional value
stocks or growth
stocks
SPIROS "SIG" SEGALAS 20% Over 30 years/ Mostly large High earnings
Harbor Capital companies growth
Appreciation Fund
since 1990
DICK WEISS 10% Over 20 years/ Small and mid- Growth at a
Strong Common sized companies reasonable price
Stock Fund since
1991
</TABLE>
4
<PAGE>
THE MASTERS' SELECT INTERNATIONAL FUND
OBJECTIVE
The objective of the Fund is long-term growth of capital; that is, the increase
in the value of your investment over the long term.
PRINCIPAL STRATEGIES
The Advisor believes that it is possible to identify international investment
managers who, over a market cycle, will deliver superior returns relative to
their peers. The Advisor also believes that most stock pickers have a few select
stocks in which they have a high degree of confidence. In the case of certain
skilled stock pickers, the Advisor believes that a portfolio of their "highest
confidence" stocks will outperform their more diversified portfolios over a
market cycle.
Based on these beliefs, the Fund's strategy is to engage five proven investment
managers as sub-advisors, each to invest in the securities of companies that
they believe have strong appreciation potential. Each manages a portion of the
Fund's portfolio by independently managing a portfolio composed of between 8 and
15 stocks. The Fund will invest in the securities of foreign companies,
including large and small companies and companies located in emerging markets.
The managers will have limited flexibility to invest in the securities of U.S.
companies. By executing this strategy the Fund seeks to:
* combine the efforts of several experienced, world class international stock
pickers, all with superior track records,
* access the favorite stock-picking ideas of each manager at any point in
time,
* deliver a portfolio that is prudently diversified in terms of stocks
(typically 40 to 75) and industries while still allowing each manager to
run portfolio segments focused on only his or her favorite stocks, and
* further diversify across different sized companies, countries, and
stock-picking styles by including managers with a variety of stock-picking
disciplines.
PRINCIPAL RISKS
Investment in stocks exposes shareholders of the Fund to the risk of losing
money if the value of the stocks held by the Fund declines during the period an
investor owns shares in the Fund. As with all mutual funds that invest in common
stocks, the value of an individual's investment will fluctuate daily in response
to the performance of the individual stocks held in the Fund.
5
<PAGE>
The Fund will normally be invested in foreign securities, the stocks and bonds
of companies based outside of the United States. The Fund is exposed to higher
risk in owning these securities because foreign countries have their own rules
regarding accounting practices, government regulation, and government economic
policies, which differ from the rules and policies that U.S. companies are
subject to. Owning foreign securities also exposes shareholders to the political
risks of other countries and the risk of fluctuations of the exchange rate of
the local currency relative to the U.S. dollar.
The Fund may invest a portion of its assets in emerging market countries.
Emerging market countries are those with immature economic and political
structures, and entail greater investment risk than in developed markets. Such
risks include government dependence on a few industries or resources, government
imposed taxes on foreign investment or limits on the removal of capital from a
country, unstable government, and volatile markets.
Though not a small-cap fund, the Fund may invest a portion of its assets in the
securities of small companies. The prices of small companies' stocks are
generally more volatile than the prices of large companies' stocks. This is
because small companies may be more reliant on a few products, services or key
personnel, which can be riskier than owning larger, more diversified companies
with more structured management. In addition, because small companies have fewer
shares of stock outstanding, the ability to trade their securities quickly may
be affected by a lack of buyers and sellers in these stocks. This lack of
liquidity increases the Fund's risk to adverse market movements in the prices of
these stocks.
PAST PERFORMANCE
The following chart depicts the performance for the life of the Fund. Please
keep in mind that past performance cannot guarantee future returns.
1998 11.74% During the periods shown to the left, the highest and lowest
quarterly returns earned by the Fund were:
HIGHEST: 41.01% QTR. ENDED 12/31/99
1999 75.01% LOWEST: -19.54% QTR. ENDED 9/30/98
The following table compares the Funds' performance over time with the Morgan
Stanley Capital International All Countries World (ex US) Index, an unmanaged
broad market index that measures the performance of common equities in 46
developed and emerging markets; and with the Lipper International Fund Index,
which measures the performance of the 30 largest International Equity mutual
funds as determined by Lipper Analytical Services, Inc.
AVERAGE
ANNUAL RETURN
ONE YEAR ENDED SINCE INCEPTION
12/31/99 (12/1/97)
-------- ---------
MASTERS' SELECT INTERNATIONAL FUND 75.01% 37.21%
MSCI ALL COUNTRIES WORLD (EX US) INDEX 31.80% 22.26%
LIPPER INTERNATIONAL FUND INDEX 37.83% 23.98%
FEES AND EXPENSES
Expenses are one of several factors to consider when investing in a mutual fund.
There are usually two types of expenses involved: shareholder transaction
expenses, such as sales loads and transaction fees, and annual operating
expenses, such as advisory fees. The Fund has no front-end or deferred sales
loads, and imposes no shareholder transaction fees. The following table
illustrates the fees and expenses you might pay over time as an investor in the
Fund.
6
<PAGE>
SHAREHOLDER FEES (PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Loads None
180-Day Redemption Fee* 2%
Transfer Fees None
* You will be charged a 2% fee if you redeem shares of this Fund within 180
days of purchase.
ANNUAL OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
Management Fee 1.10%
Distribution (12b-1) Fee None
Other Operating Expenses(1) 0.31%
----
Total Annual Fund Operating Expenses 1.41%
Less: Fees waived(2) 0.15%
----
NET OPERATING EXPENSES 1.26%
====
- ----------
(1) Significant other expenses include custody, fund accounting, transfer
agency, legal, audit, and administration.
(2) The Advisor has contractually agreed to waive 0.155% of the Management Fee
through December 31, 2000.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
$128 $431 $757 $1,678
7
<PAGE>
MANAGEMENT
The Advisor to the Fund is Litman/Gregory Fund Advisors, LLC. The Advisor has
ultimate responsibility for the investment performance of the Fund due to its
responsibility to oversee the investment managers and to recommend their hiring,
termination and replacement. The following table provides a description of the
five investment managers. A detailed discussion of the management structure of
the Fund begins on Page 15.
<TABLE>
<CAPTION>
INVESTMENT
TARGET EXPERIENCE/
INVESTMENT ALLOCATION OF RELEVANT FUND SIZE OF STOCK-PICKING
MANAGER FUND ASSETS EXPERIENCE COMPANIES STYLE
------- ----------- ---------- --------- -----
<S> <C> <C> <C> <C>
HELEN YOUNG HAYES 20% Since 1984/ Janus All sizes, but Growth at a
Overseas Fund and mostly large reasonable price
Janus Worldwide companies
Fund
DAVID HERRO 20% Since 1986/ All sizes, but Value
Oakmark mostly large
International Fund and mid-sized
and Oakmark companies
International
Small Cap Fund
DAN JAWORSKI 20% Since 1988/ Mostly large Eclectic-
STI Classic companies may invest in
International traditional value
Equity Fund stocks or growth
(2/95-4/97) and stocks
Princor World Fund
(12/88-4/93),
Marshall International
Stock Fund since 4/99
THEODORE TYSON 20% Since 1981/ All sizes High earnings
American Century growth
International Fund
(6/91-3/97)
MARK YOCKEY 20% Since 1981/ Artisan All sizes, but Growth at a
International Fund mostly large reasonable price
and United companies
International
Growth Fund
(1990-11/96)
</TABLE>
8
<PAGE>
THE FUNDS IN DETAIL - ELEMENTS COMMON TO BOTH FUNDS
THE MASTERS' SELECT INVESTMENT PHILOSOPHY
Both Funds' strategies are based on several fundamental beliefs:
FIRST, the Advisor believes that it is possible to identify investment managers
who will deliver superior performance relative to their peer groups. This belief
is based on the Advisor's extensive experience evaluating and picking stock
mutual funds.
SECOND, the Advisor believes that at any point in time most investment managers
own a small number of stocks in which they are highly confident. But because
holding only 10 or 15 stocks is not considered prudent from a diversification
standpoint or practical given the large dollar amounts managed by most
successful managers, most stock mutual funds hold more than 50 stocks. The
Advisor believes that, over a market cycle, the performance of most skilled
investment managers' "highest confidence" stocks exceeds that of their more
diversified portfolios.
THIRD, the Advisor believes that during any given year certain stock-picking
styles will generate higher returns than comparable market indexes, while others
will lag. By including a variety of stock-picking styles in a single mutual
fund, the Advisor believes that the variability and volatility of returns can be
lessened.
THE ADVISOR
The Funds are managed by Litman/Gregory Fund Advisors, LLC, 4 Orinda Way, Orinda
CA 94563. The Advisor has overall responsibility for assets under management,
recommends selection of investment managers to the Board of Trustees of Masters'
Select Funds Trust, evaluates performance of the investment managers, monitors
changes at the investment managers' organizations that may impact their
abilities to deliver superior future performance, determines when to rebalance
the investment managers' assets, determines the amount of cash equivalents (if
any) that may be held in addition to cash in each of the investment managers'
sub-portfolios and coordinates with the managers with respect to diversification
and tax issues.
Kenneth E. Gregory, President of the Advisor and a Trustee of the Trust, is
responsible for monitoring the day-to-day activities of the investment managers.
Gregory is also President of L/G Research, an affiliated firm that publishes the
NO-LOAD FUND ANALYST newsletter and conducts research on financial markets and
mutual funds. Gregory is also President and Chief Investment Officer of
Litman/Gregory & Company, LLC, a money management firm. He has held this
position since the founding of Litman/Gregory & Company, a predecessor firm, in
1987. He has been in the investment business since 1979.
9
<PAGE>
INVESTMENT MANAGER SELECTION CRITERIA
The Advisor believes that superior investment managers exhibit:
* Consistently above-average intermediate and long-term performance relative
to an appropriate peer group. The Advisor measures investment manager
performance against performance composites made up of other advisory firms
using a similar stock-picking style and market capitalization. The Advisor
maintains its own database and has developed proprietary software to
measure performance over various time periods.
* A record of outperforming their relevant benchmarks over most periods of
five years or longer.
* The confidence and ability to think and act independently of the "Wall
Street herd mentality."
* The passion for, and obsession with stock-picking that can result in
working harder and more creatively to get an edge.
* A focus on the job of stock-picking and portfolio management. Thus the
Advisor seeks investment managers who have attempted to mitigate
non-investment distractions by delegating most business management and
marketing duties.
The Advisor has extensive experience evaluating investment advisory firms, using
the above criteria, and believes that each of the investment managers selected
to participate in the Funds exhibits the qualities mentioned above.
MULTI-MANAGER ISSUES
The investment methods used by these managers in selecting securities for the
Funds vary. The segment of each Fund portfolio managed by an investment manager
will, under normal circumstances, differ from the segments managed by the other
investment managers with respect to portfolio composition, turnover, issuer
capitalization and issuer financial condition. Because selections are made
independently by each investment manager, it is possible that a security held by
one portfolio segment may also be held by other portfolio segments of the Funds
or that several managers may simultaneously favor the same industry segment. The
Advisor monitors the overall portfolio on an ongoing basis to ensure that such
overlaps do not create an unintended industry concentration or lack of
diversification. The Advisor is responsible for establishing the target
allocation of Fund assets to each investment manager. The Advisor does not
intend to change the target allocations, although under unusual conditions the
Advisor may adjust the target allocations. Market performance may result in
allocation drift. The timing and degree of rebalancing the allocations will be
determined by the Advisor. Each investment manager selects the brokers and
dealers to execute transactions for the segment of the Fund being managed by
that manager.
The Advisor has obtained an exemptive order from the Securities and Exchange
Commission which permits it, subject to certain conditions, to select new
investment managers with the approval of the Board of Trustees but without
obtaining shareholder approval. The order also permits the Advisor to change the
terms of agreements with the managers or to continue the employment of a manager
after an event that would otherwise cause the automatic termination of services.
Shareholders must be notified of any manager changes. Shareholders have the
right to terminate arrangements with a manager by vote of a majority of the
outstanding shares of a Fund. The order also permits a Fund to disclose
managers' fees only in the aggregate in its registration statement.
Each Fund pays an investment advisory fee to the Advisor each month, at the
annual rate of 1.10% of the Fund's average daily net assets before any waivers.
The Advisor, not the Funds, is responsible for payment of the advisory fees to
the investment managers, each of whom is compensated monthly on the basis of the
assets committed to his or her individual discretion. The Advisor pays fees to
the investment managers of the Equity Fund at the approximate aggregate annual
rate of 0.652% and to the investment managers of the International Fund at the
approximate aggregate annual rate of 0.563%. The Advisor is waiving a portion of
the management fees equal to 0.020% of the total net assets of the Equity Fund
and 0.155% of the total net assets of the International Funds through December
31, 2000. The effective advisory fees paid by the Equity and International Funds
after all waivers are reduced to 1.080% and 0.945% respectively. Net fees
retained by Advisor after all waivers are approximately 0.428% and 0.382%,
respectively from the Equity and International Funds.
In the event an investment manager ceases to manage a segment of a Fund's
portfolio, the Advisor will select a replacement investment manager or allocate
the assets among the remaining managers. The Advisor will use the same criteria
as those used in the original selection of investment managers.
10
<PAGE>
THE MASTERS' SELECT EQUITY FUND IN DETAIL
The Fund's six investment managers emphasize different stock-picking styles and
invest in stocks with a range of market capitalization. The portion of the Fund
assigned to each manager is fixed at a target percent by the Advisor with the
specific objective of maintaining exposure to stocks of large and mid-sized
companies at 50% to 85% of the Fund's total assets in normal market conditions.
However, market performance may result in allocation drift. The Advisor is
responsible for periodically rebalancing the allocations, the timing and degree
of which will be determined by the Advisor. The Advisor may, under unusual
conditions, adjust the target allocations of the managers. The Advisor's
strategy is to allocate the portfolio's assets among investment managers who,
based on the Advisor's research, are judged to be among the best in their
respective style groups. The investment managers manage their individual
portfolio segments by building a focused portfolio representing their
highest-confidence stocks. Each investment manager's portfolio segment includes
a minimum of 5 and a maximum of 15 securities. Though the overall Fund may hold
more or fewer securities at any point in time, it is generally expected that the
Fund will hold between 65 and 90 securities. Under unusual market conditions or
for temporary defensive purposes, up to 35% of the Fund's total assets may be
invested in short-term, high-quality debt securities. Defensive positions may be
initiated by the individual portfolio managers or by the Advisor.
MASTERS' SELECT EQUITY FUND PORTFOLIO MANAGERS
SHELBY M. C. DAVIS
CHRISTOPHER DAVIS
Davis Selected Advisers, L.P.
124 E. Marcy Street
Santa Fe, NM 87501
Shelby Davis is the lead portfolio manager for the segment of the Fund's assets
managed by Davis Selected Advisers, L.P. ("Davis Advisers"), 124 E. Marcy
Street, Santa Fe, NM 87501. Davis has been in the investment business for more
than 30 years. He was a portfolio manager for Davis New York Venture Fund from
1969 through 1996 and is still actively involved in the stock selection process;
his son, Christopher C. Davis, joined Davis Selected Advisors in 1991 and was
named co-portfolio manager of the New York Venture Fund in 1995 and sole manager
in 1996. Before joining Davis Selected Advisers, Chris Davis was an associate at
Tanaka Capital Management. Shelby Davis retains ultimate responsibility for
researching and selecting each company included in their portion of the Masters'
portfolio, while
Chris handles the daily portfolio management duties. In total, as of December
31, 1999, Davis Advisers managed more than $27 billion of mutual fund and ERISA
portfolios including Davis New York Venture Fund. In performing its investment
advisory services, Davis Advisers, while remaining ultimately responsible for
its segment of the Fund's assets, is able to draw on the portfolio management,
research and market expertise of its affiliates (including Davis Selected
Advisers-NY, Inc.). Approximately 20% of the Fund's assets are managed by the
Davises. They invest primarily in large companies, using a strategy that takes
into account both growth and value. This approach is often referred to as
"growth at a reasonable price." The Davises prefer high-quality companies as
evidenced by some or all of the following:
* Solid top-line (revenue) and unit growth
* Management with a stake in the business
* A business plan for the next three to five years
* Participation in an industry that is capable of earning a good return on
capital
* Respected by competitors
* Low-cost operations
11
<PAGE>
The Davises often seek to buy companies exhibiting some or all of these
characteristics at depressed prices because they are temporarily out of favor.
When buying out-of-favor stocks, they believe that there is often a catalyst
that will eventually push the stock price higher.
FOSTER FRIESS AND TEAM
Friess Associates, Inc.
350 Broadway
Jackson, WY 83001
Foster Friess is the lead portfolio manager for the segment of the Fund's assets
managed by Friess Associates, Inc. Friess has been in the investment business
for more than 25 years and has been lead manager of the Brandywine Fund since
1986. He is also President and, with his wife, Lynette Friess, sole owner of
Friess Associates. In total, as of December 31, 1999, Friess managed more than
$8 billion.
Approximately 10% of the Fund's assets are managed by Friess and his team.
Friess invests in stocks of well-financed issuers that have proven records of
profitability and strong earnings momentum. Emphasis is placed on companies with
market capitalization of less than $5 billion. These companies are likely to be
lesser-known companies moving from a lower to higher market share position
within their industry groups, rather than the largest and best-known companies
in these groups.
Friess may, however, purchase common stocks of well-known, highly researched
mid-sized companies if the team believes that those common stocks offer
particular opportunity for long-term capital growth. In selecting investments,
Friess considers financial characteristics of the issuer, including historical
sales and net income, debt/equity and price/earnings ratios, and book value.
Friess may also review research reports of broker-dealers and trade publications
and, in appropriate situations, meet with management. Greater weight is given to
internal factors, such as product or service development, than to external
factors, such as interest rate changes, commodity price fluctuations, general
stock market trends and foreign-currency exchange values. A particular issuer's
dividend history is not considered important.
MASON HAWKINS
Southeastern Asset Management, Inc.
6410 Poplar Avenue
Memphis, TN 38119
Mason Hawkins is the lead portfolio manager for the portion of the Fund's assets
run by Southeastern Asset Management, Inc. (Southeastern). Hawkins has been in
the investment business for more than 20 years and founded Southeastern, which
he controls, in 1975. He has managed the Longleaf Partners Fund since its
inception in 1987 and Longleaf Partners International Fund since its inception
in 1998. In total, as of December 31, 1999, Southeastern managed more than $13
billion.
Approximately 20% of the Fund's assets are managed by Southeastern, which uses a
value-oriented approach to picking stocks. The firm considers companies of all
sizes, although most of its portion of the Fund's assets are expected to be
invested in mid-sized and larger companies. Southeastern has the flexibility,
but not the requirement, to invest up to 50% of its portfolio segment in the
securities of foreign companies. Southeastern focuses on securities of companies
believed to have unrecognized intrinsic value and the potential to grow their
economic worth. Southeastern believes that superior long-term performance can be
achieved when positions in financially strong, well-managed companies are
acquired at prices significantly below their business value and are sold when
they approach their corporate worth. Corporate intrinsic value is determined
through careful securities analysis and the use of established disciplines
consistently applied over long periods of time. Securities that can be
identified and purchased at a price significantly discounted from their
intrinsic worth not only protect investment capital from significant loss but
also facilitate major rewards when the true business value is ultimately
recognized. Seeking the largest margin of safety possible, Southeastern requires
at least a 40% market value discount from its appraisal of an issuer's intrinsic
value before purchasing the security. To determine intrinsic value, current
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publicly available financial statements are carefully scrutinized, and two
primary methods of appraisal are applied. The first assesses what Hawkins
believes to be the real economic value of the issuer's net assets; the second
examines the issuer's ability to generate free cash flow after required or
maintenance capital expenditures. After free cash flow is determined,
conservative projections about its rate of future growth are made. The present
value of that stream of cash flow plus its terminal value is then calculated
using a discount rate based on expected interest rates. If the calculations are
accurate, the present value would be the price at which buyers and sellers
negotiating at arm's length would accept for the whole company. In a concluding
analysis, the asset value determination and/or the discounted free cash flow
value are compared with business transactions of comparable corporations. Other
considerations used in selecting potential investments include the following:
* Indications of shareholder-oriented management
* Evidence of financial strength
* Potential earnings improvement
BILL MILLER
Legg Mason Fund Adviser, Inc.
100 Light Street
Baltimore, MD 21202
Bill Miller is the portfolio manager for the segment of the Fund's assets run by
Legg Mason Fund Adviser, Inc. Legg Mason was added as a sub-advisor to the fund
on March 24, 2000. Miller has been in the investment business and with Legg
Mason since 1981. He was named co-manager of Legg Mason Value Trust in April of
1982 and has been the sole manager since 1990. Miller also co-manages Legg Mason
Special Investment Trust and is the sole manager of Legg Mason Opportunity
Trust. In total, as of March 2000, Miller managed $23 billion.
Miller manages approximately 20% of the fund's assets. His investment approach
is eclectic with respect to the types of companies he invests in, which may
range from traditional value type stocks to companies that have the potential to
experience rapid earnings growth. Most of Miller's investments for the Fund will
be in mid-sized and larger companies, although he may also invest in some
smaller companies. He may invest up to 20% of his portion of the portfolio in
foreign stocks. Miller and his team focus their research on assessing intrinsic
business value at each company, and strive to buy stocks at significant
discounts to what their research indicates the businesses are worth. "Worth" is
derived in a number of ways, beginning with quantitative measures that help
identify potential candidates for further research. The filtration process then
focuses on companies that exhibit typical stock factors that are attractive
based on historical stock valuation metrics. Miller then employs more
sophisticated, multi-scenario models that help to delineate a range of values
for the underlying businesses.
In the qualitative phase of the research process the Legg Mason team conducts an
economic value analysis of each business in the research universe. They attempt
to determine the underlying economic value of the business through research,
which may involve private market analysis, liquidation analysis, LBO analysis
and other analyses they deem appropriate. Valuation factors that are most
important in evaluating companies are balance sheet strength, return on capital,
the ability to generate free cash flow, pricing flexibility and position in
their respective industries. The team focuses heavily on management's ability to
demonstrate and articulate a clear, value-creating capital allocation process.
Other important qualitative factors that are incorporated into the analysis
include their assessment of management, business strategies, the competitive
position of a product and the long-term outlook for the industry. Research
focuses on evaluating a company's economic value and its ability to generate
returns on capital above its cost of capital, thereby creating value for
shareholders.
The portfolio will be constructed and re-balanced so that the companies that are
believed to offer the highest rates of return represent the largest proportion
of the portfolio. As a long-term investor, Miller prefers to let his winners run
and will not seek to arbitrarily target percentage weightings within the
portfolio.
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Miller's sell discipline is an integral part of his investment process and is
critical to the generation of excess returns. He will sell a stock when one of
three things occurs: 1) a stock has reached what he believes is fair value for
the company; 2) he determines that the original analysis is no longer operative
or the competitive environment has changed in some way since their initial
analysis (i.e. new legislation); or 3) a more attractive investment alternative
emerges which offers a better long-term risk-adjusted rate of return.
SPIROS SEGALAS LLC
Jennison Associates Capital Corporation
466 Lexington Avenue
New York, NY 10017
Spiros "Sig" Segalas is the portfolio manager for the segment of the Fund's
assets managed by Jennison Associates Capital Corp. Segalas has been in the
investment business for more than 30 years and has been the portfolio manager
for the Harbor Capital Appreciation Fund since May 1990. He is a founding member
and President and Chief Investment Officer of Jennison Associates Capital Corp.,
a wholly-owned subsidiary of the Prudential Insurance Company of America. As of
December 31, 1999, Jennison Associates managed more than $59 billion in U.S.
equity securities.
Approximately 20% of the Fund's assets are managed by Segalas. He seeks to
invest in large and mid-sized companies experiencing superior absolute and
relative earnings growth. Earnings predictability and confidence in earnings
forecasts are an important part of the selection process. In considering a stock
for ownership, Segalas considers price/earnings ratios relative to the market as
well as the companies' histories. In addition, he seeks out companies
experiencing some or all of the following:
* High sales growth
* High unit growth
* High or improving returns on assets and equity
* Strong balance sheet
Segalas also prefers companies with a competitive advantage, such as unique
management, marketing, or research and development.
RICHARD T. WEISS
Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, WI 53051
Dick Weiss is the portfolio manager for the segment of the Fund's assets managed
by Strong Capital Management, Inc. Weiss has been in the investment business for
more than 20 years and has been the manager or co-manager of the Strong Common
Stock Fund since joining Strong in 1991. Weiss is a member of the firm's
Executive Committee. Prior to joining Strong, he was the lead manager of the
SteinRoe Special Fund commencing in 1981. In total, as of December 31, 1999,
Weiss co-managed approximately $7 billion. Strong Capital Management was founded
in 1974 and is controlled by Richard Strong.
Approximately 10% of the Fund's assets are run by Weiss. He invests in stocks of
small and mid-sized companies that are undervalued either because they are not
broadly recognized, are in transition, or are out of favor based on short-term
factors. In seeking attractively valued companies, Weiss focuses on companies
with above-average growth potential that also exhibit some or all of the
following:
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* Low institutional ownership and low analyst coverage
* High-quality management
* Sustainable competitive advantage
Weiss evaluates the degree of under-valuation relative to his estimate of each
company's private market value. This private market value approach is based on
an assessment of what a private buyer would be willing to pay for the future
cash flow stream of the target company. Based on his experience, Weiss believes
that, except for technology and other high-growth stocks, most stocks trade at
between 50% and 80% of private market value. When trading at the low end of this
range, companies take steps to prevent takeover, or they are taken over. The
private market value estimate is applied flexibly, based on the outlook for the
industry and the company fundamentals.
THE MASTERS' SELECT INTERNATIONAL FUND IN DETAIL
The Fund's five investment managers pursue the Fund's objective primarily
through investments in common stocks of issuers located outside of the United
States.
Each manager may invest in securities traded in both developed and emerging
markets. Though there is no limit on emerging market exposure, it is not
expected to be a primary focus, and the majority of the Fund's assets are
expected to be invested in stocks of companies listed and domiciled in developed
countries. There are no limits on the Fund's geographic asset distribution, but,
to provide adequate diversification, the Fund ordinarily invests in the
securities markets of at least five countries outside of the United States. In
most periods it is expected that the Fund will hold securities in more than five
countries. Although the Fund intends to invest substantially all of its assets
in issuers located outside of the United States, it may at times of abnormal
market conditions invest in U.S. issuers and it may at times invest all of its
assets in fewer than five countries.
Each manager has a distinct stock-picking approach. As a group, the managers
invest in stocks with a range of market capitalization. Although each manager
has the flexibility to invest on a worldwide basis (excluding the U.S.) in
companies with market capitalization of any size, it is expected that the Fund's
exposure to large and mid-sized foreign companies will range from 60% to 90% of
the Fund's total assets under normal market conditions. The Advisor's strategy
is to allocate the portfolio's assets among investment managers who, based on
the Advisor's research, are judged to be among the best relative to their
respective peer groups. The Advisor has focused exclusively on stock pickers who
emphasize bottom-up stock picking rather than macro-driven, top-down country
picking.
The Advisor believes that bottom-up stock pickers have an advantage in foreign
markets because:
* It is the Advisor's opinion that the dynamics that influence individual
countries' markets, including currencies, inflation, economic growth,
political factors, regulation and the like, are much more difficult to
assess than the prospects and valuation characteristics of individual
companies.
* The Advisor believes that many individual stocks in foreign markets are
less closely analyzed (the markets are less "efficient") than in the United
States. If true, the Advisor believes that this will result in greater
opportunities for skilled stock pickers to add value through pure stock
selection.
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* Based on the Advisor's observations, bottom-up stock pickers in foreign
markets, on average, seem to perform better than top-down-oriented
managers.
Though bottom-up stock picking is emphasized, each manager also monitors
specific macro-factors that he or she believes are relevant in specific
countries.
The portion of the Fund assigned to each manager is fixed at a target percent by
the Advisor. However, market performance may result in allocation drift. The
Advisor is responsible for periodically rebalancing the allocations, the timing
and degree of which will be determined by the Advisor. The Advisor may, under
unusual conditions, adjust the target allocations of the managers.
The investment managers manage their individual portfolio segments by building a
focused portfolio representing their highest-confidence stocks. Each investment
manager's portfolio segment includes a minimum of 8 and a maximum of 15
securities. Though the overall Fund may hold more or fewer securities at any
point in time, it is generally expected that the Fund will hold between 40 and
75 securities.
Under unusual market conditions or for temporary defensive purposes, up to 35%
of the Fund's total assets may be invested in short-term, high-quality debt
securities. Defensive positions may be initiated by the individual portfolio
managers or by the Advisor.
MASTERS' SELECT INTERNATIONAL FUND PORTFOLIO MANAGERS
HELEN YOUNG HAYES
Janus Capital Corporation
100 Filmore Street
Denver, CO 80206
Helen Young Hayes is the portfolio manager for the segment of the Fund's assets
managed by Janus Capital Corporation (Janus). Hayes has been in the investment
business since 1984 and has been with Janus since 1987. Hayes is the Vice
President of Janus Capital Corporation and the portfolio manager of the Janus
Worldwide Fund (a global fund) and co-portfolio manager of the Janus Overseas
Fund (an international fund). Janus also subadvises several other international
and global funds of which Hayes is the portfolio manager. She has managed or
co-managed both funds since their inceptions in May 1991 and May 1994,
respectively. In total, as of December 31, 1999, Janus managed more than $249
billion.
Approximately 20% of the Fund is managed by Hayes, who uses a bottom-up approach
to stock selection. Hayes may invest in companies of all sizes, though she tends
to focus mostly on large and mid-sized companies. She invests in developed
markets, and, to a lesser extent, emerging markets. Hayes seeks to identify
individual companies with earnings growth potential that may not be recognized
by the market at large. Intensive research focuses on the fundamental factors
affecting the business prospects of companies and may include review of earnings
reports, corporate and industry developments, trading activity, research reports
and other data. In addition, for a smaller number of companies, additional
scrutiny may include, but is not limited to: direct contacts with corporate
management; analysis of and contact with competitors, customers and suppliers;
and frequent on-site visits to facilities. The focus of the analytical work is
to identify companies with:
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* Rapid sales and earnings growth
* Strong cash flow generation and wise deployment of capital
* Efficient operations and high productivity
* Good management with the proper incentives
Hayes seeks companies that meet her selection criteria, regardless of country of
organization or place of principal business activity. Securities are generally
selected on a stock-by-stock basis without regard to any defined allocation
among countries or geographic regions. Certain factors, however, such as
expected levels of inflation, government policies influencing business
conditions, the outlook for currency relationships, and prospects for economic
growth among countries, regions or geographic areas, may influence security
selection. Hayes may use a variety of currency hedging techniques, including
forward currency contracts, to manage exchange rate risk.
DAVID HERRO
Harris Associates L.P.
2 North LaSalle Street
Chicago, IL 60602
David Herro is the portfolio manager for the portion of the Fund's assets
managed by Harris Associates L.P. (Harris Associates). Herro has been in the
investment business since 1986 and is a partner, portfolio manager and Director
of International Equities at Harris Associates. He has managed the Oakmark
International Fund and the Oakmark International Small Cap Fund since their
inceptions in 1992 and 1995, respectively. Overall, Herro is responsible for
over $1 billion in international equity assets. As a firm, Harris Associates
managed approximately $12 billion in equity and fixed-income assets as of
December 31, 1999.
Approximately 20% of the Fund's assets are managed by David Herro. Herro
believes that long-term results are achieved by investing as owners in
successful companies that may be purchased at a significant discount to their
true economic value. He selects stocks using a disciplined value investment
approach that emphasizes a bottom-up stock selection process. Herro searches for
international stocks in both established and emerging markets.
When looking for new investment ideas, Herro attempts to do two things:
* Seek out companies that are selling at a substantial discount to their true
value
* Determine the management's capability of enhancing the value of the company
His focus is to buy securities at large discounts to their underlying value
(usually based on their current and potential cash generation). He also looks
for bargains based on companies' normalized earnings (the level of earnings
after backing out cyclical influences) and asset values. A company must be
selling at a 30% or greater discount to his estimate of its value to be a
candidate for purchase. Stocks are also analyzed in terms of financial strength,
the position of the company in its industry and the attractiveness of the
industry. Another key feature of Herro's investment approach is the thorough
assessment of a company's management team. Herro believes that investing in
companies with proven, capable managers enhances the likelihood of positive
returns. When interviewing management, Herro looks for two specific qualities in
a management team:
* Management's ability to generate cash from the company's asset base
* Management's ability to efficiently allocate capital
Because of his bottom-up approach, Herro focuses on stock selection rather than
industry or country selection. Currency hedging is done defensively and only if
the dollar appears excessively undervalued. Hedging is based on real interest
rate spreads, purchasing power parity differentials and differences in growth
and productivity.
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DANIEL R. JAWORSKI
BPI Global Asset Management, LLP
1900 Summit Tower Boulevard
Orlando, FL 32810
Dan Jaworski is the portfolio manager for the segment of the Fund's assets
managed by BPI Global Asset Management, LLP. Jaworski has been in the investment
management business since 1988 and in 1997 founded and became Chief Investment
Officer of BPI Global Asset Management. As of December 31, 1999, BPI managed
approximately $3.6 billion in assets. Jaworski has managed the Marshall
International Stock Fund since April 1999. Prior to founding BPI, Jaworski was
the portfolio manager of the STI Classic International Equity Fund and its
predecessor commingled fund from February 1, 1995, to April 30, 1997. Prior to
joining STI, Jaworski was an international portfolio manager with Lazard Freres
Asset Management. Jaworski began his portfolio management career as the manager
of the Princor World Fund (an international fund) for The Principle Financial
Group in December 1988.
Approximately 20% of the Fund's assets are run by Jaworski. He seeks to invest
in high-quality, low-leveraged companies with sustainable, globally competitive
products or services. Jaworski purchases these companies when they are selling
at a discount to their select global industrial peer group, when applicable.
Valuation criteria used are specific to the industry, but typical factors
include:
* Price to free cash flow
* Price to earnings
* Price to book
* Yield
Appreciation potential is determined assuming the security sells at the mean of
the industrial peer group. Potential returns are then adjusted to reflect the
estimated impact of the local market, the local currency or the general risk
profile of the security.
Securities ultimately selected by Jaworski are primarily large, well-established
companies that have historically generated, or will prospectively generate,
higher returns and better profit margins than their industry peers. Jaworski
invests in developed and emerging markets, and may use various hedging
techniques to reduce exchange rate risk.
THEODORE J. TYSON
JOSEPH P. JORDAN
DOUGLAS R. ALLEN
Mastholm Asset Management
10500 N.E. 8th Street
Suite 660
Bellevue, WA 98004
Ted Tyson is the Chief Investment Officer and a Portfolio Manager of Mastholm
Asset Management , LLC. Prior to forming Mastholm in 1997, Tyson was the founder
and head of international equity at American Century Investment Management,
which he joined in 1988. He has over 18 years of investment experience in
domestic and international markets. The Mastholm portfolio is managed by a team
of three portfolio managers led by Ted Tyson and including Joe Jordan and Doug
Allen, all of whom worked together at American Century. As of December 31, 1999,
Mastholm Asset Management has over $800 million under management.
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Approximately 20% of the Fund's assets are managed by the Mastholm team.
Mastholm's investment approach is bottom-up all capitalization growth, primarily
in developed markets.
Mastholm screens a universe of 28,000 companies on a daily basis to identify
stocks with accelerating earnings or positive news impacting current or future
earnings. Companies that pass their initial screens are reviewed to identify
purchase candidates with the following characteristics:
* clarity of accounting and confirmation of real earnings growth,
* operating results significantly higher than analysts expectations,
* wide divergence of analyst expectations,
* stock price below historical average range, and
* trading liquidity that meets guidelines.
Candidates with these characteristics become the highest priorities for
fundamental analysis by the team. Fundamental research is allocated among the
portfolio managers based on country or industry expertise.
The fundamental analysis process is designed to uncover catalysts that drive
earnings not fully recognized by the market. Industry analysts are interviewed
to understand the assumptions that led to their original earnings forecast,
companies are contacted to discuss how their explanation differs from industry
analysts and to identify trends not recognized or fully discounted by the
market. Competitors, suppliers and vendors are questioned to cross-reference the
information garnered from analysts and companies. The portfolio managers spend a
significant amount of time visiting with companies abroad that are in the
portfolio or under consideration.
Investments are primarily concentrated in developed markets. Mastholm tends to
remain fully invested in stocks at all times, and does not hedge currencies
except under rare circumstances.
MARK YOCKEY
Artisan Partners LP
1000 North Water Street, Suite 1770
Milwaukee, WI 53202
Mark Yockey is the portfolio manager for the segment of the Fund's assets
managed by Artisan Partners LP. Artisan Partners was founded by Carlene Murphy
Ziegler and Andrew Ziegler in 1995 and is controlled by them. Yockey has been in
the investment management business for more than 15 years and has been the
portfolio manager of the Artisan International Fund since its inception in
January 1996. He is a partner in Artisan Partners and is the senior member of
the firm's international investment management group. Prior to joining Artisan
Partners, he was the portfolio manager of the United International Growth Fund
commencing in 1990. In total, as of December 31, 1999, Yockey managed
approximately $4.8 billion.
Approximately 20% of the Fund's assets are run by Yockey. He invests primarily
in international growth stocks, concentrating on companies located in countries
that have accelerating growth prospects. He also invests in companies located in
emerging markets.
Though not a country picker, Yockey prefers to invest in regions and countries
that are enjoying improving or rapid economic growth. This investment universe
includes developed and emerging markets. Yockey is less likely to invest in
countries that, while showing favorable economic growth, appear to have
overvalued markets. Economic growth is determined principally from the
standpoint of gross domestic product growth, corporate profitability, current
account and currency issues, interest rates and social changes. Having
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identified favorable areas of the world for growth, Yockey seeks stocks of
companies best positioned to capitalize on that growth. In this process he
emphasizes well-managed companies with dominant or increasing market share in
strong industries. He typically focuses on companies with above-average
financial fundamentals and accelerating earnings per share. Yockey also analyzes
relative valuations using a variety of criteria, such as price-to-earnings
ratios, and avoids stocks that are trading at unsustainable or unusually high
valuations. His research process is flexible and varies depending on the country
and company, with an emphasis on determining whether the company has a sound
business plan and is able to execute it.
In making this assessment, Yockey will typically rely on analysis of company
reports, analyst reports, visits to the company and other contact with senior
management and competitors. Yockey may engage in hedging activities to reduce
exchange rate risk.
SHAREHOLDER SERVICES
EACH FUND IS A NO-LOAD FUND, which means you pay no sales commissions of any
kind. Once each business day that the New York Stock Exchange (NYSE) is open,
each Fund calculates its share price, which is also called the Fund's net asset
value (NAV). Shares are purchased at the next share price calculated after your
investment is received and accepted. Share price is calculated as of the close
of the NYSE, normally 4:00 p.m. Eastern Time.
HOW TO BUY SHARES
STEP 1
The first step is to determine the type of account you wish to open. The
following types of accounts are available to investors:
INDIVIDUAL OR JOINT ACCOUNTS FOR YOUR GENERAL INVESTMENT NEEDS:
Individual accounts are owned by one person. Joint accounts can have two or
more owners (tenants).
RETIREMENT ACCOUNTS Retirement plans allow individuals to shelter investment
income and capital gains from current taxes. In addition, contributions to these
accounts may be tax deductible. Retirement accounts require specific
applications and typically have lower minimums.
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow anyone of legal age and under
70-1/2 with earned income to invest up to $2,000 per year. Individuals can
also invest in a spouse's IRA if the spouse has earned income of less than
$250 and the combined contributions do not exceed $2,250.
ROLLOVER IRAS retain tax advantages for certain distributions from
employer-sponsored retirement plans.
SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) provide small business owners
or those with self-employed income (and their eligible employees) with many
of the same advantages as a Keogh retirement plan, but with fewer
administrative requirements.
ROTH IRAS allow anyone of legal age who meets certain income limits to
invest up to $2,000 per year.
Other retirement plans, such as Keogh or corporate profit-sharing plans, 403(b)
plans and 401(k) plans, may invest in the Funds. All of these accounts need to
be established by the plan's trustee. The Funds do not offer versions of these
plans.
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If you are investing through a tax-sheltered retirement plan, such as an IRA,
for the first time, you will need an IRA Application and Adoption Agreement.
Retirement investing also involves its own investment procedures.
GIFTS OR TRANSFERS TO MINORS (UGMA, UTMA) TO INVEST FOR A CHILD'S EDUCATION OR
OTHER FUTURE NEEDS:
These custodial accounts provide a way to give money to a child and obtain
tax benefits. An individual can give up to $10,000 per year per child
without paying a federal gift tax. Depending on state laws, you can set up
a custodial account under the Uniform Gifts to Minors Act (UGMA) or the
Uniform Transfers to Minors Act (UTMA).
TRUST FOR MONEY BEING INVESTED BY A TRUST:
The trust must be established before an account can be opened. The Fund may
require additional documentation regarding the formation of the trust prior
to establishing an account.
BUSINESS OR ORGANIZATION FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS,
PARTNERSHIPS OR OTHER GROUPS:
The Fund does not require a special application, however the Fund may
require additional information prior to establishing an account.
STEP 2
The second step involves determining the amount of your investment. The Masters'
Select Funds have established the following minimum investment levels for your
initial investment, additional investments and ongoing account balances:
MINIMUM INITIAL MINIMUM ADDITIONAL MINIMUM
TYPE OF ACCOUNT INVESTMENT INVESTMENT ACCOUNT BALANCE
- --------------- ---------- ---------- ---------------
REGULAR $5,000 $ 250 $2,500
RETIREMENT ACCOUNT $1,000 $ 250 $ 250
AUTOMATIC
INVESTMENT ACCOUNT $2,500 $ 100 $2,500
The Distributor may waive the minimum investment from time to time.
STEP 3
The third step involves completing your application to open your account. All
shareholders must complete and sign an application in order to establish their
account. The type of application depends on the type of account you chose to
open. Regular investment accounts, including individual, joint tenant, UGMA,
UTMA, business, or trust accounts must complete the Fund's standard New Account
Application. Shareholders who wish to establish retirement accounts must
complete the IRA Application and Adoption Agreement. Shareholders who wish to
transfer retirement holdings from another custodian must also complete the IRA
Transfer of Assets Form.
STEP 4
The final step in opening your account is to mail the completed application,
along with your check or money order payable to the Masters' Select Equity Fund
or the Masters' Select International Fund. THE FUNDS DO NOT ACCEPT THIRD-PARTY
CHECKS.
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The mailing addresses for the Funds are:
FOR REGULAR DELIVERY: FOR OVERNIGHT DELIVERY:
Masters' Select Funds Masters' Select Funds
c/o National Financial Data Services c/o National Financial Data Services
P.O. Box 219922 330 West Ninth Street
Kansas City, MO 64121-9922 Kansas City, MO 64105
If you wish to open or add to your account by wire, please call 1-800-960-0188
for instructions.
AFTER YOUR ACCOUNT IS OPEN, you may add to it by:
* Mailing a check or money order to the above addresses along with a letter
or the form at the bottom of your account statement. Be sure to put your
account number on your check and in your letter.
* Wiring money from your bank. Call 1-800-960-0188 for instructions
* Making automatic investments if you signed up for the Automatic Investment
Plan when you opened your account.
HOW TO SELL SHARES
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares. Your shares will be sold at the next net
asset value per share (share price) calculated after your order is received and
accepted.
TO SELL SHARES IN A NON-RETIREMENT ACCOUNT, you may use any of the methods
described in this section. To sell shares in a retirement account, your request
must be made in writing.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to protect
you and each Fund from fraud. Your request must be made in writing and include a
signature guarantee if any of the following situations apply:
* You wish to redeem more than $25,000 worth of shares.
* Your account registration information has changed within the past 30 days.
* The redemption check is being mailed to a different address from the one on
your account (address of record).
* The check is being made payable to someone other than the account owner.
You should be able to obtain a signature guarantee from a bank, broker-dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency or savings association. A notary public cannot
provide a signature guarantee.
SELLING SHARES BY LETTER
Write and sign a "letter of instruction" with:
YOUR NAME
YOUR FUND'S ACCOUNT NUMBER
THE DOLLAR AMOUNT OR NUMBER OF SHARES TO BE REDEEMED
Please note the following special requirements for redeeming shares for
different types of accounts;
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* INDIVIDUAL, JOINT TENANT, SOLE PROPRIETORSHIP, UGMA OR UTMA ACCOUNTS: The
letter of instruction must be signed by all persons required to sign for
transactions, exactly as their names appear on the account.
* RETIREMENT ACCOUNT: The account owner should complete a Retirement
Distribution Form. Call 1-800-960-0188 to request one.
* TRUST ACCOUNT: The trustee must sign the letter indicating capacity as
trustee. If a trustee's name is not in the account registration, provide a
copy of the trust document certified within the past 60 days.
* BUSINESS OR ORGANIZATION: At least one person authorized by corporate
resolutions to act on the account must sign the letter. Include a corporate
resolution with corporate seal or signature guarantee.
* EXECUTOR, ADMINISTRATOR, CONSERVATOR OR GUARDIAN: Call 1-800-960-0188 for
instructions.
Unless otherwise instructed, the Fund will send a check to the address of
record.
Mail your letter to:
REGULAR DELIVERY: OVERNIGHT DELIVERY:
Masters' Select Funds Masters' Select Funds
c/o National Financial Data Services c/o National Financial Data Services
P.O. Box 219922 330 West Ninth Street
Kansas City, MO 64121-9922 Kansas City, MO 64105
SELLING SHARES BY TELEPHONE
YOU MUST SELECT THIS OPTION ON YOUR NEW ACCOUNT APPLICATION IF YOU WISH TO USE
TELEPHONE REDEMPTION; IT IS NOT AUTOMATICALLY AVAILABLE. If you selected the
telephone redemption option on your New Account Application, you can sell shares
simply by calling 1-800-960-0188. The amount you wish to redeem (up to $25,000)
will be wired to your bank account. This option is not available for retirement
accounts.
SELLING SHARES BY WIRE
You must sign up for the wire feature before using it. To verify that it is in
place, please call 1-800-960-0188. The minimum wire amount is $5,000. Your wire
redemption request must be received by the Funds before 4:00 p.m. Eastern time
for money to be wired the next business day. This option is not available for
retirement accounts.
SHAREHOLDER AND ACCOUNT POLICIES
STATEMENTS, REPORTS, AND INQUIRIES
Statements and reports that each Fund sends you include the following:
* Confirmation statements (after every transaction that affects your account
balance or your account registration)
* Financial reports (every six months)
* Account Statements (every six months)
The Transfer Agent for the Funds is National Financial Data Services. Its
address is 330 W. Ninth Street, Kansas City, MO 64105. You may call the Transfer
Agent at 1-800-960-0188 if you have questions about your account.
23
<PAGE>
First Fund Distributors, Inc., an affiliate of the Administrator, is the
principal underwriter of the Funds. Its address is 4455 E. Camelback Road,
Phoenix, AZ 85018.
EXCHANGE PRIVILEGE
Shareholders may exchange shares between the Masters' Select Equity Fund and the
Masters' Select International Fund by mailing or delivering written instructions
to the Transfer Agent. Please specify the name of the applicable Fund, the
number of shares or dollar amount to be exchanged, and your name and account
number.
You may also exchange shares by calling the Transfer Agent at 1-800-960-0188
between 9:00 a.m. and 4:00 p.m. Eastern time on a day that the New York Stock
Exchange (NYSE) is open for normal trading. Telephone exchanges are subject to
the identification procedures noted with respect to telephone redemptions above.
AUTOMATIC INVESTMENT/WITHDRAWAL PLANS
One easy way to pursue your financial goals is to invest money regularly. The
Funds offer a convenient service that lets you transfer money into your Fund
account automatically. Although Automatic Investment Plans do not guarantee a
profit and will not protect you against loss in a declining market, they can be
an excellent way to invest for retirement, a home, educational expenses and
other long-term financial goals.
A systematic withdrawal plan lets you set up periodic redemptions from your
account. Certain restrictions apply for retirement accounts. Call 1-800-960-0188
for more information.
SHARE PRICE
Each Fund is open for business each day the New York Stock Exchange is open.
Each Fund calculates its net asset value (NAV) as of the close of business of
the NYSE, normally 4 p.m. Eastern time.
Each Fund's NAV is the value of a single share. The NAV is computed by adding
the value of each Fund's investments, cash and other assets, subtracting its
liabilities and then dividing the result by the number of shares outstanding.
The NAV is also the redemption price (price to sell one share).
Each Fund's assets are valued primarily on the basis of market quotations. If
quotations are not readily available, assets are valued by a method that the
Board of Trustees believes accurately reflects fair value.
PURCHASES
* All of your purchases must be made in U.S. dollars, and checks must be
drawn on U.S. banks.
* The Funds do not accept cash, credit cards or third-party checks.
* If your check does not clear, your purchase will be canceled and you will
be liable for any losses or fees the Funds or the Transfer Agent incurs.
* Your ability to make automatic investments may be immediately terminated if
any item is unpaid by your financial institution.
* Each Fund reserves the right to reject any purchase order.
24
<PAGE>
For example, a purchase order may be refused if, in the Advisor's opinion, it is
so large that it would disrupt management of the Funds. Orders may also be
rejected from persons believed by the Advisor to be "market timers."
You may buy and sell shares of the Funds through certain Financial
Intermediaries (and their agents) that have made arrangements with the Funds to
sell its shares. When you place your order with such a Financial Intermediary or
its authorized agent, your order is treated as if you had placed it directly
with the Funds' Transfer Agent, and you will pay or receive the next price
calculated by the Funds. The Financial Intermediary (or agent) holds your shares
in an omnibus account in the Financial Intermediary's (or agent's) name, and the
Financial Intermediary (or agent) maintains your individual ownership records.
The Advisor may pay the Financial Intermediary (or its agent) for maintaining
these records as well as providing other shareholder services. The Financial
Intermediary (or its agent) may charge you a fee for handling your order. The
Financial Intermediary (or agent) is responsible for processing your order
correctly and promptly, keeping you advised regarding the status of your
individual account, confirming your transactions and ensuring that you receive
copies of the Funds' prospectus.
REDEMPTIONS
* Normally, redemption proceeds will be mailed to you on the next business
day, but if making immediate payment could adversely affect the Funds, it
may take up to seven days to pay you.
* Redemptions may be suspended or payment dates postponed when the New York
Stock Exchange is closed (other than weekends or holidays), when trading on
the NYSE is restricted or as permitted by the SEC.
* If the amount you are redeeming exceeds 1% of the Funds' net assets or
$250,000 during any 90-day period, the Funds reserves the right to honor
your redemption request by distributing to you readily marketable
securities to you instead of cash. You may incur brokerage and other costs
in converting to cash any securities distributed.
FEE IMPOSED ON CERTAIN REDEMPTIONS OF SHARES.
Effective November 1, 1999, each Fund will impose a short-term redemption fee on
redemptions of shares purchased after the effective date and held for less than
180 days. The fee is 2% of the redemption value and is deducted from the
redemption proceeds.
The fee is retained by the Fund for the benefit of its long-term shareholders.
It is enacted to discourage short-term trading of the Fund by market timers or
other investors who do not share the long-term strategy of the Fund, and to
reduce the expenses of long-term shareholders for the trading costs and other
costs associated with short-term investment in the Fund.
The `first in, first out" (FIFO) method is used to determine the holding period;
this means that if you bought shares on different days, the shares purchased
first will be redeemed first for the purpose of determining whether the fee
applies.
Redemption Fees will not be charged on:
* shares acquired by reinvestment of dividends or distributions from a Fund,
* shares held in an account of a qualified retirement plan, such as a 401(k)
plan or IRA account, or purchased through certain intermediaries.
EACH FUND MAY CLOSE SMALL ACCOUNTS. Due to the relatively high cost of
maintaining smaller accounts, the shares in your account (unless it is a
retirement plan or custodial account) may be redeemed by each Fund if, due to
redemptions you have made, the total value of your account is reduced to less
than $2,500. If a Fund decides to make such an involuntary redemption, you will
first be notified that the value of your account is less than $2,500, and you
will be allowed 30 days to make an additional investment to bring the value of
your account to at least $2,500 before a Fund takes any action.
25
<PAGE>
DIVIDENDS, CAPITAL GAINS AND TAXES
The Funds distribute substantially all of their net income and capital gains, if
any, to shareholders each year. Normally, dividends and capital gains are
distributed in November or December.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to receive
your distributions. If the option you prefer is not listed on the application,
call 1-800-960-0188 for instructions. The Funds offer three options:
* REINVESTMENT OPTION. Your dividend and capital gains distributions will be
automatically reinvested in additional shares of the Funds. If you do not
indicate a choice on your application, you will be assigned this option.
* INCOME-EARNED OPTION. Your capital gains distributions will be
automatically reinvested, but you will be sent a check for each dividend
distribution.
* CASH OPTION. You will be sent a check for your dividend and capital gains
distributions.
For retirement accounts all distributions are automatically reinvested. When you
are over 59-1/2 years old, you can receive distributions in cash.
When a Fund deducts a distribution from its NAV, the reinvestment price is the
Fund's NAV at the close of business that day. Cash distribution checks will be
mailed within seven days.
UNDERSTANDING DISTRIBUTIONS
As a Fund shareholder, you are entitled to your share of the Fund's net income
and gains on its investments. The Funds pass their earnings along to investors
as distributions. Each Fund earns dividends from stocks and interest from
short-term investments. These are passed along as dividend distributions. Each
Fund realizes capital gains whenever it sells securities for a higher price than
it paid for them. These are passed along as capital gains distributions.
TAXES
As with any investment, you should consider how your investment in each Fund
will be taxed. If your account is not a tax-deferred retirement account, you
should be aware of these tax implications.
TAXES ON DISTRIBUTIONS. Distributions are subject to federal income tax and may
also be subject to state and local taxes. If you live outside of the United
States, your distributions could also be taxed by the country in which you
reside. Your distributions are taxable when they are paid, whether you take them
in cash or reinvest them. Distributions declared in December and paid in
January, however, are taxable as if they were paid on December 31.
For federal tax purposes, each Fund's income and short-term capital gains
distributions are taxed as dividends; long-term capital gains distributions are
taxed as long-term capital gains. Every January, each Fund will send you and the
Internal Revenue Service (IRS) a statement showing the taxable distributions.
TAXES ON TRANSACTIONS. Your redemptions, including transfers between Funds, are
subject to capital gains tax. A capital gain or loss is the difference between
the cost of your shares and the price you receive when you sell them. Whenever
you sell shares of a Fund, the Fund will send you a confirmation statement
26
<PAGE>
showing how many shares you sold and at what price. You will also receive a
consolidated transaction statement every January. It is up to you or your tax
preparer, however, to determine whether the sales resulted in a capital gain
and, if so, the amount of the tax to be paid. Be sure to keep your regular
account statements; the information they contain will be essential in
calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares just before a Fund deducts a distribution
from its NAV, you will pay the full price for the shares and then receive a
portion of the price back in the form of a taxable distribution.
There are tax requirements that all funds must follow in order to avoid federal
taxation. In their efforts to adhere to these requirements, the Funds may have
to limit their investment activity in some types of instruments.
When you sign your New Account Application, you will be asked to certify that
your Social Security or Taxpayer Identification number is correct and that you
are not subject to 31% withholding for failing to report income to the IRS. If
you violate IRS regulations, the IRS can require a fund to withhold 31% of your
taxable distributions and redemptions.
27
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Funds'
financial performance since their inception. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned or lost on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information for the year ended December 31, 1999, has been audited by
PricewaterhouseCoopers LLP, and by other independent accountants for periods
ended prior to December 31, 1999, whose report, along with the Funds' financial
statements, are included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
Equity Fund International Fund
--------------------------------- ---------------------------------
Year Year Year Year Year Year
Ended Ended Ended** Ended Ended Ended***
12/31/99 12/31/98 12/31/97 12/31/99 12/31/98 12/31/97
--------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
Beginning of period $ 13.57 $ 11.84 $ 10.00 $ 10.95 $ 9.88 $ 10.00
--------- --------- --------- --------- -------- --------
Income from investment operations
Net investment income (loss) (0.01) 0.03 0.03 0.00# 0.08 (0.00)
Net realized and unrealized gain(loss) 3.52 1.73 2.90 8.13 1.08 (0.12)
--------- --------- --------- --------- -------- --------
Total from investment operations 3.51 1.76 2.93 8.13 1.16 (0.12)
--------- --------- --------- --------- -------- --------
Less distributions
From net investment income (0.02) (0.02) (0.03) (0.03) (0.09) (0.00)
From capital gains (2.68) (0.01) (1.06) (0.38) (0.00) (0.00)
--------- --------- --------- --------- -------- --------
Total distributions (2.70) (0.03) (1.09) (0.41) (0.09) (0.00)
--------- --------- --------- --------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 14.38 $ 13.57 $ 11.84 $ 18.67 $ 10.95 $ 9.88
========= ========= ========= ========= ======== ========
Total Return 26.45% 14.90% 29.11% 75.01% 11.74% (1.20%)
--------- --------- --------- --------- -------- --------
Net assets at end of period (in 000's) $ 449,247 $ 405,458 $ 296,876 $ 219,357 $ 95,222 $ 45,934
--------- --------- --------- --------- -------- --------
Ratio of expenses to average net assets 1.26%+ 1.38%+ 1.47%+ 1.29%++ 1.55%++ 1.77%*++
--------- --------- --------- --------- -------- --------
Ratio of net investment income (loss) to
average net assets (0.12%) 0.30% 0.12% 0.01% 0.87% 0.42%*
--------- --------- --------- --------- -------- --------
Portfolio turnover rate 116.42% 135.41% 145.11% 100.00% 73.59% 0.00%
--------- --------- --------- --------- -------- --------
</TABLE>
- ----------
* Annualized.
** Operations commenced December 31, 1996
*** Operations commenced December 1, 1997
# Amount represents less than $.01 per share.
+ Ratio of expenses to average net assets before management fee waiver and
custody credits for December 31, 1999, 1998, and 1997, respectively, were
1.28%, 1.38%, and 1.47%
++ Ratio of expenses to average net assets before management fee waiver and
custody credits for December 31, 1999, 1998, and 1997, respectively, were
1.41%, 1.63%, and 1.83%
28
<PAGE>
FOR MORE INFORMATION
STATEMENT OF ADDITIONAL INFORMATION:
The Statement of Additional Information (SAI) contains additional information
about the Funds. Further additional information about the Funds' investments is
available in the Funds' Annual and Semi-Annual Reports to Shareholders.
ANNUAL AND SEMI-ANNUAL REPORTS:
In the Funds' annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Funds' performance
during its last fiscal year.
The SAI, Annual Report to Shareholders and Semi-Annual Report to Shareholders
are available, without charge, upon request. To request a SAI, Annual Report to
Shareholders or Semi-Annual Report to Shareholders, or to ask questions about
your account or obtain other information about the Funds, please call
1-800-960-0188.
SEC CONTACT INFORMATION:
If you have access to the Internet, you can view the SAI at the Securities and
Exchange Commission (SEC) Web site at www.sec.gov. You may also visit the SEC
public reference room. Information on the operation of the public reference room
can be obtained by calling 1-202-942-8090. To obtain copies of these
publications, you may also request a copy by writing to the Public Reference
Section of the SEC, Washington, D.C. 20549-6009. You may also make an electronic
request: at [email protected].. The SEC charges a duplicating fee for this
service.
Investment Company Act File No: 811-07763.
FUND IDENTIFICATION:
FUND ABBREVIATION SYMBOL CUSIP
- ---- ------------ ------ -----
Equity Fund MstrSeltEq MSEFX 576417109
International Fund MstrSeltInt MSILX 576417208
WEBSITE:
mastersselectfunds.com
THE MASTERS' SELECT FUNDS
P.O. BOX 219922
KANSAS CITY, MO 64121-9922
1-800-960-0188
First Fund Distributors, Inc., Phoenix, AZ 85018
(C) 2000 Litman/Gregory Fund Advisors, LLC. All rights reserved.
29
<PAGE>
As filed with the Securities and Exchange Commission on April 20, 2000
Registration No. 333-10015
File No. 811-07763
================================================================================
Part B
of
Form N-1A
COMBINED REGISTRATION STATEMENT
MASTERS' SELECT FUNDS TRUST
Masters' Select Equity Fund
Masters' Select International Fund
================================================================================
<PAGE>
MASTERS' SELECT FUNDS TRUST
Statement of Additional Information
Dated April 20, 2000
This Statement of Additional Information is not a prospectus, and it should be
read in conjunction with the prospectus dated April 20, 2000, as it may be
amended from time to time, of The Masters' Select Equity Fund (the "Masters'
Select Equity" or "Equity Fund") and The Masters' Select International Fund (the
"Masters' Select International" or "International Fund"), a series of Masters'
Select Funds Trust (the "Trust"), formerly known as the Masters' Select
Investment Trust until December 1997. The Trust, a diversified open-end
management investment company, is a Delaware business trust formed on August 1,
1996. Litman/Gregory Fund Advisors, LLC (the "Advisor") is the Advisor of the
Funds. The Advisor has retained investment managers as sub-advisers
("Managers"), each responsible for portfolio management of a segment of each
Fund's total assets. A copy of the combined prospectus may be obtained from the
Trust at 4 Orinda Way, Suite 230-D, Orinda, California 94563, telephone (800)
960-0188.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Cross-reference to sections
Page in the prospectus
---- -----------------
<S> <C> <C>
Fund History.......................... B-2 Not applicable
Investment Objective and Policies..... B-2 The Masters' Select Equity Fund - Fund
Summary; The Masters' Select
International Fund - Fund Summary
Management............................ B-18 The Funds in Detail - Elements Common
To Both Funds; The Masters' Select
Equity Fund in Detail; The Masters'
Select International Fund in Detail
Portfolio Transactions and Brokerage.. B-23 The Funds in Detail: Investment Managers
Net Asset Value....................... B-23 Shareholder Services: How to Buy Shares
Taxation ............................ B-25 Dividends, Capital Gains, and Taxes
Dividends and Distributions........... B-26 Dividends, Capital Gains, and Taxes
Performance Information............... B-27 Past Performance
General Information................... B-28 Not applicable
Financial Statements.................. B-29 Not applicable
Appendix ............................ B-30 Not applicable
</TABLE>
B-1
<PAGE>
FUND HISTORY
The Trust was organized as a Delaware business trust on August 1, 1996 and
is registered under the Investment Company Act of 1940 (the "1940 Act") as an
open-end management investment company. The Trust consists of two separate
series: the Masters' Select Equity Fund and the Masters' Select International
Fund (each a "Fund" and collectively the "Funds").
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is to provide long-term growth of
capital. There is no assurance that each Fund will achieve its objective. The
discussion below supplements information contained in the prospectus as to
investment policies of each Fund.
Under certain conditions, including unusual market conditions and for
temporary defensive purposes, up to 35% of each Fund's total assets may be
invested in short-term, high-quality debt securities. Defensive positions may be
initiated by the individual portfolio managers or by the Advisor.
The Advisor does not expect each Fund's portfolio turnover rate to exceed
150% in most years.
CASH POSITION
When a Fund's Manager believes that market conditions are unfavorable for
profitable investing, or when he or she is otherwise unable to locate attractive
investment opportunities, the Funds' cash or similar investments may increase.
In other words, the Funds do not always stay fully invested in stocks and bonds.
Cash or similar investments generally are a residual - they represent the assets
that remain after a portfolio manager has committed available assets to
desirable investment opportunities. However, a portfolio manager may also
temporarily increase a Fund's cash position to protect its assets or maintain
liquidity. Partly because the portfolio managers act independently of each
other, the cash positions of the Funds may vary significantly.
When a Fund's investments in cash or similar investments increase, it may
not participate in market advances or declines to the same extent that it would
if the Fund remained more fully invested in stocks or bonds.
CONVERTIBLE SECURITIES AND WARRANTS
Each Fund may invest in convertible securities and warrants. A convertible
security is a fixed income security (a debt instrument or a preferred stock)
which may be converted at a stated price within a specified period of time into
a certain quantity of the common stock of the same or a different issuer.
Convertible securities are senior to common stocks in an issuer's capital
structure, but are usually subordinated to similar non-convertible securities.
While providing a fixed income stream (generally higher in yield than the income
derivable from common stock but lower than that afforded by a similar
nonconvertible security), a convertible security also affords an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation attendant upon a market price advance in the convertible security's
underlying common stock.
A warrant gives the holder a right to purchase at any time during a
specified period a predetermined number of shares of common stock at a fixed
price. Unlike convertible debt securities or preferred stock, warrants do not
pay a fixed dividend. Investments in warrants involve certain risks, including
the possible lack of a liquid market for resale of the warrants, potential price
fluctuations as a result of speculation or other factors, and failure of the
price of the underlying security to reach or have reasonable prospects of
reaching a level at which the warrant can be prudently exercised (in which event
the warrant may expire without being exercised, resulting in a loss of a Fund's
entire investment therein).
OTHER CORPORATE DEBT SECURITIES
Each Fund may invest in non-convertible debt securities of foreign and
domestic companies over a cross-section of industries. The debt securities in
which each Fund may invest will be of varying maturities and may include
corporate bonds, debentures, notes and other similar corporate debt instruments.
The value of a longer-term debt security fluctuates more widely in response to
changes in interest rates than do shorter-term debt securities.
B-2
<PAGE>
RISKS OF INVESTING IN DEBT SECURITIES
There are a number of risks generally associated with an investment in debt
securities (including convertible securities). Yields on short, intermediate,
and long-term securities depend on a variety of factors, including the general
condition of the money and bond markets, the size of a particular offering, the
maturity of the obligation, and the rating of the issue.
Debt securities with longer maturities tend to produce higher yields and
are generally subject to potentially greater capital appreciation and
depreciation than obligations with short maturities and lower yields. The market
prices of debt securities usually vary, depending upon available yields. An
increase in interest rates will generally reduce the value of such portfolio
investments, and a decline in interest rates will generally increase the value
of such portfolio investments. The ability of each Fund to achieve its
investment objective also depends on the continuing ability of the issuers of
the debt securities in which each Fund invests to meet their obligations for the
payment of interest and principal when due.
RISKS OF INVESTING IN LOWER-RATED DEBT SECURITIES
As set forth in the prospectus, each Fund may invest a portion of its net
assets in debt securities rated below "Baa" by Moody's or "BBB" by S&P or below
investment grade by other recognized rating agencies, or in unrated securities
of comparable quality under certain circumstances. Securities with ratings below
"Baa" and/or "BBB" are commonly referred to as "junk bonds." Such bonds are
subject to greater market fluctuations and risk of loss of income and principal
than higher rated bonds for a variety of reasons, including the following:
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. The economy and interest
rates affect high yield securities differently from other securities. For
example, the prices of high yield bonds have been found to be less sensitive to
interest rate changes than higher-rated investments, but more sensitive to
adverse economic changes or individual corporate developments. Also, during an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress which would adversely affect
their ability to service their principal and interest obligations, to meet
projected business goals, and to obtain additional financing. If the issuer of a
bond defaults, each Fund may incur additional expenses to seek recovery. In
addition, periods of economic uncertainty and changes can be expected to result
in increased volatility of market prices of high yield bonds and a Fund's asset
values.
PAYMENT EXPECTATIONS. High yield bonds present certain risks based on
payment expectations. For example, high yield bonds may contain redemption and
call provisions. If an issuer exercises these provisions in a declining interest
rate market, a Fund would have to replace the security with a lower yielding
security, resulting in a decreased return for investors. Conversely, a high
yield bond's value will decrease in a rising interest rate market, as will the
value of a Fund's assets. If a Fund experiences unexpected net redemptions, it
may be forced to sell its high yield bonds without regard to their investment
merits, thereby decreasing the asset base upon which a Fund's expenses can be
spread and possibly reducing a Fund's rate of return.
LIQUIDITY AND VALUATION. To the extent that there is no established retail
secondary market, there may be thin trading of high yield bonds, and this may
impact a Manager's ability to accurately value high yield bonds and a Fund's
assets and hinder a Fund's ability to dispose of the bonds. Adverse publicity
and investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of high yield bonds, especially in a thinly
traded market.
CREDIT RATINGS. Credit ratings evaluate the safety of principal and
interest payments, not the market value risk of high yield bonds. Also, since
credit rating agencies may fail to timely change the credit ratings to reflect
subsequent events, a Manager must monitor the issuers of high yield bonds in a
Fund's portfolio to determine if the issuers will have sufficient cash flow and
profits to meet required principal and interest payments, and to assure the
bonds' liquidity so a Fund can meet redemption requests. A Fund will not
necessarily dispose of a portfolio security when its rating has been changed.
SHORT-TERM INVESTMENTS
Each Fund may invest in any of the following securities and instruments:
BANK CERTIFICATES OR DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. Each
Fund may acquire certificates of deposit, bankers' acceptances and time
deposits. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
B-3
<PAGE>
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by a Fund will be
dollar-denominated obligations of domestic or foreign banks or financial
institutions which at the time of purchase have capital, surplus and undivided
profits in excess of $100 million (including assets of both domestic and foreign
branches), based on latest published reports, or less than $100 million if the
principal amount of such bank obligations are fully insured by the U.S.
Government. If a Fund holds instruments of foreign banks or financial
institutions, it may be subject to additional investment risks that are
different in some respects from those incurred by a fund which invests only in
debt obligations of U.S. domestic issuers. See "Foreign Investments" below. Such
risks include future political and economic developments, the possible
imposition of withholding taxes by the particular country in which the issuer is
located on interest income payable on the securities, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities.
Domestic banks and foreign banks are subject to different governmental
regulations with respect to the amount and types of loans which may be made and
interest rates which may be charged. In addition, the profitability of the
banking industry depends largely upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important part
in the operations of the banking industry.
As a result of federal and state laws and regulations, domestic banks are,
among other things, required to maintain specified levels of reserves, limited
in the amount which they can loan to a single borrower, and subject to other
regulations designed to promote financial soundness. However, such laws and
regulations do not necessarily apply to foreign bank obligations that a Fund may
acquire.
In addition to purchasing certificates of deposit and bankers' acceptances,
to the extent permitted under its investment objectives and policies stated
above and in its prospectus, a Fund may make interest-bearing time or other
interest-bearing deposits in commercial or savings banks. Time deposits are
non-negotiable deposits maintained at a banking institution for a specified
period of time at a specified interest rate.
SAVINGS ASSOCIATION OBLIGATIONS. Each Fund may invest in certificates of
deposit (interest-bearing time deposits) issued by savings banks or savings and
loan associations that have capital, surplus and undivided profits in excess of
$100 million, based on latest published reports, or less than $100 million if
the principal amount of such obligations is fully insured by the U.S.
Government.
COMMERCIAL PAPER, SHORT-TERM NOTES AND OTHER CORPORATE OBLIGATIONS. Each
Fund may invest a portion of its assets in commercial paper and short-term
notes. Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper and short-term notes will normally have
maturities of less than nine months and fixed rates of return, although such
instruments may have maturities of up to one year.
Commercial paper and short-term notes will consist of issues rated at the
time of purchase "A-2" or higher by S&P, "Prime-1" or "Prime-2" by Moody's, or
similarly rated by another nationally recognized statistical rating organization
or, if unrated, will be determined by a Manager to be of comparable quality.
These rating symbols are described in Appendix A.
Corporate obligations include bonds and notes issued by corporations to
finance longer-term credit needs than supported by commercial paper. While such
obligations generally have maturities of ten years or more, a Fund may purchase
corporate obligations which have remaining maturities of one year or less from
the date of purchase and which are rated "AA" or higher by S&P or "Aa" or higher
by Moody's.
MONEY MARKET FUNDS
Each Fund may under certain circumstances invest a portion of its assets in
money market funds. The Investment Company Act of 1940 (the "1940 Act")
prohibits a Fund from investing more than 5% of the value of its total assets in
any one investment company. or more than 10% of the value of its total assets in
investment companies as a group, and also restricts its investment in any
investment company to 3% of the voting securities of such investment company.
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The Advisor and the Managers will not impose advisory fees on assets of a Fund
invested in a money market mutual fund. However, an investment in a money market
mutual fund will involve payment by a Fund of its pro rata share of advisory and
administrative fees charged by such fund.
GOVERNMENT OBLIGATIONS
Each Fund may make short-term investments in U.S. Government obligations.
Such obligations include Treasury bills, certificates of indebtedness, notes and
bonds, and issues of such entities as the Government National Mortgage
Association ("GNMA"), Export-Import Bank of the United States, Tennessee Valley
Authority, Resolution Funding Corporation, Farmers Home Administration, Federal
Home Loan Banks, Federal Intermediate Credit Banks, Federal Farm Credit Banks,
Federal Land Banks, Federal Housing Administration, Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation, and the Student
Loan Marketing Association.
Some of these obligations, such as those of the GNMA, are supported by the
full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of United States, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the FNMA, are supported by
the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.
Each Fund may invest in sovereign debt obligations of foreign countries. A
sovereign debtor's willingness or ability to repay principal and interest in a
timely manner may be affected by a number of factors, including its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which it may be
subject. Emerging market governments could default on their sovereign debt. Such
sovereign debtors also may be dependent on expected disbursements from foreign
governments, multilateral agencies and other entities abroad to reduce principal
and interest arrearages on their debt. The commitments on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a sovereign debtor's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to meet
such conditions could result in the cancellation of such third parties'
commitments to lend funds to the sovereign debtor, which may further impair such
debtor's ability or willingness to service its debt in a timely manner.
ZERO COUPON SECURITIES
Each Fund may invest up to 35% of its net assets in zero coupon securities
issued by the U.S. Treasury. Zero coupon Treasury securities are U.S. Treasury
notes and bonds which have been stripped of their unmatured interest coupons and
receipts, or certificates representing interests in such stripped debt
obligations or coupons. Because a zero coupon security pays no interest to its
holder during its life or for a substantial period of time, it usually trades at
a deep discount from its face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities which make current distributions of
interest.
VARIABLE AND FLOATING RATE INSTRUMENTS
Each Fund may acquire variable and floating rate instruments. Such
instruments are frequently not rated by credit rating agencies; however, unrated
variable and floating rate instruments purchased by a Fund will be determined by
a Manager under guidelines established by the Trust's Board of Trustees to be of
comparable quality at the time of the purchase to rated instruments eligible for
purchase by a Fund. In making such determinations, a Manager will consider the
earning power, cash flow and other liquidity ratios of the issuers of such
instruments (such issuers include financial, merchandising, bank holding and
other companies) and will monitor their financial condition. An active secondary
market may not exist with respect to particular variable or floating rate
instruments purchased by a Fund. The absence of such an active secondary market
could make it difficult for a Fund to dispose of the variable or floating rate
instrument involved in the event of the issuer of the instrument defaulting on
its payment obligation or during periods in which a Fund is not entitled to
exercise its demand rights, and a Fund could, for these or other reasons, suffer
a loss to the extent of the default. Variable and floating rate instruments may
be secured by bank letters of credit.
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MORTGAGE-RELATED SECURITIES
Each Fund may invest in mortgage-related securities. Mortgage-related
securities are derivative interests in pools of mortgage loans made to U.S.
residential home buyers, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations. Each Fund may also invest in debt
securities which are secured with collateral consisting of U.S. mortgage-related
securities, and in other types of U.S. mortgage-related securities.
U.S. MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their residential mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by repayments of principal resulting from the
sale of the underlying residential property, refinancing or foreclosure, net of
fees or costs which may be incurred. Some mortgage-related securities (such as
securities issued by GNMA) are described as "modified pass-throughs." These
securities entitle the holder to receive all interest and principal payments
owed on the mortgage pool, net of certain fees, at the scheduled payment dates
regardless of whether or not the mortgagor actually makes the payment.
The principal governmental guarantor of U.S. mortgage-related securities is
GNMA, a wholly owned United States Government corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the United States Government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of mortgages insured by the Federal Housing Agency or
guaranteed by the Veterans Administration.
Government-related guarantors include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA is a government-sponsored corporation owned entirely by private
stockholders and subject to general regulation by the Secretary of Housing and
Urban Development. FNMA purchases conventional residential mortgages not insured
or guaranteed by any government agency from a list of approved seller/services
which include state and federally chartered savings and loan associations,
mutual savings banks, commercial banks and credit unions and mortgage bankers.
FHLMC is a government-sponsored corporation created to increase availability of
mortgage credit for residential housing and owned entirely by private
stockholders. FHLMC issues participation certificates which represent interests
in conventional mortgages from FHLMC's national portfolio. Pass-through
securities issued by FNMA and participation certificates issued by FHLMC are
guaranteed as to timely payment of principal and interest by FNMA and FHLMC,
respectively, but are not backed by the full faith and credit of the United
States Government.
Although the underlying mortgage loans in a pool may have maturities of up
to 30 years, the actual average life of the pool certificates typically will be
substantially less because the mortgages will be subject to normal principal
amortization and may be prepaid prior to maturity. Prepayment rates vary widely
and may be affected by changes in market interest rates. In periods of falling
interest rates, the rate of prepayment tends to increase, thereby shortening the
actual average life of the pool certificates. Conversely, when interest rates
are rising, the rate of prepayments tends to decrease, thereby lengthening the
actual average life of the certificates. Accordingly, it is not possible to
predict accurately the average life of a particular pool.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). A domestic or foreign CMO in
which a Fund may invest is a hybrid between a mortgage-backed bond and a
mortgage pass-through security. Like a bond, interest is paid, in most cases,
semiannually. CMOs may be collateralized by whole mortgage loans, but are more
typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, FNMA or equivalent foreign entities.
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CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life depend upon the prepayment experience
of the collateral. CMOs provide for a modified form of call protection through a
de facto breakdown of the underlying pool of mortgages according to how quickly
the loans are repaid. Monthly payment of principal and interest received from
the pool of underlying mortgages, including prepayments, is first returned to
the class having the earliest maturity date or highest maturity. Classes that
have longer maturity dates and lower seniority will receive principal only after
the higher class has been retired.
FOREIGN INVESTMENTS AND CURRENCIES
Each Fund may invest in securities of foreign issuers that are not publicly
traded in the United States (the International Fund will invest substantially
all of its assets in securities of foreign issuers). Each Fund may also invest
in depositary receipts and in foreign currency futures contracts and may
purchase and sell foreign currency on a spot basis.
DEPOSITARY RECEIPTS. Depositary Receipts ("DRs") include American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs") or other forms of depositary receipts. DRs are
receipts typically issued in connection with a U.S. or foreign bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign securities
involve certain inherent risks, including the following:
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, diversification and balance of payments
position. The internal politics of certain foreign countries may not be as
stable as those of the United States. Governments in certain foreign countries
also continue to participate to a significant degree, through ownership interest
or regulation, in their respective economies. Action by these governments could
include restrictions on foreign investment, nationalization, expropriation of
goods or imposition of taxes, and could have a significant effect on market
prices of securities and payment of interest. The economies of many foreign
countries are heavily dependent upon international trade and are accordingly
affected by the trade policies and economic conditions of their trading
partners. Enactment by these trading partners of protectionist trade legislation
could have a significant adverse effect upon the securities markets of such
countries.
CURRENCY FLUCTUATIONS. Each Fund may invest in securities denominated in
foreign currencies. Accordingly, a change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of a Fund's assets denominated in that currency. Such changes will also
affect a Fund's income. The value of a Fund's assets may also be affected
significantly by currency restrictions and exchange control regulations enacted
from time to time.
MARKET CHARACTERISTICS. The Managers expect that many foreign securities in
which a Fund invests will be purchased in over-the-counter markets or on
exchanges located in the countries in which the principal offices of the issuers
of the various securities are located, if that is the best available market.
Foreign exchanges and markets may be more volatile than those in the United
States. While growing in volume, they usually have substantially less volume
than U.S. markets, and a Fund's portfolio securities may be less liquid and more
volatile than U.S. Government securities. Moreover, settlement practices for
transactions in foreign markets may differ from those in United States markets,
and may include delays beyond periods customary in the United States. Foreign
security trading practices, including those involving securities settlement
where Fund assets may be released prior to receipt of payment or securities, may
expose a Fund to increased risk in the event of a failed trade or the insolvency
of a foreign broker-dealer.
Transactions in options on securities, futures contracts, futures options
and currency contracts may not be regulated as effectively on foreign exchanges
as similar transactions in the United States, and may not involve clearing
mechanisms and related guarantees. The value of such positions also could be
adversely affected by the imposition of different exercise terms and procedures
and margin requirements than in the United States. The value of a Fund's
positions may also be adversely impacted by delays in its ability to act upon
economic events occurring in foreign markets during non-business hours in the
United States.
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LEGAL AND REGULATORY MATTERS. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
TAXES. The interest payable on certain of a Fund's foreign portfolio
securities may be subject to foreign withholding taxes, thus reducing the net
amount of income available for distribution to a Fund's shareholders.
COSTS. To the extent that each Fund invests in foreign securities, its
expense ratio is likely to be higher than those of investment companies
investing only in domestic securities, since the cost of maintaining the custody
of foreign securities is higher.
EMERGING MARKETS. Some of the securities in which each Fund may invest may
be located in developing or emerging markets, which entail additional risks,
including less social, political and economic stability; smaller securities
markets and lower trading volume, which may result in a less liquidity and
greater price volatility; national policies that may restrict a Fund's
investment opportunities, including restrictions on investment in issuers or
industries, or expropriation or confiscation of assets or property; and less
developed legal structures governing private or foreign investment.
In considering whether to invest in the securities of a foreign company, a
Manager considers such factors as the characteristics of the particular company,
differences between economic trends and the performance of securities markets
within the U.S. and those within other countries, and also factors relating to
the general economic, governmental and social conditions of the country or
countries where the company is located. The extent to which a Fund will be
invested in foreign companies and countries and depository receipts will
fluctuate from time to time within the limitations described in the prospectus,
depending on a Manager's assessment of prevailing market, economic and other
conditions.
OPTIONS ON SECURITIES AND SECURITIES INDICES
PURCHASING PUT AND CALL OPTIONS. Each Fund may purchase covered "put" and
"call" options with respect to securities which are otherwise eligible for
purchase by a Fund and with respect to various stock indices subject to certain
restrictions. Each Fund will engage in trading of such derivative securities
primarily for hedging purposes.
If a Fund purchases a put option, a Fund acquires the right to sell the
underlying security at a specified price at any time during the term of the
option (for "American-style" options) or on the option expiration date (for
"European-style" options). Purchasing put options may be used as a portfolio
investment strategy when a Manager perceives significant short-term risk but
substantial long-term appreciation for the underlying security. The put option
acts as an insurance policy, as it protects against significant downward price
movement while it allows full participation in any upward movement. If a Fund is
holding a stock which it feels has strong fundamentals, but for some reason may
be weak in the near term, a Fund may purchase a put option on such security,
thereby giving itself the right to sell such security at a certain strike price
throughout the term of the option. Consequently, a Fund will exercise the put
only if the price of such security falls below the strike price of the put. The
difference between the put's strike price and the market price of the underlying
security on the date a Fund exercises the put, less transaction costs, will be
the amount by which a Fund will be able to hedge against a decline in the
underlying security. If during the period of the option the market price for the
underlying security remains at or above the put's strike price, the put will
expire worthless, representing a loss of the price a Fund paid for the put, plus
transaction costs. If the price of the underlying security increases, the profit
a Fund realizes on the sale of the security will be reduced by the premium paid
for the put option less any amount for which the put may be sold.
If a Fund purchases a call option, it acquires the right to purchase the
underlying security at a specified price at any time during the term of the
option. The purchase of a call option is a type of insurance policy to hedge
against losses that could occur if a Fund has a short position in the underlying
security and the security thereafter increases in price. Each Fund will exercise
a call option only if the price of the underlying security is above the strike
price at the time of exercise. If during the option period the market price for
the underlying security remains at or below the strike price of the call option,
the option will expire worthless, representing a loss of the price paid for the
option, plus transaction costs. If the call option has been purchased to hedge a
short position of a Fund in the underlying security and the price of the
underlying security thereafter falls, the profit a Fund realizes on the cover of
the short position in the security will be reduced by the premium paid for the
call option less any amount for which such option may be sold.
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Prior to exercise or expiration, an option may be sold when it has
remaining value by a purchaser through a "closing sale transaction," which is
accomplished by selling an option of the same series as the option previously
purchased. Each Fund generally will purchase only those options for which a
Manager believes there is an active secondary market to facilitate closing
transactions.
WRITING CALL OPTIONS. Each Fund may write covered call options. A call
option is "covered" if a Fund owns the security underlying the call or has an
absolute right to acquire the security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount as are held in a segregated account by the Custodian). The writer of
a call option receives a premium and gives the purchaser the right to buy the
security underlying the option at the exercise price. The writer has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price during the option period. If the writer of
an exchange-traded option wishes to terminate his obligation, he may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. A writer may not effect a closing
purchase transaction after it has been notified of the exercise of an option.
Effecting a closing transaction in the case of a written call option will
permit a Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. Also, effecting a
closing transaction will permit the cash or proceeds from the concurrent sale of
any securities subject to the option to be used for other investments of a Fund.
If a Fund desires to sell a particular security from its portfolio on which it
has written a call option, it will effect a closing transaction prior to or
concurrent with the sale of the security.
Each Fund will realize a gain from a closing transaction if the cost of the
closing transaction is less than the premium received from writing the option or
if the proceeds from the closing transaction are more than the premium paid to
purchase the option. Each Fund will realize a loss from a closing transaction if
the cost of the closing transaction is more than the premium received from
writing the option or if the proceeds from the closing transaction are less than
the premium paid to purchase the option. However, because increases in the
market price of a call option will generally reflect increases in the market
price of the underlying security, any loss to a Fund resulting from the
repurchase of a call option is likely to be offset in whole or in part by
appreciation of the underlying security owned by a Fund.
STOCK INDEX OPTIONS. Each Fund may also purchase put and call options with
respect to the S&P 500 and other stock indices. Such options may be purchased as
a hedge against changes resulting from market conditions in the values of
securities which are held in a Fund's portfolio or which it intends to purchase
or sell, or when they are economically appropriate for the reduction of risks
inherent in the ongoing management of a Fund.
The distinctive characteristics of options on stock indices create certain
risks that are not present with stock options generally. Because the value of an
index option depends upon movements in the level of the index rather than the
price of a particular stock, whether a Fund will realize a gain or loss on the
purchase or sale of an option on an index depends upon movements in the level of
stock prices in the stock market generally rather than movements in the price of
a particular stock. Accordingly, successful use by a Fund of options on a stock
index would be subject to a Manager's ability to predict correctly movements in
the direction of the stock market generally. This requires different skills and
techniques than predicting changes in the price of individual stocks.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading of index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this were to occur, a Fund would not be able to
close out options which it had purchased, and if restrictions on exercise were
imposed, a Fund might be unable to exercise an option it holds, which could
result in substantial losses to a Fund. It is the policy of each Fund to
purchase put or call options only with respect to an index which a Manager
believes includes a sufficient number of stocks to minimize the likelihood of a
trading halt in the index.
RISKS OF INVESTING IN OPTIONS. There are several risks associated with
transactions in options on securities and indices. Options may be more volatile
than the underlying instruments and, therefore, on a percentage basis, an
investment in options may be subject to greater fluctuation than an investment
in the underlying instruments themselves. There are also significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objective. In addition, a liquid secondary market for particular options may
be absent for reasons which include the following: there may be insufficient
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trading interest in certain options; restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of option of underlying securities; unusual or unforeseen
circumstances may interrupt normal operations on an exchange; the facilities of
an exchange or clearing corporation may not at all times be adequate to handle
current trading volume; or one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in that class or series of options) would
cease to exist, although outstanding options that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves the exercise
of skill and judgment, and even a well-conceived transaction may be unsuccessful
to some degree because of market behavior or unexpected events. The extent to
which a Fund may enter into options transactions may be limited by the Internal
Revenue Code (the "Code") requirements for qualification of a Fund as a
regulated investment company. See "Dividends and Distributions" and "Taxation."
In addition, when trading options on foreign exchanges, many of the
protections afforded to participants in United States option exchanges will not
be available. For example, there may be no daily price fluctuation limits in
such exchanges or markets, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, a Fund as an option writer
could lose amounts substantially in excess of its initial investment, due to the
margin and collateral requirements typically associated with such option
writing. See "Dealer Options" below.
DEALER OPTIONS. Each Fund will engage in transactions involving dealer
options as well as exchange-traded options. Certain risks are specific to dealer
options. While a Fund might look to a clearing corporation to exercise
exchange-traded options, if a Fund were to purchase a dealer option it would
need to rely on the dealer from which it purchased the option to perform if the
option were exercised. Failure by the dealer to do so would result in the loss
of the premium paid by a Fund as well as loss of the expected benefit of the
transaction.
Exchange-traded options generally have a continuous liquid market while
dealer options may not. Consequently, a Fund may generally be able to realize
the value of a dealer option it has purchased only by exercising or reselling
the option to the dealer who issued it. Similarly, when a Fund writes a dealer
option, a Fund may generally be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to whom a Fund originally wrote the option. While a Fund will seek to enter into
dealer options only with dealers who will agree to and which are expected to be
capable of entering into closing transactions with a Fund, there can be no
assurance that a Fund will at any time be able to liquidate a dealer option at a
favorable price at any time prior to expiration. Unless a Fund, as a covered
dealer call option writer, is able to effect a closing purchase transaction, it
will not be able to liquidate securities (or other assets) used as cover until
the option expires or is exercised. In the event of insolvency of the other
party, a Fund may be unable to liquidate a dealer option. With respect to
options written by a Fund, the inability to enter into a closing transaction may
result in material losses to a Fund. For example, because a Fund must maintain a
secured position with respect to any call option on a security it writes, a Fund
may not sell the assets which it has segregated to secure the position while it
is obligated under the option. This requirement may impair a Fund's ability to
sell portfolio securities at a time when such sale might be advantageous.
The Staff of the Securities and Exchange Commission (the "Commission") has
taken the position that purchased dealer options are illiquid securities. A Fund
may treat the cover used for written dealer options as liquid if the dealer
agrees that a Fund may repurchase the dealer option it has written for a maximum
price to be calculated by a predetermined formula. In such cases, the dealer
option would be considered illiquid only to the extent the maximum purchase
price under the formula exceeds the intrinsic value of the option. Accordingly,
each Fund will treat dealer options as subject to a Fund's limitation on
illiquid securities. If the Commission changes its position on the liquidity of
dealer options, each Fund will change its treatment of such instruments
accordingly.
FOREIGN CURRENCY OPTIONS. Each Fund may buy or sell put and call options on
foreign currencies. A put or call option on a foreign currency gives the
purchaser of the option the right to sell or purchase a foreign currency at the
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exercise price until the option expires. Each Fund will use foreign currency
options separately or in combination to control currency volatility. Among the
strategies employed to control currency volatility is an option collar. An
option collar involves the purchase of a put option and the simultaneous sale of
call option on the same currency with the same expiration date but with
different exercise (or "strike") prices. Generally, the put option will have an
out-of-the-money strike price, while the call option will have either an
at-the-money strike price or an in-the-money strike price. Foreign currency
options are derivative securities. Currency options traded on U.S. or other
exchanges may be subject to position limits which may limit the ability of a
Fund to reduce foreign currency risk using such options.
As with other kinds of option transactions, the writing of an option on
foreign currency will constitute only a partial hedge, up to the amount of the
premium received. Each Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations: however, in the event of exchange rate
movements adverse to a Fund's position, a Fund may forfeit the entire amount of
the premium plus related transaction costs.
SPREAD TRANSACTIONS. Each Fund may purchase covered spread options from
securities dealers. These covered spread options are not presently
exchange-listed or exchange-traded. The purchase of a spread option gives a Fund
the right to put a securities that it owns at a fixed dollar spread or fixed
yield spread in relationship to another security that a Fund does not own, but
which is used as a benchmark. The risk to a Fund, in addition to the risks of
dealer options described above, is the cost of the premium paid as well as any
transaction costs. The purchase of spread options will be used to protect a Fund
against adverse changes in prevailing credit quality spreads, I.E., the yield
spread between high quality and lower quality securities. This protection is
provided only during the life of the spread options.
FORWARD CURRENCY CONTRACTS
Each Fund may enter into forward currency contracts in anticipation of
changes in currency exchange rates. A forward currency contract is an obligation
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. For example, a Fund might purchase a
particular currency or enter into a forward currency contract to preserve the
U.S. dollar price of securities it intends to or has contracted to purchase.
Alternatively, it might sell a particular currency on either a spot or forward
basis to hedge against an anticipated decline in the dollar value of securities
it intends to or has contracted to sell. Although this strategy could minimize
the risk of loss due to a decline in the value of the hedged currency, it could
also limit any potential gain from an increase in the value of the currency.
FUTURES CONTRACTS AND RELATED OPTIONS
Each Fund may invest in futures contracts and options on futures contracts
as a hedge against changes in market conditions or interest rates. A Fund may
trade in such derivative securities for bona fide hedging purposes and otherwise
in accordance with the rules of the Commodity Futures Trading Commission
("CFTC"). A Fund will segregate liquid assets in a separate account with its
Custodian when required to do so by CFTC guidelines in order to cover its
obligation in connection with futures and options transactions.
No price is paid or received by a Fund upon the purchase or sale of a
futures contract. When it enters into a domestic futures contract, a Fund will
be required to deposit in a segregated account with its Custodian an amount of
cash or U.S. Treasury bills equal to approximately 5% of the contract amount.
This amount is known as initial margin. The margin requirements for foreign
futures contracts may be different.
The nature of initial margin in futures transactions is different from that
of margin in securities transactions. Futures contract margin does not involve
the borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to a Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. Subsequent
payments (called variation margin) to and from the broker will be made on a
daily basis as the price of the underlying stock index fluctuates, to reflect
movements in the price of the contract making the long and short positions in
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the futures contract more or less valuable. For example, when a Fund has
purchased a stock index futures contract and the price of the underlying stock
index has risen, that position will have increased in value and a Fund will
receive from the broker a variation margin payment equal to that increase in
value. Conversely, when a Fund has purchased a stock index futures contract and
the price of the underlying stock index has declined, the position will be less
valuable and a Fund will be required to make a variation margin payment to the
broker.
At any time prior to expiration of a futures contract, a Fund may elect to
close the position by taking an opposite position, which will operate to
terminate a Fund's position in the futures contract A final determination of
variation margin is made on closing the position. Additional cash is paid by or
released to a Fund, which realizes a loss or a gain.
In addition to amounts segregated or paid as initial and variation margin,
a Fund must segregate liquid assets with its custodian equal to the market value
of the futures contracts, in order to comply with Commission requirements
intended to ensure that a Fund's use of futures is unleveraged. The requirements
for margin payments and segregated accounts apply to both domestic and foreign
futures contracts.
STOCK INDEX FUTURES CONTRACTS. Each Fund may invest in futures contracts on
stock indices. Currently, stock index futures contracts can be purchased or sold
with respect to the S&P 500 Stock Price Index on the Chicago Mercantile
Exchange, the Major Market Index on the Chicago Board of Trade, the New York
Stock Exchange Composite Index on the New York Futures Exchange and the Value
Line Stock Index on the Kansas City Board of Trade. Foreign financial and stock
index futures are traded on foreign exchanges including the London International
Financial Futures Exchange, the Singapore International Monetary Exchange, the
Sydney Futures Exchange Limited and the Tokyo Stock Exchange.
INTEREST RATE OR FINANCIAL FUTURES CONTRACTS. Each Fund may invest in
interest rate or financial futures contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, a contract is made to purchase or sell a bond in the future for
a set price on a certain date. Historically, the prices for bonds established in
the futures markets have generally tended to move in the aggregate in concert
with cash market prices, and the prices have maintained fairly predictable
relationships.
The sale of an interest rate or financial futures contract by a Fund would
create an obligation by a Fund, as seller, to deliver the specific type of
financial instrument called for in the contract at a specific future time for a
specified price. A futures contract purchased by a Fund would create an
obligation by a Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Although interest rate or financial futures contracts by their terms call
for actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without delivery of securities. Closing
out of a futures contract sale is effected by a Fund's entering into a futures
contract purchase for the same aggregate amount of the specific type of
financial instrument and the same delivery date. If the price in the sale
exceeds the price in the offsetting purchase, a Fund is paid the difference and
thus realizes a gain. If the offsetting purchase price exceeds the sale price, a
Fund pays the difference and realizes a loss. Similarly, the closing out of a
futures contract purchase is effected by a Fund's entering into a futures
contract sale. If the offsetting sale price exceeds the purchase price, a Fund
realizes a gain, and if the purchase price exceeds the offsetting sale price, a
Fund realizes a loss.
Each Fund will deal only in standardized contracts on recognized exchanges.
Each exchange guarantees performance under contract provisions through a
clearing corporation, a nonprofit organization managed by the exchange
membership. Domestic interest rate futures contracts are traded in an auction
environment on the floors of several exchanges - principally, the Chicago Board
of Trade and the Chicago Mercantile Exchange. A public market now exists in
domestic futures contracts covering various financial instruments including
long-term United States Treasury bonds and notes; GNMA modified pass-through
mortgage-backed securities; three-month United States Treasury bills; and 90-day
commercial paper. Each Fund may trade in any futures contract for which there
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exists a public market, including, without limitation, the foregoing
instruments. International interest rate futures contracts are traded on the
London International Financial Futures Exchange, the Singapore International
Monetary Exchange, the Sydney Futures Exchange Limited and the Tokyo Stock
Exchange.
FOREIGN CURRENCY FUTURES CONTRACTS. Each Fund may use foreign currency
future contracts for hedging purposes. A foreign currency futures contract
provides for the future sale by one party and purchase by another party of a
specified quantity of a foreign currency at a specified price and time. A public
market exists in futures contracts covering several foreign currencies,
including the Australian dollar, the Canadian dollar, the British pound, the
German mark, the Japanese yen, the Swiss franc, and certain multinational
currencies such as the European Currency Unit ("ECU"). Other foreign currency
futures contracts are likely to be developed and traded in the future. Each Fund
will only enter into futures contracts and futures options which are
standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity, or quoted on an automated quotation system.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS. There are several risks related
to the use of futures as a hedging device. One risk arises because of the
imperfect correlation between movements in the price of the futures contract and
movements in the price of the securities which are the subject of the hedge. The
price of the future may move more or less than the price of the securities being
hedged. If the price of the future moves less than the price of the securities
which are the subject of the hedge, the hedge will not be fully effective, but
if the price of the securities being hedged has moved in an unfavorable
direction, a Fund would be in a better position than if it had not hedged at
all. If the price of the securities being hedged has moved in a favorable
direction, this advantage will be partially offset by the loss on the future. If
the price of the future moves more than the price of the hedged securities, a
Fund will experience either a loss or a gain on the future which will not be
completely offset by movements in the price of the securities which are subject
to the hedge.
To compensate for the imperfect correlation of movements in the price of
securities being hedged and movements in the price of the futures contract, a
Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the historical volatility of the
prices of such securities has been greater than the historical volatility over
such time period of the future. Conversely, a Fund may buy or sell fewer futures
contracts if the historical volatility of the price of the securities being
hedged is less than the historical volatility of the futures contract being
used. It is possible that, when a Fund has sold futures to hedge its portfolio
against a decline in the market, the market may advance while the value of
securities held in a Fund's portfolio may decline. If this occurs, a Fund will
lose money on the future and also experience a decline in value in its portfolio
securities. However, the Advisor believes that over time the value of a
diversified portfolio will tend to move in the same direction as the market
indices upon which the futures are based.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead. If a Fund then decides not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, it will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the securities
being hedged, the price of futures may not correlate perfectly with movement in
the stock index or cash market due to certain market distortions. All
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions, which
could distort the normal relationship between the index or cash market and
futures markets. In addition, the deposit requirements in the futures market are
less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. As a result of price distortions in the futures
market and the imperfect correlation between movements in the cash market and
the price of securities and movements in the price of futures, a correct
forecast of general trends by a Manager may still not result in a successful
hedging transaction over a very short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although a Fund may
intend to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
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possible to close a futures position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. When futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the futures contract can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract.
However, as described above, there is no guarantee that the price of the
securities will in fact correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures contract.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Successful use of futures by a Fund is also subject to a Manager's ability
to predict correctly movements in the direction of the market. For example, if a
Fund has hedged against the possibility of a decline in the market adversely
affecting stocks held in its portfolio and stock prices increase instead, a Fund
will lose part or all of the benefit of the increased value of the stocks which
it has hedged because it will have offsetting losses in its futures positions.
In addition, in such situations, if a Fund has insufficient cash, it may have to
sell securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. Each Fund may have to sell securities at a time when
it may be disadvantageous to do so.
In the event of the bankruptcy of a broker through which a Fund engages in
transactions in futures contracts or options, a Fund could experience delays and
losses in liquidating open positions purchased or sold through the broker, and
incur a loss of all or part of its margin deposits with the broker.
OPTIONS ON FUTURES CONTRACTS. As described above, each Fund may purchase
options on the futures contracts they can purchase or sell. A futures option
gives the holder, in return for the premium paid, the right to buy (call) from
or sell (put) to the writer of the option a futures contract at a specified
price at any time during the period of the option. Upon exercise, the writer of
the option is obligated to pay the difference between the cash value of the
futures contract and the exercise price. Like the buyer or seller of a futures
contract, the holder or writer of an option has the right to terminate its
position prior to the scheduled expiration of the option by selling, or
purchasing an option of the same series, at which time the person entering into
the closing transaction will realize a gain or loss. There is no guarantee that
such closing transactions can be effected.
Investments in futures options involve some of the same considerations as
investments in futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase of an option also entails the risk
that changes in the value of the underlying futures contract will not be fully
reflected in the value of the option. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contracts. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to a Fund because the
maximum amount at risk is limited to the premium paid for the options (plus
transaction costs).
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RESTRICTIONS ON THE USE OR FUTURES CONTRACTS AND RELATED OPTIONS. Each Fund
will engage in transactions in futures contracts or related options primarily as
a hedge against changes resulting from market conditions in the values of
securities held in a Fund's portfolio or which it intends to purchase and where
the transactions are economically appropriate to the reduction of risks inherent
in the ongoing management of each Fund. A Fund may not purchase or sell futures
or purchase related options for purposes other than bona fide hedging if,
immediately thereafter, more than 25% of its net assets would be hedged. A Fund
also may not purchase or sell futures or purchase related options if,
immediately thereafter, the sum of the amount of margin deposits on a Fund's
existing futures positions and premiums paid for such options would exceed 5% of
the market value of a Fund's net assets.
These restrictions, which are derived from current federal regulations
regarding the use of options and futures by mutual funds, are not "fundamental
restrictions" and may be changed by the Trustees of the Trust if applicable law
permits such a change and the change is consistent with the overall investment
objective and policies of each Fund.
The extent to which a Fund may enter into futures and options transactions
may be limited by the Code requirements for qualification of a Fund as a
regulated investment company. See "Taxation."
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with respect to its
portfolio securities. Pursuant to such agreements, a Fund acquires securities
from financial institutions such as banks and broker-dealers as are deemed to be
creditworthy by the Advisor or a Manager, subject to the seller's agreement to
repurchase and a Fund's agreement to resell such securities at a mutually agreed
upon date and price. The repurchase price generally equals the price paid by a
Fund plus interest negotiated on the basis of current short-term rates (which
may be more or less than the rate on the underlying portfolio security).
Securities subject to repurchase agreements will be held by the Custodian or in
the Federal Reserve/Treasury Book-Entry System or an equivalent foreign system.
The seller under a repurchase agreement will be required to maintain the value
of the underlying securities at not less than 102% of the repurchase price under
the agreement. If the seller defaults on its repurchase obligation, a Fund
holding the repurchase agreement will suffer a loss to the extent that the
proceeds from a sale of the underlying securities are less than the repurchase
price under the agreement. Bankruptcy or insolvency of such a defaulting seller
may cause a Fund's rights with respect to such securities to be delayed or
limited. Repurchase agreements are considered to be loans under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS.
Each Fund may enter into reverse repurchase agreements. A Fund typically
will invest the proceeds of a reverse repurchase agreement in money market
instruments or repurchase agreements maturing not later than the expiration of
the reverse repurchase agreement. A Fund may use the proceeds of reverse
repurchase agreements to provide liquidity to meet redemption requests when sale
of a Fund's securities is disadvantageous.
Each Fund causes the custodian to segregate liquid assets, such as cash,
U.S. Government securities or other high grade liquid debt securities equal in
value to its obligations (including accrued interest) with respect to reverse
repurchase agreements. In segregating such assets, the custodian either places
such securities in a segregated account or separately identifies such assets and
renders them unavailable for investment. Such assets are marked to market daily
to ensure full collateralization is maintained.
DOLLAR ROLL TRANSACTIONS
Each Fund may enter into dollar roll transactions. A dollar roll
transaction involves a sale by a Fund of a security to a financial institution
concurrently with an agreement by a Fund to purchase a similar security from the
institution at a later date at an agreed-upon price. The securities that are
repurchased will bear the same interest rate as those sold, but generally will
be collateralized by different pools of mortgages with different prepayment
histories than those sold. During the period between the sale and repurchase, a
Fund will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in additional portfolio
securities of a Fund, and the income from these investments, together with any
additional fee income received on the sale, may or may not generate income for a
Fund exceeding the yield on the securities sold.
At the time a Fund enters into a dollar roll transaction, it causes its
custodian to segregate liquid assets such as cash, U.S. Government securities or
other high-grade liquid debt securities having a value equal to the purchase
price for the similar security (including accrued interest) and subsequently
marks the assets to market daily to ensure that full collateralization is
maintained.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS
Each Fund may purchase securities on a "when-issued," forward commitment or
delayed settlement basis. In this event, the Custodian will set aside cash or
liquid portfolio securities equal to the amount of the commitment in a separate
account. Normally, the Custodian will set aside portfolio securities to satisfy
a purchase commitment. In such a case, a Fund may be required subsequently to
place additional assets in the separate account in order to assure that the
value of the account remains equal to the amount of a Fund's commitment. It may
be expected that a Fund's net assets will fluctuate to a greater degree when it
sets aside portfolio securities to cover such purchase commitments than when it
sets aside cash.
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Each Fund does not intend to engage in these transactions for speculative
purposes but only in furtherance of its investment objectives. Because a Fund
will set aside cash or liquid portfolio securities to satisfy its purchase
commitments in the manner described, a Fund's liquidity and the ability of a
Manager to manage it may be affected in the event a Fund's forward commitments,
commitments to purchase when-issued securities and delayed settlements ever
exceeded 15% of the value of its net assets.
Each Fund will purchase securities on a when-issued, forward commitment or
delayed settlement basis only with the intention of completing the transaction.
If deemed advisable as a matter of investment strategy, however, a Fund may
dispose of or renegotiate a commitment after it is entered into, and may sell
securities it has committed to purchase before those securities are delivered to
a Fund on the settlement date. In these cases a Fund may realize a taxable
capital gain or loss. When a Fund engages in when-issued, forward commitment and
delayed settlement transactions, it relies on the other party to consummate the
trade. Failure of such party to do so may result in a Fund's incurring a loss or
missing an opportunity to obtain a price credited to be advantageous.
The market value of the securities underlying a when-issued purchase,
forward commitment to purchase securities, or a delayed settlement and any
subsequent fluctuations in their market value is taken into account when
determining the market value of a Fund starting on the day a Fund agrees to
purchase the securities. A Fund does not earn interest on the securities it has
committed to purchase until they are paid for and delivered on the settlement
date.
ZERO-COUPON, STEP-COUPON AND PAY-IN-KIND SECURITIES
Each Fund may invest in zero-coupon, step-coupon and pay-in-kind
securities. These securities are debt securities that do not make regular cash
interest payments. Zero-coupon and step-coupon securities are sold at a deep
discount to their face value. Pay-in-kind securities pay interest through the
issuance of additional securities. Because these securities do not pay current
cash income, the price of these securities can be volatile when interest rates
fluctuate. While these securities do not pay current cash income, the Code
requires the holders of these securities to include in income each year the
portion of the original issue discount (or deemed discount) and other non-cash
income on the securities accruing that year. A Fund may be required to
distribute a portion of that discount and income and may be required to dispose
of other portfolio securities, which may occur in periods of adverse market
prices, in order to generate cash to meet these distribution requirements.
BORROWING
Each Fund is authorized to borrow money from time to time for temporary,
extraordinary or emergency purposes or for clearance of transactions in amounts
up to 20% of the value of its total assets at the time of such borrowings. The
use of borrowing by the Fund involves special risk considerations that may not
be associated with other funds having similar objectives and policies. Since
substantially all of the Fund's assets fluctuate in value, whereas the interest
obligation resulting from a borrowing will be fixed by the terms of the Fund's
agreement with its lender, the asset value per share of the Fund will tend to
increase more when its portfolio securities increase in value and to decrease
more when its portfolio assets decrease in value than would otherwise be the
case if the Fund did not borrow funds. In addition, interest costs on borrowings
may fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds. Under adverse market conditions, the
Fund might have to sell portfolio securities to meet interest or principal
payments at a time when fundamental investment considerations would not favor
such sales.
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LENDING PORTFOLIO SECURITIES
Each Fund may lend its portfolio securities in an amount not exceeding 10%
of its total assets to financial institutions such as banks and brokers if the
loan is collateralized in accordance with applicable regulations. Under the
present regulatory requirements which govern loans of portfolio securities, the
loan collateral must, on each business day, at least equal the value of the
loaned securities and must consist of cash, letters of credit of domestic banks
or domestic branches of foreign banks, or securities of the U.S. Government or
its agencies. To be acceptable as collateral, letters of credit must obligate a
bank to pay amounts demanded by a Fund if the demand meets the terms of the
letter. Such terms and the issuing bank would have to be satisfactory to a Fund.
Any loan might be secured by any one or more of the three types of collateral.
The terms of a Fund's loans must permit a Fund to reacquire loaned securities on
five days' notice or in time to vote on any serious matter and must meet certain
tests under the Code.
SHORT SALES
Each Fund is authorized to make short sales of securities which it does not
own or have the right to acquire. In a short sale, a Fund sells a security which
it does not own, in anticipation of a decline in the market value of the
security. To complete the sale, a Fund must borrow the security (generally from
the broker through which the short sale is made) in order to make delivery to
the buyer. Each Fund is then obligated to replace the security borrowed by
purchasing it at the market price at the time of replacement. Each Fund is said
to have a "short position" in the securities sold until it delivers them to the
broker. The period during which a Fund has a short position can range from one
day to more than a year. Until the security is replaced, the proceeds of the
short sale are retained by the broker, and a Fund is required to pay to the
broker a negotiated portion of any dividends or interest which accrue during the
period of the loan. To meet current margin requirements, a Fund is also required
to deposit with the broker additional cash or securities so that the total
deposit with the broker is maintained daily at 150% of the current market value
of the securities sold short (100% of the current market value if a security is
held in the account that is convertible or exchangeable into the security sold
short within 90 days without restriction other than the payment of money).
Short sales by a Fund create opportunities to increase a Fund's return but,
at the same time, involve specific risk considerations and may be considered a
speculative technique. Since each Fund in effect profits from a decline in the
price of the securities sold short without the need to invest the full purchase
price of the securities on the date of the short sale, a Fund's net asset value
per share will tend to increase more when the securities it has sold short
decrease in value, and to decrease more when the securities it has sold short
increase in value, than would otherwise be the case if it had not engaged in
such short sales. The amount of any gain will be decreased, and the amount of
any loss increased, by the amount of any premium, dividends or interest a Fund
may be required to pay in connection with the short sale. Furthermore, under
adverse market conditions a Fund might have difficulty purchasing securities to
meet its short sale delivery obligations, and might have to sell portfolio
securities to raise the capital necessary to meet its short sale obligations at
a time when fundamental investment considerations would not favor such sales.
ILLIQUID SECURITIES
Each Fund may not invest more than 15% of the value of its net assets in
illiquid securities, including restricted securities, that are not deemed to
liquid by the sub-advisor. The Advisor and the Managers will monitor the amount
of illiquid securities in a Fund's portfolio, under the supervision of the
Trust's Board of Trustees, to ensure compliance with a Fund's investment
restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and a Fund might be unable
to dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemption within
seven days. A Fund might also have to register such restricted securities in
order to dispose of them, resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
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In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the Commission under the Securities
Act, the sub-advisor, pursuant to procedures adopted by the Trust's Board of
Trustees, may determine that such securities are not illiquid securities
notwithstanding their legal or contractual restrictions on resale. In all other
cases, however, securities subject to restrictions on resale will be deemed
illiquid.
RISKS OF INVESTING IN SMALL COMPANIES
As stated in the prospectus, each Fund may invest in securities of small
companies. Additional risks of such investments include the markets on which
such securities are frequently traded. In many instances the securities of
smaller companies are traded only over-the-counter or on a regional securities
exchange, and the frequency and volume of their trading is substantially less
than is typical of larger companies. Therefore, the securities of smaller
companies may be subject to greater and more abrupt price fluctuations. When
making large sales, a Fund may have to sell portfolio holdings at discounts from
quoted prices or may have to make a series of small sales over an extended
period of time due to the trading volume of smaller company securities.
Investors should be aware that, based on the foregoing factors, an investment in
the Funds may be subject to greater price fluctuations than an investment in a
fund that invests exclusively in larger, more established companies. A Manager's
research efforts may also play a greater role in selecting securities for a Fund
than in a fund that invests in larger, more established companies.
INVESTMENT RESTRICTIONS
The Trust (on behalf of a Fund) has adopted the following restrictions as
fundamental policies, which may not be changed without the favorable vote of the
holders of a "majority," as defined in the 1940 Act, of the outstanding voting
securities of a Fund. Under the 1940 Act, the "vote of the holders of a majority
of the outstanding voting securities" means the vote of the holders of the
lesser of (i) 67% of the shares of a Fund represented at a meeting at which the
holders of more than 50% of its outstanding shares are represented or (ii) more
than 50% of the outstanding shares of a Fund.
As a matter of fundamental policy, a Fund is diversified; I.E., as to 75%
of the value of a its total assets: (i) no more than 5% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities); and (ii) a Fund may not purchase more than 10% of
the outstanding voting securities of an issuer. Each Fund's investment objective
is also fundamental.
In addition, a Fund may not:
1. Issue senior securities, borrow money or pledge its assets, except that
(i) a Fund may borrow on an unsecured basis from banks for temporary or
emergency purposes or for the clearance of transactions in amounts not exceeding
20% of its total assets (not including the amount borrowed), provided that it
will not make investments while borrowings in excess of 5% of the value of its
total assets are outstanding; and (ii) this restriction shall not prohibit a
Fund from engaging in options, futures and foreign currency transactions or
short sales;
2. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of transactions;
3. Act as underwriter (except to the extent a Fund may be deemed to be an
underwriter in connection with the sale of securities in its investment
portfolio);
4. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
Government securities);
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5. Purchase or sell real estate or interests in real estate or real estate
limited partnerships (although a Fund may purchase and sell securities which are
secured by real estate and securities of companies which invest or deal in real
estate);
6. Purchase or sell commodities or commodity futures contracts, except that
a Fund may purchase and sell stock index futures contracts and currency and
financial futures contracts and related options in accordance with any rules of
the Commodity Futures Trading Commission;
7. Invest in oil and gas limited partnerships or oil, gas or mineral
leases;
8. Make loans of money (except for purchases of debt securities consistent
with the investment policies of a Fund and except for repurchase agreements); or
9. Make investments for the purpose of exercising control or management.
Each Fund observes the following restrictions as a matter of operating but
not fundamental policy, pursuant to positions taken by federal regulatory
authorities:
Each Fund may not:
1. Invest in the securities of other investment companies or purchase any
other investment company's voting securities or make any other investment in
other investment companies except to the extent permitted by federal law.
2. Invest more than 15% of its assets in securities which are restricted as
to disposition or otherwise are illiquid or have no readily available market
(except for securities which are determined by the sub-advisor, pursuant to
procedures adopted by the Board of Trustees, to be liquid).
MANAGEMENT
The overall management of the business and affairs of the Trust is vested
with its Board of Trustees, who are responsible for protecting the interests of
shareholders. The Trustees are experienced executives who meet throughout the
year to oversee the activities of the Funds, review the compensation
arrangements between the Advisor and the investment managers, review contractual
arrangements with companies that provide services to the Funds, including the
Advisor, Managers, Administrator, Custodian and Transfer Agent, and review
performance. The day to day operations of the Trust are delegated to its
officers, subject to a Fund's investment objectives and policies and to general
supervision by the Board of Trustees. The majority of Trustees are not otherwise
affiliated with the Advisor or any of the investment managers.
The Trustees and officers of the Trust, their ages and positions with the
Trust, their business addresses and principal occupations during the past five
years are:
<TABLE>
<CAPTION>
Name, Address and Age Position Principal Occupation During Past Five Years
- --------------------- -------- -------------------------------------------
<S> <C> <C>
A. George Battle (56) Trustee Senior Fellow, The Aspen Institute since June, 1995. Director of
1065 Sterling Avenue Peoplesoft, Inc.; Barra, Inc.; and Fair, Isaac. Formerly (until 1995)
Berkeley, CA 94708 Managing Partner, Market Development of Andersen Consulting.
Frederick August Trustee Senior Vice President, Right Associates (industrial psychologists)
Eigenbrod, Jr. PhD (59)
19925 Stevens Creek Blvd.
Cupertino, CA 95014
</TABLE>
B-19
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Kenneth E. Gregory* (42) President and President of the Advisor; President of L/G Research Inc. (publishers)
4 Orinda Way Trustee and Litman/Gregory & Co., LLC (investment advisors)
Suite 230D
Orinda, CA 94556
Craig A. Litman* (53) Secretary and Treasurer and Secretary of the Advisor; Vice President and Secretary
100 Larkspur Landing Circle Trustee of L/G Research Inc.; Chairman of Litman/Gregory & Co., LLC
Suite 204
Larkspur, CA 94939
Taylor M. Welz (40) Trustee Partner, Bowman & Company, LLP (certified public accountants)
2431 W. March Lane
Suite 100
Stockton, CA 95207
John Coughlan (43) Treasurer Chief Operating Officer, Litman/Gregory & Co., LLC since 1996;
4 Orinda Way Controller, Centex Homes of Northern CA, 1995 - 1996;
Suite 230D Senior Vice President, Countrywide Capital Markets, Inc., 1994;
Orinda, CA 94556 Executive Vice President, TMAC, 1992 - 1994 ; Vice President and
Treasurer, Barnett Range Corporation, prior to 1992
</TABLE>
* denotes Trustees who are "interested persons" of the Trust under the 1940 Act.
The table below illustrates the annual compensation paid to each Trustee of the
Masters' Select Funds Trust:
<TABLE>
<CAPTION>
Aggregate Pension or Estimated Total
Compensation Retirement Annual Compensation
from Masters' Benefits Accrued Benefits from Masters'
Select Funds as Part of Upon Select Funds
Name of Trustee Trust Fund Expenses Retirement Trust
- --------------- ----- ------------- ---------- -----
<S> <C> <C> <C> <C>
A. George Battle $10,000 $0 $0 $10,000
Frederick A. Eigenbrod, Jr. $10,000 $0 $0 $10,000
Taylor M. Welz $10,000 $0 $0 $10,000
Kenneth E. Gregory $ 0 $0 $0 $ 0
Craig A. Litman $ 0 $0 $0 $ 0
</TABLE>
Each Trustee who is not an "interested person" of the Funds receives an
annual fee of $10,000 allocated equally between the Funds, plus expenses
incurred by the Trustees in connection with attendance at meetings of the Board
of Trustees and their Committees. As of March 31, 2000, to the best of the
knowledge of the Masters' Select Funds Trust, the Board of Trustees and officers
of the Funds, as a group, owned of record less than 1% of each Fund's
outstanding shares.
The following persons, to the best knowledge of the Trust, owned of record
more than 5% of the outstanding shares of the Masters' Select Equity Fund as of
March 31, 2000:
CHARLES SCHWAB & CO INC
SPL CSTDY A/C FOR EXCL BNFT CUST
MUTUAL FUND DEPT-REINVEST A/C
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4122- 51%
The following persons, to the best knowledge of the Trust, owned of record
more than 5% of the outstanding shares of the Masters' Select International Fund
as of March 31, 2000:
B-20
<PAGE>
CHARLES SCHWAB & CO INC
SPL CSTDY A/C FOR EXCL BNFT CUST
MUTUAL FUND DEPT-REINVEST A/C
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4122 - 60%
NORTHERN TRUST CUST
FBO JEWISH COMMUNTIY FOUNDATION
PO BOX 92956
CHICAGO IL 60675-2956 - 5%
THE ADVISOR AND THE MANAGERS
Subject to the supervision of the Board of Trustees, investment management
and related services are provided by the Advisor, pursuant to an Investment
Advisory Agreement (the "Advisory Agreement"). In addition, the assets of each
Fund are divided into segments by the Advisor, and individual selection of
securities in each segment is provided by a Manager selected by the Board of
Trustees pursuant, in each case, to a form of sub-advisory agreement
("Management Agreement"). Under the Advisory Agreement, the Advisor has agreed
to (i) furnish each Fund with advice and recommendations with respect to the
selection and continued employment of Managers to manage the actual investment
of each Fund's assets; (ii) direct the allocation of each Fund's assets among
such Managers; (iii) oversee the investments made by such Managers on behalf of
each Fund, subject to the ultimate supervision and direction of the Trust's
Board of Trustees; (iv) oversee the actions of the Managers with respect to
voting proxies for each Fund, filing Section 13 ownership reports for each Fund,
and taking other actions on behalf of each Fund; (v) maintain the books and
records required to be maintained by each Fund except to the extent arrangements
have been made for such books and records to be maintained by the administrator,
another agent of each Fund or a Manager; (vi) furnish reports, statements and
other data on securities, economic conditions and other matters related to the
investment of each Fund's assets which each Fund's administrator or distributor
or the officers of the Trust may reasonably request; and (vii) render to the
Trust's Board of Trustees such periodic and special reports with respect to each
Fund's investment activities as the Board may reasonably request, including at
least one in-person appearance annually before the Board of Trustees. The
Advisor has agreed, at its own expense, to maintain such staff and employ or
retain such personnel and consult with such other persons as it shall from time
to time determine to be necessary to the performance of its obligations under
this Agreement. Personnel of the Advisor may serve as officers of the Trust
provided they do so without compensation from the Trust. Without limiting the
generality of the foregoing, the staff and personnel of the Advisor shall be
deemed to include persons employed or retained by the Advisor to furnish
statistical information, research, and other factual information, advice
regarding economic factors and trends, information with respect to technical and
scientific developments, and such other information, advice and assistance as
the Advisor or the Trust's Board of Trustees may desire and reasonably request.
With respect to the operation of each Fund, the Advisor has agreed to be
responsible for (i) providing the personnel, office space and equipment
reasonably necessary for the operation of the Trust and each Fund including the
provision of persons qualified to serve as officers of the Trust; (ii)
compensating the Managers selected to invest the assets of each Fund; (iii) the
expenses of printing and distributing extra copies of each Fund's prospectus,
statement of additional information, and sales and advertising materials (but
not the legal, auditing or accounting fees attendant thereto) to prospective
investors (but not to existing shareholders); and (iv) the costs of any special
Board of Trustees meetings or shareholder meetings convened for the primary
benefit of the Advisor or any Manager.
Under each Management Agreement, each Manager agrees to invest its
Allocated Portion of the assets of each Fund in accordance with the investment
objectives, policies and restrictions of each Fund as set forth in each Fund's
and Trust's governing documents, including, without limitation, the Trust's
Agreement and Declaration of Trust and By-Laws; each Fund's prospectus,
statement of additional information, and undertakings; and such other
limitations, policies and procedures as the Advisor or the Trustees of the Trust
may impose from time to time in writing to Manager. In providing such services,
Manager shall at all times adhere to the provisions and restrictions contained
in the federal securities laws, applicable state securities laws, the Internal
Revenue Code, and other applicable law.
B-21
<PAGE>
Without limiting the generality of the foregoing, each Manager has agreed
to (i) furnish each Fund with advice and recommendations with respect to the
investment of the Manager's Allocated Portion of each Fund's assets, (ii) effect
the purchase and sale of portfolio securities for Manager's Allocated Portion or
determine that a portion of such Allocated Portion will remain uninvested; (iii)
manage and oversee the investments of the Manager's Allocated Portion, subject
to the ultimate supervision and direction of the Trust's Board of Trustees; (iv)
vote proxies and take other actions with respect to the securities in Manager's
Allocated Portion; (v) maintain the books and records required to be maintained
with respect to the securities in Manager's Allocated Portion; (vi) furnish
reports, statements and other data on securities, economic conditions and other
matters related to the investment of each Fund's assets which the Advisor,
Trustees or the officers of the Trust may reasonably request; and (vii) render
to the Trust's Board of Trustees such periodic and special reports with respect
to Manager's Allocated Portion as the Board may reasonably request.
As compensation for the Advisor's services (including payment of the
Managers' fees), each Fund pays it an advisory fee at the rate specified in the
prospectus. In addition to the fees payable to the Advisor and the
Administrator, the Trust is responsible for its operating expenses, including:
fees and expenses incurred in connection with the issuance, registration and
transfer of its shares; brokerage and commission expenses; all expenses of
transfer, receipt, safekeeping, servicing and accounting for the cash,
securities and other property of the Trust for the benefit of each Fund
including all fees and expenses of its custodian, shareholder services agent and
accounting services agent; interest charges on any borrowings; costs and
expenses of pricing and calculating its daily net asset value and of maintaining
its books of account required under the Investment Company Act; taxes, if any; a
pro rata portion of expenditures in connection with meetings of each Fund's
shareholders and the Trust's Board of Trustees that are properly payable by each
Fund; salaries and expenses of officers and fees and expenses of members of the
Trust's Board of Trustees or members of any advisory board or committee who are
not members of, affiliated with or interested persons of the Advisor; insurance
premiums on property or personnel of each Fund which inure to its benefit,
including liability and fidelity bond insurance; the cost of preparing and
printing reports, proxy statements, prospectuses and statements of additional
information of each Fund or other communications for distribution to existing
shareholders; legal, auditing and accounting fees; trade association dues; fees
and expenses (including legal fees) of registering and maintaining registration
of its shares for sale under federal and applicable state and foreign securities
laws; all expenses of maintaining and servicing shareholder accounts, including
all charges for transfer, shareholder recordkeeping, dividend disbursing,
redemption, and other agents for the benefit of each Fund, if any; and all other
charges and costs of its operation plus any extraordinary and non-recurring
expenses, except as otherwise prescribed in the Advisory Agreement.
The Advisor may agree to waive certain of its fees or reimburse each Fund
for certain expenses, in order to limit the expense ratio of each Fund. In that
event, subject to approval by the Trust's Board of Trustees, each Fund may
reimburse the Advisor in subsequent years for fees waived and expenses
reimbursed, provided the expense ratio before reimbursement is less than the
expense limitation in effect at that time.
The Advisor is controlled by Craig A. Litman and Kenneth E. Gregory.
Under the Advisory Agreement and each Management Agreement, the Advisor and
the Managers will not be liable to the Trust for any error of judgment by the
Advisor or Managers or any loss sustained by the Trust except in the case of a
breach of fiduciary duty with respect to the receipt of compensation for
services (in which case any award of damages will be limited as provided in the
1940 Act) or of willful misfeasance, bad faith or gross negligence by reason of
reckless disregard of its obligations and duties under the applicable agreement.
The Advisory Agreement and the Management Agreements will remain in effect
for a period not to exceed two years. Thereafter, if not terminated, each
Advisory and Management Agreement will continue automatically for successive
annual periods, provided that such continuance is specifically approved at least
annually (I) by a majority vote of the Independent Trustees cast in person at a
meeting called for the purpose of voting on such approval, and (ii) by the Board
of Trustees or by vote of a majority of the outstanding voting securities of the
Portfolio.
The Advisory and Management Agreements are terminable by vote of the Board
of Trustees or by the holders of a majority of the outstanding voting securities
of the Trust at any time without penalty, on 60 days written notice to the
Advisor or a Manager. The Advisory and Management Agreements also may be
terminated by the Advisor or a Manager on 60 days written notice to the Trust.
The Advisory and Management Agreements terminate automatically upon their
assignment (as defined in the 1940 Act).
B-22
<PAGE>
As compensation for its investment management services, each of the
Funds paid the Advisor investment advisory fees in the amount specified below.
Additional investment advisory fees payable under the investment advisory
agreement may have, instead, been waived by the Advisor, but may be subject to
reimbursement by the respective Fund, as discussed previously.
Advisory Fees Paid to Advisor
Year Equity Fund International Fund
---- ----------- ------------------
1997 $2,247,185 $35,638
1998 $4,056,899 $891,022
1999 $4,594,816 $1,399,695
THE ADMINISTRATOR. The Administrator, Investment Company Administration,
L.L.C.. has agreed to be responsible for providing such services as the Trustees
may reasonably request, including but not limited to (i) maintaining the Trust's
books and records (other than financial or accounting books and records
maintained by any custodian, transfer agent or accounting services agent); (ii)
overseeing the Trust's insurance relationships; (iii) preparing for the Trust
(or assisting counsel and/or auditors in the preparation of) all required tax
returns, proxy statements and reports to the Trust's shareholders and Trustees
and reports to and other filings with the Securities and Exchange Commission and
any other governmental agency (the Trust agreeing to supply or cause to be
supplied to the Administrator all necessary financial and other information in
connection with the foregoing); (iv) preparing such applications and reports as
may be necessary to register or maintain the Trust's registration and/or the
registration of the shares of the Trust under the securities or "blue sky" laws
of the various states selected by the Trust (the Trust agreeing to pay all
filing fees or other similar fees in connection therewith); (v) responding to
all inquiries or other communications of shareholders, if any, which are
directed to the Administrator, or if any such inquiry or communication is more
properly to be responded to by the Trust's custodian, transfer agent or
accounting services agent, overseeing their response thereto; (vi) overseeing
all relationships between the Trust and any custodian(s), transfer agent(s) and
accounting services agent(s), including the negotiation of agreements and the
supervision of the performance of such agreements; (vii) together with the
Advisor, monitoring compliance by the Managers with tax, securities and other
applicable requirements; and (viii) authorizing and directing any of the
Administrator's directors, officers and employees who may be elected as Trustees
or officers of the Trust to serve in the capacities in which they are elected.
All services to be furnished by the Administrator under this Agreement may be
furnished through the medium of any such directors, officers or employees of the
Administrator.
Administration Fees Paid to Administrator
Year Equity Fund International Fund
---- ----------- ------------------
1997 $149,572 $ 1,644
1998 $184,423 $43,313
1999 $191,150 $57,889
PORTFOLIO TRANSACTIONS AND BROKERAGE
Each Management Agreement states that, with respect to the segment of each
Fund's portfolio allocated to the Manager, the Manager shall be responsible for
broker-dealer selection and for negotiation of brokerage commission rates,
provided that the Manager shall not direct orders to an affiliated person of the
Manager without general prior authorization to use such affiliated broker or
dealer by the Trust's Board of Trustees. In general, a Manager's primary
consideration in effecting a securities transaction will be execution at the
most favorable cost or proceeds under the circumstances. In selecting a
broker-dealer to execute each particular transaction, a Manager may take the
following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of each Fund on a continuing
basis. The price to each Fund in any transaction may be less favorable than that
B-23
<PAGE>
available from another broker-dealer if the difference is reasonably justified
by other aspects of the portfolio execution services offered.
For the fiscal year ended December 31, 1999, the Masters' Select Equity
Fund paid $1,277,772 in brokerage commissions, of which $139,147 was paid to
brokers who furnished research services. For the fiscal year ended December 31,
1999, the Masters' Select International Fund paid $607,818 in brokerage
commissions, of which $84,708 was paid to brokers who furnished research
services. . For the fiscal year ended December 31, 1999, the percentages of
brokerage commissions attributable to affiliated broker transactions were 5% for
the Masters' Select Equity Fund and 1% for the Masters' Select International
Fund. Brokerage commissions paid for the year ended December 31, 1998, by the
Masters' Select Equity Fund and the Masters' Select International Fund,
respectively, were $1,438,016 and $432,232. Of these amounts, the percentages
attributable to affiliated broker transactions were 1% and 0%, respectively.
Brokerage commissions paid for the year ended December 31, 1997 were
$1,537,490(1) and $117,416(2), respectively. Of these amounts, the percentages
attributable to affiliated broker transactions were 3% and 0%, respectively.
Subject to such policies as the Advisor and the Board of Trustees of the
Trust may determine, a Manager shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused each Fund to pay a broker or dealer that provides
(directly or indirectly) brokerage or research services to the Manager an amount
of commission for effecting a portfolio transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction, if the Manager determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Manager's or Advisor's overall responsibilities
with respect to each Fund or other advisory clients. Each Manager is further
authorized to allocate the orders placed by it on behalf of each Fund to such
brokers or dealers who also provide research or statistical material, or other
services, to the Trust, the Advisor, or any affiliate of either. Such allocation
shall be in such amounts and proportions as the Manager shall determine, and
each Manager shall report on such allocations regularly to the Advisor and the
Trust, indicating the broker-dealers to whom such allocations have been made and
the basis therefor. Each Manager is also authorized to consider sales of shares
of each Fund as a factor in the selection of brokers or dealers to execute
portfolio transactions, subject to the requirements of best execution.
On occasions when a Manager deems the purchase or sale of a security to be
in the best interest of each Fund as well as other clients of the Manager, the
Manager, to the extent permitted by applicable laws and regulations, may
aggregate the securities to be so purchased or sold in order to obtain the most
favorable price or lower brokerage commissions and the most efficient execution.
In such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Manager in the manner
it considers to be the most equitable and consistent with its fiduciary
obligations to each Fund and to such other clients.
NET ASSET VALUE
The net asset value of a Fund's shares will fluctuate and is determined as
of the close of trading on the New York Stock Exchange (currently 4:00 p.m.
Eastern time) each business day. The Exchange annually announces the days on
which it will not be open for trading. The most recent announcement indicates
that it will not be open on the following days: New Year's Day, Martin Luther
King's Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. However, the Exchange may close
on days not included in that announcement.
The net asset value per share is computed by dividing the value of the
securities held by a Fund plus any cash or other assets (including interest and
dividends accrued but not yet received) minus all liabilities (including accrued
expenses) by the total number of shares in a Fund outstanding at such time.
Generally, trading in and valuation of foreign securities is substantially
completed each day at various times prior to the close of the NYSE. In addition,
trading in and valuation of foreign securities may not take place on every day
- --------
1 For the period 12/31/96 (commencement of operations) to 12/31/97.
2 For the period 12/1/97 (commencement of operations) to 12/31/97.
B-24
<PAGE>
in which the NYSE is open for trading. In that case, the price used to determine
a Fund's net asset value on the last day on which such exchange was open will be
used, unless the Trust's Board of Trustees determines that a different price
should be used. Furthermore, trading takes place in various foreign markets on
days in which the NYSE is not open for trading and on which a Fund's net asset
value is not calculated. Occasionally, events affecting the values of such
securities in U.S. dollars on a day on which a Fund calculates its net asset
value may occur between the times when such securities are valued and the close
of the NYSE that will not be reflected in the computation of a Fund's net asset
value unless the Board or its delegates deem that such events would materially
affect the net asset value, in which case an adjustment would be made.
Generally, a Fund's investments are valued at market value or, in the
absence of a market value, at fair value as determined in good faith by the
Managers and the Trust's Pricing Committee pursuant to procedures approved by or
under the direction of the Board.
Each Fund's securities, including ADRs, EDRs and GDRs, which are traded on
securities exchanges are valued at the last sale price on the exchange on which
such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any reported sales, at the mean between
the last available bid and asked price. Securities that are traded on more than
one exchange are valued on the exchange determined by the Managers to be the
primary market. Securities traded in the over-the-counter market are valued at
the mean between the last available bid and asked price prior to the time of
valuation. Securities and assets for which market quotations are not readily
available (including restricted securities which are subject to limitations as
to their sale) are valued at fair value as determined in good faith by or under
the direction of the Board.
Short-term debt obligations with remaining maturities in excess of 60 days
are valued at current market prices, as discussed above. Short-term securities
with 60 days or less remaining to maturity are, unless conditions indicate
otherwise, amortized to maturity based on their cost to a Fund if acquired
within 60 days of maturity or, if already held by a Fund on the 60th day, based
on the value determined on the 61st day.
Corporate debt securities, mortgage-related securities and asset-backed
securities held by a Fund are valued on the basis of valuations provided by
dealers in those instruments, by an independent pricing service, approved by the
Board, or at fair value as determined in good faith by procedures approved by
the Board. Any such pricing service, in determining value, will use information
with respect to transactions in the securities being valued, quotations from
dealers, market transactions in comparable securities, analyses and evaluations
of various relationships between securities and yield to maturity information.
An option that is written by a Fund is generally valued at the last sale
price or, in the absence of the last sale price, the last offer price. An option
that is purchased by a Fund is generally valued at the last sale price or, in
the absence of the last sale price, the last bid price. The value of a futures
contract is the last sale or settlement price on the exchange or board of trade
on which the future is traded or, if no sales are reported, at the mean between
the last bid and asked price. When a settlement price cannot be used, futures
contracts will be valued at their fair market value as determined by or under
the direction of the Board. If an options or futures exchange closes after the
time at which a Fund's net asset value is calculated, the last sale or last bid
and asked prices as of that time will be used to calculate the net asset value.
Any assets or liabilities initially expressed in terms of foreign
currencies are translated into U.S. dollars at the official exchange rate or,
alternatively, at the mean of the current bid and asked prices of such
currencies against the U.S. dollar last quoted by a major bank that is a regular
participant in the foreign exchange market or on the basis of a pricing service
that takes into account the quotes provided by a number of such major banks. If
neither of these alternatives is available or both are deemed not to provide a
suitable methodology for converting a foreign currency into U.S. dollars, the
Board in good faith will establish a conversion rate for such currency.
All other assets of a Fund are valued in such manner as the Board in good
faith deems appropriate to reflect their fair value.
B-25
<PAGE>
TAXATION
Each Fund will be taxed, under the Internal Revenue Code (the "Code"), as a
separate entity from any other series of the Trust, and it intends to elect to
qualify for treatment as a regulated investment company ("RIC") under Subchapter
M of the Code. In each taxable year that a Fund qualifies, a Fund (but not its
shareholders) will be relieved of federal income tax on that part of its
investment company taxable income (consisting generally of interest and dividend
income, net short term capital gain and net realized gains from currency
transactions) and net capital gain that is distributed to shareholders.
In order to qualify for treatment as a RIC, a Fund must distribute annually
to shareholders at least 90% of its investment company taxable income and must
meet several additional requirements. Among these requirements are the
following: (1) at least 90% of a Fund's gross income each taxable year must be
derived from dividends, interest, payments with respect to securities loans and
gains from the sale or other disposition of securities or foreign currencies, or
other income derived with respect to its business of investing in securities or
currencies; (2) at the close of each quarter of a Fund's taxable year, at least
50% of the value of its total assets must be represented by cash and cash items,
U.S. Government securities, securities of other RICs and other securities,
limited in respect of any one issuer, to an amount that does not exceed 5% of
the value of a Fund and that does not represent more than 10% of the outstanding
voting securities of such issuer; and (3) at the close of each quarter of a
Fund's taxable year, not more than 25% of the value of its assets may be
invested in securities (other than U.S. Government securities or the securities
of other RICs) of any one issuer.
Distributions of net investment income and net realized capital gains by a
Fund will be taxable to shareholders whether made in cash or reinvested in
shares. In determining amounts of net realized capital gains to be distributed,
any capital loss carryovers from prior years will be applied against capital
gains. Shareholders receiving distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share of a Fund on the reinvestment date. Fund
distributions also will be included in individual and corporate shareholders'
income on which the alternative minimum tax may be imposed.
Each Fund or any securities dealer effecting a redemption of a Fund's
shares by a shareholder will be required to file information reports with the
IRS with respect to distributions and payments made to the shareholder. In
addition, a Fund will be required to withhold federal income tax at the rate of
31% on taxable dividends, redemptions and other payments made to accounts of
individual or other non-exempt shareholders who have not furnished their correct
taxpayer identification numbers and made certain required certifications on the
Account Application Form or with respect to which a Fund or the securities
dealer has been notified by the IRS that the number furnished is incorrect or
that the account is otherwise subject to withholding.
Each Fund intends to declare and pay dividends and other distributions, as
stated in the Prospectus. In order to avoid the payment of any federal excise
tax based on net income, a Fund must declare on or before December 31 of each
year, and pay on or before January 31 of the following year, distributions at
least equal to 98% of its ordinary income for that calendar year and at least
98% of the excess of any capital gains over any capital losses realized in the
one-year period ending October 31 of that year, together with any undistributed
amounts of ordinary income and capital gains (in excess of capital losses) from
the previous calendar year.
Each Fund may receive dividend distributions from U.S. corporations. To the
extent that a Fund receives such dividends and distributes them to its
shareholders, and meets certain other requirements of the Code, corporate
shareholders of a Fund may be entitled to the "dividends received" deduction.
Availability of the deduction is subject to certain holding period and
debt-financing limitations.
The use of hedging strategies, such as entering into futures contracts and
forward contracts and purchasing options, involves complex rules that will
determine the character and timing of recognition of the income received in
connection therewith by a Fund. Income from foreign currencies (except certain
gains therefrom that may be excluded by future regulations) and income from
transactions in options, futures contracts and forward contracts derived by a
Fund with respect to its business of investing in securities or foreign
currencies will qualify as permissible income under Subchapter M of the Code.
B-26
<PAGE>
For accounting purposes, when the paid by the Fund is recorded as an asset
and is subsequently adjusted to the current market value of the option. Any gain
or loss realized by the Fund upon the expiration or sale of such options held by
the Fund generally will be capital gain or loss.
Any security, option, or other position entered into or held by the Fund
that substantially diminishes the Fund's risk of loss from any other position
held by that Fund may constitute a "straddle" for federal income tax purposes.
In general, straddles are subject to certain rules that may affect the amount,
character and timing of the Fund's gains and losses with respect to straddle
positions by requiring, among other things, that the loss realized on
disposition of one position of a straddle be deferred until gain is realized on
disposition of the offsetting position; that the Fund's holding period in
certain straddle positions not begin until the straddle is terminated (possibly
resulting in the gain being treated as short-term capital gain rather than
long-term capital gain); and that losses recognized with respect to certain
straddle positions, which would otherwise constitute short-term capital losses,
be treated as long-term capital losses. Different elections are available to the
Fund that may mitigate the effects of the straddle rules.
Certain options, futures contracts and forward contracts that are subject
to Section 1256 of the Code ("Section 1256 Contracts") and that are held by the
Fund at the end of its taxable year generally will be required to be "marked to
market" for federal income tax purposes, that is, deemed to have been sold at
market value. Sixty percent of any net gain or loss recognized on these deemed
sales and 60% of any net gain or loss realized from any actual sales of Section
1256 Contracts will be treated as long-term capital gain or loss, and the
balance will be treated as short-term capital gain or loss.
Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions that may affect the amount, timing and character
of income, gain or loss recognized by the Fund. Under these rules, foreign
exchange gain or loss realized with respect to foreign currency-denominated debt
instruments, foreign currency forward contracts, foreign currency-denominated
payables and receivables and foreign currency options and futures contracts
(other than options and futures contracts that are governed by the
mark-to-market and 60/40 rules of Section 1256 of the Code and for which no
election is made) is treated as ordinary income or loss. Some part of the Fund's
gain or loss on the sale or other disposition of shares of a foreign corporation
may, because of changes in foreign currency exchange rates, be treated as
ordinary income or loss under Section 988 of the Code, rather than as capital
gain or loss.
Redemptions and exchanges of shares of the Fund will result in gains or
losses for tax purposes to the extent of the difference between the proceeds and
the shareholder's adjusted tax basis for the shares. Any loss realized upon the
redemption or exchange of shares within six months from their date of purchase
will be treated as a long-term capital loss to the extent of distributions of
long-term capital gain dividends with respect to such shares during such
six-month period. All or a portion of a loss realized upon the redemption of
shares of the Fund may be disallowed to the extent shares of the same Fund are
purchased (including shares acquired by means of reinvested dividends) within 30
days before or after such redemption.
Distributions and redemptions may be subject to state and local income
taxes, and the treatment thereof may differ from the federal income tax
treatment. Foreign taxes may apply to non-U.S. investors.
The above discussion and the related discussion in the Prospectus are not
intended to be complete discussions of all applicable federal tax consequences
of an investment in the Funds. Paul, Hastings, Janofsky & Walker L.L.P. has
expressed no opinion in respect thereof. Nonresident aliens and foreign persons
are subject to different tax rules, and may be subject to withholding of up to
30% on certain payments received from the Fund. Shareholders are advised to
consult with their own tax advisers concerning the application of foreign,
federal, state and local taxes to an investment in the Fund.
B-27
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Dividends from the Fund's investment company taxable income (whether paid
in cash or invested in additional shares) will be taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits. Distributions
of the Fund's net capital gain (whether paid in cash or invested in additional
shares) will be taxable to shareholders as long-term capital gain, regardless of
how long they have held their Fund shares.
Dividends declared by the Fund in October, November or December of any year
and payable to shareholders of record on a date in one of such months will be
deemed to have been paid by the Fund and received by the shareholders on the
record date if the dividends are paid by the Fund during the following January.
Accordingly, such dividends will be taxed to shareholders for the year in which
the record date falls.
The Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to any individuals and certain
other noncorporate shareholders who do not provide the Fund with a correct
taxpayer identification number. The Fund also is required to withhold 31% of all
dividends and capital gain distributions paid to such shareholders who otherwise
are subject to backup withholding.
PERFORMANCE INFORMATION
TOTAL RETURN
Average annual total return quotations used in the Fund's advertising and
promotional materials are calculated according to the following formula:
n
P(1 + T) = ERV
where "P" equals a hypothetical initial payment of $1000; "T" equals average
annual total return; "n" equals the number of years; and "ERV" equals the ending
redeemable value at the end of the period of a hypothetical $1000 payment made
at the beginning of the period.
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication. Average annual
total return, or "T" in the above formula, is computed by finding the average
annual compounded rates of return over the period that would equate the initial
amount invested to the ending redeemable value. Average annual total return
assumes the reinvestment of all dividends and distributions.
The Funds' average annual compounded rate of total return as of December
31, 1999 were as follows:
Since
One Year Inception
-------- ---------
Masters' Select Equity Fund 26.45% 23.33%
Masters' Select International Fund 75.01% 37.21%
YIELD
Annualized yield quotations used in the Fund's advertising and promotional
materials are calculated by dividing the Fund's investment income for a
specified thirty-day period, net of expenses, by the average number of shares
outstanding during the period, and expressing the result as an annualized
percentage (assuming semi-annual compounding) of the net asset value per share
at the end of the period. Yield quotations are calculated according to the
following formula:
YIELD = 2 [(a-b + 1)6 - 1]
---
cd
where "a" equals dividends and interest earned during the period; "b" equals
expenses accrued for the period, net of reimbursements; "c" equals the average
daily number of shares outstanding during the period that are entitled to
receive dividends and "d" equals the maximum offering price per share on the
last day of the period. Except as noted below, in determining net investment
income earned during the period ("a" in the above formula), the Fund calculates
interest earned on each debt obligation held by it during the period by (1)
computing the obligation's yield to maturity, based on the market value of the
obligation (including actual accrued interest) on the last business day of the
period or, if the obligation was purchased during the period, the purchase price
plus accrued interest; (2) dividing the yield to maturity by 360 and multiplying
the resulting quotient by the market value of the obligation (including actual
accrued interest). Once interest earned is calculated in this fashion for each
debt obligation held by the Fund, net investment income is then determined by
totaling all such interest earned.
For purposes of these calculations, the maturity of an obligation with one
or more call provisions is assumed to be the next date on which the obligation
reasonably can be expected to be called or, if none, the maturity date.
B-28
<PAGE>
OTHER INFORMATION
Performance data of the Fund quoted in advertising and other promotional
materials represents past performance and is not intended to predict or indicate
future results. The return and principal value of an investment in the Fund will
fluctuate, and an investor's redemption proceeds may be more or less than the
original investment amount. In advertising and promotional materials the Fund
may compare its performance with data published by Lipper Analytical Services,
Inc. ("Lipper") or CDA Investment Technologies, Inc. ("CDA"). The Fund also may
refer in such materials to mutual fund performance rankings and other data, such
as comparative asset, expense and fee levels, published by Lipper or CDA.
Advertising and promotional materials also may refer to discussions of a Fund
and comparative mutual fund data and ratings reported in independent periodicals
including, but not limited to, THE WALL STREET JOURNAL, MONEY Magazine, FORBES,
BUSINESS WEEK, FINANCIAL WORLD and BARRON'S.
GENERAL INFORMATION
The Trust is a Delaware Business Trust organized on August 1, 1996. The
Masters' Select Equity Fund series of shares commenced operations on December
31, 1996. The Masters' Select International Fund commenced operations on
December 1, 1997. The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest and to
divide or combine the shares into a greater or lesser number of shares without
thereby changing the proportionate beneficial interest in the Fund. Each share
represents an interest in the Fund proportionately equal to the interest of each
other share. Upon the Trust's liquidation, all shareholders would share pro rata
in the net assets of the Fund available for distribution to shareholders. If
they deem it advisable and in the best interest of shareholders, the Board of
Trustees may create additional series of shares which differ from each other
only as to dividends. The Board of Trustees has created two series of shares,
and may create additional series in the future, which have separate assets and
liabilities. Income and operating expenses not specifically attributable to a
particular Fund will be allocated fairly among the Funds by the Trustees,
generally on the basis of the relative net assets of each Fund.
Rule 18f-2 under the 1940 Act provides that as to any investment company
which has two or more series outstanding and as to any matter required to be
submitted to shareholder vote, such matter is not deemed to have been
effectively acted upon unless approved by the holders of a "majority" (as
defined in the Rule) of the voting securities of each series affected by the
matter. Such separate voting requirements do not apply to the election of
Trustees or the ratification of the selection of accountants. The Rule contains
special provisions for cases in which an advisory contract is approved by one or
more, but not all, series. A change in investment policy may go into effect as
to one or more series whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected series.
Each Fund may hold special meetings and mail proxy materials. These
meetings may be called to elect or remove Trustees, change fundamental policies,
approve an investment advisory contract or for other purposes. Shareholders not
attending these meetings are encouraged to vote by proxy. Each Fund will mail
proxy materials in advance, including a voting card and information about the
proposals to be voted on. The number of votes each shareholder is entitled to is
based on the number of shares he or she owns. Shareholders are entitled to one
vote for each full share held (and fractional votes for fractional shares) and
may vote in the election of Trustees and on other matters submitted to meetings
of shareholders. It is not contemplated that regular annual meetings of
shareholders will be held.
The Masters' Select Equity Fund and the Masters' Select International Fund
are the only existing series of shares of the Trust. The Board of Trustees may,
at its own discretion, create additional series of shares. The Declaration of
Trust contains an express disclaimer of shareholder liability for the Trust's
acts or obligations and provides for indemnification and reimbursement of
expenses out of the Trust's property for any shareholder held personally liable
for its obligations.
B-29
<PAGE>
The Declaration of Trust provides that the shareholders have the right to
remove a Trustee. Upon the written request of the record holders of 10% of the
Trust's shares, the Trustees will call a meeting of shareholders to vote on the
removal of a Trustee. In addition, 10 shareholders holding the lesser of $25,000
worth or 1% of the shares may communicate with other shareholders to request a
meeting to remove a Trustee. No amendment may be made to the Declaration of
Trust that would have a material adverse effect on shareholders without the
approval of the holders of more than 50% of the Trust's shares. Shareholders
have no preemptive or conversion rights. Shares when issued are fully paid and
non-assessable, except as set forth above.
The Advisor has obtained an exemptive order from the Securities and
Exchange Commission which permits it, subject to certain conditions, selection
of new investment managers with the approval of the Board of Trustees but
without obtaining shareholder approval. The order also permits the Advisor to
change the terms of agreements with the managers or to continue the employment
of a manager after an event that would otherwise cause the automatic termination
of services. Shareholders must be notified of any manager changes. Shareholders
have the right to terminate arrangements with a manager by vote of a majority of
the outstanding shares of a Fund. The order also permits a Fund to disclose
managers' fees only in the aggregate in its registration statement.
The Trust's custodian, State Street Bank and Trust Company, 225 Franklin
Street, Boston, MA 02110 is responsible for holding the Funds' assets and acts
as the Trust's accounting services agent. The Trust's independent accountants,
McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, NY 10017, assist in the
preparation of certain reports to the Securities and Exchange Commission and the
Fund's tax returns.
The Masters' Select Funds reserve the right, if conditions exist which make
cash payments undesirable, to honor any request for redemption or repurchase
order by making payment in whole or in part in readily marketable securities
chosen by the Fund and valued as they are for purposes of computing the Fund's
net asset value (a redemption in kind). If payment is made in securities, a
shareholder may incur transaction expenses in converting these securities into
cash.
FINANCIAL STATEMENTS
The audited statement of assets and liabilities and report thereon for the
Funds for the year ended December 31, 1999 are incorporated by reference. The
opinion of PricewaterhouseCoopers, LLP, independent accountants, with respect to
the audited financial statements, is incorporated herein in its entirety in
reliance upon such report of PricewaterhouseCoopers, LLP and on the authority of
such firm as experts in auditing and accounting. Shareholders will receive a
copy of the audited and unaudited financial statements at no additional charge
when requesting a copy of the Statement of Additional Information.
B-30
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
MOODY'S INVESTORS SERVICE, INC.: CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa---Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa and Aa
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
period of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
STANDARD & POOR'S CORPORATION: CORPORATE BOND RATINGS
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
B-31
<PAGE>
COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are assessments of the issuer's ability to
repay punctually promissory obligations. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers: Prime 1--highest quality; Prime 2--higher
quality; Prime 3--high quality.
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment. Ratings are graded into four categories, ranging
from "A" for the highest quality obligations to "D" for the lowest.
Issues assigned the highest rating, A, are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers "1", "2" and "3" to indicate the relative degree of safety. The
designation A-1 indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. A "+" designation is applied to those issues
rated "A-1" which possess extremely strong safety characteristics. Capacity for
timely payment on issues with the designation "A-2" is strong. However, the
relative degree of safety is not as high as for issues designated A-1. Issues
carrying the designation "A-3" have a satisfactory capacity for timely payment.
They are, however, somewhat more vulnerable to the adverse effect of changes in
circumstances than obligations carrying the higher designations.
B-32
<PAGE>
As filed with the Securities and Exchange Commission on April 20, 2000
Registration No. 333-10015
File No. 811-07763
================================================================================
Part C
of
Form N-1A
COMBINED REGISTRATION STATEMENT
MASTERS' SELECT FUNDS TRUST
Masters' Select Equity Fund
Masters' Select International Fund
================================================================================
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS.
(1) (a) Agreement and Declaration of Trust(1)
(b) Amendment to Agreement and Declaration of Trust(2)
(2) By-Laws(1)
(3) Not applicable
(4) (a) Form of Investment Advisory Agreement(2)
(b) (i) Investment Management Agreement with Davis Selected
Advisers LP(3)
(ii) Investment Management Agreement with Friess Associates,
Inc.(3)
(iii) Investment Management Agreement with Jennison Associates(3)
(iv) Investment Management Agreement with Southeastern Asset
Management, Inc.(3)
(v) Investment Management Agreement with Strong Capital
Management, Inc.(3)
(vi) Form of Investment Management Agreement with Masters'
Select International Sub-Advisors(4)
(vii) Form of Investment Management Agreement with Janus Capital
Corp.(4)
(viii) Form of Investment Management Agreement with Harris
Associates
(5) Distribution Agreement(3)
(6) Not applicable
(7) Custodian Agreement(3)
(8) Administration Agreement with Investment Company
Administration Corporation(2)
(9) Opinion and consent of counsel - Previously filed
(10) Opinion and Consent of Independent Auditors - Filed herewith
(i) Consent of PricewaterhouseCoopers, LLP
(ii) Report of McGladrey & Pullen, LLP
(iii)Consent of McGladrey & Pullen, LLP
(11) Not applicable
(12) Investment letter(3)
(13) Distribution Plan - Not applicable
(14) Financial Data Schedule - [No longer required]
(15) 18f-3 Plan - Not applicable
(16) Code of Ethics - Filed herewith
(a) Masters' Select Funds Trust
(b) Litman/Gregory Fund Advisors, LLC
(c) (i) Davis Selected Advisers, L.P.
(ii) Friess Associates, Inc.
(iii) Southeastern Asset Management, Inc.
(iv) Legg Mason Fund Adviser, Inc.
(v) Jennison Associates Capital Corporation
(vi) Strong Capital Management, Inc.
(vii) Janus Capital Corporation
(viii) Harris Associates L.P.
(ix) BPI Global Asset Management, LLP
(x) Mastholm Asset Management, LLC
(xi) Artisan Partners LP
(d) First Fund Distributors, Inc.
<PAGE>
- ----------
(1) Previously filed as an exhibit to the Registration Statement on Form N-1A
of the Registration (File No. 333-10015) on August 12, 1996, and
incorporated herein by reference.
(2) Previously filed as an exhibit to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of the Registrant (File No. 333-10015)
on November 15, 1996, and incorporated herein by reference.
(3) Previously filed as an exhibit to Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-1A of the Registrant (File No. 333-10015)
on December 16, 1996, and incorporated herein by reference.
+ Filed with amendment.
4 Previously filed as an exhibit to Post-Effective Amendment No. 3 to the
Registration Statement on Form N-1A of the Registrant (File No. 333-10015)
on August 29, 1997, and incorporated herein by reference.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 25. INDEMNIFICATION:
Article VI of Registrant's By-Laws states as follows:
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose of this
Article, "agent" means any person who is or was a Trustee, officer, employee or
other agent of this Trust or is or was serving at the request of this Trust as a
Trustee, director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise or was a
Trustee, director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor of another enterprise at the request of such
predecessor entity; "proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative;
and "expenses" includes without limitation attorney's fees and any expenses of
establishing a right to indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY TRUST. This Trust shall indemnify any
person who was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of this Trust) by reason of
the fact that such person is or was an agent of this Trust, against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with such proceedings, if it is determined that persons acted in
good faith and reasonably believed:
(1) in the case of conduct in his official capacity as a Trustee of the
Trust, that his conduct was in the Trust's best interests, and
(2) in all other cases, that his conduct was at least not opposed to the
Trust's best interests, and
(3) in the case of a criminal proceeding, that he had no reasonable cause
to believe the conduct of that person was unlawful.
The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not of
itself create a presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in the best interests of this
Trust or that the person had reasonable cause to believe that the person's
conduct was unlawful.
<PAGE>
Section 3. ACTIONS BY THE TRUST. This Trust shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action by or in the right of this Trust to procure a judgment in
its favor by reason of the fact that that person is or was an agent of this
Trust, against expenses actually and reasonably incurred by that person in
connection with the defense or settlement of that action if that person acted in
good faith, in a manner that person believed to be in the best interests of this
Trust and with such care, including reasonable inquiry, as an ordinarily prudent
person in a like position would use under similar circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision to
the contrary contained herein, there shall be no right to indemnification for
any liability arising by reason of willful misfeasance, bad faith, gross
negligence, or the reckless disregard of the duties involved in the conduct of
the agent's office with this Trust.
No indemnification shall be made under Sections 2 or 3 of this Article:
(1) In respect of any claim, issue, or matter as to which that person
shall have been adjudged to be liable on the basis that personal
benefit was improperly received by him, whether or not the benefit
resulted from an action taken in the person's official capacity; or
(2) In respect of any claim, issue or matter as to which that person shall
have been adjudged to be liable in the performance of that person's
duty to this Trust, unless and only to the extent that the court in
which that action was brought shall determine upon application that in
view of all the circumstances of the case, that person was not liable
by reason of the disabling conduct set forth in the preceding
paragraph and is fairly and reasonably entitled to indemnity for the
expenses which the court shall determine; or
(3) Of amounts paid in settling or otherwise disposing of a threatened or
pending action, with or without court approval, or of expenses
incurred in defending a threatened or pending action which is settled
or otherwise disposed of without court approval, unless the required
approval set forth in Section 6 of this Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of this
Trust has been successful on the merits in defense of any proceeding referred to
in Sections 2 or 3 of this Article or in defense of nay claim, issue or matter
therein, before the court or other body before whom the proceeding was brought,
the agent shall be indemnified against expenses actually and reasonably incurred
by the agent in connection therewith, provided that the Board of Trustees,
including a majority who are disinterested, non-party Trustees, also determines
that based upon a review of the facts, the agent was not liable by reason of the
disabling conduct referred to in Section 4 of this Article.
Section 6. REQUIRED APPROVAL. Except as provided in Section 5 of this
Article, any indemnification under this Article shall be made by this Trust only
if authorized in the specific case on a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of this Article and
is not prohibited from indemnification because of the disabling conduct set
forth in Section 4 of this Article, by:
(1) A majority vote of a quorum consisting of Trustees who are not parties
to the proceeding and are not interested persons of the Trust (as
defined in the Investment Company Act of 1940); or
(2) A written opinion by an independent legal counsel.
<PAGE>
Section 7. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this Trust before the final disposition of the
proceeding upon a written undertaking by or on behalf of the agent, to repay the
amount of the advance if it is ultimately determined that he or she is not
entitled to indemnification, together with at least one of the following as a
condition to the advance: (i) security for the undertaking; or (ii) the
existence of insurance protecting the Trust against losses arising by reason of
any lawful advances; or (iii) a determination by a majority of a quorum of
Trustees who are not parties to the proceeding and are not interested persons of
the Trust, or by an independent legal counsel in a written opinion, based on a
review of readily available facts that there is reason to believe that the agent
ultimately will be found entitled to indemnification. Determinations and
authorizations of payments under this Section must be made in the manner
specified in Section 6 of this Article for determining that the indemnification
is permissible.
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than Trustees
and officers of this Trust or any subsidiary hereof may be entitled by contract
or otherwise.
Section 9. LIMITATIONS. No indemnification or advance shall be made under
this Article, except as provided in Sections 5 or 6 in any circumstances where
it appears:
(1) that it would be inconsistent with a provision of the Agreement and
Declaration of Trust of the Trust, a resolution of the shareholders,
or an agreement in effect at the time of accrual of the alleged cause
of action asserted in the proceeding in which the expenses were
incurred or other amounts were paid which prohibits or otherwise
limits indemnification; or
(2) that it would be inconsistent with any condition expressly imposed by
a court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a determination by the
Board of Trustees of this Trust to purchase such insurance, this Trust shall
purchase and maintain insurance on behalf of any agent of this Trust against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such, but only to the extent that this Trust would
have the power to indemnify the agent against that liability under the
provisions of this Article and the Agreement and Declaration of Trust of the
Trust.
Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not
apply to nay proceeding against any Trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Trust as defined in Section 1 of
this Article. Nothing contained in this Article shall imit any right to
indemnification to which such a Trustee, investment manager, or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.
<PAGE>
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The information required by this item is contained in the Form ADV of the
following entities and is incorporated herein by reference:
Name of investment adviser File No.
-------------------------- --------
Litman/Gregory Fund Advisors, LLC 801-52710
Davis Selected Advisers, L.P. 801-31648
Southeastern Asset Management, Inc. 801-11123
Jennison Associates Capital Corp. 801-5608
Friess Associates, Inc. 801-16178
Strong Capital Management, Inc. 801-10724
Janus Capital Corp. 801-13991
Mastholm Asset Management, LLC 801-54834
Harris Associates L.P. 801-50333
Artisan Partners LP 801-48435
BPI Global Asset Management, LLP 801-53972
Legg Mason Fund Adviser, Inc.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) First Fund Distributors, Inc. currently serves as distributor of the
shares of:
Advisors Series Trust
Allegiance Investment Trust
Builders Fixed Income Fund, Inc.
Guinness Flight Investment Funds
Fleming Mutual Fund Group, Inc.
Fremont Mutual Funds
Investors Research Fund, Inc.
Jurika & Voyles Mutual Funds
Kayne Anderson Mutual Funds
Masters' Select Funds Trust
O'Shaughnessy Funds, Inc.
PIC Investment Trust
Purisima Funds
Professionally Managed Portfolios
Rainier Investment Management Mutual Funds
Brandes Investment Funds
RNC Mutual Fund Group, Inc.
Trust For Investment Managers
Puget Sound Alternative Investment Series Trust
Dessauer Global Equity Fund
<PAGE>
(b) The following information is furnished with respect to the officers of
First Fund Distributors, Inc.::
Name and Principal Position and Offices with Position and Offices
Business Address* First Fund Distributors, Inc. with Registrant
- ------------------- ----------------------------- ------------------------
Robert H. Wadsworth President and Treasurer Assistant Secretary
Eric M. Banhazl Vice President and Secretary Assistant Treasurer
Steven J. Paggioli Vice President Assistant Secretary
* The principal business address of persons and entities listed is 4455 E.
Camelback Rd., Ste. 261-E, Phoenix, AZ 85018.
(c) Not applicable.
ITEMS 28. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the possession of the following persons:
(a) the documents required to be maintained by paragraph (4) of Rule
31a-1(b) will be maintained by the Registrant;
(b) the documents required to be maintained by paragraphs (5), (6), (10)
and (11) of Rule 31a-1(b) will be maintained by the respective investment
managers:
Davis Selected Advisers, L.P., 124 East Marcy Street, Santa Fe, NM 87501
Southeastern Asset Management, Inc., 6401 Poplar Avenue, Memphis, TN 38119
Jennison Associates Capital Corp., 466 Lexington Avenue, New York, NY 10017
Friess Associates, Inc. 350 Broadway, Jackson, WY 83001
Strong Capital Management, Inc., 100 Heritage Reserve, Menomonee Falls, WI 53051
Janus Capital Corp., 100 Fillmore St., Denver, Colorado 80206-4928
Mastholm Asset Management, LLC, 10500 N.E. 8th Street, Suite 660, Bellevue, WA
98004
Harris Associates L.P., Two North LaSalle, Suite 500, Chicago, Illinois
60602-3790
Artisan Partners L.P., 1000 North Water Street, Suite 1770, Milwaukee, Wisconsin
53202
BPI Global Asset Management, LLP, Tower Place at the Summit, 1900 Summit Tower
Blvd., Ste. 450, Orlando, FL 32810
Legg Mason Fund Adviser, Inc., 100 Light Street, Baltimore, MD 21202
(c) all other documents will be maintained by Registrant's custodian, State
Street Bank and Trust Company, 225 Franklin Street, Boston, MA 02110.
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Registrant hereby undertakes to:
(1) Furnish each person to whom a Prospectus is delivered a copy of
Registrant's latest annual report to shareholders, upon request and
without charge.
(2) If requested to do so by the holders of at least 10% of the Trust's
outstanding shares, call a meeting of shareholders for the purposes of
voting upon the question of removal of a trustee and assist in
communications with other shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement (File No. 333-10015) to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Orinda, State of
California on the 20th day of April, 2000.
MASTERS' SELECT FUNDS TRUST
By: /s/ Kenneth E. Gregory*
-----------------------
Kenneth E. Gregory
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
/s/ Kenneth E. Gregory* President and April 20, 2000
- -------------------------------- Trustee
Kenneth E. Gregory
/s/ Craig A. Litman* Trustee April 20, 2000
- --------------------------------
Craig A. Litman
/s/ A. George Battle* Trustee April 20, 2000
- --------------------------------
A. George Battle
/s/ Frederick A. Eigenbrod, Jr*. Trustee April 20, 2000
- --------------------------------
Frederick A. Eigenbrod, Jr.
/s/ Taylor M. Welz* Trustee April 20, 2000
- --------------------------------
Taylor M. Welz
/s/ John Coughlan* Chief Financial April 20, 2000
- -------------------------------- and Accounting Officer
John Coughlan
By /s/ Robert M. Slotky
-----------------------------
Robert M. Slotky, Attorney-in-Fact under powers of
Attorney as filed with Post-Effective Amendment No. 7
on October 6, 1999.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10(i) Consent of PricewaterhouseCoopers, LLP
10(ii) Report of McGladrey & Pullen, LLP
10(iii) Consent of McGladrey & Pullen, LLP
16(a) Masters' Select Funds Trust
16(b) Litman/Gregory Fund Advisors, LLC
16(c)(i) Davis Selected Advisers, L.P.
16(c)(ii) Friess Associates, Inc.
16(c)(iii) Southeastern Asset Management, Inc.
16(c)(iv) Legg Mason Fund Adviser, Inc.
16(c)(v) Jennison Associates Capital Corporation
16(c)(vi) Strong Capital Management, Inc.
16(c)(vii) Janus Capital Corporation
16(c)(viii) Harris Associates L.P.
16(c)(ix) BPI Global Asset Management, LLP
16(c)(x) Mastholm Asset Management, LLC
16(c)(xi) Artisan Partners LP
16(d) First Fund Distributors, Inc.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our report dated January 28, 2000, relating to the
financial statements and financial highlights which appear in the December 31,
1999 annual report to shareholders of Masters' Select Funds Trust which is also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the headings "Financial Highlights" and "Custodian
and Auditors" in such Registration Statement.
PricewaterhouseCoopers LLP
New York, NY
April 14, 2000
INDEPENDENT AUDITOR'S REPORT
THE BOARD OF TRUSTEES AND SHAREHOLDERS
MASTERS' SELECT FUNDS TRUST
We have audited the accompanying statement of changes in net assets for the year
ended December 31, 1998 and the financial highlights for each of the two years
in the period ended December 31, 1998 of Masters' Select Equity Fund and
Masters' Select International Fund, separate series of Masters' Select Funds
Trust (the "Trust"). This financial statement and the financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on this financial statement and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statement and financial highlights referred to
above present fairly, in all material respects, the changes in its net assets
and the financial highlights of Masters' Select Funds Trust for the periods
indicated, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
New York, New York
February 12, 1999
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated February 12, 1999, on the financial
statements of Masters' Select Funds Trust referred to in the Post-Effective
Amendment. No. 14 to the Registration Statement on Form N-1A as filed with the
Securities and Exchange Commission.
/s/ McGladrey & Pullen, LLP
New York, New York
April 14, 2000
MASTERS SELECT INVESTMENT TRUST
CODE OF ETHICS
December 1996
I. LEGAL REQUIREMENT
Rule 17j-1 under the Investment Company Act of 1940, as amended (the "1940
Act"), requires Masters Select Investment Trust (the "Trust") as an investment
company as well as every investment adviser to and distributor of a series of
the Trust (each a "Fund" and collectively, the "Funds") to have a written Code
of Ethics which specifically deals with trading practices by "access persons."
Access persons are defined to include (1) officers and certain employees of the
Trust, (2) officers, directors and investment personnel of investment advisers
to any Fund, and (3) certain personnel of any broker-dealer firm that acts as
the distributor for a Fund, and (4) each member of the Trust's Board of
Trustees. The Rule also requires that reasonable diligence be used and
procedures instituted to prevent violations of this Code of Ethics.
The Code of Ethics should be designed to provide a program for detecting
and preventing trading abuses and should require "access persons" to report
personal securities transactions in securities of the types which the Funds may
purchase, but is not designed to restrict trading per se. The Code of Ethics
should also be aimed at minimizing conflicts of interest and the appearance of
such conflicts.
II. GENERAL PROHIBITIONS
It shall be unlawful for any affiliated person (which broadly includes all
officers, directors, owners and employees) of a registered investment company,
or any affiliated person of an investment adviser or distributor of a registered
investment company, in connection with the purchase or sale, directly or
indirectly, of a security held or to be acquired by such registered investment
company --
(a) To employ any device, scheme or artifice to defraud such registered
investment company;
(b) To make to such registered investment company any untrue statement of
a material fact or omit to state to such registered investment company
a material fact necessary in order to make the statements made, in
light of the circumstances under which they are made, not misleading;
(c) To engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon any such registered
investment company; or
(d) To engage in any manipulative practice with respect to such registered
investment company.
<PAGE>
III. ACCESS PERSON PROVISIONS
All access persons (defined below), EXCEPT INDEPENDENT TRUSTEES, covered by
this Code are required to file reports at least quarterly of their personal
securities transactions (excluding excepted securities) and, if they wish to
trade in the same securities as any Fund, must comply with the specific
procedures in effect for such transactions. Because the Trust uses various
unaffiliated investment advisers to advise the Funds and also uses various
unaffiliated broker-dealers to distribute shares of certain Funds, it is
expected that these entities will adopt specific trading procedures appropriate
to their organization consistent with the general requirement of this Code of
Ethics and Rule 17j-1 under the 1940 Act. Such persons are specifically excluded
from the coverage of this Code. Each shareholder, officer, director, and
employee of the administrator for the Trust, Investment Company Administration
Corporation ("ICAC"), is required to comply with the reporting and other
requirements of ICAC's code of ethics and is excluded from the coverage of this
Code.
The reports of access persons will be reviewed and compared against the
activities of the Funds and if a pattern emerges that indicates abusive trading
or noncompliance with applicable procedures, the matter will be referred to the
Board of Trustees; the Board of Trustees will make appropriate inquiries and
decides what action, if any, is then necessary.
Independent Trustees who do not have day-to-day contact with the Funds and
who do not have specific knowledge of the Funds' intended investments are not
required to file any reports at all, and there is no restriction on their
personal securities trading activities. However, if an independent Trustee
should learn that one of the Funds is about to take a particular position, and
he or she wishes to make a similar or related trade, the Trustee should obtain
prior approval of the trade.
This Code of Ethics is not intended to cover all possible areas of
potential liability under the 1940 Act or under the federal securities laws in
general. For example, other provisions of Section 17 of the 1940 Act prohibit
various transactions between a registered investment company and affiliated
persons, including the knowing sale or purchase of property to or from a
registered investment company on a principal basis, and joint transactions
(e.g., combining to achieve a substantial position in a security or commingling
of funds) between an investment company and an affiliated person. Persons
covered by this Code of Ethics are advised to seek advice before engaging in any
transactions involving securities held or under consideration for purchase or
sale by a Fund of the Trust or if a transaction directly or indirectly involves
themselves and the Trust other than the purchase or redemption of shares of a
Fund or the performance of their normal business duties.
In addition, the Securities Exchange Act of 1934 may impose fiduciary
obligations and trading restrictions on access persons and others in certain
situations. It is expected that access persons will be sensitive to these areas
of potential conflict, even though this Code of Ethics does not address
specifically these other areas of fiduciary responsibility.
<PAGE>
IV. IMPLEMENTATION
In order to implement this Code of Ethics, a compliance officer and two
alternates have been designated for the Trust and First Fund Distributors, Inc.,
one of the principal underwriters of the Funds. These individuals are:
Steven J. Paggioli
Robert H. Wadsworth (alternate)
Eric M. Banhazl (alternate)
The compliance officer shall appoint one or more compliance officer
delegates employed by each investment adviser of (and broker-dealer serving as
principal underwriter to) a Fund.
The compliance officer shall create a list of access persons and update the
list with reasonable frequency. This list of access persons shall include the
persons identified by the various compliance officer delegates as access persons
of the various investment advisers (and principal underwriters, as appropriate)
of each Fund. The Trust compliance officer is not required to independently
verify the accuracy and completeness of such access person sub-lists.
The compliance officer or compliance officer delegate shall circulate a
copy of this Code of Ethics to each access person, together with an
acknowledgement of receipt, which shall be signed and returned to the compliance
officer or compliance officer delegate, as appropriate, by each access person.
The compliance officer or compliance officer delegate is charged with
responsibility for insuring that the reporting requirements of this Code of
Ethics (see Section VIII) are adhered to by all access persons. The compliance
officer or compliance officer delegate shall be responsible for ensuring that
the review requirements of this Code of Ethics (see Section X) are performed in
a prompt manner.
V. DEFINITIONS
(a) "Access person" means: (i) any trustee, officer or advisory person (as
defined below) of a Fund or the Trust; (ii) any director, officer, general
partner or advisory person (as described below) of an investment adviser to a
Fund; and (iii)any director, officer or general partner of a broker-dealer
acting as distributor or principal underwriter of a Fund who, in the ordinary
course of his business, makes, participates in or obtains information regarding
the purchases and sales of securities for such Fund or whose ordinary business
functions and duties relate to the making of recommendations to such Fund
regarding the purchase and sale of securities.
Exceptions: (i) any investment adviser unaffiliated with Litman Gregory
Fund Advisors, LLC (the "Adviser") and/or the Trust (except by reason of
being a sub-adviser) and all employees of such unaffiliated adviser,
provided that such sub-adviser represents to the Adviser that it has and
enforces a code of ethics that meets the requirements of Rule 17j-1 under
the 1940 Act, and (ii) any employee of an administration company providing
administration services to the Trust or the Fund including such employees
who may act as officers of the Trust.
(b) "Advisory person" means with respect to (A) the Trust, (B) an
investment adviser to a Fund or (C) any company in a control relationship to the
<PAGE>
Trust or the investment adviser, (i) any employee who, in connection with his
regular functions or duties, makes, participates in, or obtains information
regarding, the purchase or sale of a security by a Fund, or whose functions
relate to the making of any recommendations with respect to such purchases or
sales; and (ii) any natural person in a control relationship to the Trust or an
investment adviser who obtains information concerning recommendations made to a
Fund with regard to the purchase or sale of a security.
Exceptions: (i) any investment adviser unaffiliated with the Adviser and/or
the Trust (except by reason of being a sub-adviser) and all employees of
such unaffiliated adviser, provided that such sub-adviser represents to the
Adviser that it has and enforces a code of ethics that meets the
requirements of Rule 17j- I under the 1940 Act, and (ii) any employee of an
administration company providing administration services to the Trust or
the Fund including such employees who may act as officers of the Trust.
(c) A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and communicated,
and, with respect to a person making a recommendation, when such person
seriously considers making such a recommendation.
(d) "Beneficial ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions of Section
16 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder, with the exception that the determination of direct or
indirect beneficial ownership shall apply to all securities which an access
person has or acquires.
(e) "Control" means the power to exercise a controlling influence over the
management or policies of a company, unless such power is solely the result of
an official position, as further defined in Section 2(a)(9) of the 1940 Act.
(f) "Purchase or sale of a security" includes the writing of an option to
purchase or sell a security.
(g) "Security" shall have the meaning set forth in Section 2(a)(36) of the
1940 Act, except that it shall not include excepted securities (as defined
below).
(h) "Excepted securities" include shares of registered open-end investment
companies, securities issued by the Government of the United States (including
Government agencies), short term debt securities which are "government
securities" within the meaning of Section 2(a)(16) of the 1940 Act, bankers'
acceptances, bank certificates of deposit, commercial paper and other money
market instruments.
VI. PROHIBITED TRADING PRACTICES
No access person shall purchase or sell directly or indirectly, any
security in which he or she has, or by reason of such transactions acquires, any
direct or indirect beneficial ownership,
(a) if such security to his or her actual knowledge at the time of such
purchase or sale:
(i) is being considered for purchase or sale by a Fund;
<PAGE>
(ii) is in the process of being purchased or sold by a Fund (except
that an access person may participate in a bunched transaction with the
Fund if the price terms are the same); OR
(iii) is or has been held by a Fund within the most recent 15 day
period, AND
(b) if such action by such access person would defraud a Fund, operate as a
fraud or deceit upon a Fund, or constitute a manipulative practice with respect
to such Fund. In each case, the relevant Fund shall be limited to the Fund(s) to
which such access person has a direct relationship.
To ensure that security purchases and sales by access persons do not
constitute a fraudulent, deceptive or manipulative practice with respect to the
various Funds, each investment adviser and principal underwriter to a Fund shall
adopt a policy preventing Fund access persons from trading ahead of the Fund or
otherwise trading in securities held or being considered for purchase or sale by
a Fund for an appropriate period of time.
Access persons associated with the Trust and/or First Fund Distributors,
Inc. shall pre-clear all transactions with the compliance officer.
VII. EXEMPTED TRANSACTIONS/SECURITIES
The prohibitions of Section VI of this Code shall not apply to:
(a) Purchases or sales effected in any account over which the access
person has no direct or indirect influence or control.
(b) Purchases or sales of securities which are not eligible for purchase
or sale by any Fund.
(c) Purchases or sales which are non-volitional on the part of either the
access person or the Trust (e.g., receipt of gifts).
(d) Purchases which are part of an automatic dividend reinvestment plan.
(e) Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
(f) Purchases and sales which have received the prior approval of the
Compliance Officer.
(g) Purchases and sales of securities which are not included in the
definition of "Security" in Part V.g. or are "excepted securities" as
defined in Section V.h. -- i.e., mutual fund shares, government
securities and money market instruments.
(h) Purchases and sales of securities which are part of a bunched
transaction involving the Fund and possibly other clients where all
participants receive the same price.
<PAGE>
VIII. REPORTING
(a) Independent Trustees and individuals who already report their
investment transactions under the rules applicable to registered investment
advisers may be excepted from the reporting requirement (see Section IX below).
Subject to the exceptions set forth below, every access person shall report to
the appropriate compliance officer or compliance delegate the information
described in Section VIII(b) with respect to transactions in any security in
which such access person has, or by reason of such transaction acquires, any
direct or indirect beneficial ownership in the security.
(b) Every report shall be made not later than ten (10) days after the end
of each calendar quarter and shall contain the following information:
(1) The date of the transaction, the title and the number of shares,
and the principal amount of each security involved;
(2) The nature of the transaction (i.e., purchase, sale, or any other
type of acquisition or disposition);
(3) The price at which the transaction was effected; and
(4) The name of the broker, dealer, or bank with or through whom the
transaction was effected.
(c) For periods in which no reportable transactions were effected, the
report shall contain a representation that no transactions subject to the
reporting requirements were effected during the relevant time period.
(d) Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that he has any
direct or indirect beneficial ownership in the security to which the report
relates.
(e) Copies of statements or confirmations containing the information
specified in paragraph (b) above may be submitted in lieu of listing the
transactions
IX. EXCEPTIONS TO REPORTING REQUIREMENTS
(a) An independent Trustee i.e., a Trustee of the Trust who is not an
"interested person" (as defined in Section 2(a)(19) of the 1940 Act) of the
Trust, is not required to file a report on a transaction in a security provided
such Trustee neither knew nor, in the ordinary course of fulfilling his or her
official duties as a trustee of the Trust, should have known that, during the
15-day period immediately preceding or after the date of the transaction by the
Trustee, such security is or was purchased or sold by the Trust or is or was
being considered for purchase by its investment adviser.
(b) Where an independent Trustee is exempt from the reporting requirements
of Section VIII(b) of this Code pursuant to this Section IX(a), such Trustee may
nevertheless voluntarily file a report representing that he or she did not
engage in any securities transactions which, to his or her knowledge, involved
securities that were being purchased or sold or considered for purchase by any
Fund during the 15-day period preceding or after the date(s) of any
transaction(s) by such Trustee. The failure to file such a report, however,
shall not be considered a violation of this Code of Ethics.
<PAGE>
(c) Access persons also need not make a report with respect to an exempted
transactions/securities as described in Section V of this Code.
(d) Access persons need not make a report where the report would duplicate
information recorded pursuant to Rules 204-2(a)(12) or 204-2(a)(13) under the
Investment Advisers Act of 1940.
X. REVIEW
The compliance officer shall compare all reports of personal securities
transactions with completed and contemplated portfolio transactions of each Fund
to determine whether a possible violation the Code of Ethics and/or other
applicable trading procedures may have occurred. The compliance officer may
delegate this function to one or more persons employed by an investment adviser
or principal underwriter with respect to the reports filed by access persons in
such organization, and shall receive and be entitled to rely on a summary report
from such compliance delegate
No person shall review his or her own report. Before making any
determination that a violation has been committed by any person, the compliance
officer shall give such person an opportunity to supply additional explanatory
material. If a securities transaction of the compliance officer is under
consideration, an alternate shall act in all respects in the manner prescribed
herein for the designated compliance officer.
If the compliance officer determines that a violation of the Code of Ethics
has or may have occurred, he or she shall, following consultation with counsel
to the Trust, submit his or her written determination, together with the
transaction report, if any, and any additional explanatory material provided by
the individual, to the President or, if the President shall be the compliance
officer, the Treasurer, who shall make an independent determination of whether a
violation has occurred.
The compliance officer shall be responsible for maintaining a current list
of all access persons (including all Trustees) and for identifying all reporting
access persons on such list, and shall take steps to ensure that all reporting
access persons have submitted reports in a timely manner. The compliance officer
may delegate the compilation of this information to appropriate persons employed
by an investment adviser or principal underwriter and shall be entitled to rely
on the information received from such compliance officer delegate(s). Failure to
submit timely reports will be communicated to the Board of Trustees.
XI. SANCTIONS
If a material violation of this Code occurs or a preliminary determination
is made that a violation may have occurred, a report of the alleged violation
shall be made to the Board of Trustees. The Board of Trustees may impose such
sanctions as it deems appropriate, including a letter of censure, suspension, or
termination of the employment of the violator, and/or a disgorging of any
profits made by the violator.
I fully understand and hereby subscribe to this Code of Ethics.
Date Signature
- --------------------- ----------------------------------------
MASTERS SELECT INVESTMENT TRUST
CODE OF ETHICS
December 1996
I. LEGAL REQUIREMENT
Rule 17j-1 under the Investment Company Act of 1940, as amended (the "1940
Act"), requires Masters Select Investment Trust (the "Trust") as an investment
company as well as every investment adviser to and distributor of a series of
the Trust (each a "Fund" and collectively, the "Funds") to have a written Code
of Ethics which specifically deals with trading practices by "access persons."
Access persons are defined to include (1) officers and certain employees of the
Trust, (2) officers, directors and investment personnel of investment advisers
to any Fund, and (3) certain personnel of any broker-dealer firm that acts as
the distributor for a Fund, and (4) each member of the Trust's Board of
Trustees. The Rule also requires that reasonable diligence be used and
procedures instituted to prevent violations of this Code of Ethics.
The Code of Ethics should be designed to provide a program for detecting
and preventing trading abuses and should require "access persons" to REPORT
personal securities transactions in securities of the types which the Funds may
purchase, but is not designed to restrict trading per se. The Code of Ethics
should also be aimed at minimizing conflicts of interest and the appearance of
such conflicts.
II. GENERAL PROHIBITIONS
It shall be unlawful for any affiliated person (which broadly includes all
officers, directors, owners and employees) of a registered investment company,
or any affiliated person of an investment adviser or distributor of a registered
investment company, in connection with the purchase or sale, directly or
indirectly, of a security held or to be acquired by such registered investment
company --
(a) To employ any device, scheme or artifice to defraud such registered
investment company;
(b) To make to such registered investment company any untrue statement of
a material fact or omit to state to such registered investment company
a material fact necessary in order to make the statements made, in
light of the circumstances under which they are made, not misleading;
<PAGE>
(c) To engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon any such registered
investment company; or
(d) To engage in any manipulative practice with respect to such registered
investment company.
III. ACCESS PERSON PROVISIONS
All access persons (defined below), EXCEPT INDEPENDENT TRUSTEES, covered by
this Code are required to file reports at least quarterly of their personal
securities transactions (excluding excepted securities) and, if they wish to
trade in the same securities as any Fund, must comply with the specific
procedures in effect for such transactions. Because the Trust uses various
unaffiliated investment advisers to advise the Funds and also uses various
unaffiliated broker-dealers to distribute shares of certain Funds, it is
expected that these entities will adopt specific trading procedures appropriate
to their organization consistent with the general requirement of this Code of
Ethics and Rule 17j-1 under the 1940 Act. Such persons are specifically excluded
from the coverage of this Code. Each shareholder, officer, director, and
employee of the administrator for the Trust, Investment Company Administration
Corporation ("ICAC"), is required to comply with the reporting and other
requirements of ICAC's code of ethics and is excluded from the coverage of this
Code.
The reports of access persons will be reviewed and compared against the
activities of the Funds and if a pattern emerges that indicates abusive trading
or noncompliance with applicable procedures, the matter will be referred to the
Board of Trustees; the Board of Trustees will make appropriate inquiries and
decides what action, if any, is then necessary.
Independent Trustees who do not have day-to-day contact with the Funds and
who do not have specific knowledge of the Funds' intended investments are not
required to file any reports at all, and there is no restriction on their
personal securities trading activities. However, if an independent Trustee
should learn that one of the Funds is about to take a particular position, and
he or she wishes to make a similar or related trade, the Trustee should obtain
prior approval of the trade.
<PAGE>
This Code of Ethics is not intended to cover all possible areas of
potential liability under the 1940 Act or under the federal securities laws in
general. For example, other provisions of Section 17 of the 1940 Act prohibit
various transactions between a registered investment company and affiliated
persons, including the knowing sale or purchase of property to or from a
registered investment company on a principal basis, and joint transactions
(E.G., combining to achieve a substantial position in a security or commingling
of funds) between an investment company and an affiliated person. Persons
covered by this Code of Ethics are advised to seek advice before engaging in any
transactions involving securities held or under consideration for purchase or
sale by a Fund of the Trust or if a transaction directly or indirectly involves
themselves and the Trust other than the purchase or redemption of shares of a
Fund or the performance of their normal business duties.
In addition, the Securities Exchange Act of 1934 may impose fiduciary
obligations and trading restrictions on access persons and others in certain
situations. It is expected that access persons will be sensitive to these areas
of potential conflict, even though this Code of Ethics does not address
specifically these other areas of fiduciary responsibility.
IV. IMPLEMENTATION
In order to implement this Code of Ethics, a compliance officer and two
alternates have been designated for the Trust and First Fund Distributors, Inc.,
one of the principal underwriters of the Funds. These individuals are:
Steven J. Paggioli
Robert H. Wadsworth (alternate)
Eric M. Banhazl (alternate)
The compliance officer shall appoint one or more compliance officer
delegates employed by each investment adviser of (and broker-dealer serving as
principal underwriter to) a Fund.
The compliance officer shall create a list of access persons and update the
list with reasonable frequency. This list of access persons shall include the
persons identified by the various compliance officer delegates as access persons
of the various investment advisers (and principal underwriters, as appropriate)
<PAGE>
of each Fund. The Trust compliance officer is not required to independently
verify the accuracy and completeness of such access person sub-lists.
The compliance officer or compliance officer delegate shall circulate a
copy of this Code of Ethics to each access person, together with an
acknowledgement of receipt, which shall be signed and returned to the compliance
officer or compliance officer delegate, as appropriate, by each access person.
The compliance officer or compliance officer delegate is charged with
responsibility for insuring that the reporting requirements of this Code of
Ethics (see Section VIII) are adhered to by all access persons. The compliance
officer or compliance officer delegate shall be responsible for ensuring that
the review requirements of this Code of Ethics (see Section X) are performed in
a prompt manner.
V. DEFINITIONS
(a) "Access person" means: (i) any trustee, officer or advisory person
(as defined below) of a Fund or the Trust; (ii) any director, officer, general
partner or advisory person (as described below) of an investment adviser to a
Fund; and (iii)any director, officer or general partner of a broker-dealer
acting as distributor or principal underwriter of a Fund who, in the ordinary
course of his business, makes, participates in or obtains information regarding
the purchases and sales of securities for such Fund or whose ordinary business
functions and duties relate to the making of recommendations to such Fund
regarding the purchase and sale of securities.
Exceptions: (i) any investment adviser unaffiliated with Litman
Gregory Fund Advisors, LLC (the "Adviser") and/or the Trust (except by
reason of being a sub-adviser) and all employees of such unaffiliated
adviser, provided that such sub-adviser represents to the Adviser that
it has and enforces a code of ethics that meets the requirements of
Rule 17j-1 under the 1940 Act, and (ii) any employee of an
administration company providing administration services to the Trust
or the Fund including such employees who may act as officers of the
Trust.
(b) "Advisory person" means with respect to (A) the Trust, (B) an
investment adviser to a Fund or (C) any company in a control relationship to the
Trust or the investment adviser, (i) any employee who, in connection with his
<PAGE>
regular functions or duties, makes, participates in, or obtains information
regarding, the purchase or sale of a security by a Fund, or whose functions
relate to the making of any recommendations with respect to such purchases or
sales; and (ii) any natural person in a control relationship to the Trust or an
investment adviser who obtains information concerning recommendations made to a
Fund with regard to the purchase or sale of a security.
Exceptions: (i) any investment adviser unaffiliated with the Adviser
and/or the Trust (except by reason of being a sub-adviser) and all
employees of such unaffiliated adviser, provided that such sub-adviser
represents to the Adviser that it has and enforces a code of ethics
that meets the requirements of Rule 17j- I under the 1940 Act, and
(ii) any employee of an administration company providing
administration services to the Trust or the Fund including such
employees who may act as officers of the Trust.
(c) A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and communicated,
and, with respect to a person making a recommendation, when such person
seriously considers making such a recommendation.
(d) "Beneficial ownership" shall be interpreted in the same manner as
it would be in determining whether a person is subject to the provisions of
Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder, with the exception that the determination of direct or
indirect beneficial ownership shall apply to all securities which an access
person has or acquires.
(e) "Control" means the power to exercise a controlling influence over
the management or policies of a company, unless such power is solely the result
of an official position, as further defined in Section 2(a)(9) of the 1940 Act.
(f) "Purchase or sale of a security" includes the writing of an option
to purchase or sell a security.
(g) "Security" shall have the meaning set forth in Section 2(a)(36) of
the 1940 Act, except that it shall not include excepted securities (as defined
below).
(h) "Excepted securities" include shares of registered open-end
investment companies, securities issued by the Government of the United States
(including Government agencies), short term debt securities which are
<PAGE>
"government securities" within the meaning of Section 2(a)(16) of the 1940 Act,
bankers' acceptances, bank certificates of deposit, commercial paper and other
money market instruments.
VI. PROHIBITED TRADING PRACTICES
No access person shall purchase or sell directly or indirectly, any
security in which he or she has, or by reason of such transactions acquires, any
direct or indirect beneficial ownership,
(a) if such security to his or her actual knowledge at the time of such
purchase or sale:
(i) is being considered for purchase or sale by a Fund;
(ii) is in the process of being purchased or sold by a Fund (except
that an access person may participate in a bunched transaction
with the Fund if the price terms are the same); OR
(iii)is or has been held by a Fund within the most recent 15 day
period, AND
(b) if such action by such access person would defraud a Fund, operate
as a fraud or deceit upon a Fund, or constitute a manipulative practice with
respect to such Fund. In each case, the relevant Fund shall be limited to the
Fund(s) to which such access person has a direct relationship.
To ensure that security purchases and sales by access persons do not
constitute a fraudulent, deceptive or manipulative practice with respect to the
various Funds, each investment adviser and principal underwriter to a Fund shall
adopt a policy preventing Fund access persons from trading ahead of the Fund or
otherwise trading in securities held or being considered for purchase or sale by
a Fund for an appropriate period of time.
Access persons associated with the Trust and/or First Fund Distributors,
Inc. shall pre-clear all transactions with the compliance officer.
VII. EXEMPTED TRANSACTIONS/SECURITIES
The prohibitions of Section VI of this Code shall not apply to:
<PAGE>
(a) Purchases or sales effected in any account over which the access
person has no direct or indirect influence or control.
(b) Purchases or sales of securities which are not eligible for
purchase or sale by any Fund.
(c) Purchases or sales which are non-volitional on the part of either
the access person or the Trust (E.G., receipt of gifts).
(d) Purchases which are part of an automatic dividend reinvestment
plan.
(e) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to
the extent such rights were acquired from such issuer, and sales
of such rights so acquired.
(f) Purchases and sales which have received the prior approval of the
Compliance Officer.
(g) Purchases and sales of securities which are not included in the
definition of "Security" in Part V.g. or are "excepted
securities" as defined in Section V.h. -- I.E., mutual fund
shares, government securities and money market instruments.
(h) Purchases and sales of securities which are part of a bunched
transaction involving the Fund and possibly other clients where
all participants receive the same price.
VIII. REPORTING
(a) Independent Trustees and individuals who already report their
investment transactions under the rules applicable to registered investment
advisers may be excepted from the reporting requirement (see Section IX below).
Subject to the exceptions set forth below, every access person shall report to
the appropriate compliance officer or compliance delegate the information
described in Section VIII(b) with respect to transactions in any security in
which such access person has, or by reason of such transaction acquires, any
direct or indirect beneficial ownership in the security.
(b) Every report shall be made not later than ten (10) days after the
end of each calendar quarter and shall contain the following information:
<PAGE>
(1) The date of the transaction, the title and the number of shares,
and the principal amount of each security involved;
(2) The nature of the transaction (i.e., purchase, sale, or any other
type of acquisition or disposition);
(3) The price at which the transaction was effected; and
(4) The name of the broker, dealer, or bank with or through whom the
transaction was effected.
(c) For periods in which no reportable transactions were effected, the
report shall contain a representation that no transactions subject to the
reporting requirements were effected during the relevant time period.
(d) Any such report may contain a statement that the report shall not
be construed as an admission by the person making such report that he has any
direct or indirect beneficial ownership in the security to which the report
relates.
(e) Copies of statements or confirmations containing the information
specified in paragraph (b) above may be submitted in lieu of listing the
transactions
IX. EXCEPTIONS TO REPORTING REQUIREMENTS
(a) An INDEPENDENT TRUSTEE I.E., a Trustee of the Trust who is not an
"interested person" (as defined in Section 2(a)(19) of the 1940 Act) of the
Trust, is NOT required to file a report on a transaction in a security provided
such Trustee neither knew nor, in the ordinary course of fulfilling his or her
official duties as a trustee of the Trust, should have known that, during the
15-day period immediately preceding or after the date of the transaction by the
Trustee, such security is or was purchased or sold by the Trust or is or was
being considered for purchase by its investment adviser.
(b) Where an independent Trustee is exempt from the reporting
requirements of Section VIII(b) of this Code pursuant to this Section IX(a),
such Trustee may nevertheless voluntarily file a report representing that he or
she did not engage in any securities transactions which, to his or her
knowledge, involved securities that were being purchased or sold or considered
<PAGE>
for purchase by any Fund during the 15-day period preceding or after the date(s)
of any transaction(s) by such Trustee. The failure to file such a report,
however, shall not be considered a violation of this Code of Ethics.
(c) Access persons also need not make a report with respect to an
exempted transactions/securities as described in Section V of this Code.
(d) Access persons need not make a report where the report would
duplicate information recorded pursuant to Rules 204-2(a)(12) or 204-2(a)(13)
under the Investment Advisers Act of 1940.
X. REVIEW
The compliance officer shall compare all reports of personal securities
transactions with completed and contemplated portfolio transactions of each Fund
to determine whether a possible violation the Code of Ethics and/or other
applicable trading procedures may have occurred. The compliance officer may
delegate this function to one or more persons employed by an investment adviser
or principal underwriter with respect to the reports filed by access persons in
such organization, and shall receive and be entitled to rely on a summary report
from such compliance delegate
No person shall review his or her own report. Before making any
determination that a violation has been committed by any person, the compliance
officer shall give such person an opportunity to supply additional explanatory
material. If a securities transaction of the compliance officer is under
consideration, an alternate shall act in all respects in the manner prescribed
herein for the designated compliance officer.
If the compliance officer determines that a violation of the Code of Ethics
has or may have occurred, he or she shall, following consultation with counsel
to the Trust, submit his or her written determination, together with the
transaction report, if any, and any additional explanatory material provided by
the individual, to the President or, if the President shall be the compliance
officer, the Treasurer, who shall make an independent determination of whether a
violation has occurred.
The compliance officer shall be responsible for maintaining a current list
of all access persons (including all Trustees) and for identifying all reporting
access persons on such list, and shall take steps to ensure that all reporting
access persons have submitted reports in a timely manner. The compliance officer
may delegate the compilation of this information to appropriate persons employed
<PAGE>
by an investment adviser or principal underwriter and shall be entitled to rely
on the information received from such compliance officer delegate(s). Failure to
submit timely reports will be communicated to the Board of Trustees.
XI. SANCTIONS
If a material violation of this Code occurs or a preliminary determination
is made that a violation may have occurred, a report of the alleged violation
shall be made to the Board of Trustees. The Board of Trustees may impose such
sanctions as it deems appropriate, including a letter of censure, suspension, or
termination of the employment of the violator, and/or a disgorging of any
profits made by the violator.
I fully understand and hereby subscribe to this Code of Ethics.
Date Signature
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CODE OF ETHICS
Davis Selected Advisers, L.P.
Davis Selected Advisers-NY, Inc.
Davis Distributors, LLC
And The Clients For Which They Serve As Investment Adviser
As Amended January 29, 2000
PREAMBLE
The interests of our clients, and the interests of shareholders of the funds we
advise, are, at all times, our highest priority. In order to maintain this
priority, all personal securities transactions are conducted in a manner
consistent with this Code of Ethics (the "Code"). We are committed to
maintaining the integrity of our business by exercising vigilance in the
avoidance of all actual or potential conflicts of interest or abuses of our
position of trust and responsibility. The Code should be read in conjunction
with this Preamble.
SECTION 1: DEFINITIONS
All definitions shall be interpreted pursuant to the investment Company Act of
1940 (the "1940 Act") and its Rule 17j-1, and the Investment Advisers Act and
its Rule 204-(2).
(A) "Adviser" means Davis Selected Advisers, L.P. ("DSA"), Davis Selected
Advisers-NY, Inc. ("DSANY"), and Davis Distributors, LLC ("DDLLC"), and any firm
which controls, is controlled by, or is under common control with DSA, and any
other firm adopting this Code.
(B) "Access Person" means any director, officer, general partner, or Advisory
Person of the Adviser or a Fund. Access Person shall not include:
(1) disinterested Directors who are Access Persons solely by reason of
being a Director of a Fund; or
(2) Officers of a Fund who are Access Persons solely by reason of being an
Officer of a Fund;
if such Disinterested Directors and Officers do not, in connection with their
regular functions or duties, obtain information regarding the purchase or sale
of a security by that Fund prior to disclosure in a regular meeting of
Directors.*
(C) "Advisory Person" means
(1) any employee of the Adviser or a Fund who, in connection with his/her
regular functions or duties, makes, participates in, or obtains
information regarding the purchase or sale of a Covered Security by a
Client or whose functions relate to the making of any recommendations
with respect to such purchases or sales;
(2) any natural person in a control relationship to the Adviser or a Fund
who obtains information concerning recommendations made to such
company with regard to tile purchase of a Covered Security; or
(3) any person who obtains information concerning any recommendations or
executions of Client transactions in Covered Securities and has been
designated by the Compliance Officer as an Advisory Person.*
* This Code requires the Compliance Officer to maintain a list of all Access
Persons and Advisory Persons and to provide these persons with notice of their
status.
(D) "Security held or to be Acquired by a Client" means:
<PAGE>
(1) any Covered Security which, within the most recent 15 days:
(a) is or has been held by a Client; or
(b) is being or has been seriously considered for purchase by a
Client; and
(2) any option to purchase or sell, and any security convertible into or
exchangeable for, a Covered Security described in part (i) of this
section.
A Covered Security is seriously considered for purchase by a Client when a
recommendation to purchase or sell a Covered Security has been communicated to a
portfolio manager for a Client and the portfolio manager is considering the
recommendation. A Covered Security is not being seriously considered for
purchase by a Client solely by reason of that Covered Security being subject to
normal review procedures applicable to portfolio securities of the Client, or
normal review procedures which are part of a general industrial or business
study, review, survey or research or monitoring of securities markets.
(E) "Beneficial Owner" shall be determined in the same manner as it would be in
determining whether a person is subject to the provisions of Section 16 of the
Securities Exchange Act of 1934 and the rules and regulations thereunder. (The
meaning of the term "Beneficial Owner" is summarized and illustrated in Appendix
A attached to this Code.)
(F) "Client" means any party for whom the Adviser provides investment advisory
services. Clients include Funds, whether or not the Adviser serves as the
primary investment adviser or serves as sub-adviser.
(G) "Compliance Officer" shall mean an Adviser's designated Compliance Officer
or, in the case of such designated Compliance Officer's unavailability or
inability to act, any officer of the Adviser designated to act in such
circumstances.
(H) "Control" shall leave the same meaning as set forth in Section 2(a)(9) of
the 1940 Act.
(I) "Covered Security" means a security as defined in Section 2(a)(36) of the
1940 Act, except that it does not include: (1) direct obligations of the
Government of the United States, (2) banker's acceptances, bank certificates of
deposit, commercial paper, and high quality short-term debt instruments,
including repurchase agreements; and (3) shares issued by open-end funds
registered under the 1940 Act.
(J) "Disinterested Director" means a director of a Fund who is not an
"interested person" of the Fund within the meaning of Section 2(a)(19) of the
1940 Act.
(K) "Fund" means each investment company for whom the Adviser serves as the
primary investment adviser and manages the investment company's daily business
affairs. Currently, this includes the Davis Funds and the Selected Funds.
(L) "Limited Offering" means an offering that is exempt from registration under
the Securities Act of 1933 pursuant to Section 4(2), Section 4(6), Rule 505, or
Rule 506,
(M) "Purchase or Sale of a Covered Security" includes, INTER ALIA, the writing
of an option to purchase or sell a Covered Security.
SECTION 2: UNLAWFUL ACTIONS
No Access Person, in connection with the purchase or sale of any Security Held
or to be acquired by a Client shall
(A) employ any device, scheme or artifice to defraud a Client;
<PAGE>
(B) make any untrue statement of a material fact (or omit to state a material
fact necessary in order to make the statements made not misleading) to a DSA
employee making investment decisions or to a DSA officer investigating
securities transactions;
(C) engage in any act, practice or course of business that operates or would
operate as a fraud or deceit to a Client; or
(D) engage in any manipulative practice with respect to a Client.
SECTION 3: PROHIBITED PURCHASES AND SALES
(A) PRE-CLEARING. No Access Person shall, directly or indirectly, purchase or
sell any Covered Security (or any security sold in a Limited Offering) in which
such person has, or by reason of such transaction acquires, any direct or
indirect beneficial ownership without the prior approval of the Compliance
Officer. The Compliance Officer shall pre-clear his personal transactions in any
Covered Security (or any security sold in a Limited Offering) with a senior
officer designated by DSA.
(B) INITIAL PUBLIC OFFERINGS. No Access Person shall acquire any Securities in
an initial public offering.
(C) SEVEN DAY TRADING WINDOW. No Access Person shall, directly or indirectly,
purchase or sell any Covered Security in which he or she has, or by reason of
such transaction acquires, any direct or indirect beneficial ownership, and
which to his or her actual knowledge at the time of such purchase or sale is
being seriously considered for purchase or sale by or for a Client, or is the
subject of a pending buy or sell order by a Client, or is programmed for
purchase or sale by or for a Client; or was purchased or sold by or for a Client
within the seven (7) calendar day period preceding or following the purchase or
sale by such Access Person.
(D) SANCTIONS. Upon discovering a violation of Section 3(A) of this Code, the
Compliance Officer shall impose a fine in an amount he or she deems appropriate.
Upon discovering a violation of Sections 2, 3(B) or 3(C) of this Code, the
Adviser and the Board of Directors of any Fund affected by such violation may
impose such sanctions as each deems appropriate, including, INTER ALIA, monetary
sanctions, a letter of censure or suspension or termination of the employment of
the violator, civil referral to the SEC or other civil regulatory authorities,
or criminal referral.
(E) For purposes of the prohibitions in Section 3 of this Code on purchases and
sales of certain Securities, "directly or indirectly" shall be deemed to include
within such prohibitions any transaction involving any other substantially
similar Covered Securities of the same issuer, and any derivatives of such
Covered Security.
SECTION 4: EXEMPTED TRANSACTIONS
(A) BLUE CHIP EXEMPTION. The prohibitions of Section 3(A) of this Code shall not
apply to any purchase or sale, or series of related transactions, involving less
than $50,000 of the securities of a company listed either on a national
securities exchange or traded over the counter and having a market
capitalization exceeding $5 billion. A series of transactions in the securities
of a company shall be deemed to be related if occurring within seven days, and
shall be deemed not to be related if occurring more than 14 days apart.
(B) The prohibitions of Section 3 of this Code shall not apply to:
(1) NO CONTROL. Purchases or sales effected for any amount over which the
Access Person has no direct or indirect influence or control.
(2) AUTOMATIC DIVIDEND REINVESTMENT PLAN. Purchases that are part of an
automatic dividend reinvestment plan.
<PAGE>
(3) PRO RATA RIGHTS. Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such rights so acquired.
(4) SYSTEMATIC INVESTMENT PLAN. Purchases effected through a systematic
investment plan involving the automatic investment of a predetermined amount on
predetermined dates, provided the Compliance Officer has been previously
notified by the employee that he or she (or his or her spouse) will be
participating in the plan.
(5) GIFTS. Subject to the provisions of Section 7, the giving or receiving of
any security as a gift.
(6) FUTURES CONTRACTS, OPTIONS ON FUTURES CONTRACTS. Any purchase or sale
involving futures contracts on broad securities indices, such as the S&P, or
interest rate futures contracts, or options on such futures contracts.
SECTION 5: LIMITED OFFERINGS
In reviewing requests for approval of a transaction by an Access Person
involving a limited offering, the Compliance Officer shall take into account,
among other factors, whether the investment opportunity should be reserved for a
Client, and whether the opportunity is being offered to such Access Person by
virtue of his or her position with the Adviser.
An Advisory Person who has been authorized to acquire Securities in a limited
offering shall be required to disclose such investment when that Advisory Person
plays a part in any Fund's subsequent consideration of an investment in the
issuer. Any such consideration of an investment in the issuer shall be subject
to review by Advisory Persons with no personal interest in the issuer.
SECTION 6: DISGORGEMENT BY ACCESS PERSONS OF CERTAIN SHORT-TERM TRADING PROFITS
(A) No Access Person shall profit from the purchase and sale, or sale and
purchase, of the same (or equivalent) securities within 60 calendar days. Any
profits realized by such Access Person on such short-term trades shall be
disgorged.
(B) Any profits realized by an Access Person on trades made in violation of
Section 3(C) of this Code (the Seven Day Trading Window) shall be disgorged.
SECTION 7: GIFTS
In addition to those provisions of the NASD Rules of Fair Practice or similar
ethical rules relating to the receipt of gifts and other benefits, all Access
Persons are prohibited from receiving any gift, gratuity, favor award or other
item or benefit having a market value in excess of $100 per person, per year,
from or on behalf of any person or entity that does, or seeks to do, business
with or on behalf of the Adviser or its Clients. Business-related entertainment
such as meals, tickets to the theater or a sporting event which are infrequent
and of a non-lavish nature are excepted from this prohibition.
SECTION 8: SERVICE AS A DIRECTOR
Access Persons are prohibited from serving on the boards of directors of
publicly traded companies unless the Compliance Officer determines, in writing,
that such service is not inconsistent with the interests of the Clients and
their shareholders. If the Compliance Officer has approved such service, and
such Access Person is also an Advisory Person, that Advisory Person Shall be
isolated, through "Chinese Wall" procedures, from persons making investment
decisions with respect to such issuer.
<PAGE>
SECTION 9: REPORTING
(A) INITIAL AND ANNUAL DISCLOSURE. Except as provided in paragraph (e), every
Access Person shall:
(1) Report all personal holdings of Covered Securities within 10 days of
becoming an Access person; and
(2) Report all personal holdings of Covered Securities as of December 31st
(or other date acceptable to the Compliance Officer) within 30 days of
calendar year-end.
(B) DUPLICATE CONFIRMATION STATEMENTS. Every Access Person shall instruct the
broker, dealer or bank with or through whom a Covered Security transaction is
effected in which every Access Person has, or by reason of such transaction
acquires or sells, any direct or indirect beneficial ownership in the Covered
Security, to furnish the Compliance Officer duplicate copies of transaction
confirmations and statements of account at the same time such confirmations and
statements of account are sent to the Access Person.
(C) QUARTERLY REPORTING. Every Access Person shall report within 10 days after
the end of each calendar quarter to the Compliance Officer all Covered
Securities transactions taking place during the preceding calendar quarter in an
account of which the Access Person is a Beneficial Owner. If the Access Person
did not execute any such transactions during the preceding calendar quarter, he
shall report such fact to the Compliance Officer.
(D) OPENING BROKERAGE ACCOUNTS. Prior to the opening of an account for the
purpose of executing transactions in Covered Securities, every Access Person
shall obtain the written consent of the Compliance Officer.
(E) NON-DISCRETIONARY ACCOUNTS. No person shall be required to make a report
with respect to any account over which such person does not have any direct or
indirect influence or control.
(F) NON-ADMISSION STATEMENT. Any such disclosure report may contain a statement
that the report shall not be construed as an admission by the person making such
report that he or she has any direct or indirect beneficial ownership in the
Covered Security to which the report relates.
SECTION 10: ADMINISTRATION OF THE CODE
(A) APPOINTMENT OF A COMPLIANCE OFFICER. DSA shall appoint a Compliance Officer
and shall keep a record for five years of the persons serving as Compliance
Officer and their dates of service.
(B) ADMINISTRATION OF THE CODE. The Compliance Officer shall administer the Code
and shall use reasonable diligence and institute procedures reasonably necessary
to review reports submitted by Access Persons and to prevent violations of the
Code.
(C) RECORD OF VIOLATIONS OF THE CODE. The Compliance Officer shall maintain a
record of all violations of the Code, and of any action taken as a result of the
violation, which shall be maintained for five years in an easily accessible
place.
(D) LIST OF ACCESS AND ADVISORY PERSON. The Compliance Officer shall prepare a
list of the Access Persons and Advisory Persons, shall update the list as
necessary, and shall maintain a record (for 5 years) of former lists of Access
and Advisory Persons.
(E) NOTICE OF STATUS AS ACCESS OR ADVISORY PERSON. The Compliance Officer shall
notify each Access and Advisory Person of their status, provide them with a copy
of this Code, and obtain an acknowledgment from such person of receipt thereof.
(F) NOTICE OF AMENDMENTS TO THAN CODE. Amendments to this Code, shall be
provided to each Access and Advisory Person, who shall acknowledge receipt
thereof.
<PAGE>
(G) EXEMPTIONS TO THE CODE. The Board of Directors of the Funds may exempt any
person from application of any Section(s) of this Code. A written memorandum
shall specify the Section(s) of this Code from which the person is exempted and
the reasons therefore.
(H) QUARTERLY DIRECTORS' REPORT. The Compliance Officer shall compile a
quarterly report to be presented to the Board of Directors of each of the Funds.
Such report shall discuss compliance with this Code, and shall provide details
with respect to any failure to comply and the actions taken by the Adviser upon
discovery of such failure.
(I) ANNUAL DIRECTORS' REPORT. Not less than once a year the Compliance Officer
shall furnish to Directors of each of the Funds, and the Directors shall
consider, a written report that:
(1) Describes any issues arising under the Code since the last report to
the Directors, including, but not limited to, information about
material violations of the Code and sanctions imposed in response to
the material violations. The annual written report may incorporate by
reference information included in written quarterly reports previously
presented to the Directors; and
(2) Certifies that DSA has adopted procedures reasonably necessary to
prevent Access Persons from violating the Code.
SECTION 11: ADOPTION OF CODE BY ENTITIES OTHER THAN DSA
The Compliance Officer of DSA shall ensure that all firms controlling,
controlled by, or under common control with DSA that employ persons who obtain
information concerning recommendations or executions of Covered Security
transactions of any Client have adopted the Code or have imposed similar ethical
constraints on their personnel.
SECTION 12: MATERIAL CHANGES TO THE CODE
(A) All material changes to the Code must be approved by a majority of the Board
of Directors (including independent directors voting separately) of Funds at
their next regular meeting (and in no event more than 6 months after material
change). DSA shall provide the Directors with a certification that DSA has
adopted procedures reasonably necessary to prevent Access Persons from violating
the Code. The Directors shall base their approval on a determination that the
Code contains provisions reasonably necessary to prevent Access persons from
violating Section 2 of this Code.
(B) A copy of each version of the Code shall be maintained for five years in an
easily accessible place.
<PAGE>
CODE OF ETHICS
Davis Selected Advisers, L.P.
Davis Selected Advisers-NY, Inc.
Davis Distributors, LLC
And The Clients For Which They Serve As Investment Adviser
As Amended January 29, 2000
INITIAL & ANNUAL CODE OF ETHICS CERTIFICATION
I acknowledge that I have received a copy and read the Code of Ethics, as
amended January 29, 2000, for Davis Selected Advisers, L.P., Davis Selected
Advisers-NY, Inc., Davis Distributors, LLC, other entities adopting this Code,
and the Funds and clients for which they serve as investment adviser. I
understand my responsibilities under this Code of Ethics and agree to comply
with all of its terms and conditions. I will retain a copy of this Code of
Ethics for future reference.
I hereby certify that I have complied with the requirements of the Code of
Ethics of Davis Selected Advisers, L.P., Davis Selected Advisers-NY, Inc., Davis
Distributors, LLC, and the clients for which they serve as investment adviser,
as amended January 29, 2000, and that I have disclosed or reported all personal
securities transactions required to be disclosed or reported pursuant to such
Code of Ethics.
- ----------------------------- ----------------------------------------
Print Name Signature
- -----------------------------
Date
RETURN TO COMPLICANCE DEPARTMENT
<PAGE>
CODE OF ETHICS
Davis Selected Advisers, L.P.
Davis Selected Advisers-NY, Inc.
Davis Distributors, LLC
And The Clients For Which They Serve As Investment Adviser
As Amended January 29, 2000
INITIAL & ANNUAL CODE OF ETHICS CERTIFICATION
I acknowledge that I have received a copy and read the Code of Ethics, as
amended January 29, 2000, for Davis Selected Advisers, L.P., Davis Selected
Advisers-NY, Inc., Davis Distributors, LLC, other entities adopting this Code,
and the Funds and clients for which they serve as investment adviser. I
understand my responsibilities under this Code of Ethics and agree to comply
with all of its terms and conditions. I will retain a copy of this Code of
Ethics for future reference.
I hereby certify that I have complied with the requirements of the Code of
Ethics of Davis Selected Advisers, L.P., Davis Selected Advisers-NY, Inc., Davis
Distributors, LLC, and the clients for which they serve as investment adviser,
as amended January 29, 2000, and that I have disclosed or reported all personal
securities transactions required to be disclosed or reported pursuant to such
Code of Ethics.
- ----------------------------- ----------------------------------------
Print Name Signature
- -----------------------------
Date
EMPLOYEE COPY
<PAGE>
CODE OF ETHICS
Davis Selected Advisers, L.P.
Davis Selected Advisers-NY, Inc.
Davis Distributors, LLC
And The Clients For Which They Serve As Investment Adviser
As Amended January 29, 2000
BENEFICIAL OWNERSHIP
For purposes of the Code of Ethics, a beneficial owner of a security includes
any person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or indirect
pecuniary interest in such security.
You have a pecuniary interest in a security if you have the opportunity,
directly or indirectly, to profit or share in the profit derived from a
transaction in such security. You are deemed to have a pecuniary interest in any
securities held by members of your immediate family sharing your household.
"Immediate family" means your son or daughter (including any legally adopted
child) or any descendants of either, your stepson or stepdaughter, your father
or mother or any ancestor of either, your stepfather or stepmother, and your
spouse. Also, you are deemed to have a pecuniary interest in securities held by
a partnership of which you are a general partner, and beneficial ownership of
the securities held by such partnership will be attributed to you in proportion
to the greater of your capital account or interest in the partnership at the
time of any transaction in such securities. You are also deemed to have a
pecuniary interest in the portfolio securities held by a corporation if you are
a controlling shareholder of such corporation and have or share investment
control over such portfolio securities. Additionally, certain
performance-related fees received by brokers, dealers, banks, insurance
companies, investment companies, investment advisors, trustees and others may
give rise to pecuniary interests in securities over which such persons have
voting or investment control.
Securities owned of record or held in your name are generally considered to be
beneficially owned by you if you have a pecuniary interest in such securities.
Beneficial ownership may include securities held by others for your benefit
regardless of record ownership (e.g., securities held for you or members of your
immediate family by agents, custodians, brokers, trustees, executors or other
administrators; securities owned by you but which have not been transferred into
your name on the books of a company; and securities which you have pledged) if
you have or share a pecuniary interest in such securities.
With respect to ownership of securities held in trust, beneficial ownership
includes the ownership of securities as a trustee in instances either where you
as trustee have, or where a member of your immediate family has, a pecuniary
interest in the securities held by the trust (e.g., by virtue of being a
beneficiary of the trust).
The final determination of beneficial ownership is a question to be determined
in light of the facts of a particular case. Thus, while you may include security
holdings of other members of your family, you may nonetheless disclaim
beneficial ownership of such securities. Any uncertainty as to whether you are
the beneficial owner of a security should be brought to the attention of the
Compliance Officer.
BRANDYWINE FUND, INC.
BRANDYWINE BLUE FUND, INC.
and
FRIESS ASSOCIATES, INC.
Code of Ethics
Amended effective as of December 7, 1999
I. DEFINITIONS
A. "Access person" means any director, officer or advisory person of the
Fund or Adviser,
B. "Act" means the Investment Company Act of 1940, as amended.
C. "Adviser" means Friess Associates, Inc.
D. "Advisory person" means: (i) any employee of the Fund or Adviser or of
any company in a control relationship to the Fund or Adviser, who, in
connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding the purchase or sale
of Covered Securities by Managed Accounts, or whose functions relate
to the making of any recommendations with respect to such purchases or
sales; and (ii) any natural person in a control relationship to the
Fund or Adviser who obtains information concerning recommendations
made to Managed Accounts with regard to the purchase or sale of
Covered Securities by Managed Accounts.
E. A Covered Security is "being considered for purchase or sale" when a
recommendation to purchase or sell the Covered Security has been made
and communicated and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
F. "Beneficial ownership" shall be interpreted in the same manner as it
would be under Rule 16a-1(a)(2) under the Securities Exchange Act of
1934 in determining whether a person is the beneficial owner of a
security for purposes as such Act and the rules and regulations
promulgated thereunder.
G. "Control" has the same meaning as that set forth in Section 2(a)(9) of
the Act.
H. "Covered Security" means a security as defined in Section 2(a)(36) of
the Act, except that it does not include:
(i) Direct obligations of the Government of the United States;
(ii) Bankers' acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements; and
(iii) Shares issued by open-end registered investment companies.
<PAGE>
I. "Disinterested director" means a director of the Fund who is not an
"interested person" of the Fund within the meaning of Section 2(a)(19)
of the Act and the rules and regulations promulgated thereunder.
J. "Fund" means Brandywine Fund, Inc. or Brandywine Blue Fund, Inc.
K. "Initial Public Offering" means an offering of securities registered
under the securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934.
L. "Investment personnel" means: (i) any employee of the Fund or Adviser
or of any company in a control relationship to the Fund or Adviser
who, in connection with his or her regular functions or duties, makes
or participates in making recommendations regarding the purchase or
sale of securities by Managed Accounts; and (ii) any natural person
who controls the Fund or Adviser and who obtains information
concerning recommendations made to Managed Accounts regarding the
purchase or sale of securities by Managed Accounts.
M. A "Limited Offering" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2)
or Section 4(6) thereof or pursuant to Rule 504, Rule 505 or Rule 506
thereunder.
N. "Managed Accounts" include the Fund and any other client account for
which the Adviser provides investment management services.
O. "Purchase or sale of a Covered Security" includes, among other things,
the writing of an option to purchase or sell a Covered Security.
II. APPROVAL OF CODE OF ETHICS
A. The Board of Directors of the Fund, including a majority of the
Disinterested directors, shall approve this Code of Ethics and any
material changes thereto. Prior to approving this Code of Ethics and
any material changes thereto, the Board of Directors must determine
that this Code of Ethics contains provisions reasonably necessary to
prevent access persons from violating Rule 17j-1(b) of the Act and
shall receive a certification from the Adviser that it has adopted
such procedures as are reasonably necessary to prevent access persons
of the Adviser from violating this Code of Ethics.
B. No less frequently than annually, the President of the Fund and the
Adviser shall furnish a report to the Board of Directors of the Fund:
1. Describing issues arising under the Code of Ethics since the last
report to the Board of Directors, including, but not limited to,
information about material violations of the Code of Ethics and
sanctions imposed in response to such material violations. Such
report shall also include a list of access persons under the Code
of Ethics.
2. Certifying that the Fund and the Adviser have adopted such
procedures as are reasonably necessary to prevent access persons
from violating the Code of Ethics.
<PAGE>
C. This Code of Ethics, the certifications required by Sections II.A. and
II.B.(2), and the reports required by Sections II.B. shall be
maintained by the Fund's Administrator. The reports required by
Section V shall be maintained by the Fund's President or designee.
III. EXEMPTED TRANSACTIONS
The prohibitions of Section IV of this Code of Ethics shall not apply to:
(a) Purchases or sales effected in any account over which the access
person has no direct or indirect influence or control.
(b) Purchases or sales of Covered Securities which are not eligible for
purchase or sale by any Managed Account; provided, however, that the
prohibitions of Section IV.B. of this Code of Ethics shall apply to
such purchases and sales.
(c) Purchases or sales which are non-volitional on the part of either the
access person or Managed Accounts.
(d) Purchases which are part of an automatic dividend reinvestment plan.
(e) Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
IV. PROHIBITED ACTIVITIES
A. Except in a transaction exempted by Section III of this Code, no
access person shall purchase or sell, directly or indirectly, any
Covered Security in which he has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership and which to his
actual knowledge at the time of such purchase or sale is being
considered for purchase or sale by Managed Accounts or is being
purchased or sold by Managed Accounts. Before an access person so
purchases or sells a Covered Security, he or she shall (i) review the
Adviser's Company Tracking Database to determine if the Adviser has an
analyst responsible for the Covered Security; (ii) obtain confirmation
from the analyst, if any, that to the analyst's knowledge the proposed
purchase or sale would not violate this Section IV.A.; and (iii)
report the proposed purchase or sale and analyst confirmation (if the
security is in the Company Tracking Database) to the Adviser's Trading
Department. The Adviser's Trading Department shall review all Managed
Accounts to determine whether the Covered Security is being considered
for purchase or sale currently, or in the next five business days, or
is currently being, or has been in the preceding five business days,
purchased or sold for any Managed Accounts. The access person (i)
shall delay so purchasing or selling a Covered Security until such
time as he or she has been informed by the Adviser's Trading
Department that the proposed purchase or sale would not violate this
Section IV.A.; and (ii) must complete any such purchase or sale no
later than the close of the business day following the day the access
person was so informed. Notwithstanding the foregoing, Disinterested
directors are not required to "preclear" transactions as described
above unless the Disinterested director knows that such security is
being considered for purchase or sale by a Fund or is being purchased
or sold by a Fund.
<PAGE>
B. Except in a transaction exempted by Section III of this Code of
Ethics, access persons, excluding Disinterested directors but
including Investment Personnel, (other than the Adviser's President
and the Adviser's Compliance Officer) must obtain approval from the
Adviser's Compliance Officer and the Adviser's President before
directly or indirectly acquiring beneficial ownership in any
securities in a Limited Offering. The Adviser's Compliance Officer and
the Adviser's President must obtain approval from a majority of the
Disinterested directors before directly or indirectly acquiring
beneficial ownership in any securities in a Limited Offering. Prior
approval shall not be given if the Adviser's President, the Adviser's
Compliance Officer or the Disinterested directors, as applicable,
believe(s) that the investment opportunity should be reserved for
Managed Accounts or is being offered to the individual by reason of
his or her position with the Fund or the Advisor.
C. Access persons, excluding Disinterested directors but including
Investment Personnel, may not directly or indirectly acquire
beneficial ownership in any securities in an Initial Public Offering.
V. REPORTING AND COMPLIANCE PROCEDURES
A. Except as provided in Section V.B. of this Code of Ethics, every
access person shall report the information described in Section V.C.,
Section V.D. and Section V.E. of this Code of Ethics. All reports
shall be filed with the Adviser's Compliance Officer.
B. 1. A Disinterested director of the Fund need not make a report
pursuant to Section V.C. and V.E. of this Code of Ethics and need
only report a transaction in a Covered Security pursuant to
Section V.D. of this Code of Ethics if such Disinterested
director, at the time of such transaction, knew or, in the
ordinary course of fulfilling his official duties as a director
of the Fund, should have known that, during the 15-day period
immediately preceding the date of the transaction by the
director, such Covered Security was purchased or sold by the Fund
or was being considered by the Fund or the Adviser for purchase
or sale by the Fund.
2. An access person need not make a report with respect to
transactions effected for, and Covered Securities held in, any
account over which the person has no direct or indirect influence
or control.
3. Every access person (other than Disinterested directors) shall
direct his or her brokers to send to the Adviser's Compliance
Officer, on a timely basis, duplicate copies of all broker trade
confirmations or account statements. If submitted in the time
period required by Section V.D., such duplicate copies may
satisfy the access person's obligations under Section V.D.
provided that all of the information required by Section V.D. is
contained in the broker trade confirmations or account statements
or in the records of the Adviser.
C. Every access person shall, no later than ten (10) days after the
person becomes an access person, file an initial holdings report
containing the following information:
1. The title, number of shares and principal amount of each Covered
Security in which the access person had any direct or indirect
beneficial ownership when the person becomes an access person;
<PAGE>
2. The name of any broker, dealer or bank with whom the access
person maintained an account in which any securities were held
for the direct or indirect benefit of the access person; and
3. The date that the report is submitted by the access person.
D. Every access person shall, no later than ten (10) days after the end
of a calendar quarter, file a quarterly transaction report containing
the following information:
1. With respect to any transaction during the quarter in a Covered
Security in which the access person had any direct or indirect
beneficial ownership:
(a) The date of the transaction, the title and the number of
shares, and the principal amount of each security involved;
(b) The nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(c) The price of the Covered Security at which the transaction
was effected;
(d) The name of the broker, dealer or bank with or through whom
the transaction was effected; and
(e) The date that the report is submitted by the access person.
2. With respect to any account established by the access person in
which any securities were held during the quarter for the direct
or indirect benefit of the access person:
(a) The name of the broker, dealer or bank with whom the access
person established the account;
(b) The date the account was established; and
(c) The date that the report is submitted by the access person.
E. Every access person shall, no later than January 30 each year, file an
annual holdings report containing the following information as of the
preceding, December 31:
1. The title, number of shares and principal amount of each Covered
Security in which the access person had any direct or indirect
beneficial ownership;
2. The name of any broker, dealer or bank with whom the access
person maintains an account in which any securities are held for
the direct or indirect benefit of the access person; and
3. The date that the report is submitted by the access person.
<PAGE>
F. Any report filed pursuant to Section V.C., Section V.D. or Section
V.E. of this Code of Ethics may contain a statement that the report
shall not be construed as an admission by the person making such
report that he has any direct or indirect beneficial ownership in the
security to which the report relates.
G. The Adviser's Compliance Officer shall review all reports filed
pursuant to Section V.C., Section V.D. or Section V.E. of this Code of
Ethics. The Adviser's Compliance Officer shall identify all access
persons who are required to file reports pursuant to this Section V of
this Code of Ethics and must inform such access persons of their
reporting obligation.
VI. SANCTIONS
Upon discovering a violation of this Code of Ethics, the Board of Directors of
the Fund or Adviser may impose such sanctions as it deems appropriate.
LONGLEAF PARTNERS FUNDS TRUST
SOUTHEASTERN ASSET MANAGEMENT, INC.
1996 SECURITIES TRADING POLICY AND PERSONAL CODE OF ETHICS
(As Amended Through September 20, 1999)
Table of Contents
INTRODUCTION
Commitment to Integrity and Professionalism 1.
PART A
PERSONAL SECURITIES TRADING
SECTION I.
Personnel and Accounts Subject to Code 2.
Securities Subject to Code 2.
SECTION II.
Personal Investments in Public Equity Securities -
Limited to Longleaf Partners Mutual Funds 3.
Exceptions - Other Securities 3.
SECTION III. PRE-CLEARANCE RULES (Purchases/Sales) 4.
SECTION IV. PRE-CLEARANCE / EXECUTION PROCEDURES 5.
SECTION V. REPORTING, DISCLOSURE AND RECORD REQUIREMENTS 7.
SECTION VI. INDEPENDENT TRUSTEES OF LONGLEAF PARTNERS MUTUAL FUNDS 8.
SECTION VII. OTHER POTENTIAL CONFLICTS OF INTEREST
Ban on Private Placements Appropriate For Client Accounts 10.
Ban on Purchases of Initial Public Offerings 10.
Ban on Short-term Trading 10.
Limitations on Receipt of Gifts 11.
Service as a Director of a Public Company 11.
Limitations on Political Contributions to Candidates
For State, County and, Municipal Offices 11.
PART B
USE OF MATEIRAL "INSIDE" OR NON-PUBLIC INFORMATION 12.
PART C
PENALTIES FOR VIOLATIONS OF THE CODE 14.
<PAGE>
LONGLEAF PARTNERS FUNDS TRUST
SOUTHEASTERN ASSET MANAGEMENT, INC.
SECURITIES AND TRADING POLICY AND PERSONAL CODE OF ETHICS
(As Amended Through September 20, 1999)
INTRODUCTION
Commitment to Integrity and Professionalism
Southeastern Asset Management, Inc. ("Southeastern") has made an ethical
commitment to its clients to avoid conflicts of interest in securities being
recommended for purchase or sale by its clients. The fundamental standard is the
core belief that professional investment management personnel have a
responsibility of professionalism and integrity which requires them to place
clients' interests in securities transactions before their own, and which
prevents them from taking inappropriate advantage of their positions to achieve
personal gain.
Regulatory Requirements
This Policy and Code of Ethics (referred to herein as the "Code") is designed to
assure the continuation of this commitment and to satisfy the following
regulatory and industry standards:
1. Rule 17j-l under the Investment Company Act of 1940, as amended effective
October 29, 1999, which requires a written Code by mutual funds to regulate
personal trading in securities which may be acquired by the mutual fund.
2. Rule 204-2(12) under the Investment Advisers Act, which requires that an
investment adviser maintain records on the personal trading transactions of
certain personnel.
3. Sec. 204A of the Investment Advisers Act of 1940, which mandates a written
Code to prevent unauthorized use by investment advisory personnel of
material "inside" or non-public information in their trading on behalf of
clients or themselves.
4. The Investment Company Institute's "Report of the Advisory Group on
Personal Investing", dated May 9, 1994, and The Report by the Investment
Company Institute to the Division of Investment Management of the U.S.
Securities and Exchange Commission, dated April 21, 1995.
5. Proposed Rule 206(4)-5 under the Investment Advisers Act of 1940, relating
to political contributions.
PART A - PERSONAL SECURITIES TRADING
<PAGE>
CODE OF ETHICS
LONGLEAF PARTNERS FUNDS / SOUTHEASTERN ASSET MANAGEMENT, INC.
SECTION I
Personnel and securities subject to Code
Rule I (A). Personnel and Accounts Subject to Code.
(1). Southeastern Personnel. All directors, officers and employees of
Southeastern are classified as "access persons" as the result of knowledge about
proposed and actual investments for the managed accounts and mutual funds. This
Code of Ethics applies to all Southeastern personnel.
(2). Relatives and Affiliated Accounts. Securities owned by immediate family
members residing in the same household or for whom Southeastern personnel
provide significant financial support (such as spouse and children) and
securities held by trusts for the benefit of such dependents are attributed to
the particular Southeastern personnel. Any trading on behalf of such dependents
or entities maintained for their benefit must be treated as though the
securities were owned by the related Southeastern personnel. In addition,
securities owned by any investment partnerships in which a Southeastern employee
or a dependent actively participates in the investment decision process would be
attributable. All rules on permissible investments, pre-clearance, execution of
trades, and reporting apply to securities transactions for these persons and
related entities.
(3). Independent Trustees. Section VI applies to the independent or outside
Trustees of Longleaf Partners Funds Trust.
RULE I (B). Securities Subject to Code.
(1). Covered Securities. A "security" is defined as any instrument which enables
a purchaser to share passively in a profit making venture and includes all
equity and debt instruments, as well as derivatives of any securities, such as
options, puts and calls, and futures.
(2). Exempt Securities. Regulations of the Securities & Exchange Commission
("SEC") exempt certain securities from code of ethics requirements because their
purchase or sale would not be in conflict with the market for client portfolio
securities or because they are not subject to purchase by client accounts.
Securities exempted by the SEC are:
(i). Direct obligations of the U.S. government
(ii). High quality short-term debt instruments, including bankers
acceptances, bank certificates of deposit, commercial paper, and
repurchase agreements.
(iii). Shares issued by open-end Funds.
(iv). Commodities futures contracts which are not considered to be
"securities" under SEC regulations.
Longleaf Partners Funds. Although shares of all registered open - end investment
companies or mutual funds are exempt under the SEC regulations, Southeastern has
<PAGE>
CODE OF ETHICS
LONGLEAF PARTNERS FUNDS / SOUTHEASTERN ASSET MANAGEMENT, INC.
adopted a special internal policy limiting all mutual fund investments made by
Southeastern personnel after the initial effective date of this Code solely to
investments in the Longleaf Partners mutual funds and money market mutual funds,
unless approval to invest in other mutual funds is granted. See Rule II(A).
SECTION II
SOUTHEASTERN'S POLICY ON PERSONAL EQUITY INVESTMENTS
Rule II(A). Personal Equity Investments Limited to Longleaf Partners Mutual
Funds.
All Southeastern personnel (including immediate family members), shall hereafter
use the Longleaf Partners mutual funds as the sole medium for future investing
in PUBLICLY OFFERED EQUITY SECURITIES (and derivatives of such securities),
unless
(i) the investment is excepted under Rule II(B), below or
(ii) the Southeastern employee has received authorization for the
particular investment from the Code Compliance Committee as provided
in Rule IV(B) on page 5.
DISCUSSION. The mutual funds managed by Southeastern offer an attractive and
appropriate equity investment medium through which its directors, officers, and
employees can participate in the firm's investment research and recommendations
without making direct purchases of publicly offered equity securities of the
types usually recommended for client accounts or the mutual funds. A policy
limiting investments in publicly offered equities to the Longleaf Partners Funds
and the other securities listed below assures that there can be no conflicts of
interest in personal securities trading. As a matter of company policy,
requiring Southeastern personnel to refrain from investing in mutual funds
offered by competing mutual fund sponsors expresses confidence in and loyalty to
company managed products.
Automatic Dividend Reinvestment Plans. Nothing in this Code of Ethics is
intended to prevent any person covered by the Code from participating in or
continuing to participate in an automatic reinvestment program under which
dividends declared and paid by the issuer are reinvested in additional shares of
the same issuer under a plan offered and administered by the issuer of any
security owned at the time this Code became applicable to the covered person or
which was later acquired in accordance with the provisions of this Code by any
such covered person.
Rule II(B). Exceptions To Purchases of Fund Shares
Until further notice, the Code Compliance Committee hereby exempts the following
securities from the investment limitations of Rule II (A):
1. Any security classified by SEC regulation as an "exempt security" as
set forth in Rule I(B)(2), but not including registered investment
companies (mutual funds) other than the Longleaf Partners mutual funds
and money market mutual funds.
<PAGE>
CODE OF ETHICS
LONGLEAF PARTNERS FUNDS / SOUTHEASTERN ASSET MANAGEMENT, INC.
2. Subject to pre-clearance by the Compliance Officer or Alternate as
provided in Rule IV(B)(i),
(i). Mid-America Apartment Communities, Inc., a NYSE listed real
estate investment trust not appropriate as an investment for
Southeastern's client accounts or the mutual funds as the result of
affiliations of certain Southeastern principals.
(ii). Private placements of a type which would not be appropriate as
an investment for Southeastern's client accounts or the mutual. funds
because of their local focus, limited liquidity, or probable permanent
non-registered or illiquid status, such as investments in local
restaurants or local sports teams.
SECTION III
PRE-CLEARANCE RULES
Rule III(A). Personal PURCHASES of Securities.
(i). GENERAL EXCEPTIONS. Southeastern personnel must obtain pre-clearance under
Rule IV(B) to purchase shares of Mid-America Apartment Communities, Inc. and any
private placements of securities. Pre-clearance is not required to purchase
shares of the Longleaf Partners Funds or money market mutual funds.
(ii). SPECIAL EXCEPTIONS. Southeastern personnel desiring a special exception to
purchase a publicly offered security not exempted under Rule I(B)(2) or Rule
II(B) must obtain authorization and pre-clearance by presenting a written
request for approval to the Code Compliance Committee, with appropriate
justification for the exception. The written request shall be presented to the
Compliance Officer, who shall arrange a meeting of the Code Compliance Committee
to act upon the request.
Rule III (B). Personal SALES of Securities
Southeastern personnel must obtain pre-clearance before selling ANY security
other than a security exempted by the SEC under Rule I(B)(2) or shares of the
Longleaf Partners Funds or money market mutual funds. Pre-clearance applies to
securities owned at the time this Code became effective and any other securities
approved for purchase by the Code Compliance Committee. Pre-clearance shall be
obtained by completing and signing a pre-clearance form supplied by Southeastern
and submitting the form to the Compliance Officer.
DISCUSSION - BLACKOUT PERIODS. Personal purchases or sales will not be
authorized until at least 15 days have passed since the last client transaction.
Authorization may be granted to sell a personally held security simultaneously
<PAGE>
CODE OF ETHICS
LONGLEAF PARTNERS FUNDS / SOUTHEASTERN ASSET MANAGEMENT, INC.
with sales by client accounts where there is an outstanding public tender offer
or similar comprehensive offer under which all of the securities held by the
client accounts may be sold together with the personally held securities,
provided that the simultaneous sale of securities held by Southeastern personnel
would not adversely affect the price to be received by the client accounts.
SECTION IV
PRE-CLEARANCE AND EXECUTION PROCEDURES
RULE IV(A). Code Compliance Committee and Compliance Officer
Code Compliance Committee. Has the authority to authorize purchases of publicly
offered securities not otherwise allowed by Rule I(B)(2) or Rules II(A) and
II(B). Membership consists of the following officers: Chief Executive Officer,
Compliance Officer, and Vice President & Secretary. A majority of the Committee
shall constitute a quorum.
Compliance Officer or Alternate. Has the authority to authorize pre-clearance to
purchase shares of Mid-America Apartment Communities, Inc. and sales of any
non-exempt securities held by Southeastern personnel, and to authorize both
purchases and sales of securities by the independent Trustees of the mutual
funds. The Compliance Officer is Charles Reaves, Vice President & General
Counsel; alternates to serve in his absence are first, Randy Holt, Vice
President & Secretary, and secondly, Joe Ott, Vice President
& Treasurer.
RULE IV(B). Procedure for Requesting Authorization To Purchase Non-Exempt
Securities.
(i). Any Southeastern employee desiring to purchase or sell securities of
Mid-America Apartment Communities, Inc. shall obtain pre-clearance for such
transaction by presenting a written request for approval to the Compliance
Officer on a form supplied by Southeastern.
(ii) Any Southeastern employee desiring a special exception to acquire a
publicly offered equity security not otherwise exempted by Rules I(B)(2), II(A)
and II(B) must obtain authorization and pre-clearance for such purchase by
presenting a written request for approval to the Code Compliance Committee on a
form supplied by Southeastern, with acceptable justification for the exception.
The written request shall be presented to the Compliance Officer, who shall
arrange a meeting of the Code Compliance Committee to act upon the request.
RULE IV(C) Procedure for Requesting Authorization to Sell Non-Exempt Securities.
<PAGE>
CODE OF ETHICS
LONGLEAF PARTNERS FUNDS / SOUTHEASTERN ASSET MANAGEMENT, INC.
Without pre-clearance, Southeastern personnel shall not make a personal sale of
any security or a derivative of any security unless it has been exempted by the
SEC, as defined in Rule I(B)(2). it the security is under consideration for
purchase or is presently held by any client account, authorization will not
usually be granted until at least 15 days after completion of the last purchase
or sale of the particular security by any such client account. The employee
shall request advance written clearance from the Compliance Officer on a form
supplied by Southeastern before any such security may be sold.
RULE IV(D) Processing of Pre-Clearance Forms.
The Compliance Office or Alternate shall verify with the specified member of the
portfolio management group other than the person who is seeking pre-clearance,
that the subject security is not then being considered for either a purchase or
sale by any managed account or the mutual funds. The member of the portfolio
management group making the verification shall be the most senior portfolio
manager by years of service who is available or, if none should be available,
the most senior securities analyst by years of service who is available. Such
person shall initial the Pre-Clearance Form to certify the verification, and the
Compliance Officer or Designate shall complete the balance of the Form.
RULE IV(E) Limited Duration of Pre-Clearance Authorization.
If the transaction cannot be executed within 7 business days after pre-clearance
authorization approval has been granted, the approval expires and a new request
for pre-clearance authorization must be submitted.
RULE IV(F) Execution of Trades and Broker Confirmation Statements
After the Southeastern employee has obtained pre-clearance authorization for a
transaction, Southeastern's most senior trader on duty shall place the trade for
execution with a broker mutually acceptable to Southeastern and the particular
employee. A copy of the Southeastern trade ticket and a copy of the confirmation
statement issued by the executing broker shall be sent to Southeastern for the
Compliance File.
SECTION V.
REPORTING, DISCLOSURE AND RECORD REQUIREMENTS
Rule V(A). Initial and Annual Reporting By Southeastern Personnel.
Within ten (10) days after the initial date of employment, and annually
thereafter when so requested by Southeastern, each director, officer and
employee of Southeastern shall complete a report on a form supplied by
Southeastern containing the following information:
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CODE OF ETHICS
LONGLEAF PARTNERS FUNDS / SOUTHEASTERN ASSET MANAGEMENT, INC.
(1). The type of security and name of the issuer of all securities
beneficially owned by the Southeastern employee and members of his
immediate family, including all mutual funds (affiliated and
non-affiliated) and any private placement investments, but excluding
any other security classified as "exempt", as shown in Rule I(B)(2).
This report shall include the number of shares and principal amount of
each such security in which the Southeastern employee has direct or
indirect ownership.
(2). A listing of all brokerage firm accounts maintained by each
Southeastern employee; the employee must instruct the brokerage firm
to supply Southeastern with duplicate copies of all transaction and
routine statements.
(3). A certification that the Code of Ethics has been received and read,
and the employee understands the Code and recognizes that he or she is
subject to it.
(4). A listing of all political contributions made to state or local
candidates after September 30, 1999.
(5). After the first year, a certification that the employee has complied
with the Code of Ethics during the preceding year, and has disclosed
or reported all personal transactions required to be disclosed or
reported. Any undisclosed or unreported transactions must then be
disclosed.
Rule V(B). Quarterly Reporting By Southeastern Personnel.
At the end of each calendar quarter, a questionnaire will be circulated to all
personnel requesting information about personal purchases or sales of securities
during the quarter. The form must be signed and returned by the 10th day of the
month following the end of the calendar quarter, and will contain information on
all "securities" owned by the employee which are not classified by the SEC as
"exempt", as set forth in Rule I(B)(2), and also including all shares owned by
the Southeastern employee of the following: all open-end investment companies
(affiliated and non- affiliated), Mid-America Apartment Communities, Inc., and
all private placements.
Rule V(C). Annual Report To the Boards of Longleaf Partners Mutual Funds.
Southeastern will prepare an annual report to the Boards of Trustees of the
mutual funds which shall contain the following and any other pertinent
information on personal trading by Southeastern personnel:
(i). A summary of the existing personal trading rules and a discussion of
any changes made during the year.
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CODE OF ETHICS
LONGLEAF PARTNERS FUNDS / SOUTHEASTERN ASSET MANAGEMENT, INC.
(ii). A report of any personal trading which has taken place in any
securities which were recommended for purchase by client accounts or the
mutual funds, any violations of this Code, and any remedial action taken.
(iii). A discussion of any recommended changes in existing procedures based
upon experience, changes in applicable laws or regulations, or developments
in industry practice.
RULE V(D). Establishment of Compliance File. A Compliance File shall be
maintained by the Compliance Officer which shall include the
following:
(1). Code of Ethics, as amended from time to time.
(2). Acknowledgments by personnel of receipt of Code.
(3). Annual Reports of securities holdings and Certifications of Compliance
by personnel.
(4). Executed pre-clearance forms.
(5). Trade tickets and confirmation statements for securities purchased and
sold.
(6). Annual Report to Boards of Trustees of the Mutual Funds concerning
personal trading activities.
Information contained in the Compliance File shall be reviewed by the Compliance
Office or delegate within a reasonable time after receipt, and any questions
shall be discussed with the person submitting the report.
SECTION VI
INDEPENDENT TRUSTEES OF LONGLEAF PARTNERS MUTUAL FUNDS
The independent Trustees of Longleaf Partners Funds Trust and its separate
series or mutual funds are not classified as Southeastern personnel. In their
official capacities, outside Trustees routinely receive information about
current portfolio purchases and holdings of the mutual funds, but do not
routinely receive information on proposed purchases or sales.
Rule VI(A). Pre-Clearance Approval
Independent trustees of the Longleaf Partners mutual funds who desire to
purchase or sell any security other than those excepted in the following
subparagraph shall telephone the Compliance officer to determine whether the
particular security is under consideration for purchase by any of the mutual
funds before making a purchase.
Exceptions For Outside Mutual Fund Trustees. Independent mutual fund Trustees
are not required to obtain pre-clearance approval for purchases or sales of
securities of issuers within the categories listed below, and transactions in
such securities are not subject to any reporting requirement unless the
particular security should subsequently be acquired by one of the mutual funds.
Until further written notice, such categories of securities, none of which are
expected to be purchased by the mutual funds, are:
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CODE OF ETHICS
LONGLEAF PARTNERS FUNDS / SOUTHEASTERN ASSET MANAGEMENT, INC.
(i). Securities issued by the particular Trustee's employer or any
affiliate and by companies for which the particular Trustee's employer or
an affiliate may provide venture capital or financial consulting services.
(ii). Securities issued in initial public offerings, provided the
opportunity to participate in the public offering has not been made
available to the Trustee primarily because of his position as a Trustee of
the Funds.
(iii). All municipal securities.
(iv). Securities exempted by SEC regulation, such as direct obligations of
the U.S. government, high quality short-term debt instruments, including
but not limited to bankers acceptances, bank certificates of deposit,
commercial paper and repurchase agreements, shares of registered open-end
investment companies and commodities futures contracts.
(vi). Securities in any other category after written notification has been
given to the independent Trustees that the mutual funds are not expected to
be investing such issuers.
Rule VI(B). Reporting By Independent Trustees of the Mutual Funds.
Quarter-end reporting of securities transactions is riot required unless the
independent Trustee has purchased or sold a security held by one of the Longleaf
Partners mutual funds during the quarter. A questionnaire will be mailed to each
outside Trustee at the end of each quarter, which must be signed and returned
before the 10th day of the month following the end of the calendar quarter if
there were any reportable transactions. The questionnaire need not be returned
if there were no reportable transactions.
As permitted by Paragraph (c)(3) of Rule 17j-1 under the investment Company Act
of 1940, independent Trustees are not required to report on any securities
transactions in any account over which the Trustee does not have direct or
indirect influence or control, such as a fully discretionary account managed by
another investment adviser.
SECTION VII
OTHER POTENTIAL CONFLICTS OF INTEREST
RULE VII(A). Private Placements; Ban on Purchases in initial Public Offerings;
Ban on Short-Term Trading Profits
1. Ban on private Placements of Securities Which Would Be Appropriate For
Purchase By client Accounts or Mutual Funds. Southeastern personnel may not
purchase private placements of securities of the types which could he
recommended for purchase by a clien account or the mutual funds (if the
particular security were registered or offered publicly or if a client account
or the mutual fund could purchase the security as a restricted security). Before
authorization will be granted for a private placement of securities of a type
<PAGE>
CODE OF ETHICS
LONGLEAF PARTNERS FUNDS / SOUTHEASTERN ASSET MANAGEMENT, INC.
which would not be appropriate for purchase by client accounts or the mutual
funds, as allowed by Rule II(B) on pages 3 and 4, it must appear that the
purchase would not result in any material conflict of interest which could
presently or in the future adversely affect any Southeastern client accounts and
that the opportunity for purchasing the private placement was not created as a
reward connected with the the employee's job function.
2. Ban on Purchases in Initial Public Offerings (IPO's). The industry consensus
is that personnel of investment advisors should be flatly prohibited from
acquiring shares in IPO'S, to preclude any possibility of profiting improperly
from their positions with an investment company or on behalf of a managed
account. Personnel of Southeastern are therefore prohibited from investing in
securities offered through IPO'S.
3. Ban on Short-Term Trading Profits. It is industry consensus that investment
advisor personnel should not profit from "short-term" trading profits, defined
as the purchase and sale, or the sale and purchase, of securities (other than
registered investment companies) within a 60 day time frame which result in a
profit, (A sale of a security at a loss within 60 days after its acquisition is
not deemed to be a short-term trading transaction). All Southeastern personnel
are therefore prohibited from engaging in short-term transactions which would
result in a profit. Any profits made through short-term trading in violation of
this Rule must be surrendered to Southeastern.
Exception To 60 Day Holding Period. Upon application to the Compliance officer
and a showing of exceptional or unusual circumstances, an authorization for a
sale in less than 60 days may be granted. Examples include but are not limited
to the following:
(a). The security is not one which is contemplated for purchase by; is then
held; or has been held by any managed accounts or the mutual funds; and
there is a reasonable basis for the request to sell in less than 60 days.
(b). If the security was previously held by any managed account or the
mutual funds, all such securities have been disposed of and at least 15
days have elapsed since the last transaction.
(c). The security being sold is an exchange traded option acquired to
establish a bona fide hedge position on securities held or to be more than
60 days.
RULE VII(B). Receipt of Gifts. Southeastern personnel are prohibited from
receiving gifts or any other thing of value (other than those leaving a value of
not more than $100 per annum per entity) from any person or entity which does
business with Southeastern or the Longleaf Partners mutual funds.
RULE VII(C). Service as a Director of a Public Company. Southeastern personnel
shall not serve as a director on the Board of a publicly traded company, absent
a prior determination by the Boards of Trustees of the Longleaf Partners mutual
funds and the Board of Directors of Southeastern that such Board service would
not be inconsistent with the interests of the mutual funds, their shareholders,
or other client accounts.
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CODE OF ETHICS
LONGLEAF PARTNERS FUNDS / SOUTHEASTERN ASSET MANAGEMENT, INC.
RULE VII(D). Payment or Solicitation Of Political Contributions To Candidates
For States County, and Municipal Offices. In accordance with proposed Rule
206(4)-5 under the Investment Advisers ACL of 1940, payment or solicitation of
political contributions to elected officials or candidates for election to
offices or positions in any state or political subdivision of a stale (county or
city), including any agency, authority, or political subdivision, are limited as
follows:
(i). Political contributions may not exceed $250 per candidate per
election.
(ii). Political contributions may be made only to elected officials or
candidates for whom the person making the contribution can vote, and
shall not be made to political action committees or other
intermediaries.
(iii). Southeastern personnel may not solicit contributions from other
individuals or entities (such as political action committees or
other intermediaries) for direct or indirect payment to or for the
benefit of any elected officials or candidates for election to state
political office.
PART B
RULE VIII - USE OF MATERIAL INSIDE OR NON-PUBLIC INFORMATION
Southeastern personnel shall not, while in the possession of material,
non-public information (referred to as "inside" information) about a company
(whether or not its securities are owned by client accounts) trade in the
company's securities or derivatives of such securities, either personally or on
behalf of others (including managed accounts, the mutual funds, or relatives,
friends or acquaintances), nor shall any such "inside" information be
communicated to others.
Definition of Material "Inside" Information. All non-public information is not
necessarily prohibited inside information. The inside information about the
company must be "material" before trading in the company's securities is
prohibited. To he material, the information must be significant enough so that
it could presently affect the market price of the company's stock or would be
important to someone making an investment decision.
Clearly specific information not yet public on matters such as earnings results,
dividend increases or decreases, and decisions on changes of policy, product, or
management composition should be considered to be material inside information.
However, it is possible that management of a company may make general non-public
statements to the portfolio selection group about the direction in which
management may steer the company in the future, views on earnings estimates
early in the period which are not yet definite, or other general observations,
opinions or views which would be non-public but which also would not yet be
definite or certain and could therefore be non-material.
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CODE OF ETHICS
LONGLEAF PARTNERS FUNDS / SOUTHEASTERN ASSET MANAGEMENT, INC.
Possible Sources of "Inside" information. In Southeastern's situation, there are
two primary sources of inside information:
(i) discussions by the portfolio selection group with management of companies
owned or to be owned by client accounts and
(ii) discussions with outside brokers who execute portfolio trades. Because
Southeastern is not engaged in the investment banking and retail brokerage
businesses, there is no need to establish a "Chinese wall" to separate
information received by some employees in the ordinary course of business about
potential mergers, acquisitions and tender offers from disclosure to other
employees who might misuse the information for their own accounts
Procedures to Limit Receiving Inside Information.
(i). Meetings with Management of the Issuer. Any conversations with
management of a portfolio company should be preceded by a statement to the
effect that Southeastern's questions are not intended to evoke confidential
or non-public information and that Southeastern seeks to avoid receipt of
any such information so that its ability to trade on behalf of its clients
will not be restricted.
(ii). information Received by Southeastern Traders From Third Parties. It
is possible that information from brokers about significant securities
sales or purchases by an issuer's management might constitute material
inside information. Brokers may also supply Southeastern's traders with
other to rumors" which might be significant. Although such information may
come indirectly from sources other than the issuer itself, the possibility
that trading should be suspended should be discussed internally by the
portfolio management group and the Compliance Officer.
Procedure To Follow Should a Southeastern Employee Receive Information Which May
Be Material, Non-Public information.
(i). The nature of the information and its source must be reported
immediately to the Compliance Officer. If the information is deemed
"material", the Compliance Officer will then notify the firm's Trader to
cease all transactions in that particular security. No further trading
shall take place in the stock of the particular company, for managed
accounts or for personal accounts, pending a determination on the nature of
the information.
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CODE OF ETHICS
LONGLEAF PARTNERS FUNDS / SOUTHEASTERN ASSET MANAGEMENT, INC.
(ii). The Compliance officer will discuss the matter with the Chairman of
the Board and C.B.O. for determination of whether and under what
circumstances further trading in the particular securities may take place.
PART C
PENALTIES FOR VIOLATIONS OF CODE
BY SOUTHEASTERN PFRSONNEL
RULE IX(A). Penalties For improper Personal Trading in Securities Being
Considered For Purchase or Sale or Being Purchased or Sold By
Managed Accounts or the Mutual Funds.
All violations of the Policy and Code will be reported to and considered by the
Board of Directors of Southeastern. in addition, all situations involving
portfolio securities held or to be acquired by the mutual funds will be reported
to the Board of Trustees of the mutual funds, which must also concur with any
proposed sanctions.
The following sanctions apply to violations of the trading prohibitions as wall
as to the failure to comply with the transaction reporting requirements:
First violation: immediate sale by the employee of any improperly purchased
security constituting a conflict of interest (if such sale would not damage
the client accounts or the mutual funds), together with the surrender by
the employee to Southeastern of any profit realized In the transaction. Any
profit realized on improper short-term trading transactions shall also be
surrendered to Southeastern.
Discussion. Disgorgement of profits is similar to the penalty imposed on
corporate directors and officers who violate the "short swing" selling
prohibitions under Sec. 16(b) of the Securities Exchange Act of 1934 Act.
Second violation: A letter of censure and disgorgement of profits, in the
same manner as the penalty for the first violation, together with a
monetary penalty appropriate to the circumstance, to be assessed by the
Board of Directors of Southeastern.
Third or subsequent violation Disgorgement of profits, in the same manner
as the penalty for the first violation, a substantial monetary penalty
assessed by the Board of Directors of Southeastern and, in the discretion
of the Board, suspension from employment (with or without pay) or
termination of employment.
RULE IX(B). Penalties For Improper Use or Communication of Inside or Non-Public
Information
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CODE OF ETHICS
LONGLEAF PARTNERS FUNDS / SOUTHEASTERN ASSET MANAGEMENT, INC.
The Securities A Exchange Commission and/or the courts may levy the following
civil and criminal penalties for the improper use of "inside" or non-public
information, which are applicable to any person (including outside Trustees)
misusing such information:
1. Recovery of the profit gained or loss avoided by the investment
adviser personnel trading on such information or by any "tippee", plus
treble damages.
2. Expulsion from the securities industry.
3. Criminal penalties of up to $1 million in fines and up to 10 years
imprisonment.
4. Penalties may also be assessed against Southeastern for failing to
have in place procedures or failing to take steps to prevent the use
or communication of "inside" information by its personnel.
Because there can be serious consequences for Southeastern itself should
Southeastern personnel use material "inside" information improperly or
communicate such information to others, Southeastern's Board of Directors will
determine appropriate sanctions in the event of a violation of this policy,
taking into account the particular circumstances. Such sanctions may include
monetary penalties or termination of employment.
Adopted August 19, 1996
Amended September 22, 1998
Amended September 20, 1999; effective September 30, 1999
[LEGG MASON LOGO]
LEGG MASON
FUNDS
CODE OF ETHICS
Dated: April 1, 2000
<PAGE>
TABLE OF CONTENTS
Topic Page
----- ----
I. Introduction ......................................................... 1
A. Individuals and Entities Covered by the Code ...................... 1
B. Fiduciary Duty .................................................... 1
1. The Funds Come First ........................................... 1
2. Avoid Taking Advantage ......................................... 1
3. Comply with the Code ........................................... 1
C. Application of the Code to Independent Fund Directors ............. 1
II. Personal Securities Transactions ..................................... 2
A. Preclearance Requirements for Access Persons ...................... 2
1. General Requirement ............................................ 2
2. Trade Authorization Request Forms .............................. 2
3. Review of Form ................................................. 2
4. Length of Trade Authorization Approval ......................... 3
5. No Explanation Required for Refusals ........................... 3
B. Execution of Personal Securities Transactions ..................... 3
C. Prohibited Transactions ........................................... 3
1. Always Prohibited Securities Transactions ...................... 3
a. Inside Information .......................................... 3
b. Market Manipulation ......................................... 4
c. Others ...................................................... 4
2. Generally Prohibited Securities Transactions ................... 4
a. Initial Public Offerings (Investment Personnel only) ........ 4
b. One Day Blackout (all Access Persons) ....................... 4
c. Seven-Day Blackout (Portfolio Managers only) ................ 4
d. 60-Day Blackout (Investment Personnel only) ................. 4
e. Private Placements (Investment Personnel only) .............. 5
<PAGE>
Topic Page
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D. Exemptions ........................................................ 5
1. Exemptions from Preclearance and Treatment as
a Prohibited Transaction ....................................... 5
a. Mutual Funds ................................................ 5
b. No Knowledge ................................................ 5
c. Legg Mason, Inc. Stock ...................................... 6
d. Certain Corporate Actions ................................... 6
e. Systematic Investment Plans ................................. 6
f. Option-Related Activity ..................................... 6
g. Commodities, Futures, and Options on Futures ................ 6
h. Rights ...................................................... 6
i. Miscellaneous ............................................... 6
2. Exemption from Treatment as a Prohibited Transaction ........... 7
a. Employer of Access Person Does
Not Make Investment Decisions
For the Relevant Fund ..................................... 7
b. De Minimis Transactions ..................................... 7
i. Equity Securities ..................................... 7
ii. Fixed Income Securities ................................. 7
c. Options on Broad-Based Indices .............................. 7
E. Reporting Requirements ............................................ 8
1. Initial and Periodic Disclosure of Personal Holdings
by Access Persons ............................................ 8
2. Transaction and Periodic Statement Reporting Requirements ...... 8
3. Independent Fund Directors ..................................... 8
4. Disclaimers .................................................... 9
5. Availability of Reports ........................................ 9
<PAGE>
Topic Page
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III. Fiduciary Duties ..................................................... 9
A. Confidentiality ................................................... 9
B. Gifts ............................................................. 9
1. Accepting Gifts ................................................ 9
2. Solicitation of Gifts .......................................... 10
3. Giving Gifts ................................................... 10
C. Corporate Opportunities ........................................... 10
D. Undue Influence ................................................... 10
E. Service as a Director ............................................. 10
IV. Compliance with the Code of Ethics ................................... 11
A. Code of Ethics Review Committee ................................... 11
1. Membership, Voting and Quorum .................................. 11
2. Investigating Violations of the Code ........................... 11
3. Annual Reports ................................................. 11
B. Remedies .......................................................... 12
1. Sanctions ...................................................... 12
2. Sole Authority ................................................. 12
3. Review ......................................................... 12
C. Exceptions to the Code ............................................ 12
D. Inquiries Regarding the Code ...................................... 13
V. Definitions .......................................................... 13
"Access Person" ...................................................... 13
"Appropriate Compliance Department" .................................. 13
"Batterymarch" ....................................................... 14
"Beneficial Interest" ................................................ 14
"Brandywine" ......................................................... 14
"Code" ............................................................... 15
"Equivalent Security" ................................................ 15
"Fund Adviser" ....................................................... 15
"Gray Seifert" ....................................................... 15
"Immediate Family" ................................................... 15
<PAGE>
Topic Page
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"Independent Fund Director" .......................................... 15
"Investment Personnel" and "Investment Person" ....................... 15
"Legal and Compliance Department" .................................... 15
"Legg Mason Fund" and "Fund" ......................................... 16
"Lombard Odier" ...................................................... 16
"Portfolio Manager" .................................................. 16
"Preclearance Officer" ............................................... 16
"Securities Transaction" ............................................. 16
"Security" ........................................................... 16
"Western Asset" ...................................................... 16
"Western Asset Limited" .............................................. 16
VI. Appendices to the Code ............................................... 16
Appendix 1 - Contact Persons and List of Legg Mason Funds .......... i
Appendix 2 - Acknowledgement of Receipt of Code of Ethics
and Personal Holdings Report ........................ iii
Appendix 3 - Trade Authorization Request for Access Persons ........ v
Appendix 4 - Certification of Access Person's Designee ............. vi
Appendix 5 - Acknowledgement of Receipt of Code of Ethics
(Independent Fund Directors) ........................ vii
Appendix 6 - Form Letter to Broker, Dealer or Bank ................. viii
Appendix 7 - Certification of No Beneficial Interest ............... ix
<PAGE>
I. INTRODUCTION
A. INDIVIDUALS AND ENTITIES COVERED BY THE CODE. Unless the use of another
Code of Ethics has been approved in writing by the Legal and Compliance
Department, all Access Persons1 are subject to the provisions of this Code. (SEE
Section I.C. for information regarding the application of the Code to
Independent Fund Directors).
B. FIDUCIARY DUTY. The Code is based on the principle that Access Persons
owe a fiduciary duty to the Legg Mason Funds and must avoid activities,
interests and relationships that might interfere with making decisions in the
best interests of any of the Funds.
As fiduciaries, Access Persons must at all times comply with the following
principles:
1. THE FUNDS COME FIRST. Access Persons must scrupulously avoid
serving their personal interests ahead of the interests of the
Legg Mason Funds. An Access Person may not induce or cause a Fund
to take action, or not to take action, for the Access Person's
personal benefit, rather than for the benefit of the Fund. For
example, an Access Person would violate this Code by causing a
Fund to purchase a Security the Access Person owned for the
purpose of increasing the price of that Security.
2. AVOID TAKING ADVANTAGE. Access Persons may not use their
knowledge of open, executed, or pending portfolio transactions to
profit by the market effect of such transactions. Receipt of
investment opportunities, perquisites, or gifts from persons
seeking business with a Legg Mason Fund or a Fund Adviser could
call into question the exercise of an Access Person's independent
judgment.
3. COMPLY WITH THE CODE. Doubtful situations should be resolved in
favor of the Legg Mason Funds. Technical compliance with the
Code's procedures will not automatically insulate from scrutiny
any Securities Transactions that indicate an abuse of fiduciary
duties.
C. APPLICATION OF THE CODE TO INDEPENDENT FUND DIRECTORS. This Code applies
to Independent Fund Directors and requires Independent Fund Directors to report
certain Securities Transactions in which they have a Beneficial Interest to the
Legal and Compliance Department in accordance with Section II.E.4. However,
provisions of the Code requiring preclearance of trades (Section II.A.),
execution of personal trades through Legg Mason (Section II.B.), prohibited
transactions (Section II.C.), disclosure of personal holdings, transactions and
- ----------
(1) Capitalized words are defined in Section V (Definitions).
1
<PAGE>
accounts (Sections II.E.1, and 2), receipt of gifts (Section III.B.), and
restrictions on serving as a director of a publicly-traded company (Section
III.E.) do not apply to Independent Fund Directors.
II. PERSONAL SECURITIES TRANSACTIONS
A. Preclearance Requirements for Access Persons.
1. GENERAL REQUIREMENT. Except for the transactions specified in
Section II.D.1, any Securities Transaction in which an Access
Person has or acquires a Beneficial Interest must be precleared
with a Preclearance Officer.
2. TRADE AUTHORIZATION REQUEST FORMS. Prior to entering an order for
a Securities Transaction that requires preclearance, the Access
Person must complete a Trade Authorization Request form (Appendix
3) and submit the completed form to a Preclearance Officer. The
form requires Access Persons to provide certain information and
to make certain representations.
In the event an Access Person is unable to complete a Trade
Authorization Request form, the Access Person may designate
another individual to complete the form on his or her behalf. The
Access Person's designee should complete the Trade Authorization
Request form and the Certification of Access Person's Designee
(Appendix 4) and submit both forms to a Preclearance Officer.
Proposed Securities Transactions of a Preclearance Officer that
require preclearance must be submitted to another Preclearance
Officer.
3. REVIEW OF FORM. After receiving a completed Trade Authorization
Request form, a Preclearance Officer will (a) review the
information set forth in the form, (b) review information
regarding past, pending, and contemplated transactions by any
relevant Fund, as necessary, and (c) as soon as reasonably
practicable, determine whether to authorize the proposed
Securities Transaction. The granting of authorization, and the
date and time that authorization was granted, must be reflected
on the form. The Preclearance Officer should keep one copy of the
completed form for the Appropriate Compliance Department and
provide one copy to the Access Person seeking authorization.
NO ORDER FOR A SECURITIES TRANSACTION FOR WHICH PRECLEARANCE
AUTHORIZATION IS REQUIRED MAY BE PLACED PRIOR TO THE RECEIPT OF
WRITTEN AUTHORIZATION OF THE TRANSACTION BY A PRECLEARANCE
OFFICER. VERBAL APPROVALS ARE NOT PERMITTED.
2
<PAGE>
4. LENGTH OF TRADE AUTHORIZATION APPROVAL. The authorization
provided by a Preclearance Officer is effective until the earlier
of (1) its revocation, (2) the close of business on the trading
day after the authorization is granted (for example, if
authorization is provided on a Monday, it is effective until the
close of business on Tuesday), or (3) the moment the Access
Person learns that the information in the Trade Authorization
Request form is not accurate. If the order for the Securities
Transaction is not placed within that period, a new authorization
must be obtained before the Securities Transaction is placed. If
the Securities Transaction is placed but has not been executed
before the authorization expires (as, for example, in the case of
a limit order), no new authorization is necessary unless the
person placing the original order for the Securities Transaction
amends it in any way, or learns that the information in the Trade
Authorization Request form is not accurate.
5. NO EXPLANATION REQUIRED FOR REFUSALS. In some cases, a
Preclearance Officer may refuse to authorize a Securities
Transaction for a reason that is confidential. Preclearance
Officers are not required to give an explanation for refusing to
authorize any Securities Transaction.
B. EXECUTION OF PERSONAL SECURITIES TRANSACTIONS. Unless an exception is
provided in writing by the Legal and Compliance Department, all transactions in
Securities subject to the preclearance requirements shall be executed through
Legg Mason Wood Walker, Incorporated. Notwithstanding the foregoing,
transactions in Securities subject to the preclearance requirements effected by
employees of Batterymarch, Brandywine, Gray Seifert, Lombard Odier, Western
Asset, and Western Asset Limited may be executed through any broker, dealer,
bank, or mutual fund so long as the requirements of Section II.E.2. (Transaction
Reporting Requirements) are met.
C. PROHIBITED TRANSACTIONS.
1. ALWAYS PROHIBITED SECURITIES TRANSACTIONS. The following
Securities Transactions are prohibited and will not be authorized
under any circumstances:
a. INSIDE INFORMATION. Any transaction in a Security by an
individual who possesses material nonpublic information
regarding the Security or the issuer of the Security;
b. MARKET MANIPULATION. Transactions intended to raise, lower,
or maintain the price of any Security or to create a false
appearance of active trading;
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c. OTHERS. Any other transaction deemed by the Preclearance
Officer to involve a conflict of interest, possible
diversions of corporate opportunity, or an appearance of
impropriety.
2. GENERALLY PROHIBITED SECURITIES TRANSACTIONS. Unless exempted by
Section II.D, the following Securities Transactions are
prohibited and will not be authorized by a Preclearance Officer
absent exceptional circumstances. The prohibitions apply only to
the categories of Access Persons specified.
a. INITIAL PUBLIC OFFERINGS (INVESTMENT PERSONNEL ONLY). Any
purchase of a Security by Investment Personnel in an initial
public offering (other than a new offering of a registered
open-end investment company);
b. ONE DAY BLACKOUT (ALL ACCESS PERSONS). Any purchase or sale
of a Security by an Access Person on any day during which
any Fund has a pending buy or sell order, or has effected a
buy or sell transaction, in the same Security (or Equivalent
Security);
c. SEVEN-DAY BLACKOUT (PORTFOLIO MANAGERS ONLY). Any purchase
or sale of a Security by a Portfolio Manager within seven
calendar days of a purchase or sale of the same Security (or
Equivalent Security) by a Fund managed by that Portfolio
Manager. For example, if a Fund trades a Security on day
one, day eight is the first day the Portfolio Manager may
trade that Security for an account in which he or she has a
Beneficial Interest;
d. 60-DAY BLACKOUT (INVESTMENT PERSONNEL ONLY). (1) Purchase of
a Security in which an Investment Person thereby acquires a
Beneficial Interest within 60 days of a sale of the Security
(or an Equivalent Security) in which such Investment Person
had a Beneficial Interest, and (2) sale of a Security in
which an Investment Person has a Beneficial Interest within
60 days of a purchase of the Security (or an Equivalent
Security) in which such Investment Person had a Beneficial
Interest, if, in either case, a Fund held the same Security
at any time during the 60 days; unless the Investment Person
agrees to give up all profits on the transaction to a
charitable organization specified in accordance with Section
IV.B.I. Of course, Investment Personnel must place the
interests of the Funds first; they may not avoid or delay
purchasing or selling a security for a Fund in order to
profit personally; and
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e. PRIVATE PLACEMENTS (INVESTMENT PERSONNEL ONLY). Acquisition
of a Beneficial Interest in Securities in a private
placement by Investment Personnel is strongly discouraged. A
Preclearance Officer will give permission only after
considering, among other facts, whether the investment
opportunity should be reserved for a Fund and whether the
opportunity is being offered to the person by virtue of the
person's position as an Investment Person. Investment
Personnel who have acquired a Beneficial Interest in
Securities in a private placement are required to disclose
their Beneficial Interest to the Appropriate Compliance
Department. If the Investment Person is subsequently
involved in a decision to buy or sell a Security (or an
Equivalent Security) from the same issuer for a Fund, then
the decision to purchase or sell the Security (or an
Equivalent Security) must be independently authorized by a
Portfolio Manager with no personal interest in the issuer.
D. EXEMPTIONS.
1. EXEMPTIONS FROM PRECLEARANCE AND TREATMENT AS A PROHIBITED
TRANSACTION. The following Securities Transactions are exempt
from the preclearance requirements set forth in Section II.A. and
the prohibited transaction restrictions set forth in Section
II.C.:
a. MUTUAL FUNDS. Any purchase or sale of a Security issued by
any registered open-end investment companies (including but
not limited to the Legg Mason Funds);
b. NO KNOWLEDGE. Securities Transactions where the Access
Person has no knowledge of the transaction before it is
completed (for example, Securities Transactions effected for
an Access Person by a trustee of a blind trust, or
discretionary trades involving an investment partnership or
investment club, in connection with which the Access Person
is neither consulted nor advised of the trade before it is
executed);
c. LEGG MASON, INC. STOCK. Any purchase or sale of Legg Mason,
Inc. stock.
d. CERTAIN CORPORATE ACTIONS. Any acquisition of Securities
through stock dividends, dividend reinvestments, stock
splits, reverse stock splits, mergers, consolidations,
spin-offs, or other similar corporate reorganizations or
distributions generally applicable to all holders of the
same class of Securities;
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e. SYSTEMATIC INVESTMENT PLANS. Any acquisition of a security
pursuant to a systematic investment plan that has previously
been approved pursuant to the Code. A systematic investment
plan is one pursuant to which a prescribed investment will
be made automatically on a regular, predetermined basis
without affirmative action by the Access Person.
f. OPTIONS-RELATED ACTIVITY. Any acquisition or disposition of
a security in connection with an option-related Securities
Transaction that has been previously approved pursuant to
the Code. For example, if an Access Person receives approval
to write a covered call, and the call is later exercised,
the provisions of Sections II.A. and II.C. are not
applicable to the sale of the underlying security.
g. COMMODITIES, FUTURES, AND OPTIONS ON FUTURES. Any Securities
Transaction involving commodities, futures (including
currency futures and futures on securities comprising part
of a broad-based, publicly traded market based index of
stocks) and options on futures.
h. RIGHTS. Any acquisition of Securities through the exercise
of rights issued by an issuer PRO RATA to all holders of a
class of its Securities, to the extent the rights were
acquired in the issue; and
i. MISCELLANEOUS. Any transaction in the following: (1) bankers
acceptances, (2) bank certificates of deposit, (3)
commercial paper, (4) repurchase agreements, (5) Securities
that are direct obligations of the U.S. Government, and (6)
other Securities as may from time to time be designated in
writing by the Code of Ethics Review Committee on the ground
that the risk of abuse is minimal or non-existent.
2. EXEMPTION FROM TREATMENT AS A PROHIBITED TRANSACTION. The
following Securities Transactions are exempt from the prohibited
transaction restrictions that are set forth in Section II.C. THEY
ARE NOT EXEMPT FROM THE PRECLEARANCE REQUIREMENTS SET FORTH IN
SECTION II.A:
a. EMPLOYER OF ACCESS PERSON DOES NOT MAKE INVESTMENT DECISIONS
FOR THE RELEVANT FUND. The prohibitions in Sections
II.C.2.b, c, and d are not applicable to any Securities
Transaction effected by an Access Person if the employer of
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the Access Person is not the Fund Adviser that makes
investment decisions for the relevant Fund. For example, an
employee of Western Asset may effect a Securities
Transaction without regard to transactions that are open,
executed, or pending for a Fund managed by Batterymarch so
long as the Western Asset employee does not have actual
knowledge of any open, executed, or pending transactions for
the Fund managed by Batterymarch. A Security Transaction
effected by an Access Person who has actual knowledge of an
open, executed, or pending portfolio transaction by any Fund
is not exempt from the prohibitions of Sections II.C.2.b, c,
and d. Employees of more than one Fund Adviser must take
into account the transactions of Funds managed by each of
their employers.
b. DE MINIMIS TRANSACTIONS. The prohibitions in Section
II.C.2.b and c are not applicable to the following
transactions:
i. EQUITY SECURITIES. Any equity Security Transaction, or
series of related transactions, effected over a thirty
(30) calendar day period, involving 1000 shares or less
in the aggregate if the issuer of the Security is
listed on the New York Stock Exchange or has a market
capitalization in excess of $1 billion.
ii. FIXED-INCOME SECURITIES. Any fixed income Security
Transaction, or series of related transactions,
effected over a thirty (30) calendar day period,
involving $100,000 principal amount or less in the
aggregate.
c. OPTIONS ON BROAD-BASED INDICES. The prohibitions in Section
II.C.2. b, c, and d are not applicable to any Securities
Transaction involving options on certain broad-based indices
designated by the Legal and Compliance Department. The
broad-based indices designated by the Legal and Compliance
Department may be changed from time to time and presently
consist of the S&P 500, the S&P 100, NASDAQ 100, Nikkei 300,
NYSE Composite, and Wilshire Small Cap indices.
E. REPORTING REQUIREMENTS
1. INITIAL AND PERIODIC DISCLOSURE OF PERSONAL HOLDINGS BY ACCESS
PERSONS. Within ten (10) days of being designated as an Access
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Person and thereafter on an annual basis (during the month of
April), an Access Person (except an Independent Fund Director)
must acknowledge receipt and review of the Code and disclose all
Securities in which such Access Person has a Beneficial Interest
on the Acknowledgement of Receipt of Code of Ethics and Personal
Holdings Report (Appendix 2).
2. TRANSACTION AND PERIODIC STATEMENT REPORTING REQUIREMENTS. An
Access Person (except an Independent Fund Director) must arrange
for the Appropriate Compliance Department to receive directly
from any broker, dealer, or bank that effects any Securities
Transaction in which the Access Person has or acquires a
Beneficial Interest, duplicate copies of each confirmation for
each such transaction and periodic statements for each account in
which such Access Person has a Beneficial Interest. Unless a
written exception is granted by a Preclearance Officer, an Access
Person must also arrange for the Appropriate Compliance
Department to receive directly from any mutual fund that effects
any Securities Transaction in which the Access Person has or
acquires a Beneficial Interest duplicate copies of periodic
statements for each account in which such Access Person has a
Beneficial Interest. Attached as Appendix 6 is a form of letter
that may be used to request such documents from such entities.
IF AN ACCESS PERSON OPENS AN ACCOUNT AT A BROKER, DEALER, BANK,
OR MUTUAL FUND THAT HAS NOT PREVIOUSLY BEEN DISCLOSED, THE ACCESS
PERSON MUST IMMEDIATELY NOTIFY THE APPROPRIATE COMPLIANCE
DEPARTMENT IN WRITING OF THE EXISTENCE OF THE ACCOUNT AND MAKE
ARRANGEMENTS TO COMPLY WITH THE REQUIREMENTS SET FORTH HEREIN.
If an Access Person is not able to arrange for duplicate
confirmations and periodic statements to be sent, the Access
Person must immediately notify the Appropriate Compliance
Department.
3. INDEPENDENT FUND DIRECTORS. Within ten (10) days of being
designated an Independent Fund Director and thereafter on an
annual basis, an Independent Fund Director must acknowledge
receipt and review of the Code of Ethics on the Acknowledgement
of Receipt of Code of Ethics (Appendix 5). Each Independent Fund
Director must also report to the Appropriate Compliance
Department any Securities Transaction in which the Independent
Fund Director has or acquires a Beneficial Interest if the
Independent Fund Director knew, or in the ordinary course of
fulfilling his or her duty as a director of a Fund should have
known, that during the 15-day period immediately preceding or
after the date of the transaction such Security (or an Equivalent
Security) was or would be purchased or sold by the Fund, or such
purchase or sale was or would be considered by the Fund.
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4. DISCLAIMERS. Any report of a Securities Transaction for the
benefit of a person other than the individual in whose account
the transaction is placed may contain a statement that the report
should not be construed as an admission by the person making the
report that he or she has any direct or indirect beneficial
ownership in the Security to which the report relates.
5. AVAILABILITY OF REPORTS. All information supplied pursuant to
this Code may be made available for inspection to the Board of
Directors of each Fund Adviser employing the Access Person, the
Board of Directors of each Legg Mason Fund, the Chairman of the
Board and the Vice Chairman of Legg Mason, Inc., the Code of
Ethics Review Committee, the Legal and Compliance Department,
Preclearance Officers, the Access Person's department manager (or
designee), any party to which any investigation is referred by
any of the foregoing, the Securities Exchange Commission, any
self-regulatory organization of which Legg Mason Wood Walker,
Incorporated is a member, any state securities commission, and
any attorney or agent of the foregoing or of the Legg Mason
Funds.
III. FIDUCIARY DUTIES
A. CONFIDENTIALITY. Access Persons are prohibited from revealing
information relating to the investment intentions, activities or portfolios of
the Funds, except to persons whose responsibilities require knowledge of the
information.
B. GIFTS. The following provisions on gifts apply to all Investment
Personnel.
1. ACCEPTING GIFTS. On occasion, because of their position with the Legg
Mason Funds, Investment Personnel may be offered, or may receive
without notice, gifts from clients, brokers, vendors, or other persons
not affiliated with such entities. Acceptance of extraordinary or
extravagant gifts is not permissible. Any such gifts must be declined
or returned in order to protect the reputation and integrity of the
Legg Mason Funds and the Fund Advisers. Gifts of a nominal value
(i.e., gifts whose reasonable value is no more than $100 a year), and
customary business meals, entertainment (e.g., sporting events), and
promotional items (e.g., pens, mugs, T-shirts) may be accepted.
If an Investment Person receives any gift that might be prohibited
under this Code, the Investment Person must immediately inform the
Appropriate Compliance Department.
2. SOLICITATION OF GIFTS. Investment Personnel may not solicit gifts or
gratuities.
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3. GIVING GIFTS. Investment Personnel may not personally give gifts with
an aggregate value in excess of $100 per year to persons associated
with securities or financial organizations, including exchanges, other
member organizations, commodity firms, news media, or clients of the
firm.
C. CORPORATE OPPORTUNITIES. Access Persons may not take personal advantage
of any opportunity properly belonging to any Fund or Fund Adviser. For example,
an Investment Person should not acquire a Beneficial Interest in a Security of
limited availability without first offering the opportunity to purchase such
Security to the Fund Adviser for the relevant Fund.
D. UNDUE INFLUENCE. Access Persons may not cause or attempt to cause any
Fund to purchase, sell or hold any Security in a manner calculated to create any
personal benefit to the Access Person. If an Access Person stands to benefit
materially from an investment decision for a Fund, and the Access Person is
making or participating in the investment decision, then the Access Person must
disclose the potential benefit to those persons with authority to make
investment decisions for the Fund (or, if the Access Person in question is a
person with authority to make investment decisions for the Fund, to the
Appropriate Compliance Department). The person to whom the Access Person reports
the interest, in consultation with the Appropriate Compliance Department, must
determine whether or not the Access Person will be restricted in making or
participating in the investment decision.
E. SERVICE AS A DIRECTOR. No Investment Person may serve on the board of
directors of a publicly-held company (other than the Fund Advisers, their
affiliates, and the Funds) absent prior written authorization by the Code of
Ethics Review Committee. This authorization will rarely, if ever, be granted
and, if granted, will normally require that the affected Investment Person be
isolated, through a Chinese Wall or other procedures, from those making
investment decisions related to the issuer on whose board the Investment Person
sits.
IV. COMPLIANCE WITH THE CODE OF ETHICS
A. CODE OF ETHICS REVIEW COMMITTEE
1. MEMBERSHIP, VOTING AND QUORUM. The Code of Ethics Review
Committee is comprised of the individuals identified in Appendix
1. The Committee shall vote by majority vote with two members
serving as a quorum. Vacancies may be filled and, in the case of
extended absences or periods of unavailability, alternates may be
selected, by a majority vote of the remaining members of the
Committee; provided, however, that at least one member of the
Committee shall also be a member of the Legal and Compliance
Department.
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2. INVESTIGATING VIOLATIONS OF THE CODE. The Appropriate Compliance
Department is responsible for investigating any suspected
violation of the Code and shall report the results of each
investigation to the Code of Ethics Review Committee. The Code of
Ethics Review Committee is responsible for reviewing the results
of any investigation of any reported or suspected violation of
the Code. Any violation of the Code by an Access Person will be
reported to the Boards of Directors of the relevant Legg Mason
Funds no less frequently than each quarterly meeting.
3. ANNUAL REPORTS. The Code of Ethics Review Committee will review
the Code at least once a year, in light of legal and business
developments and experience in implementing the Code, and will
report to the Board of Directors of each Legg Mason Fund:
a. Summarizing existing procedures concerning personal
investing and any changes in the procedures made during the
past year;
b. Identifying any violation requiring significant remedial
action during the past year; and
c. Identifying any recommended changes in existing restrictions
or procedures based on its experience under the Code,
evolving industry practices, or developments in applicable
laws or regulations.
B. REMEDIES
1. SANCTIONS. If the Code of Ethics Review Committee determines that
an Access Person has committed a violation of the Code, the
Committee may impose sanctions and take other actions as it deems
appropriate, including a letter of caution or warning, suspension
of personal trading rights, suspension of employment (with or
without compensation), fine, civil referral to the Securities and
Exchange Commission, criminal referral, and termination of the
employment of the violator for cause. The Code of Ethics Review
Committee may also require the Access Person to reverse the
transaction in question and forfeit any profit or absorb any loss
associated or derived as a result. The amount of profit shall be
calculated by the Code of Ethics Review Committee and shall be
forwarded to a charitable organization selected by the Code of
Ethics Review Committee. No member of the Code of Ethics Review
Committee may review his or her own transaction.
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2. SOLE AUTHORITY. The Code of Ethics Review Committee has sole
authority, subject to the review set forth in Section IV.B.3
below, to determine the remedy for any violation of the Code,
including appropriate disposition of any monies forfeited
pursuant to this provision. Failure to promptly abide by a
directive to reverse a trade or forfeit profits may result in the
imposition of additional sanctions.
3. REVIEW. Whenever the Code of Ethics Review Committee determines
that an Access Person has committed a violation of this Code that
merits remedial action, it will report no less frequently than
quarterly to the Boards of Directors of the applicable Legg Mason
Funds, information relating to the investigation of the
violation, including any sanctions imposed. The Boards of
Directors of the relevant Legg Mason Funds may modify such
sanctions as they deem appropriate. Such Boards shall have access
to all information considered by the Code of Ethics Review
Committee in relation to the case. The Code of Ethics Review
Committee may determine whether or not to delay the imposition of
any sanctions pending review by the applicable Board of
Directors.
C. EXCEPTIONS TO THE CODE. Although exceptions to the Code will rarely, if
ever, be granted, the Appropriate Compliance Department may grant exceptions to
the requirements of the Code on a case by case basis if the Appropriate
Compliance Department finds that the proposed conduct involves negligible
opportunity for abuse. All such exceptions must be in writing and must be
reported as soon as practicable to the Code of Ethics Review Committee and to
any relevant Funds' Board of Directors at their next regularly scheduled meeting
after the exception is granted.
D. INQUIRIES REGARDING THE CODE. The Appropriate Compliance Department will
answer any questions about this Code or any other compliance-related matters.
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V. DEFINITIONS
When used in the Code, the following terms have the meanings set forth
below:
"ACCESS PERSON" means:
(1) every director or officer of a Legg Mason Fund or a Fund Adviser;
(2) every employee of a Fund Adviser (or employee of a company in a
control relationship with any of the foregoing), who in connection
with his or her regular functions, makes, participates in, or obtains
information regarding the purchase or sale of a Security by a Fund;
(3) every natural person in a control relationship with a Legg Mason Fund
or a Fund Adviser who obtains information concerning recommendations
made to a Fund with regard to the purchase or sale of a Security,
prior to its dissemination or prior to the execution of all resulting
trades;
(4) any director, officer or employee of Legg Mason Wood Walker,
Incorporated who in the ordinary course of his or her business makes,
participates in or obtains information regarding the purchase or sale
of Securities for any of the Legg Mason Funds, or whose functions or
duties as a part of the ordinary course of his or her business relate
to the making of any recommendation to such investment company
concerning the purchase or sale of Securities; and
(5) such other persons as the Legal and Compliance Department shall
designate.
Any uncertainty as to whether an individual is an Access Person should be
brought to the attention of the Legal and Compliance Department. Such questions
will be resolved in accordance with, and this definition shall be subject to,
the definition of "Access Person" found in Rule 17j-1(e) (1) promulgated under
the Investment Company Act of 1940, as amended.
"APPROPRIATE COMPLIANCE DEPARTMENT" for an employee means the compliance
department of that employee's immediate employer. For dual employees, the
compliance department of one employer will be designated as the Appropriate
Compliance Department.
"BATTERYMARCH" means Batterymarch Financial Management, Inc.
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"BENEFICIAL INTEREST" means the opportunity, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, to
profit, or share in any profit derived from, a transaction in the subject
Securities.
An Access Person is deemed to have a Beneficial Interest in the following:
(1) any Security owned individually by the Access Person;
(2) any Security owned jointly by the Access Person with others (for
example, joint accounts, spousal accounts, UTMA accounts,
partnerships, trusts and controlling interests in corporations);
and
(3) any Security in which a member of the Access Person's Immediate
Family has a Beneficial Interest if:
a. the Security is held in an account over which the Access
Person has decision making authority (for example, the
Access Person acts as trustee, executor, or guardian); or
b. the Security is held in an account for which the Access
Person acts as a broker or investment adviser
representative.
In addition, an Access Person is presumed to have a Beneficial Interest in
any Security in which a member of the Access Person's Immediate Family has a
Beneficial Interest if the Immediate Family member resides in the same household
as the Access Person. This presumption may be rebutted if the Access Person is
able to provide the Legal and Compliance Department with satisfactory assurances
that the Access Person has no material Beneficial Interest in the Security and
exercises no control over investment decisions made regarding the Security.
Access Persons may use the form attached as Appendix 7 (Certification of No
Beneficial Interest) in connection with such requests.
Any uncertainty as to whether an Access Person has a Beneficial Interest in
a Security should be brought to the attention of the Legal and Compliance
Department. Such questions will be resolved in accordance with, and this
definition shall be subject to, the definition of "beneficial owner" found in
Rules 16a-1(a) (2) and (5) promulgated under the Securities Exchange Act of
1934, as amended.
"BRANDYWINE" means Brandywine Asset Management, Inc.
"CODE" means this Code of Ethics, as amended.
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"EQUIVALENT SECURITY" means any Security issued by the same entity as the
issuer of a subject Security, including options, rights, stock appreciation
rights, warrants, preferred stock, restricted stock, phantom stock, bonds, and
other obligations of that company or security otherwise convertible into that
security. Options on securities are included even if, technically, they are
issued by the Options Clearing Corporation or a similar entity.
"FUND ADVISER" means any entity that acts as a manager, adviser or
sub-adviser to a Legg Mason Fund, including, but not limited to, Bartlett & Co.,
Batterymarch Financial Management, Inc., Brandywine Asset Management, Inc.,
Gray, Seifert & Co., Inc., Legg Mason Capital Management, Inc., Legg Mason Fund
Adviser, Inc., LM Institutional Advisors, Inc., LMM LLC, Lombard Odier
International Portfolio Management Limited, Western Asset Management Company,
and Western Asset Management Company Limited.
"GRAY SEIFERT" means Gray, Seifert & Co., Inc.
"IMMEDIATE FAMILY" of an Access Person means any of the following persons:
child grandparent son-in-law
stepchild spouse daughter-in-law
grandchild sibling brother-in-law
parent mother-in-law sister-in-law
stepparent father-in-law
Immediate Family includes adoptive relationships and other relationships
(whether or not recognized by law) that the Legal and Compliance Department
determines could lead to the possible conflicts of interest, diversions of
corporate opportunity, or appearances of impropriety which this Code is intended
to prevent.
"INDEPENDENT FUND DIRECTOR" means an independent director of a Legg Mason
Fund.
"INVESTMENT PERSONNEL" and "INVESTMENT PERSON" mean each Portfolio Manager
and any Access Person who, in connection with his or her regular functions or
duties, provides information and advice to a Portfolio Manager or who helps
execute a Portfolio Manager's decisions.
"LEGAL AND COMPLIANCE DEPARTMENT" means the Legal and Compliance Department
of Legg Mason Wood Walker, Incorporated and the persons designated in Appendix
1, as such Appendix shall be amended from time to time. See also "Appropriate
Compliance Department."
"LEGG MASON FUND" and "FUND" mean an investment company registered under
the Investment Company Act of 1940 (or a portfolio or series thereof, as the
case may be) that is sponsored by Legg Mason, including, but not limited to, the
funds listed in Appendix 1.
"LOMBARD ODIER" means Lombard Odier International Portfolio Management
Limited.
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"PORTFOLIO MANAGER" means a person who has or shares principal day-to-day
responsibility for managing the portfolio of a Fund.
"PRECLEARANCE OFFICER" means the person designated as a Preclearance
Officer in Appendix 1 hereof or such person's designee.
"SECURITIES TRANSACTION" means a purchase or sale of Securities in which an
Access Person has or acquires a Beneficial Interest.
"SECURITY" includes stock, notes, bonds, debentures, and other evidences of
indebtedness (including loan participations and assignments), limited
partnership interests, investment contracts, and all derivative instruments of
the foregoing, such as options and warrants. "Security" does not include futures
or options on futures, but the purchase and sale of such instruments are
nevertheless subject to the reporting requirements of the Code.
"WESTERN ASSET" means Western Asset Management Company.
"WESTERN ASSET LIMITED" means Western Asset Management Company Limited.
VI. APPENDICES TO THE CODE
The following appendices are attached to and are a part of the Code:
Appendix 1. CONTACT PERSONS AND LIST OF LEGG MASON FUNDS;
Appendix 2. ACKNOWLEDGEMENT OF RECEIPT OF CODE OF ETHICS AND PERSONAL
HOLDINGS REPORT;
Appendix 3. TRADE AUTHORIZATION REQUEST FOR ACCESS PERSONS;
Appendix 4. CERTIFICATION OF ACCESS PERSON'S DESIGNEE;
Appendix 5. ACKNOWLEDGEMENT OF RECEIPT OF CODE OF ETHICS (INDEPENDENT FUND
DIRECTORS);
Appendix 6. FORM LETTER TO BROKER, DEALER, BANK, OR MUTUAL FUND.
Appendix 7. CERTIFICATION OF NO BENEFICIAL INTEREST.
16
JENNISON ASSOCIATES LLC
CODE OF ETHICS,
POLICY ON INSIDER TRADING
AND
PERSONAL TRADING POLICY
AS AMENDED DECEMBER 6, 1999
<PAGE>
SECTION I
CODE OF ETHICS
FOR
JENNISON ASSOCIATES LLC
This Code sets forth rules, regulations and standards of conduct for the
employees of Jennison Associates LLC. It bears the approval of the Corporation's
Board of Directors and applies to Jennison Associates and all subsidiaries.
The Code incorporates The Prudential Insurance Company of America's ethics
policies as well as additional policies specific to Jennison Associates LLC.
Prudential's Code of Ethics, "Making the Right Choices", may be found as Exhibit
Q in Jennison Associates' Compliance Manual.
The prescribed guidelines assure that the high ethical standards long
maintained by Jennison continue to be applied. The purpose of the Code is to
preclude circumstances which may lead to or give the appearance of conflicts of
interest, insider trading, or unethical business conduct. The rules prohibit
certain activities and personal financial interests as well as require
disclosure of personal investments and related business activities of all
directors, officers and employees.
ERISA and the federal securities laws define an investment advisor as a
fiduciary who owes his clients a duty of undivided loyalty, who shall not engage
in any activity in conflict with the interests of the client. As a fiduciary,
our personal and corporate ethics must be above reproach. Actions which expose
any of us or the organization to even the appearance of impropriety must not
occur.
The excellent name of our firm continues to be a direct reflection of the
conduct of each of us in everything we do.
Being fully aware of and strictly adhering to the Code of Ethics is the
responsibility of each Jennison Associates employee.
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CONFIDENTIAL INFORMATION
Employees may become privy to confidential information (information not
generally available to the public) concerning the affairs and business
transactions of Jennison, companies researched by us for investment, our present
and prospective clients, suppliers, officers and other staff members.
Confidential information also includes trade secrets and other proprietary
information of the Corporation such as business or product plans, systems,
methods, software, manuals and client lists. Safeguarding confidential
information is essential to the conduct of our business. Caution and discretion
are required in the use of such information and in sharing it only with those
who have a legitimate need to know.
A) PERSONAL USE: Confidential information obtained or developed as a result
of employment with the Corporation is not to be used or disclosed for the
purpose of furthering any private interest or as a means of making any personal
gain. Use or disclosure of such information could result in civil or criminal
penalties against the Corporation or the individual responsible for disclosing
such information.
Further guidelines pertaining to confidential information are contained in
the "Policy Statement on Insider Trading." (Set forth on page 8 in the section
dedicated specifically to Insider Trading.)
B) RELEASE OF CLIENT INFORMATION: Information concerning a client which has
been requested by third persons, organizations or governmental bodies may only
be released with the consent of the client involved. All requests for
information concerning a client (other than routine credit inquiries), including
requests pursuant to the legal process (such as subpoenas or court orders) must
be promptly referred to Karen E. Kohler. No information may be released, nor
should the client involved be contacted, until so directed by Karen E. Kohler.
In order to preserve the rights of our clients and to limit the firm's
liability concerning the release of client proprietary information, care must be
taken to:
* Limit use and discussion of information obtained on the job to normal
business activities.
* Request and use only information which is related to our business needs.
* Restrict access to records to those with proper authorization and
legitimate business needs.
* Include only pertinent and accurate data in files which are used as a
basis for taking action or making decisions.
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CONFLICTS OF INTEREST
You should avoid actual or apparent conflicts of interest - that is, any
personal interest outside the Company which could be placed ahead of your
obligations to our clients, Jennison Associates or The Prudential Insurance
Company of America. Conflicts may exist even when no wrong is done. The
opportunity to act improperly may be enough to create the appearance of a
conflict.
We recognize and respect an employee's right of privacy concerning personal
affairs, but we must require a full and timely disclosure of any situation which
could result in a conflict of interest or even the appearance of a conflict.
Whether or not a conflict exists will be determined by the Company, not by the
employee involved.
To reinforce our commitment to the avoidance of potential conflicts of
interest, the following rules have been adopted:
1) YOU MAY NOT, without first having secured prior approval from the Board
of Directors, serve as a director, officer, employee, partner or trustee - nor
hold any other position of substantial interest - in any outside business
enterprise. You do not need prior approval, however, if the following three
conditions are met: one, the enterprise is a family firm owned principally by
other members of your family; two, the family business is not doing business
with Jennison or The Prudential; and three, the services required will not
interfere with your duties or your independence of judgment. Significant
involvement by employees in outside business activity is generally unacceptable.
In addition to securing prior approval for outside business activities, you will
be required to disclose all relationships with outside enterprises annually.
* Note - The above deals only with positions in business enterprises. It
does not effect Jennison's practice of permitting employees to be associated
with governmental, educational, charitable, religious or other civic
organizations. These activities may be entered into without prior consent, but
must still be disclosed on an annual basis.
2) YOU MAY NOT act on behalf of Jennison in connection with any transaction
in which you have a personal interest. This rule does not apply to any personal
interest resulting from your participation in any Jennison or Prudential plan in
the nature of incentive compensation, or in the case of a plan which provides
for direct participation in specific transactions by Jennison's Board of
Directors.
3) YOU MAY NOT, without prior approval from the Board of Directors, have a
substantial interest in any outside business which, to your knowledge, is
involved currently in a business transaction with Jennison or The Prudential, or
is engaged in businesses similar to any business engaged in by Jennison. A
substantial interest includes any investment in the outside business involving
an amount greater than 10 percent of your gross assets, or $10,000 if that
amount is larger, or involving an ownership interest greater than 2 percent of
the outstanding equity interests. You do not need approval to invest in
open-ended registered investment companies such as investments in mutual funds
and similar enterprises which are publicly owned.
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4) YOU MAY NOT, without prior approval of the Board of Directors, engage in
any transaction involving the purchase of products and/or services from
Jennison, except on the same terms and conditions as they are offered to the
public. Plans offering services to employees approved by the Board of Directors
are exempt from this rule.
5.) YOU MAY NOT purchase an equity interest in any competitor. Employees
and their immediate families are also prohibited from investing in securities of
a client or supplier with whom the staff member regularly deals even if the
securities are widely traded.
OTHER BUSINESS ACTIVITIES
ISSUES REGARDING THE RETENTION OF SUPPLIERS: The choice of our suppliers
must be based on quality, reliability, price, service, and technical advantages.
GIFTS: Jennison employees and their immediate families should not solicit,
accept, retain or provide any gifts or favors which might influence decisions
you or the recipient must make in business transactions involving Jennison or
which others might reasonably believe could influence those decisions. Even a
nominal gift should not be accepted if, to a reasonable observer, it might
appear that the gift would influence your business decisions.
Modest gifts and favors, which would not be regarded by others as improper,
may be accepted or given on an occasional basis. Examples of such gifts are
those received as normal business courtesies (i.e. meals or golf games);
non-cash gifts of nominal value (such as received at Holiday time); gifts
received because of kinship, marriage or social relationships entirely beyond
and apart from an organization in which membership or an official position is
held as approved by the Corporation. Entertainment which satisfies these
requirements and conforms to generally accepted business practices also is
permissible. Please reference the Gifts and Entertainment section of Jennison
Associates' Compliance Manual for a more detailed explanation of Jennison's
policy towards gifts and entertainment.
IMPROPER PAYMENTS - KICKBACKS: In the conduct of the Corporation's
business, no bribes, kickbacks, or similar remuneration or consideration of any
kind are to be given or offered to any individual or organization or to any
intermediaries such as agents, attorneys or other consultants, for the purpose
of influencing such individual or organization in obtaining or retaining
business for, or directing business to, the Corporation.
BOOKS, RECORDS AND ACCOUNTS: The integrity of the accounting records of the
Corporation is essential. All receipts and expenditures, including personal
expense statements must be supported by documents that accurately and properly
describe such expenses. Staff members responsible for approving expenditures or
for keeping books, records and accounts for the Corporation are required to
approve and record all expenditures and other entries based upon proper
supporting documents so that the accounting records of the Corporation are
maintained in reasonable detail, reflecting accurately and fairly all
transactions of the Corporation including the disposition of its assets and
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liabilities. The falsification of any book, record or account of the
Corporation, the submission of any false personal expense statement, claim for
reimbursement of a non-business personal expense, or false claim for an employee
benefit plan payment are prohibited. Disciplinary action will be taken against
employees who violate these rules, which may result in dismissal.
LAWS AND REGULATIONS: The activities of the Corporation must always be in
full compliance with applicable laws and regulations. It is the Company's policy
to be in strict compliance with all laws and regulations applied to our
business. We recognize, however, that some laws and regulations may be ambiguous
and difficult to interpret. Good faith efforts to follow the spirit and intent
of all laws is expected. To ensure compliance, the Corporation intends to
educate its employees on laws related to Jennison's activities which may include
periodically issuing bulletins, manuals and memoranda. Staff members are
expected to read all such materials and be familiar with their content.
OUTSIDE ACTIVITIES & POLITICAL AFFILIATIONS: Jennison Associates does not
contribute financial or other support to political parties or candidates for
public office except where lawfully permitted and approved in advance in
accordance with procedures adopted by Jennison's Board of Directors. Employees
may, of course, make political contributions, but only on their own behalf; they
will not be reimbursed by the Company for such contributions.
Legislation generally prohibits the Corporation or anyone acting on its
behalf from making an expenditure or contribution of cash or anything else of
monetary value which directly or indirectly is in connection with an election to
political office; as, for example granting loans at preferential rates or
providing non-financial support to a political candidate or party by donating
office facilities. Otherwise, individual participation in political and civic
activities conducted outside of normal business hours is encouraged, including
the making of personal contributions to political candidates or activities.
Employees are free to seek and hold an elective or appointive public
office, provided you do not do so as a representative of the Company. However,
you must conduct campaign activities and perform the duties of the office in a
manner that does not interfere with your responsibilities to the firm.
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COMPLIANCE WITH THE CODE & CONSEQUENCES IF VIOLATION
OF THE CODE OCCURS:
Each year all employees will be required to complete a form certifying that
they have read this booklet, understand their responsibilities, and are in
compliance with the requirements set forth in this statement.
This process should remind us of the Company's concern with ethical issues
and its desire to avoid conflicts of interest or their appearance. It should
also prompt us to examine our personal circumstances in light of the Company's
philosophy and policies regarding ethics.
Certain key employees will be required to complete a form verifying that
they have complied with all company procedures and filed disclosures of
significant personal holdings and corporate affiliations.
If any staff member has reason to believe that any situation may have
resulted in a violation of any provision of the Code of Ethics, whether by that
staff member or by another, the matter must be reported promptly to Karen E.
Kohler.
Violation of any provision of the Code of Ethics by any staff member may
constitute grounds for disciplinary action, including dismissal.
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SECTION II
INSIDER TRADING
As a result of recent legislative events, particularly the enactment of the
Insider Trading and Securities Fraud Enforcement Act of 1988, the Securities
Exchange Acts and the Investment Advisors Act of 1940 require that all
investment advisors establish, maintain and enforce policies and supervisory
procedures designed to prevent the misuse of material, non-public information by
such investment advisor, and any associated person.
This section of the Code sets forth Jennison Associates' policy statement
on insider trading. It explains some of the terms and concepts associated with
insider trading, as well as the civil and criminal penalties for insider trading
violations. In addition, it sets forth the necessary procedures required to
implement Jennison Associates' Insider Trading Policy Statement.
This policy applies to all Jennison Associates' employees, as well as the
employees of all affiliated companies.
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JENNISON ASSOCIATES' POLICY STATEMENT
AGAINST INSIDER TRADING
When contemplating a transaction for your personal account, or an account
in which you may have a direct or indirect personal or family interest, we must
be certain that such transaction is not in conflict with the interests of our
clients. Specific rules in this area are difficult, and in the final analysis,
each of us must make our own determination as to whether a transaction is in
conflict with client interests. Although it is not possible to anticipate all
potential conflicts of interest, we have tried to set a standard that protects
the firm's clients, yet is also practical for our employees. The Company
recognizes the desirability of giving its corporate personnel reasonable freedom
with respect to their investment activities, on behalf of themselves, their
families, and in some cases non-client accounts (i.e. charitable or educational
organizations on whose boards of directors corporate personnel serve). However,
personal investment activity may conflict with the interests of the Company's
clients. In order to avoid such conflicts -- or even the appearance of conflicts
- -- the Company has adopted the following policy:
Jennison Associates LLC forbids any director, officer or employee from
trading, either personally or on behalf of clients or others, on material,
non-public information or communicating material, non-public information to
others in violation of the law. Said conduct is deemed to be "insider trading."
Such policy applies to every director, officer and employee and extends to
activities within and outside their duties at Jennison Associates.
Every director, officer, and employee is required to read and retain this
policy statement. Questions regarding Jennison Associates' Insider Trading
policy and procedures should be referred to Karen E. Kohler or John H. Hobbs.
EXPLANATION OF RELEVANT TERMS AND CONCEPTS
Although insider trading is illegal, Congress has not defined "insider",
"material" or "non-public information". Instead the courts have developed
definitions of these terms. Set forth below are very general descriptions of
these terms. However, it is usually not easily determined whether information is
"material" or "non-public" and, therefore, whenever you have any questions as to
whether information is material or non-public, consult with Karen E. Kohler. Do
not make this decision yourself.
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1) WHO IS AN INSIDER?
The concept of an "insider" is broad. It includes officers, directors and
employees of a company. A person may be a "temporary insider" if he or she
enters into a special confidential relationship in the conduct of a company's
affairs and as a result is given access to information solely for the company's
purposes. Examples of temporary insiders are the company's attorneys,
accountants, consultants and bank lending officers, as well as the employees of
such organizations. Jennison Associates and its employees may become "temporary
insiders" of a company in which we invest, in which we advise, or for which we
perform any other service. An outside individual may be considered an insider,
according to the Supreme Court, if the company expects the outsider to keep the
disclosed non-public information confidential or if the relationship suggests
such a duty of confidentiality.
2) WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the
information is material. Material Information is defined, as:
* Information, for which there is a substantial likelihood, that a
reasonable investor would consider important in making his or her investment
decisions, or
* Information that is reasonably certain to have a substantial effect on
the price of a company's securities.
Information that directors, officers and employees should consider material
includes, but is not limited to: dividend changes, earnings estimates, changes
in previously released earnings estimates, a significant increase or decline in
orders, significant new products or discoveries, significant merger or
acquisition proposals or agreements, major litigation, liquidation problems, and
extraordinary management developments.
In addition, knowledge about Jennison Associates' trading information and
patterns may be deemed material.
3) WHAT IS NON-PUBLIC INFORMATION?
Information is "non-public" until it has been effectively communicated to
the market place. One must be able to point to some fact to show that the
information is generally available to the public. For example, information found
in a report filed with the SEC, or appearing in Dow Jones, Reuters Economics
Services, The Wall Street Journal or other publications of general circulation
would be considered public.
4) MISAPPROPRIATION THEORY
Under the "misappropriation" theory liability is established when trading
occurs on material non-public information that is stolen or misappropriated from
any other person. In U.S. v. Carpenter, a columnist defrauded The Wall Street
Journal by stealing non-public information from the Journal and using it for
trading in the securities markets. Note that the misappropriation theory can be
used to reach a variety of individuals not previously thought to be encompassed
under the fiduciary duty theory.
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5) WHO IS A CONTROLLING PERSON?
"Controlling persons" include not only employers, but any person with power
to influence or control the direction of the management, policies or activities
of another person. Controlling persons may include not only the Company, but its
directors and officers.
PENALTIES FOR INSIDER TRADING VIOLATIONS
Penalties for trading on or communicating material non-public information
are more severe than ever. The individuals involved in such unlawful conduct may
be subject to both civil and criminal penalties. A controlling person may be
subject to civil or criminal penalties for failing to establish, maintain and
enforce Jennison Associates' Policy Statement against Insider Trading and/or if
such failure permitted or substantially contributed to an insider trading
violation.
Individuals can be subject to some or all of the penalties below even if he
or she does not personally benefit from the violation. Penalties include:
a. CIVIL INJUNCTIONS
b. TREBLE DAMAGES
c. DISGORGEMENT OF PROFITS
d. JAIL SENTENCES - Under the new laws, the maximum jail sentences for
criminal securities law violations increased from 5 years to 10 years.
e. CIVIL FINES - Persons who committed the violation may pay up to
three times the profit gained or loss avoided, whether or not the person
actually benefited.
f. CRIMINAL FINES - The employer or other "controlling persons" may
pay up to $2,500,000.
g. Violators will be barred from the securities industry.
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SECTION III
IMPLEMENTATION PROCEDURES & POLICY
The following procedures have been established to assist the officers,
directors and employees of Jennison Associates in preventing and detecting
insider trading as well as to impose sanctions against insider trading. Every
officer, director and employee must follow these procedures or risk serious
sanctions, including possible dismissal, substantial personal liability and
criminal penalties. If you have any questions about these procedures you should
consult Karen E. Kohler or John H. Hobbs.
1) IDENTIFYING INSIDE INFORMATION
Before trading for yourself or others, including client accounts managed by
Jennison Associates, in the securities of a company about which you may have
potential inside information, ask yourself the following questions:
i. IS THE INFORMATION MATERIAL? *Would an investor consider this
information important in making his or her investment decisions? ** Would this
information substantially effect the market price of the securities if generally
disclosed?
ii. IS THE INFORMATION NON-PUBLIC? * To whom has this information been
provided? ** Has the information been effectively communicated to the
marketplace by being published in Reuters, The Wall Street Journal, or other
publications of general circulation?
If, after consideration of the above, you believe that the information is
material and non-public, or if you have questions as to whether the information
is material and non-public, you should take the following steps:
i. Report the matter immediately to Karen E. Kohler or John H. Hobbs.
If neither are available you should contact Mr. Louis Begley, our attorney at
Debevoise and Plimpton ((212)909-6000).
ii. Do not repurchase or sell the securities on behalf of yourself or
others, including client accounts managed by Jennison Associates.
iii. Do not communicate the information inside or outside Jennison
Associates, other than to Karen E. Kohler, John H. Hobbs, or Mr. Begley our
outside counsel.
iv. After Karen E. Kohler, John H. Hobbs, or Mr. Begley has reviewed
the issue, you will be instructed to continue the prohibitions against trading
and communication, or you will be allowed to trade and communicate the
information.
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2) RESTRICTING ACCESS TO MATERIAL NON-PUBLIC INFORMATION
Information that you identify as material and non-public may not be
communicated to anyone, including persons within Jennison Associates LLC, except
as provided above. In addition, care should be taken so that such information is
secure. For example, files containing material non-public information should be
locked; access to computer files containing non-public information should be
restricted.
Jennison employees have no obligation to the clients of Jennison Associates
to trade or recommend trading on the basis of material, non-public (inside)
information in their possession. Jennison's fiduciary responsibility to its
clients requires that the firm and its employees regard the limitations imposed
by Federal securities laws.
3) ALLOCATION OF BROKERAGE
To supplement its own research and analysis, to corroborate data compiled
by its staff, and to consider the views and information of others in arriving at
its investment decisions, Jennison Associates, consistent with its efforts to
secure best price and execution, allocates brokerage business to those
broker-dealers in a position to provide such services.
It is the firm's policy not to allocate brokerage in consideration of the
attempted furnishing of material non-public (inside) information. Employees, in
recommending the allocation of brokerage to broker-dealers, should not give
consideration to the provision of any material non-public (inside) information.
The policy of Jennison Associates as set forth in this statement should be
brought to the attention of such broker-dealer.
4) RESOLVING ISSUES CONCERNING INSIDER TRADING
If doubt remains as to whether information is material or non-public, or if
there is any unresolved question as to the applicability or interpretation of
the foregoing procedures and standards, or as to the propriety of any action, it
must be discussed with Karen E. Kohler or John H. Hobbs before trading or
communicating the information to anyone.
This code will be distributed to all Jennison Associates personnel.
Periodically or upon request, Karen E. Kohler will meet with such personnel to
review this statement of policy, including any developments in the law and to
answer any questions of interpretation or application of this policy.
From time to time this statement of policy will be revised in the light of
developments in the law, questions of interpretation and application, and
practical experience with the procedures contemplated by the statement.
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SECTION IV
JENNISON ASSOCIATES PERSONAL TRADING POLICY
1. GENERAL POLICY AND PROCEDURES
The management of Jennison Associates is fully aware of and in no way
wishes to deter the security investments of its individual employees. The
securities markets, whether equity, fixed income, international or domestic,
offer individuals alternative methods of enhancing their personal investments.
Due to the nature of our business and our fiduciary responsibility to our
client funds, we must protect the firm and its employees from the possibilities
of both conflicts of interest and illegal insider trading in regard to their
personal security transactions.
We have adopted the following policies and procedures on employee personal
trading to insure against violations of the law. These policies and procedures
are in addition to those set forth in the Code of Ethics and the Policy
Statement Against Insider Trading.
2. RECORDKEEPING REQUIREMENTS
Jennison Associates, as an investment advisor, is required by Rule 204-2 of
the under the Investment Advisers Act of 1940, to keep records of every
transaction in securities in which any of its personnel has any direct or
indirect beneficial ownership, except transactions effected in any account over
which neither the investment adviser nor any advisory representative of the
investment adviser has any direct or indirect influence or control and
transactions in securities which are direct obligations of the United States,
mutual funds and high-quality short-term instruments. This includes transactions
for the personal accounts of an employee, as well as, transactions for the
accounts of other members of their immediate family (including the spouse, minor
children, and adults living in the same household with the officer, director, or
employee) for which they or their spouse have any direct or indirect influence
or control and trusts of which they are trustees or other accounts in which they
have any direct or indirect beneficial interest or direct or indirect influence
or control, unless the investment decisions for the account are made by an
independent investment manager in a fully discretionary account. Jennison
recognizes that some of its employees may, due to their living arrangements, be
uncertain as to their obligations under this Personal Trading Policy. If an
employee has any question or doubt as to whether they have direct or indirect
influence or control over an account, he or she must consult with the Compliance
Department as to their status and obligations with respect to the account in
question.
In addition, Jennison, as a subadviser to investment companies registered
under the Investment Company Act of 1940 (e.g., mutual funds), is required by
Rule 17j-1 under the Investment Company Act to review and keep records of
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personal investment activities of "access persons" of these funds, unless the
access person does not have direct or indirect influence or control of the
accounts. An "access person" is defined as any director, officer, general
partner or Advisory Person of a Fund or Fund's Investment Adviser. "Advisory
Person" is defined as any employee of the Fund or investment adviser (or of any
company in a control relationship to the Fund or investment adviser) who, in
connection with his or her regular functions or duties, makes, participates in,
or obtains information regarding the purchase or sale of investments by a Fund,
or whose functions relate to the making of any recommendations with respect to
the purchases or sales. Therefore, Jennison's "access persons" and "advisory
persons" include the following: portfolio managers, investment analysts,
traders, officers and directors.
1) ACCESS PERSONS: PORTFOLIO MANAGERS, INVESTMENT ANALYSTS, TRADERS, AND OTHER
JENNISON OFFICERS AND DIRECTORS
Access Persons are required to provide the Compliance Department with the
following:
A) INITIAL HOLDINGS REPORTS:
Within 10 days of commencement of employment, an initial holdings
report detailing all personal investments (including private
placements, and index futures contracts and options thereon, but
excluding US Treasury securities, mutual fund shares, and short-term
high quality debt instruments). The report should contain the
following information:
1. the title, number of shares and principal amount of each
investment in which the Access Person had any direct or indirect
beneficial ownership;
2. The name of any broker, dealer or bank with whom the Access
Person maintained an account in which any securities were held
for the direct or indirect benefit of the Access Person; and
3. The date that the report is submitted by the Access Person.
B) QUARTERLY REPORTS:
1. TRANSACTION REPORTING:Within 10 days after the end of a calendar
quarter, with respect to any transaction during the quarter in
investments in which the Access Person had any direct or indirect
beneficial ownership:
a. The date of the transaction, the title, the interest rate
and maturity date (if applicable), the number of shares and
the principal amount of each investment involved;
b. The nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
c. The price of the investment at which the transaction was
effected;
d. The name of the broker, dealer or bank with or through which
the transaction was effected; and
e. The date that the report is submitted by the Access Person.
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2. PERSONAL SECURITIES ACCOUNT REPORTING:Within 10 days after the
end of a calendar quarter, with respect to any account
established by the Access Person in which any securities were
held during the quarter for the direct or indirect benefit of the
Access Person:
a. The name of the broker, dealer or bank with whom the Access
Person established the account;
b. The date the account was established; and
c. The date that the report is submitted by the Access Person.
To facilitate compliance with this reporting requirement, Jennison
Associates requires that a duplicate copy of all trade confirmations and
brokerage statements be supplied directly to Jennison Associates'
Compliance Department and to the Prudential's Corporate Compliance
Department. In addition, the Compliance Department must also be notified
immediately upon the creation of any new personal investment accounts.
C) ANNUAL HOLDINGS REPORTS
Annually, the following information (which information must be current
as of a date no more than 30 days before the report is submitted):
1. The title, number of shares and principal amount of each
investment in which the Access Person had any direct or indirect
beneficial ownership;
2. The name of any broker, dealer or bank with whom the Access
Person maintains an account in which any securities are held for
the direct or indirect benefit of the Access Person; and
3. The date that the report is submitted by the Access Person.
D) A copy of all discretionary investment advisory contracts or
agreements between the officer, director or employee and his
investment advisors.
E) A copy of Schedule B, Schedule D, and Schedule E from federal income
tax returns on an annual basis.
2) ALL OTHEREMPLOYEES OF JENNISON ASSOCIATES
In order to ensure compliance with these regulations, all other employees
of Jennison Associates shall submit to the Compliance Department:
A.) Upon commencement of employment and no less than annually thereafter,
a report of all personal securities holdings and a report of every
personal brokerage account in which they have any direct or indirect
beneficial interest. The Compliance Department must also be notified
immediately upon the creation of any new personal investment accounts.
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The report must disclose the following material:
* Name and type of account - single, joint, trust, partnership,
etc.
* A statement disclosing the general purpose of the account (e.g.,
as a trustee of XYZ College, I have agreed in accordance with the
school's Board of Directors to invest funds on behalf of XYZ for
the benefit of its annual scholarship fund).
* The institution, bank, or otherwise, where the account is
maintained.
B.) A report, including confirmation and quarter-end brokerage statements,
of every security transaction in which they, their immediate families
(including the spouse, minor children, and adults living in the same
household with the officer, director, or employee) for which they or
their spouse have any direct or indirect influence or control), and
trusts of which they are trustees or any other account in which they
have a beneficial interest and have participated or direct or indirect
influence or control.
To facilitate this aspect of employee securities trading, Jennison
Associates requires that a duplicate copy of all trade confirmations
and brokerage statements be supplied directly to Jennison Associates'
Compliance Department and to the Prudential's Corporate Compliance
Department.
C.) A copy of all discretionary investment advisory contracts or
agreements between the officer, director or employee and his
investment advisors.
D.) A copy of Schedule B, Schedule D, and Schedule E from federal income
tax returns on an annual basis.
3) NON-EMPLOYEE DIRECTORS
A.) Jennison recognizes that a director not employed by Jennison (i.e.,
directors designated by The Prudential Insurance Company of America to
sit on Jennison's Board of Directors) is subject to his or her
employer's own code of ethics, a copy of which and any amendments
thereto shall have been made available to Jennison's Compliance
Department. The Compliance Department of the non-employee director's
employer must represent quarterly to the Jennison Compliance
Department that the non-employee director has complied with the
recordkeeping and other procedures of its code of ethics during the
most recent calendar quarter. Such representation shall also state
that such policies and procedures shall be deemed adequate for
compliance with both Prudential's and Jennison's Codes of Ethics. If
there have been any violations of the employer's code of ethics by
such non-employee director, the employer's Compliance Department must
submit a detailed report of such violations and what remedial action,
if any was taken.
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B.) Non-employee directors shall be exempt from supplying a copy of
Schedule B, D, and Schedule E from their federal income tax returns.
C.) Additionally, all non-employee directors shall be exempt from the
pre-clearance procedures as described below.
3. PRE-CLEARANCE PROCEDURES
All directors, officers, and employees of Jennison Associates may need to
obtain clearance from the Personal Investment Committee prior to effecting any
securities transaction in which they or their immediate families (including the
spouse, minor children, and adults living in the same household with the
officer, director, or employee) for which they or their spouse have any direct
or indirect influence or control, have a beneficial interest on behalf of a
trust of which they are trustee, or for any other account in which they have a
beneficial interest or direct or indirect influence or control. Determination as
to whether or not a particular transaction requires pre-approval should be made
by consulting the "Compliance and Reporting of Personal Transactions Matrix"
found on Exhibit A.
Please note, voluntary tender offers are a recent addition to the
"Compliance and Reporting of Personal Transactions" matrix. They are both a
reportable transaction and one that requires pre-approval. Approval of tendering
shares into a tender offer shall be determined on a case-by-case basis by the
Personal Investment Committee.
The Personal Investment Committee will make its decision of whether to
clear a proposed trade on the basis of the personal trading restrictions set
forth -below. A member of the Compliance Department shall promptly notify the
officer, director, or employee of approval or denial to trade the requested
security. Notification of approval or denial to trade may be verbally given as
soon as possible; however, it shall be confirmed in writing within 24 hours of
the verbal notification. Please note that the approval granted will be valid
ONLY for that day in which the approval has been obtained; provided, however,
that approved orders for securities traded in certain foreign markets may be
executed within 2 business days from the date pre-clearance is granted,
depending on the time at which approval is granted and the hours of the markets
on which the security is traded are open. In other words, if a trade was not
effected on the day for which approval was originally sought, a new approval
form must be re-submitted on each subsequent day in which trading may occur. Or,
if the security for which approval has been granted is traded on foreign
markets, approval is valid for an additional day (i.e., the day for which
approval was granted and the day following the day for which approval was
granted).
Only transactions where the investment decisions for the account are made
by an independent investment manager in a fully discretionary account will be
exempt from the pre-clearance procedures. Copies of the agreement of such
discretionary accounts, as well as transaction statements or another comparable
portfolio report, must be submitted on a quarterly basis to the Compliance
Department for review and record retention.
18
<PAGE>
WRITTEN NOTICE OF YOUR INTENDED SECURITIES ACTIVITIES MUST BE FILED FOR
APPROVAL PRIOR TO EFFECTING ANY TRANSACTION FOR WHICH PRIOR APPROVAL IS
REQUIRED. The name of the security, the date, the nature of the transaction
(purchase or sale), the price, the name and relationship to you of the account
holder (self, son, daughter, spouse, father, etc.), and the name of the
broker-dealer or bank involved in the transaction must be disclosed in such
written notice. Such written notice should be submitted on the Pre-Clearance
Transaction Request Forms (Equity/Fixed Income) which can be obtained from the
Compliance Department. If proper procedures are not complied with, action will
be taken against the employee. All violations shall go before the Personal
Investment Committee and Jennison's Compliance Committee. The violators may be
asked to reverse the transaction and/or transfer the security or profits gained
over to the accounts of Jennison Associates. In addition, penalties for personal
trading violations shall be determined in accordance with the penalties schedule
set forth in Section 5, "Penalties for Violating Jennison Associates' Personal
Trading Policies." Each situation and its relevance will be given due weight. If
non-compliance with the pre-clearance procedure becomes repetitive, dismissal,
by the Board of Directors, of the employee can result.
4. PERSONAL TRADING POLICY
The following rules, regulations and restrictions have been set forth by
the Board of Directors and apply to the personal security transactions of all
employees. These rules will govern whether clearance for a proposed transaction
will be granted. These rules also apply to the sale of securities once the
purchase of a security has been pre-approved and completed.
No director, officer or employee of the Company may effect for himself, an
immediate family member (including the spouse, minor children, and adults living
in the same household with the officer, director, or employee) for which they or
their spouse have any direct or indirect influence or control, or any trust of
which they are trustee, or any other account in which they have a beneficial
interest or direct or indirect influence or control any transaction in a
security, or recommend any such transaction in a security, of which, to his/her
knowledge, the Company has effected the same for any of its clients, if such
transaction would in any way conflict with, or be detrimental to, the interests
of such client, or if such transaction was effected with prior knowledge of
material, non-public information.
Except in particular cases in which the Personal Investment Committee has
determined in advance that proposed transactions would not conflict with the
foregoing policy, the following rules shall govern all transactions (and
recommendations) by all corporate personnel for their own accounts, for their
immediate family's accounts (including accounts of the spouse, minor children,
and adults living in the same household with the officer, director, or employee)
for which they or their spouse have any direct or indirect influence or control,
and any trust of which they are trustee, or any other account in which they have
a beneficial interest or direct or indirect influence or control. The provisions
of the following paragraphs do not necessarily imply that the Personal
Investment Committee will conclude that the transactions or recommendations to
19
<PAGE>
which they relate are in violation of the foregoing policy, but rather are
designed to indicate the transactions for which PRIOR APPROVAL should be
obtained to ensure that no conflict occurs.
A. PERSONAL TRADING BY ALL EMPLOYEE DIRECTORS, OFFICERS, AND EMPLOYEES
(1.) Neither any security recommended, or proposed to be recommended
to any client for purchase, nor any security purchased or
proposed to be purchased for any client may be purchased by any
corporate personnel if such purchase will interfere in any way
with the orderly purchase of such security by any client.
(2.) Neither any security recommended, or proposed to be recommended
to any client for sale, nor any security sold, or proposed to be
sold, for any client may be sold by any corporate personnel if
such sale will interfere in any way with the orderly sale of such
security by any client.
(3.) No security may be sold after being recommended to any client for
purchase or after being purchased for any client, and no security
may be purchased after being recommended to any client for sale
or after being sold for any client, if the sale or purchase is
effected with a view to making a profit on the anticipated market
action of the security resulting from such recommendation,
purchase or sale.
(4.) In order to prevent even the appearance of a violation of this
rule or a conflict of interest with a client account , you should
refrain from trading in the SEVEN (7) CALENDAR DAYS BEFORE AND
AFTER Jennison trades in that security.
If an employee trades during a blackout period, disgorgement may be
required. For example, if an Employee's trade is pre-approved and
executed and subsequently, within seven days of the transaction, the
Firm trades on behalf of Jennison's clients, the Jennison Personal
Investment Committee shall review the personal trade in light of firm
trading activity and determine on a case by case basis the appropriate
action. If the Personal Investment Committee finds that a client is
disadvantaged by the personal trade, the trader may be required to
reverse the trade and disgorge to the firm any difference due to any
incremental price advantage over the client's transaction.
B. SHORT-TERM TRADING PROFITS
All directors (both employees and non-employees), officers, and
employees of Jennison Associates are prohibited from profiting in
their own accounts and the accounts of their immediate families
(including the spouse, minor children, and adults living in the same
household with the officer, director, or employee) for which they or
their spouse have any direct or indirect influence or control or any
trust of which they are a trustee, or for any other account in which
they have a beneficial interest or direct or indirect influence or
control from the purchase and sale, or the sale and purchase of the
20
<PAGE>
same or equivalent securities within 60 calendar days . Any profits
realized from the purchase and sale or the sale and purchase of the
same (or equivalent) securities within the 60 day restriction period
shall be disgorged to the firm, net of taxes.
"Profits realized" shall be calculated consistent with
interpretations under section 16(b) of the Securities Exchange Act of
1934, as amended, and the regulations thereunder, which require
matching any purchase and sale that occur with in a 60 calendar day
period across all accounts over which a Jennison director, officer or
employee has a direct or indirect beneficial interest (including
accounts that hold securities held by members of a person's immediate
family sharing the same household) over which the person has direct or
indirect control or influence without regard to the order of the
purchase or the sale during the period. As such, a person who sold a
security and then repurchased the same (or equivalent) security would
need to disgorge a profit if matching the purchase and the sale would
result in a profit. Conversely, if matching the purchase and sale
would result in a loss, profits would not be disgorged.
The prohibition on short-term trading profits shall not apply to
trading of index options and index futures contracts and options on
index futures contracts on broad based indices. However, such
transactions remain subject to the pre-clearance procedures and other
applicable procedures. A list of broad-based indices is provided on
Exhibit B.
C. No purchase of a security by any of the corporate personnel shall be
made if the purchase would deprive any of Jennison's clients of an
investment opportunity, after taking into account (in determining
whether such purchase would constitute an investment opportunity) the
client's investments and investment objectives and whether the
opportunity is being offered to corporate personnel by virtue of his
or her position at Jennison.
D. None of the corporate personnel may purchase NEW ISSUES OF EITHER
COMMON STOCK or CONVERTIBLE SECURITIES except in accordance with item
E below. This prohibition does not apply to new issues of shares of
open-end investment companies. All corporate personnel shall also
obtain prior written approval of the Personal Investment Committee in
the form of a completed "Request to Buy or Sell Securities" form
before effecting any purchase of securities on a `PRIVATE PLACEMENT'
basis. Such approval will take into account, among other factors,
whether the investment opportunity should be reserved for Jennison's
clients and whether the opportunity is being offered to corporate
personnel by virtue of his or her position at Jennison.
E. Subject to the pre-clearance and reporting procedures, corporate
personnel may purchase securities on the date of issuance, provided
that such securities are acquired in the secondary market. Upon
requesting approval of such transactions, employees must acknowledge
that he or she is aware that such request for approval may not be
submitted until AFTER the security has been issued to the public and
is trading at prevailing market prices in the secondary market.
21
<PAGE>
Requests for approval of such transactions must be accompanied by a
copy of the final prospectus. Additionally, trade confirmations of
executions of such transaction must be received by the Compliance
Department NO LATER THAN THE CLOSE OF BUSINESS ON THE DAY FOLLOWING
EXECUTION OF SUCH TRADE. If such trade confirmation is not received,
the employee may be requested to reverse (subject to pre-approval) the
trade, and any profits or losses avoided must be disgorged to the
firm.
F. Subject to the preclearance and reporting procedures, corporate
personnel may effect purchases upon the exercise of rights issued by
an issuer PRO RATA to all holders of a class of its securities, to the
extent that such rights were acquired from such issuer, and sales of
such rights so acquired. In the event that approval to exercise such
rights is denied, subject to preclearance and reporting procedures,
corporate personnel may obtain permission to sell such rights on the
last day that such rights may be traded.
G. Any transactions in index futures contracts and index options,
including those effected on a broad-based index, are subject to the
preclearance and reporting requirements.
H. No director, officer, or employee of Jennison Associates may profit in
their personal securities accounts or the accounts of their immediate
families (including the spouse, minor children, and adults living in
the same household with the officer, director, or employee) for which
they or their spouse have any direct or indirect influence or control
or any trust of which they are a trustee, or for any other account in
which they have a beneficial interest or direct or indirect influence
or control by short selling or purchasing put options on securities
that represent a position in any portfolios managed by Jennison on
behalf of its clients. Any profits realized from such transactions
shall be disgorged to the Firm, net of taxes. Put options, short sales
and short sales against the box are subject to the preclearance rules.
I. No employee, director, or officer of Jennison Associates may
participate in investment clubs.
J. While participation in employee stock purchase plans and employee
stock option plans need not be pre-approved, copies of the terms of
the plans should be provided to the Compliance Department as soon as
possible so that the application of the various provisions of the
Personal Trading Policy may be determined (E.G., pre-approval,
reporting, short-term trading profits ban). Corporate personnel must
obtain pre-approval for any discretionary disposition of securities or
discretionary exercise of options acquired pursuant to participation
in an employee stock purchase or employee stock option plan.
Nondiscretionary dispositions of securities or exercise are not
subject to pre-approval. Additionally, corporate personnel should
report holdings of such securities and options on an annual basis.
22
<PAGE>
K. Subject to pre-clearance, long-term investing through direct stock
purchase plans is permitted. The terms of the plan, the initial
investment, and any purchases through automatic debit must be provided
to and approved by the Personal Investment Committee. Any changes to
the original terms of approval, E.G., increasing, decreasing, or
termination of participation in the plan, as well as any sales or
discretionary purchase of securities in the plan must be submitted for
pre-clearance. Provided that the automatic monthly purchases have been
approved by the Personal Investment Committee, each automatic monthly
purchase need not be submitted for pre-approval. "Profits realized"
for purposes of applying the ban on short-term trading profits will be
determined by matching the proposed discretionary purchase or sale
transaction against the most recent discretionary purchase or sale, as
applicable, not the most recent automatic purchase or sale (if
applicable). Additionally, holdings should be disclosed quarterly.
EXCEPTIONS TO THE PERSONAL TRADING POLICY
Notwithstanding the foregoing restrictions, exceptions to certain
provisions (e.g., blackout period, pre-clearance procedures, and short-term
trading profits) of the Personal Trading Policy may be granted on a case by case
basis when no abuse is involved and the equities of the situation strongly
support an exception to the rule.
Investments in the following instruments are not bound to the rules and
restrictions as set forth above and may be made without the approval of the
Investment Compliance Committee: governments, agencies, money markets,
repurchase orders, reverse repurchase orders and open-ended registered
investment companies.
All employees, on a quarterly basis, must sign a statement that they,
during said period, have been in full compliance with all personal and insider
trading rules and regulations set forth within Jennison Associates' Code of
Ethics, Policy Statement on Insider Trading and Personal Trading Policy.
23
<PAGE>
5. PENALTIES FOR VIOLATIONS OF JENNISON ASSOCIATES' PERSONAL TRADING POLICIES
Violations of Jennison's Personal Trading Policy and Procedures, while in
most cases may be inadvertent, must not occur. It is important that every
employee abide by the policies established by the Board of Directors. Penalties
will be assessed in accordance with the schedules set forth below. THESE,
HOWEVER, ARE MINIMUM PENALTIES. THE FIRM RESERVES THE RIGHT TO TAKE ANY OTHER
APPROPRIATE ACTION, INCLUDING TERMINATION.
All violations and penalties imposed will be reported to Jennison's
Compliance Committee on a monthly basis. In addition, the Compliance Committee
will provide the Board of Directors with an annual report which at minimum:
(1) summarizes existing procedures concerning personal investing and
any changes in procedures made during the preceding year;
(2) identifies any violations requiring significant remedial action
during the preceding year; and
(3) identifies any recommended changes in existing restrictions or
procedures based upon Jennison's experience under its policies
and procedures, evolving industry practices, or developments in
applicable laws and regulations.
TYPE OF VIOLATION
A. PENALTIES FOR FAILURE TO SECURE PRE-APPROVAL
The minimum penalties for failure to pre-clear personal securities
transactions include POSSIBLE REVERSAL OF THE TRADE, POSSIBLE DISGORGEMENT OF
PROFITS, AS WELL AS THE IMPOSITION OF ADDITIONAL CASH PENALTIES. Please note
that subsections 2 and 3 have been applied retroactively from its effective
date.
1. FAILURE TO PRE-CLEAR PURCHASE
Depending on the circumstances of the violation, the individual may be
asked to reverse the trade (i.e., the securities must be sold). Any
profits realized from the subsequent sale, net of taxes must be turned
over to the firm. PLEASE NOTE: The sale or reversal of such trade must
be submitted for pre-approval.
2. FAILURE TO PRE-CLEAR SALES THAT RESULT IN LONG-TERM CAPITAL GAINS
Depending on the circumstances of the violation, the firm may require
that profits realized from the sale of securities that are defined as
"long-term capital gains" by Internal Revenue Code (the "IRC") section
1222 and the rules thereunder, as amended, to be turned over to the
firm, subject to the following maximum amounts:
24
<PAGE>
JALLC POSITION DISGORGEMENT PENALTY
-------------- --------------------
Senior Vice Presidents and above Realized long-term capital gain,
net of taxes, up to $10,000.00
Vice Presidents and Assistant Realized long-term capital gain,
Vice Presidents net of taxes, up to $5,000.00
All other JALLC Personnel 25% of the realized long-term
gain, irrespective of taxes,
up to $3,000.00
3. FAILURE TO PRE-CLEAR SALES THAT RESULT IN SHORT-TERM CAPITAL GAINS
Depending on the nature of the violation, the firm may require that
all profits realized from sales that result in profits that are
defined as "short-term capital gains" by IRC section 1222 and the
rules thereunder, as amended. Please note, however, any profits that
result from violating the ban on short-term trading profits are
addressed in section 5.C. "Penalties for Violation of Short-Term
Trading Profit Rule."
4. ADDITIONAL CASH PENALTIES
VP'S AND ABOVE OTHER JALLC PERSONNEL
-------------- ---------------------
FIRST OFFENSE None/Warning None/Warning
SECOND OFFENSE $1000 $200
THIRD OFFENSE $2000 $300
FOURTH OFFENSE $3000 $400
FIFTH OFFENSE $4000 & Automatic Notification $500 & Automatic Notification
of the Board of Directors of the Board of Directors
NOTWITHSTANDING THE FOREGOING, JENNISON RESERVES THE RIGHT TO NOTIFY THE BOARD
OF DIRECTORS FOR ANY VIOLATION.
Penalties shall be assessed over a rolling three year period. For example, if
over a three year period (year 1 through year 3), a person had four violations,
two in year 1, and one in each of the following years, the last violation in
year 3 would be considered a fourth offense. However, if in the subsequent year
(year 4), the person only had one violation of the policy, this violation would
be penalized at the third offense level because over the subsequent three year
period (from year 2 through year 4), there were only three violations. Thus, if
a person had no violations over a three year period, a subsequent offense would
be considered a first offense, notwithstanding the fact that the person may have
violated the policy prior to the three year period.
B. FAILURE TO COMPLY WITH RECORDKEEPING REQUIREMENTS
Such violations occur if Jennison does not receive a broker confirmation within
ten (10) business days following the end of the quarter in which a transaction
occurs or if JACC does not routinely receive brokerage statements. Evidence of
written notices to brokers of Jennison's requirement and assistance in resolving
problems will be taken into consideration in determining the appropriateness of
penalties.
25
<PAGE>
VP'S AND ABOVE OTHER JALLC PERSONNEL
-------------- ---------------------
FIRST OFFENSE None/Warning None/Warning
SECOND OFFENSE $200 $50
THIRD OFFENSE $500 $100
FOURTH OFFENSE $600 $200
$700 & Automatic Notification $300 & Automatic Notification
FIFTH OFFENSE of the Board of the Board
NOTWITHSTANDING THE FOREGOING, JENNISON RESERVES THE RIGHT TO NOTIFY THE BOARD
OF DIRECTORS FOR ANY VIOLATION.
C. PENALTY FOR VIOLATION OF SHORT-TERM TRADING PROFIT RULE
Any profits realized from the purchase and sale or the sale and
purchase of the same (or equivalent) securities within 60 calendar days
shall be disgorged to the firm, net of taxes. "Profits realized" shall be
calculated consistent with interpretations under section 16(b) of the
Securities Exchange Act of 1934, as amended, which requires matching any
purchase and sale that occur with in a 60 calendar day period without
regard to the order of the purchase or the sale during the period. As such,
a person who sold a security and then repurchased the same (or equivalent)
security would need to disgorge a profit if matching the purchase and the
sale would result in a profit. Conversely, if matching the purchase and
sale would result in a loss, profits would not be disgorged.
D. OTHER POLICY INFRINGEMENTS WILL BE DEALT WITH ON A CASE BY CASE BASIS.
PENALTIES WILL BE COMMENSURATE WITH THE SEVERITY OF THE VIOLATION.
Serious violations would include:
A. Failure to abide by the determination of the Personal Committee.
B. Failure to submit pre-approval for securities in which Jennison
actively trades.
E. DISGORGED PROFITS
Profits disgorged to the firm shall be donated to a charitable organization
selected by the firm in the name of the firm. Such funds may be donated to
such organization at such time as the firm determines.
26
<PAGE>
EXHIBIT A
COMPLIANCE AND REPORTING OF PERSONAL TRANSACTIONS MATRIX
<TABLE>
<CAPTION>
If
reportable,
Required minimum
Investment Pre-Approval Reportable reporting
Category/Method Sub-Category (Y/N) (Y/N) frequency
===========================================================================================================
<S> <C> <C> <C> <C>
BONDS Treasury Bills, Notes, Bonds N N N/A
Agency N Y Quarterly
Corporates Y Y Quarterly
MBS N Y Quarterly
ABS N Y Quarterly
CMO's Y Y Quarterly
Municipals N Y Quarterly
Convertibles Y Y Quarterly
STOCKS Common Y Y Quarterly
Preferred Y Y Quarterly
Rights Y Y Quarterly
Warrants Y Y Quarterly
Automatic Dividend Reinvestments N N N/A
Optional Dividend Reinvestments Y Y Quarterly
Direct Stock Purchase Plans with automatic
investments Y Y Quarterly
Employee Stock Purchase/Option Plan Y* Y *
OPEN-END MUTUAL FUNDS Affiliated Investments: N N N/A
Non-Affiliated Funds N N N/A
CLOSED END FUNDS & UNIT
INVESTMENT TRUSTS All Affiliated & Non-Affiliated Funds N Y Quarterly
US Funds (including SPDRs, NASDAQ 100
Index Tracking Shares) N Y Quarterly
Foreign Funds N Y Quarterly
DERIVATIVES Any exchange traded, NASDAQ, or OTC option
or futures contract, including, but
not limited to:
Financial Futures ** Y Quarterly
Commodity Futures N Y Quarterly
Options on Futures ** Y Quarterly
Options on Securities ** Y Quarterly
Non-Broad Based Index Options Y Y Quarterly
Non Broad Based Index Futures
Contracts and Options on Non-Broad
Based Index Futures Contracts Y Y Quarterly
Broad Based Index Options N Y Quarterly
Broad Based Index Futures Contracts
and Options on Broad Based Index
Futures Contracts N Y Quarterly
LIMITED PARTNERSHIPS,
PRIVATE PLACEMENTS, &
PRIVATE INVESTMENTS Y Y Quarterly
VOLUNTARY TENDER OFFERS Y Y Quarterly
</TABLE>
* Pre-approval of sales of securities or exercises of options acquired
through employee stock purchase or employee stock option plans are
required. Holdings are required to be reported annually; transactions
subject to pre-approval are required to be reported quarterly. Pre-approval
is not required to participate in such plans.
** Pre-approval of a personal derivative securities transaction is required if
the underlying security requires pre-approval.
27
<PAGE>
EXHIBIT B
BROAD-BASED INDICES
Nikkei 300 Index CI/Euro
S&P 100 Close/Amer Index
S&P 100 Close/Amer Index
S&P 100 Close/Amer Index
S&P 500 Index
S&P 500 Open/Euro Index
S&P 500 Open/Euro Index
S&P 500 (Wrap)
S&P 500 Open/Euro Index
Russell 2000 Open/Euro Index
Russell 2000 Open/Euro Index
S&P Midcap 400 Open/Euro Index
NASDAQ- 100 Open/Euro Index
NASDAQ- 100 Open/Euro Index
NASDAQ- 100 Open/Euro Index
NASDAQ- 100 Open/Euro Index
NASDAQ- 100 Open/Euro Index
S&P Small Cap 600
U.S. Top 100 Sector
S&P 500 Long-Term Close
Russell 2000 L-T Open./Euro
Russell 2000 Long-Term Index
28
CODE OF ETHICS
FOR ACCESS PERSONS OF
THE STRONG FAMILY OF MUTUAL FUNDS,
STRONG CAPITAL MANAGEMENT, INC.,
STRONG INVESTMENTS, INC.,
AND FLINT PRAIRIE, L. L. C.
[STRONG CAPITAL MANAGEMENT LOGO]
STRONG CAPITAL MANAGEMENT, INC.
October 22, 1999
<PAGE>
CODE OF ETHICS
For Access Persons of
The Strong Family of Mutual Funds,
Strong Capital Management, Inc.,
Strong Investments, Inc.,
and Flint Prairie, L. L. C.
Dated October 22, 1999
TABLE OF CONTENTS
I. INTRODUCTION..............................................................1
A. Fiduciary Duty........................................................1
1. Place the interests of Advisory Clients first.....................1
2. Avoid taking inappropriate advantage of their position............1
3. Conduct all Personal Securities Transactions in full compliance
with this Code including both the preclearance and reporting
requirements......................................................1
B. Appendices to the Code................................................1
1. Definitions.......................................................2
2. Contact Persons...................................................2
3. Disclosure of Personal Holdings in Securities.....................2
4. Acknowledgment of Receipt of Code of Ethics and Limited
Power of Attorney.................................................2
5. Preclearance Request for Access Persons...........................2
6. Annual Code of Ethics Questionnaire...............................2
7. List of Broad-Based Indices.......................................2
8. Gift Policy 2
9. Insider Trading Policy............................................2
10. Electronic Trading Authorization Form.............................2
11. Social Security Number/Tax Identification Form....................2
C. Application of the Code to Independent Fund Directors.................2
D. Application of the Code to Funds Subadvised by SCM....................2
II. PERSONAL SECURITIES TRANSACTIONS..........................................2
A. Annual Disclosure of Personal Holdings by Access Persons..............2
B. Preclearance Requirements for Access Persons..........................3
1. General Requirement...............................................3
2. Transactions Exempt from Preclearance Requirements................3
a. Mutual Funds..................................................3
b. No Knowledge..................................................3
c. Certain Corporate Actions.....................................3
d. Rights........................................................3
e. Application to Commodities, Futures, Options on Futures
and Options on Broad-Based Indices............................3
f. Miscellaneous.................................................4
i
<PAGE>
TABLE OF CONTENTS (CONTINUED)
C. Preclearance Requests.................................................4
1. Trade Authorization Request Forms.................................4
2. Review of Form....................................................4
3. Access Person Designees...........................................4
D. Prohibited Transactions...............................................5
1. Prohibited Securities Transactions................................5
a. Initial Public Offerings......................................5
b. Pending Buy or Sell Orders....................................5
c. Seven Day Blackout............................................5
d. Intention to Buy or Sell for Advisory Client..................6
e. 60-Day Blackout...............................................6
2. Always Prohibited Securities Transactions.........................6
a. Inside Information............................................6
b. Market Manipulation...........................................6
c. Large Positions in Registered Investment Companies............6
d. Others........................................................6
3. Private Placements................................................6
4. No Explanation Required for Refusals..............................7
E. Execution of Personal Securities Transactions.........................7
F. Length of Trade Authorization Approval................................7
G. Trade Reporting Requirements..........................................7
1. Reporting Requirement.............................................7
2. Disclaimers.......................................................8
3. Quarterly Review..................................................8
4. Availability of Reports...........................................8
III. FIDUCIARY DUTIES..........................................................9
A. Confidentiality.......................................................9
B. Gifts.................................................................9
1. Accepting Gifts...................................................9
2. Solicitation of Gifts.............................................9
3. Giving Gifts......................................................9
C. Payments to Advisory Clients..........................................9
D. Corporate Opportunities...............................................9
E. Undue Influence......................................................10
F. Service as a Director................................................10
G. Involvement in Criminal Matters or Investment-Related Civil
Proceedings..........................................................10
ii
<PAGE>
TABLE OF CONTENTS (CONTINUED)
IV. COMPLIANCE WITH THIS CODE OF ETHICS......................................10
A. Code of Ethics Review Committee......................................10
1. Membership, Voting, and Quorum...................................10
2. Investigating Violations of the Code.............................10
3. Annual Reports...................................................11
B. Remedies.............................................................11
1. Sanctions........................................................11
2. Sole Authority...................................................11
3. Review...........................................................11
C. Exceptions to the Code...............................................12
D. Compliance Certification.............................................12
E. Record Retention.....................................................12
1. Code of Ethics...................................................12
2. Violations.......................................................12
3. Required Reports.................................................12
4. Access Person List...............................................12
F. Inquiries Regarding the Code.........................................12
iii
<PAGE>
CODE OF ETHICS
For Access Persons of
The Strong Family of Mutual Funds,
Strong Capital Management, Inc.,
Strong Investments, Inc.,
and Flint Prairie, L. L. C.
Dated October 22, 1999
TABLE OF APPENDICES
Appendix 1 (Definitions).....................................................13
Appendix 2 (Contact Persons).................................................16
Appendix 3 (Disclosure of Personal Holdings in Securities)...................17
Appendix 4 (Acknowledgment of Receipt of Code of Ethics and
Limited Power of Attorney).......................................18
Appendix 5 (Preclearance Request for Access Persons).........................19
Appendix 6 (Annual Code of Ethics Questionnaire).............................20
Appendix 7 (List of Broad-Based Indices).....................................23
Appendix 8 (Gift Policy).....................................................24
Appendix 9 (Insider Trading Policy)..........................................26
Appendix 10 (Electronic Trading Authorization Form)...........................30
Appendix 11 (Social Security Number/Tax Identification Form)..................31
iv
<PAGE>
CODE OF ETHICS
For Access Persons of
The Strong Family of Mutual Funds,
Strong Capital Management, Inc.,
Strong Investments, Inc.,
and Flint Prairie, L. L. C.
Dated October 22, 1999
I. INTRODUCTION(1)
A. FIDUCIARY DUTY. This Code of Ethics is based upon the principle that
directors, officers and associates of Strong Capital Management, Inc. ("SCM"),
Strong Investments, Inc. ("the Distributor"), the Strong Family of Mutual Funds
("the Strong Funds") and Flint Prairie, L. L. C. ("Flint Prairie") have a
fiduciary duty to place the interests of clients ahead of their own. The Code
applies to all Access Persons and focuses principally on preclearance and
reporting of personal transactions in securities. Access Persons must avoid
activities, interests and relationships that might interfere with making
decisions in the best interests of the Advisory Clients of SCM.
As fiduciaries, Access Persons must at all times:
1. PLACE THE INTERESTS OF ADVISORY CLIENTS FIRST. Access Persons must
scrupulously avoid serving their own personal interests ahead of the
interests of the Advisory Clients of SCM. AN ACCESS PERSON MAY NOT INDUCE
OR CAUSE AN ADVISORY CLIENT TO TAKE ACTION, OR NOT TO TAKE ACTION, FOR
PERSONAL BENEFIT RATHER THAN FOR THE BENEFIT OF THE ADVISORY CLIENT. For
example, an Access Person would violate this Code by causing an Advisory
Client to purchase a Security he or she owned for the purpose of increasing
the price of that Security.
2. AVOID TAKING INAPPROPRIATE ADVANTAGE OF THEIR POSITION. The receipt
of investment opportunities, perquisites or gifts from persons seeking
business with the Strong Funds, SCM, the Distributor, Flint Prairie or
their clients could call into question the exercise of an Access Person's
independent judgment. Access persons may not, for example, use their
knowledge of portfolio transactions to profit by the market effect of such
transactions.
3. CONDUCT ALL PERSONAL SECURITIES TRANSACTIONS IN FULL COMPLIANCE
WITH THIS CODE INCLUDING BOTH THE PRECLEARANCE AND REPORTING REQUIREMENTS.
Doubtful situations should be resolved in favor of Advisory Clients.
Technical compliance with the Code's procedures will not automatically
insulate from scrutiny any trades that may indicate an abuse of fiduciary
duties.
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(1) Capitalized words are defined in Appendix 1.
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B. APPENDICES TO THE CODE. The appendices to this Code are attached hereto,
are a part of the Code and include the following:
1. DEFINITIONS--capitalized words as defined in the Code (Appendix 1),
2. CONTACT PERSONS, including the Preclearance Officer designees and
the Code of Ethics Review Committee (Appendix 2),
3. DISCLOSURE OF PERSONAL HOLDINGS IN SECURITIES (Appendix 3),
4. ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS AND LIMITED POWER OF
ATTORNEY (Appendix 4),
5. PRECLEARANCE REQUEST FOR ACCESS PERSONS (Appendix 5),
6. ANNUAL CODE OF ETHICS QUESTIONNAIRE (Appendix 6),
7. LIST OF BROAD-BASED INDICES (Appendix 7),
8. GIFT POLICY (Appendix 8),
9. INSIDER TRADING POLICY (Appendix 9)
10. Electronic Trading Authorization Form (Appendix 10), and
11. Social Security Number/Tax Identification Form (Appendix 11).
C. APPLICATION OF THE CODE TO INDEPENDENT FUND DIRECTORS. This Code applies
to Independent Fund Directors and requires Independent Fund Directors and their
Immediate Families to report Securities Transactions to the Compliance
Department in accordance with the trade reporting requirements (Section II.G.).
However, provisions of the Code relating to the disclosure of personal holdings
(Section II.A.), preclearance of trades (Section II.B.), prohibited transactions
(II.D.1.), large positions in registered investment companies (Section
II.D.2.c.), private placements (Section II.D.3.), restrictions on serving as a
director of a publicly-traded company (Section III.F.) and receipt of gifts
(Section III.B.) do not apply to Independent Fund Directors.
D. APPLICATION OF THE CODE TO FUNDS SUBADVISED BY SCM. This Code does not
apply to the directors, officers and general partners of Funds for which SCM
serves as a subadviser.
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II. PERSONAL SECURITIES TRANSACTIONS
A. ANNUAL DISCLOSURE OF PERSONAL HOLDINGS BY ACCESS PERSONS. Upon
designation as an Access Person, and thereafter on an annual basis, all Access
Persons must report on the Disclosure of Personal Holdings In Securities Form
(Appendix 3) (or a substantially similar form) all Securities, including
securities held in certificate form, in which they have a Beneficial Interest
and all Securities in non-client accounts for which they make investment
decisions (previously reported holdings, as well as those specifically excluded
from the definition of Security, need not be reported). This provision does not
apply to Independent Fund Directors.
B. PRECLEARANCE REQUIREMENTS FOR ACCESS PERSONS.
1. GENERAL REQUIREMENT. Except for the transactions set forth in
Section II.B.2., ALL SECURITIES TRANSACTIONS in which an Access Person or a
member of his or her Immediate Family has a Beneficial Interest MUST BE
PRECLEARED with the Preclearance Officer or his designee. This provision
does not apply to transactions of Independent Fund Directors and their
Immediate Families.
2. TRANSACTIONS EXEMPT FROM PRECLEARANCE REQUIREMENTS. The following
Securities Transactions are exempt from the preclearance requirements set
forth in Section II.B.1. of this Code:
a. MUTUAL FUNDS. Securities issued by any registered open-end
investment companies (including but not limited to the Strong Funds);
b. NO KNOWLEDGE. Securities Transactions where neither SCM, the
Access Person nor an Immediate Family member knows of the transaction
before it is completed (for example, Securities Transactions effected
for an Access Person by a trustee of a blind trust or discretionary
trades involving an investment partnership or investment club in which
the Access Person is neither consulted nor advised of the trade before
it is executed);
c. CERTAIN CORPORATE ACTIONS. Any acquisition or disposition of
Securities through stock dividends, dividend reinvestments, stock
splits, reverse stock splits, mergers, consolidations, spin-offs or
other similar corporate reorganizations or distributions generally
applicable to all holders of the same class of Securities. Odd-lot
tender offers are also exempt from the preclearance requirements;
however, all other tender offers must be precleared;
d. RIGHTS. Any acquisition or disposition of Securities through
the exercise of rights, options, convertible bonds or other
instruments acquired in compliance with this Code;
e. APPLICATION TO COMMODITIES, FUTURES, OPTIONS ON FUTURES AND
OPTIONS ON BROAD-BASED INDICES. Commodities, futures (including
currency futures and futures on securities comprising part of a
broad-based, publicly traded market based index of stocks), options on
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futures, options on currencies and options on certain indices
designated by the Compliance Department as broad-based are not subject
to preclearance or the seven day black out, 60-day profit disgorgement
and other prohibited transaction provisions of Section II.D.1. of the
Code but are subject to transaction reporting requirements (Section
II.G.). The options on indices designated by the Compliance Department
as broad-based may be changed from time to time and are listed in
Appendix 7.
THE OPTIONS ON INDICES THAT ARE NOT DESIGNATED AS BROAD-BASED ARE
SUBJECT TO THE PRECLEARANCE, SEVEN-DAY BLACKOUT, 60-DAY PROFIT
DISGORGEMENT, PROHIBITED TRANSACTION AND REPORTING PROVISIONS OF THE
CODE.
f. MISCELLANEOUS. Any transaction in the following: (1) bankers
acceptances; (2) bank certificates of deposit ("CDs"); (3) commercial
paper; (4) repurchase agreements (when backed by exempt securities);
(5) U.S. Government Securities; (6) the acquisition of equity
securities in dividend reinvestment plans ("DRIPs"), when the
acquisition is directly through the issuer or its non-broker agent;
(7) Securities of the employer of a member of the Access Person's
Immediate Family if such securities are beneficially owned through
participation by the Immediate Family member in a Profit Sharing plan,
401(k) plan, ESOP or other similar plan; and (8) other Securities as
may from time to time be designated in writing by the Code of Ethics
Review Committee on the grounds that the risk of abuse is minimal or
non-existent.
C. PRECLEARANCE REQUESTS.
1. TRADE AUTHORIZATION REQUEST FORMS. Prior to entering an order for a
Securities Transaction that requires preclearance, the Access Person must
complete, IN WRITING, a Preclearance Request For Access Persons Form
(Appendix 5) and submit the completed form to the Preclearance Officer (or
his or her designee). The Preclearance Request For Access Persons Form
requires Access Persons to provide certain information and to make certain
representations. Proposed Securities Transactions of the Preclearance
Officer that require preclearance must be submitted to his designee.
2. REVIEW OF FORM. After receiving the completed Preclearance Request
For Access Persons Form, the Preclearance Officer (or his or her designee)
will (a) review the information set forth in the form, (b) independently
confirm whether the Securities are held by any Funds or other accounts
managed by SCM and whether there are any unexecuted orders to purchase or
sell the Securities by any Fund or accounts managed by SCM and (c) as soon
as reasonably practicable, determine whether to clear the proposed
Securities Transaction. The authorization, date, and time of the
authorization must be reflected on the Preclearance Request For Access
Persons Form. The Preclearance Officer (or his or her designee) will keep
one copy of the completed form for the Compliance Department, send one copy
to the Access Person seeking authorization and send the third copy to the
Trading Department, which will cause the transaction to be executed. If the
brokerage account is an Electronic Trading Account and the Access Person
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has completed the Electronic Trading Authorization Form (Appendix 10), the
Access Person will execute the transaction on his or her own behalf and
will provide Compliance with a copy of the electronic confirmation by the
end of the next business day.
No order for a securities transaction for which preclearance authorization
is sought may be placed prior to the receipt of WRITTEN authorization of
the transaction by the preclearance officer (or his or her designee).
Verbal approvals are not permitted.
3. ACCESS PERSON DESIGNEES. If an Access Person is unable to
personally effect a personal Securities Transaction, such Access Person may
designate an individual at SCM to complete and submit for preclearance on
his or her behalf a Preclearance Request For Access Persons Form provided
the following requirements are satisfied:
a. The Access Person communicates the details of the trade and
affirms the accuracy of the representations and warranties contained
on the Form directly to such designated person; and
b. The designated person completes the Preclearance Request For
Access Persons Form on behalf of the Access Person in accordance with
the requirements of the Code and then executes the Access Person
Designee Certification contained in the Form. The Access Person does
not need to sign the Form so long as the foregoing certification is
provided.
D. PROHIBITED TRANSACTIONS.
1. PROHIBITED SECURITIES TRANSACTIONS. The following Securities
Transactions for accounts in which an Access Person or a member of his or
her Immediate Family have a Beneficial Interest, to the extent they require
preclearance under Section II.B. above, are prohibited and will not be
authorized by the Preclearance Officer (or his or her designee) absent
exceptional circumstances:
a. INITIAL PUBLIC OFFERINGS. Any purchase of Securities in an
initial public offering (other than a new offering of a registered
open-end investment company);
b. PENDING BUY OR SELL ORDERS. Any purchase or sale of Securities
on any day during which any Advisory Client has a pending "buy" or
"sell" order in the same Security (or Equivalent Security) until that
order is executed or withdrawn, unless the purchase or sale is a
Program Trade;
c. SEVEN DAY BLACKOUT. Purchases or sales of Securities by a
Portfolio Manager within seven calendar days of a purchase or sale of
the same Securities (or Equivalent Securities) by an Advisory Client
managed by that Portfolio Manager, unless the purchase or sale is a
Program Trade. For example, if a Fund trades in a Security on day one,
day eight is the first day the Portfolio Manager may trade that
Security for an account in which he or she has a beneficial interest;
d. INTENTION TO BUY OR SELL FOR ADVISORY CLIENT. Purchases or
sales of Securities at a time when that Access Person intends, or
knows of another's intention, to purchase or sell that Security (or an
Equivalent Security) on behalf of an Advisory Client. This prohibition
applies whether the Securities Transaction is in the same (E.G., two
purchases) or the opposite (a purchase and sale) direction of the
transaction of the Advisory Client, unless the purchase or sale is a
Program Trade; and
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e. 60-DAY BLACKOUT. (1) Sales of a Security within 60 days of the
purchase of the Security (or an Equivalent Security) in which the
Access Person has a Beneficial Interest and (2) purchases of a
Security within 60 days of the sale of the Security (or an Equivalent
Security) in which the Access Person had a Beneficial Interest, unless
in each case, the Access Person agrees to give up all profits on the
transaction to a charitable organization as specified by remedies
involving sanctions (Section IV.B.1.).
2. ALWAYS PROHIBITED SECURITIES TRANSACTIONS. The following Securities
Transactions are prohibited and will not be authorized under any
circumstances:
a. INSIDE INFORMATION. Any transaction in a Security while in
possession of material nonpublic information regarding the Security or
the issuer of the Security (see Insider Trading Policy, Appendix 9);
b. MARKET MANIPULATION. Transactions intended to raise, lower, or
maintain the price of any Security or to create a false appearance of
active trading;
c. LARGE POSITIONS IN REGISTERED INVESTMENT COMPANIES.
Transactions in a registered investment company, including Strong
Funds, which result in the Access Person owning five percent or more
of any class of securities in such investment company (this
prohibition does not apply to Independent Fund Directors); and
d. OTHERS. Any other transactions deemed by the Preclearance
Officer (or his designee) to involve a conflict of interest, possible
diversion of corporate opportunity or an appearance of impropriety.
3. PRIVATE PLACEMENTS. Acquisitions of Beneficial Interests in
Securities in a private placement by an Access Person is strongly
discouraged. The Preclearance Officer (or his or her designee) will give
permission only after considering, among other facts, whether the
investment opportunity should be reserved for Advisory Clients and whether
the opportunity is being offered to an Access Person by virtue of his or
her position as an Access Person. Access Persons who have been authorized
to acquire and have acquired securities in a private placement are required
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to disclose that investment to the Compliance Department when they play a
part in any subsequent consideration of an investment in the issuer by an
Advisory Client. In such circumstances, the decision to purchase securities
of the issuer by an Advisory Client must be independently authorized by a
Portfolio Manager with no personal interest in the issuer. This provision
does not apply to Independent Fund Directors.
4. NO EXPLANATION REQUIRED FOR REFUSALS. In some cases, the
Preclearance Officer (or his or her designee) may refuse to authorize a
Securities Transaction for a reason that is confidential. The Preclearance
Officer is not required to give an explanation for refusing to authorize
any Securities Transaction.
E. EXECUTION OF PERSONAL SECURITIES TRANSACTIONS. Unless an exception is
provided in writing by the Compliance Department, all transactions in Securities
subject to the preclearance requirements for which an Access Person or a member
of his or her Immediate Family has a Beneficial Interest shall be executed by
the Trading Department. However, if the Access Person's brokerage account is an
Electronic Trading Account, the transaction may be placed by the Access Person.
IN ALL INSTANCES, THE TRADING DEPARTMENT MUST GIVE PRIORITY TO CLIENT TRADES
OVER ACCESS PERSON TRADES.
F. LENGTH OF TRADE AUTHORIZATION APPROVAL. The authorization provided by
the Preclearance Officer (or his or her designee) is effective until the earlier
of (1) its revocation; (2) the close of business on the second trading day after
the authorization is granted for transactions placed by the Trading Department
(for example, if authorization is provided on a Monday, it is effective until
the close of business on Wednesday); (3) the close of business of the SAME
TRADING DAY that the authorization is granted for transactions placed through an
Electronic Trading Account; or (4) the Access Person learns that the information
in the Trade Authorization Request Form is not accurate. If the order for the
Securities Transaction is not placed within that period, a new advance
authorization must be obtained before the Securities Transaction is placed. For
Securities Transactions placed by the Trading Deparment that have not been
executed within two trading days after the day the authorization is granted (for
example, in the case of a limit order or a Not Held Order), no new authorization
is necessary unless the person placing the original order for the Securities
Transaction amends it in any way.
G. TRADE REPORTING REQUIREMENTS.
1. REPORTING REQUIREMENT. EVERY ACCESS PERSON AND MEMBERS OF HIS OR
HER IMMEDIATE FAMILY (INCLUDING INDEPENDENT FUND DIRECTORS AND THEIR
IMMEDIATE FAMILIES) MUST ARRANGE FOR THE COMPLIANCE DEPARTMENT TO RECEIVE
DIRECTLY FROM ANY BROKER, DEALER OR BANK THAT EFFECTS ANY SECURITIES
TRANSACTION, DUPLICATE COPIES OF EACH CONFIRMATION FOR EACH SUCH
TRANSACTION AND PERIODIC STATEMENTS FOR EACH BROKERAGE ACCOUNT IN WHICH
SUCH ACCESS PERSON HAS A BENEFICIAL INTEREST. Additionally, securities held
in certificate form that are not included in the periodic statements, must
also be reported. To assist in making these arrangements, the Compliance
Department will send a letter to each brokerage firm based on the
information provided by the Access Person in Appendix 3.
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THE FOREGOING DOES NOT APPLY TO TRANSACTIONS AND HOLDINGS IN (1) OPEN-END
INVESTMENT COMPANIES INCLUDING BUT NOT LIMITED TO THE STRONG FUNDS, (2)
BANKERS ACCEPTANCES, (3) BANK CERTIFICATES OF DEPOSIT ("CDS"), (4)
COMMERCIAL PAPER, (5) REPURCHASE AGREEMENTS WHEN BACKED BY EXEMPT
SECURITIES, (6) U. S. GOVERNMENT SECURITIES, (7) THE ACQUISITION OF EQUITY
SECURITIES IN DIVIDEND REINVESTMENT PLANS ("DRIPS"), WHEN THE ACQUISITION
IS DIRECTLY THROUGH THE ISSUER OR ITS NON-BROKER AGENT; OR (8) SECURITIES
OF THE EMPLOYER OF A MEMBER OF THE ACCESS PERSON'S IMMEDIATE FAMILY IF SUCH
SECURITIES ARE BENEFICIALLY OWNED THROUGH PARTICIPATION BY THE IMMEDIATE
FAMILY MEMBER IN A PROFIT SHARING PLAN, 401(K) PLAN, ESOP OR OTHER SIMILAR
PLAN.
2. DISCLAIMERS. Any report of a Securities Transaction for the benefit
of a person other than the individual in whose account the transaction is
placed may contain a statement that the report should not be construed as
an admission by the person making the report that he or she has any direct
or indirect beneficial ownership in the Security to which the report
relates.
3. QUARTERLY REVIEW. At least quarterly, for Securities Transactions
requiring preclearance under this Code, the Preclearance Officer (or his or
her designee) shall compare the confirmations and periodic statements
provided pursuant to the trade reporting requirements (Section II.G.1.) to
the approved Trade Authorization Request Forms. Such review shall include:
a. Whether the Securities Transaction complied with this Code;
b. Whether the Securities Transaction was authorized in advance
of its placement;
c. Whether the Securities Transaction was executed within two
full trading days of when it was authorized;
d. Whether any Fund or accounts managed by SCM owned the
Securities at the time of the Securities Transaction, and;
e. Whether any Fund or separate accounts managed by SCM purchased
or sold the Securities in the Securities Transaction within at least
10 days of the Securities Transaction.
4. AVAILABILITY OF REPORTS. All information supplied pursuant to this
Code will be available for inspection by the Boards of Directors of SCM and
SFDI; the Board of Directors of each Strong Fund; the Code of Ethics Review
Committee; the Compliance Department; the Access Person's department
manager (or designee); any party to which any investigation is referred by
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any of the foregoing, the SEC, any self-regulatory organization of which
the Strong Funds, SCM, the Distributor or Flint Prairie is a member, and
any state securities commission; as well as any attorney or agent of the
foregoing, the Strong Funds, SCM, the Distributor or Flint Prairie.
III. FIDUCIARY DUTIES
A. CONFIDENTIALITY. Access Persons are prohibited from revealing
information relating to the investment intentions, activities or portfolios of
Advisory Clients except to persons whose responsibilities require knowledge of
the information.
B. GIFTS. The following provisions on gifts apply only to associates of
SCM, the Distributor and Flint Prairie.
1. ACCEPTING GIFTS. On occasion, because of their position with SCM,
the Distributor, the Strong Funds or Flint Prairie, associates may be
offered, or may receive without notice, gifts from clients, brokers,
vendors or other persons not affiliated with such entities. Acceptance of
extraordinary or extravagant gifts is not permissible. Any such gifts must
be declined or returned in order to protect the reputation and integrity of
SCM, the Distributor, the Strong Funds and Flint Prairie. Gifts of a
nominal value (i.e., gifts whose reasonable value is no more than $100 a
year), customary business meals, entertainment (E.G., sporting events) and
promotional items (E.G., pens, mugs, T-shirts) may be accepted. Please see
the Gift Policy (Appendix 8) for additional information.
If an associate receives any gift that might be prohibited under this
Code, the associate must inform the Compliance Department.
2. SOLICITATION OF GIFTS. Associates of SCM, the Distributor or Flint
Prairie may not solicit gifts or gratuities.
3. GIVING GIFTS. Associates of SCM, the Distributor or Flint Prairie
may not give any gift with a value in excess of $100 per year to persons
associated with securities or financial organizations, including exchanges,
other member organizations, commodity firms, news media or clients of the
firm. Please see the Gift Policy (Appendix 9) for additional information.
C. PAYMENTS TO ADVISORY CLIENTS. Access Persons may not make any payments
to Advisory Clients in order to resolve any type of Advisory Client complaint.
All such matters must be handled by the Legal Department.
D. CORPORATE OPPORTUNITIES. Access Persons may not take personal advantage
of any opportunity properly belonging to any Advisory Client, SCM, the
Distributor or Flint Prairie. This includes, but is not limited to, acquiring
Securities for one's own account that would otherwise be acquired for an
Advisory Client.
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E. UNDUE INFLUENCE. Access Persons may not cause or attempt to cause any
Advisory Client to purchase, sell or hold any Security in a manner calculated to
create any personal benefit to the Access Person. If an Access Person or
Immediate Family Member stands to materially benefit from an investment decision
for an Advisory Client that the Access Person is recommending or participating
in, the Access Person must disclose to those persons with authority to make
investment decisions for the Advisory Client, any Beneficial Interest that the
Access Person (or Immediate Family) has in that Security or an Equivalent
Security, or in the issuer thereof, where the decision could create a material
benefit to the Access Person (or Immediate Family) or the appearance of
impropriety. If the Access Person in question is a person with authority to make
investment decisions for the Advisory Client, disclosure must also be made to
the Compliance Department. The person to whom the Access Person reports the
interest, in consultation with the Compliance Department, must determine whether
the Access Person will be restricted in making investment decisions.
F. SERVICE AS A DIRECTOR. No Access Person, other than an Independent Fund
Director, may serve on the board of directors of a publicly-held company not
affiliated with SCM, the Distributor, the Strong Funds or Flint Prairie absent
prior written authorization by the Code of Ethics Review Committee. This
authorization will rarely, if ever, be granted and, if granted, will normally
require that the affected Access Person be isolated through "Chinese Wall" or
other procedures from those making investment decisions related to the issuer on
whose board the Access Person sits.
G. INVOLVEMENT IN CRIMINAL MATTERS OR INVESTMENT-RELATED CIVIL PROCEEDINGS.
Each Access Person must notify the Compliance Department, as soon as reasonably
practical, if arrested, arraigned, indicted or pleads no contest to any criminal
offense (other than minor traffic violations) or if named as a defendant in any
Investment-Related civil proceedings or any administrative or disciplinary
action.
IV. COMPLIANCE WITH THIS CODE OF ETHICS
A. CODE OF ETHICS REVIEW COMMITTEE.
1. MEMBERSHIP, VOTING, AND QUORUM. The Code of Ethics Review Committee
shall consist of Senior Officers of SCM. The Committee shall vote by
majority vote with two members serving as a quorum. Vacancies may be
filled; and in the case of extended absences or periods of unavailability,
alternates may be selected by the majority vote of the remaining members of
the Committee. However, in the event that the General Counsel or Deputy
General Counsel is unavailable, at least one member of the Committee shall
also be a member of the Compliance Department.
2. INVESTIGATING VIOLATIONS OF THE CODE. The General Counsel, or his
or her designee, is responsible for investigating any suspected violation
of the Code and shall report the results of each investigation to the Code
of Ethics Review Committee. The Code of Ethics Review Committee is
responsible for reviewing the results of any investigation of any reported
or suspected violation of the Code. Any material violation of the Code by
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an associate of SCM, the Distributor or Flint Prairie for which significant
remedial action was taken will be reported to the Boards of Directors of
the Strong Funds at the next regularly scheduled quarterly Board meeting.
3. ANNUAL REPORTS. The Code of Ethics Review Committee will review the
Code at least once a year, in light of legal and business developments and
experience in implementing the Code and will prepare an annual report to
the Boards of Directors of SCM, the Distributor and each Strong Fund that:
a. Summarizes existing procedures concerning personal investing
and any changes in the procedures made during the past year;
b. Identifies any violation requiring significant remedial action
during the past year; and
c. Identifies any recommended changes in existing restrictions or
procedures based on its experience under the Code, evolving industry
practices or developments in applicable laws or regulations.
B. REMEDIES.
1. SANCTIONS. If the Code of Ethics Review Committee determines that
an Access Person has committed a violation of the Code, the Committee may
impose sanctions and take other actions as it deems appropriate, including
a letter of caution or warning, suspension of personal trading rights,
suspension of employment (with or without compensation), fine, civil
referral to the SEC, criminal referral and termination of employment for
cause. The Code of Ethics Review Committee may also require the Access
Person to reverse the trade(s) in question and forfeit any profit or absorb
any loss derived therefrom. The amount of profit shall be calculated by the
Code of Ethics Review Committee and shall be forwarded to a charitable
organization. No member of the Code of Ethics Review Committee may review
his or her own transaction.
2. SOLE AUTHORITY. The Code of Ethics Review Committee has sole
authority, subject to the review set forth in Section IV.B.3. below, to
determine the remedy for any violation of the Code, including appropriate
disposition of any moneys forfeited pursuant to this provision. Failure to
promptly abide by a directive to reverse a trade or forfeit profits may
result in the imposition of additional sanctions.
3. REVIEW. Whenever the Code of Ethics Review Committee determines
that an Access Person has committed a violation of this Code that merits
significant remedial action, it will report promptly to the Boards of
Directors of SCM and/or the Distributor (as appropriate), and no less
frequently than the quarterly meeting to the Boards of Directors of the
applicable Strong Funds, information relating to the investigation of the
violation, including any sanctions imposed. The Boards of Directors of SCM,
the Distributor and the Strong Funds may modify such sanctions as they deem
appropriate. Such Boards may have access to all information considered by
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the Code of Ethics Review Committee in relation to the case. The Code of
Ethics Review Committee may determine whether to delay the imposition of
any sanctions pending review by the applicable Boards of Directors.
C. EXCEPTIONS TO THE CODE. Although exceptions to the Code will rarely, if
ever, be granted, the General Counsel of SCM may grant exceptions to the
requirements of the Code on a case-by-case basis if he finds that the proposed
conduct involves negligible opportunity for abuse. All Material exceptions must
be in writing and must be reported as soon as practicable to the Code of Ethics
Review Committee and to the Boards of Directors of the SCM Funds at their next
regularly scheduled meeting after the exception is granted. Refer to Appendix 1
for the definition of "Material."
D. COMPLIANCE CERTIFICATION. At least annually, all Access Persons will be
required to certify on the Annual Code of Ethics Questionnaire set forth in
Appendix 6, or on a document substantially in the form of Appendix 6, that they
have complied with the Code in all respects.
E. RECORD RETENTION. SCM will, at its principal place of business, maintain
the following records in an easily accessible place, for at least six years and
will make records available to the SEC or any representative thereof at any
time:
1. CODE OF ETHICS. A copy of the Code of Ethics which is, or at any
time has been, in effect.
2. VIOLATIONS. A record of any violation of such Code of Ethics and
any action taken as a result of such violation.
3. REQUIRED REPORTS. A copy of each report made by an Access Person
pursuant to the Code of Ethics shall include records of the procedures
followed in connection with the preclearance and reporting requirements of
this Code and information relied on by the Preclearance Officer in
authorizing the Securities Transaction and in making the post-Securities
Transaction determination.
4. ACCESS PERSON LIST. A list of all persons who are, or have been,
required to make reports pursuant to the Code of Ethics.
F. INQUIRIES REGARDING THE CODE. The Compliance Department will answer any
questions about this Code or any other compliance-related matters.
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Appendix 1
DEFINITIONS
"ACCESS PERSON" means (1) every director, officer, and general partner of
SCM, the Distributor, the Strong Funds and Flint Prairie; (2) every associate of
SCM, the Distributor and Flint Prairie who, in connection with his or her
regular functions, makes, participates in, or obtains information regarding the
purchase or sale of a security by an Advisory Client's account; (3) every
associate of SCM, the Distributor and Flint Prairie who is involved in making
purchase or sale recommendations for an Advisory Client's account; (4) every
associate of SCM, the Distributor and Flint Prairie who obtains information
concerning such recommendations prior to their dissemination; and (5) such
agents of SCM, the Distributor, the Funds or Flint Prairie as the Compliance
Department shall designate who may be deemed an Access Person if they were an
associate of the foregoing. Any uncertainty as to whether an individual is an
Access Person should be brought to the attention of the Compliance Department.
Such questions will be resolved in accordance with, and this definition shall be
subject to, the definition of "Access Person" found in Rule 17j-1(e)(1)
promulgated under the Investment Company Act of 1940.
"ADVISORY CLIENT" means any client (including both investment companies and
managed accounts) for which SCM serves as an investment adviser or subadviser,
renders investment advice, makes investment decisions or places orders through
its Trading Department.
"BENEFICIAL INTEREST" means the opportunity, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, to
profit or share in any profit derived from a transaction in the subject
Securities. An Access Person is deemed to have a Beneficial Interest in
Securities owned by members of his or her Immediate Family. Common examples of
Beneficial Interest include joint accounts, spousal accounts, UTMA accounts,
partnerships, trusts and controlling interests in corporations. Any uncertainty
as to whether an Access Person has a Beneficial Interest in a Security should be
brought to the attention of the Compliance Department. Such questions will be
resolved by reference to the principles set forth in the definition of
"beneficial owner" found in Rules 16a-1(a)(2) and (5) promulgated under the
Securities Exchange Act of 1934.
"CODE" means this Code of Ethics.
"COMPLIANCE DEPARTMENT" means the designated persons listed on Appendix 2,
as such Appendix shall be amended from time to time.
"THE DISTRIBUTOR" means Strong Investments, Inc.
"ELECTRONIC TRADING ACCOUNT" means a brokerage account held by an Access
Person where Securities Transactions are placed either electronically via the
Internet or the telephone. All such Securities Transactions must be precleared
by the Compliance Department.
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"EQUIVALENT SECURITY" means any Security issued by the same entity as the
issuer of a subject Security that is convertible into the equity Security of the
issuer. Examples include options but are not limited to rights, stock
appreciation rights, warrants and convertible bonds.
"FUND" means an investment company registered under the Investment Company
Act of 1940 (or a portfolio or series thereof) for which SCM serves as an
adviser or subadviser.
"IMMEDIATE FAMILY" of an Access Person means any of the following persons
who reside in the same household as the Access Person:
child grandparent son-in-law
stepchild spouse daughter-in-law
grandchild sibling brother-in-law
parent mother-in-law sister-in-law
stepparent father-in-law
Immediate Family includes adoptive relationships and any other relationship
(whether or not recognized by law) which the General Counsel determines could
lead to the possible conflicts of interest, diversions of corporate opportunity,
or appearances of impropriety which this Code is intended to prevent.
"INDEPENDENT FUND DIRECTOR" means an independent director of an investment
company for which SCM serves as the advisor.
"LEGAL DEPARTMENT" means the SCM Legal/Compliance Department.
"MATERIAL" for purposes of this reporting requirement, shall mean the
following:
1. NUMBER OF SHARES - Any transaction for more than 1,000 shares shall be
deemed material and subject to reporting. Whether a transaction of
1,000 shares or less is material shall be determined on a case-by-case
basis; in particular, the less liquid a security is, the lower the
threshold that should be used for the materiality determination.
2. DOLLAR VALUE OF TRANSACTION - Any transaction with a dollar value in
excess of $25,000 shall be deemed material and subject to reporting.
Whether a transaction of $25,000 or less is material shall be
determined on a case-by-case basis.
3. NUMBER OF TRANSACTIONS IN A YEAR - The General Counsel may grant no
more than two exceptions per associate per year that are not subject
to reporting. For example, if the General Counsel has granted two
exceptions to an associate, ANY exception granted thereafter shall be
deemed material and subject to reporting (irrespective of the number
of shares or other circumstances of the transaction).
4. CONSULTATION WITH INDEPENDENT COUNSEL - In any case where the General
Counsel believes there is an issue of whether a proposed exception is
material and subject to reporting, he shall consult with counsel to
the independent directors for the Strong Funds.
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<PAGE>
"NOT HELD ORDER" means an order placed with a broker and ultimately
executed at the discretion of the broker.
"PORTFOLIO MANAGER" means a person who has or shares principal day-to-day
responsibility for managing the portfolio of an Advisory Client.
"PRECLEARANCE OFFICER" means the person designated as the Preclearance
Officer in Appendix 2 hereof.
"PROGRAM TRADE" is where a Portfolio Manager directs a trader to do trades
in either an index-type account or portion of account or, at a minimum, 25-30%
of the Securities in a non-index account. Program Trades for non-index type
accounts generally arise in any of three situations: (1) cash or other assets
are being added to an account and the Portfolio Manager instructs the trader
that new securities are to be bought in a manner that maintains the account's
existing allocations; (2) cash is being withdrawn from an account and the
Portfolio Manager instructs the trader that securities are to be sold in a
manner that maintains the account's current securities allocations; and (3) a
new account is established and the Portfolio Manager instructs the trader to buy
specific securities in the same allocation percentages as are held by other
client accounts.
"SEC" means the Securities and Exchange Commission.
"SECURITY" includes stock; notes, bonds, debentures and other evidences of
indebtedness (including loan participations and assignments); limited
partnership interests; investment contracts; all derivative instruments of the
foregoing, such as options and warrants; and other items mentioned in Section
2(a)(36) of the 1940 Act, not specifically exempted by Rule 17j-1. Items
excluded from the definition of "Security" by Rule 17j-1 are U. S. Government
Securities, bankers acceptances, bank certificates of deposit, commercial paper
and shares of open-end investment companies. In addition, security does not
include futures, commodities, currencies or options on the aforementioned, but
the purchase and sale of such instruments are nevertheless subject to the
reporting requirements of the Code.
"SECURITIES TRANSACTION" means a purchase or sale of Securities in which an
Access Person or a members of his or her Immediate Family has or acquires a
Beneficial Interest.
"SCM" means Strong Capital Management, Inc.
"STRONG FUNDS" means the investment companies comprising the Strong Family
of Mutual Funds.
"U. S. GOVERNMENT SECURITY" means any security issued or guaranteed as to
principal or interest by the United States or by a person controlled or
supervised by and acting as an instrumentality of the Government of the United
States pursuant to authority granted by the Congress of the United States or any
certificate of deposit for any of the foregoing.
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<PAGE>
Appendix 2
CONTACT PERSONS
PRECLEARANCE OFFICER
1. Stephen J. Shenkenberg, Deputy General Counsel and Chief Compliance
Officer of SCM
DESIGNEES OF PRECLEARANCE OFFICER
1. Thomas A. Hooker
2. Linda E. Meints
3. John S. Weitzer
4. Kelly M. Zeroth
COMPLIANCE DEPARTMENT
1. Stephen J. Shenkenberg
2. Thomas A. Hooker
3. Kathleen A. Flanagan
4. Linda E. Meints
5. Kelly M. Zeroth
CODE OF ETHICS REVIEW COMMITTEE
1. Stephen J. Shenkenberg, Deputy General Counsel and Chief Compliance
Officer of SCM
2. Thomas A. Hooker, Director of Compliance
16
<PAGE>
Appendix 3
PERSONAL HOLDINGS IN SECURITIES
In accordance with Section II.A. of the Code of Ethics, please provide a
list of all Securities (other than those specifically excluded from the
definition of Security), including physical certificates held, in which each
Access Person has a Beneficial Interest, including those in accounts of the
Immediate Family of the Access Person and all Securities in non-client accounts
for which the Access Person makes investment decisions.
(1) Name of Access Person: _________________________________
(2) If different than (1), name of the person
in whose name the account is held: _________________________________
(3) Relationship of (2) to (1): _________________________________
(4) Broker at which Account is maintained: _________________________________
(5) Account Number: _________________________________
(6) Contact person at Broker and phone number _________________________________
(7) For each account, attach the most recent account statement listing
Securities in that account. If the Access Person owns Beneficial
Interests in Securities that are not listed in an attached account
statement, or holds the physical certificate, list them below:
NAME OF SECURITY QUANTITY VALUE CUSTODIAN
1. ___________________________________________________________________________
2. ___________________________________________________________________________
3. ___________________________________________________________________________
4. ___________________________________________________________________________
5. ___________________________________________________________________________
6. ___________________________________________________________________________
(ATTACH SEPARATE SHEET IF NECESSARY.)
I certify that this form and the attached statements (if any) constitute
all of the Securities in which I have a Beneficial Interest, including those for
which I hold physical certificates, as well as those held in accounts of my
Immediate Family.
________________________________________
Access Person Signature
Dated:______________________________ ________________________________________
Print Name
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Appendix 4
ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS
AND LIMITED POWER OF ATTORNEY
I acknowledge that I have received the Code of Ethics dated October 22,
1999, and represent that:
1. In accordance with Section II.A. of the Code of Ethics, I will
fully disclose the Securities holdings in which I have, or a member of my
Immediate Family has, a Beneficial Interest.*
2. In accordance with Section II.B.1. of the Code of Ethics, I will
obtain prior authorization for all Securities Transactions in which I have,
or a member of my Immediate Family has, a Beneficial Interest except for
transactions exempt from preclearance under Section II.B. 2. of the Code of
Ethics.*
3. In accordance with Section II.G.1. of the Code of Ethics, I will
report all Securities Transactions in which I have, or a member of my
Immediate Family has, a Beneficial Interest, except for transactions exempt
from reporting under Section II.G.1. of the Code of Ethics.
4. I will comply with the Code of Ethics in all other respects.
5. I agree to disgorge and forfeit any profits on prohibited
transactions in accordance with the requirements of the Code.*
I hereby appoint Strong Capital Management, Inc. as my attorney-in-fact for
the purpose of placing orders for and on my behalf to buy, sell, tender,
exchange, convert, and otherwise effectuate transactions in any and all stocks,
bonds, options, and other securities. I agree that Strong Capital Management,
Inc. shall not be liable for the consequences of any errors made by the
executing brokers in connection with such transactions.*
________________________________________
Access Person Signature
________________________________________
Print Name
Dated:______________________________
* Representations (1), (2) and (5) and the Limited Power of Attorney do not
apply to Independent Fund Directors.
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Appendix 5
Ctrl. No:_________________________ Associate ID #________________________
STRONG CAPITAL MANAGEMENT, INC.
PRECLEARANCE REQUEST FOR ACCESS PERSONS
1. Name of Access Person
(and trading entity, if different): _________________________________
2. Name and symbol of Security: _________________________________
3. Maximum quantity to be purchased or sold: _________________________________
4. Name, account # & phone # of broker to
effect transaction: _________________________________
5. Check if applicable: Purchase ____ Market Order ____
Sale ____ Limit Order ____ (Limit Order
Not Held Order ____ Price: ____)
6. In connection with the foregoing transaction, I hereby make the following
representations and warranties:
(a) I do not possess any material nonpublic information regarding the
Security or the issuer of the Security.
(b) To my knowledge:
(1) The Securities or "equivalent" securities (I.E., securities
issued by the same issuer) [ ARE / ARE NOT ] (CIRCLE ONE) held by
any investment companies or other accounts managed by SCM;
(2) There are no outstanding purchase or sell orders for this
Security (or any equivalent security) by any investment companies
or other accounts managed by SCM; and
(3) None of the Securities (or equivalent securities) are actively
being considered for purchase or sale by any investment companies
or other accounts managed by SCM.
(c) The Securities are not being acquired in an initial public offering.
(d) The Securities are not being acquired in a private placement or, if
they are, I have reviewed Section II.D.3. of the Code and have
attached hereto a written explanation of such transaction.
(e) If I am a Portfolio Manager, none of the accounts I manage purchased
or sold these Securities (or equivalent securities) within the past
seven calendar days and I do not expect any such client accounts to
purchase or sell these Securities (or equivalent securities) within
seven calendar days of my purchase or sale.
(f) If I am purchasing these Securities, I have not directly or indirectly
(through any member of my Immediate Family, any account in which I
have a Beneficial Interest or otherwise) sold these Securities (or
equivalent securities) in the prior 60 days.
(g) If I am selling these Securities, I have not directly or indirectly
(through any member of my Immediate Family, any account in which I
have a Beneficial Interest or otherwise) purchased these Securities
(or equivalent securities) in the prior 60 days.
(h) I have read the SCM Code of Ethics within the prior 12 months and
believe that the proposed trade fully complies with the requirements
of the Code.
- ------------------------------------ ----------------------------------------
Access Person Print Name
CERTIFICATION OF ACCESS PERSON DESIGNEE
The undersigned hereby certifies that the above Access Person (a) directly
instructed me to complete this form on his or her behalf, (b) to the best of my
knowledge, was out of the office at the time of such instruction and has not
returned, and (c) confirmed to me that the representations and warranties
contained in this form are accurate.
- ------------------------------------ ----------------------------------------
Access Person Designee Print Name
AUTHORIZATION
Authorized By:___________________________ Date:___________ Time:______________
PLACEMENT
Trader:_____________ Date:_________ Time:_________ Qty:________
EXECUTION
Trader:_____________ Date:_________ Time:_________ Qty:________ Price:______
(Original copy to Compliance Department, Yellow copy to Trading Department,
Pink copy to Access Person)
revised 7/98
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CONFIDENTIAL Appendix 6
ANNUAL CODE OF ETHICS QUESTIONNAIRE(1)
For ACCESS PERSONS of
The Strong Family of Mutual Funds,
Strong Capital Management, Inc.,
Strong Investments, Inc.
and Flint Prairie, L. L. C.
September 14, 1999
Associate: ____________________________ (please print name)
I. Introduction
Access Persons(2) are required to answer the following questions FOR THE
YEAR SEPTEMBER 1, 1998, THROUGH AUGUST 31, 1999. ANSWERS OF "NO" TO ANY OF
THE QUESTIONS IN SECTIONS II AND III MUST BE EXPLAINED ON THE "ATTACHMENT"
ON PAGE 3. Upon completion, please sign and return the questionnaire by
Monday, September 20th, to Kelly Zeroth in the Compliance Department. All
information provided is kept confidential to the maximum extent possible.
If you have any questions, please contact Kelly at extension 3549.
II. Annual certification of compliance with the Code of Ethics
A. Have you OBTAINED PRECLEARANCE for all Securities(3) Transactions in
which you have, or a member of your Immediate Family has, a Beneficial
Interest, except for transactions exempt from preclearance under the
Code of Ethics? (Circle "Yes" if there have been no Securities
Transactions.)
YES NO (CIRCLE ONE)
B. Have you REPORTED all Securities Transactions in which you have, or a
member of your Immediate Family has, a Beneficial Interest, except for
transactions exempt from reporting under the Code of Ethics?
(Reporting requirements include arranging for the Compliance
Department to receive, directly from your broker, duplicate
transaction confirmations and duplicate periodic statements for each
brokerage account in which you have, or a member of your Immediate
Family has, a Beneficial Interest, as well as reporting securities
held in certificate form(4). Circle "Yes" if there are no reportable
transactions.)
YES NO (CIRCLE ONE)
C. Do you understand that you are PROHIBITED from owning five percent or
more of any class of security of a registered investment company, and
have you so complied?
YES NO (CIRCLE ONE)
D. Have you notified the Compliance Department if you have been arrested,
arraigned, indicted, or have plead no contest to any criminal offense,
or been named as a defendant in any Investment-Related civil
proceedings, or administrative or disciplinary action? (Circle "Yes"
if you have not been arrested, arraigned, etc.)
- ----------
(1) All definitions used in this questionnaire have the same meaning as those
in the Code of Ethics.
(2) Non-Access Persons and Independent Fund Directors of the Strong Funds must
complete a separate questionnaire.
(3) Security, as defined, does NOT include open-end investment companies,
including the Strong Funds.
(4) Please contact Kelly Zeroth if you are uncertain as to what confirmations
and statements you have arranged for the Compliance Department to receive.
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YES NO (CIRCLE ONE)
E. Have you complied with the Code of Ethics in all other respects,
including the gift policy?
YES NO (CIRCLE ONE)
LIST ON THE ATTACHMENT ALL REPORTABLE GIFTS(5) GIVEN OR RECEIVED FOR
THE YEAR SEPTEMBER 1, 1998, THROUGH AUGUST 31, 1999, NOTING THE MONTH,
"COUNTERPARTY," GIFT DESCRIPTION, AND ESTIMATED VALUE.
III. Have you complied in all respects with the Insider Trading Policy dated
January 1, 1999?
YES NO ________(CIRCLE ONE)
ANSWERS OF "NO" TO ANY OF THE QUESTIONS IN SECTIONS II AND III MUST BE EXPLAINED
ON THE "ATTACHMENT" ON PAGE 3.
IV. Disclosure of directorships statement
A. Are you, or is any member of your Immediate Family, a director of any
for-profit, privately held companies(6)? (If "Yes," please list on the
Attachment each company for which you are, or a member of your
Immediate Family is, a director.)
YES NO (CIRCLE ONE)
B. If the response to IV.A. is "Yes," do you have knowledge that any of
the companies for which you are, or a member of your Immediate Family
is, a director will go public or be acquired within the next 12
months? (If the answer is "YES," please be prepared to discuss this
matter with a member of the Compliance Department in the near future.)
YES NO (CIRCLE ONE)
I hereby represent that, to the best of my knowledge, the foregoing responses
are true and complete. I understand that any untrue or incomplete response may
be subject to disciplinary action by the firm.
- ------------------------------------
Access Person Signature
- ------------------------------------ ----------------------------------------
Print Name Date
- ----------
(5) Associates are NOT required to report the following: (i) usual and
customary promotional items given to or received from vendors, (ii) items
donated to charity (through Legal), or (iii) food items consumed on the
premises. Entertainment - i.e., a meal or activity with the vendor present
- does not have to be reported.
(6) Per Section III.F. of the Code of Ethics, no Access Person, other than an
Independent Fund Director, may serve on the board of directors of a
PUBLICLY HELD company.
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ATTACHMENT TO
ANNUAL CODE OF ETHICS QUESTIONNAIRE
PLEASE EXPLAIN ALL "NO" RESPONSES TO QUESTIONS IN SECTIONS II AND III:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE LIST EACH COMPANY FOR WHICH YOU ARE, OR A MEMBER OR YOUR IMMEDIATE FAMILY
IS, A DIRECTOR (SECTION IV):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GIFTS FOR THE YEAR SEPTEMBER 1, 1998, THROUGH AUGUST 31, 1999:
MONTH GIFT GIVER/RECEIVER GIFT DESCRIPTION ESTIMATED VALUE
----- ------------------- ---------------- ---------------
1. _____________________________________________________________________________
2. _____________________________________________________________________________
3. _____________________________________________________________________________
4. _____________________________________________________________________________
5. _____________________________________________________________________________
6. _____________________________________________________________________________
7. _____________________________________________________________________________
8. _____________________________________________________________________________
9. _____________________________________________________________________________
10._____________________________________________________________________________
(CONTINUE ON AN ADDITIONAL SHEET IF NECESSARY.)
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Appendix 7
LIST OF BROAD-BASED INDICES
Listed below are the broad-based indices as designated by the Compliance
Department. See Section II.B.2.e. for additional information.
DESCRIPTION OF OPTION SYMBOL EXCHANGE
- --------------------- ------ --------
Computer Technology XCI AMEX
Eurotop 100 ERT AMEX
Biotechnology Index BTK AMEX
Gold / Silver Index * AUX PHLX
Hong Kong Option Index HKO AMEX
Inter@ctive Wk. Internet Index INX CBOE
Japan Index JPN AMEX
Major Market Index * XMI AMEX
Morgan Stanley High Tech Index MSH AMEX
NASDAQ-100 NDX CBOE
Oil Service Sector Index OSX PHLX
Pacific High Tech Index XPI PSE
Russell 2000 * RUT CBOE
Semiconductor Sector SOX PHLX
S & P 100 * OEX CBOE
S & P 400 Midcap Index * MID CBOE
S & P 500 * SPX CBOE
Technology Index TXX CBOE
Value Line Index * VLE PHLX
Wilshire Small Cap Index WSX PSE
* Includes LEAPs
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<PAGE>
Appendix 8
GIFT POLICY
The gift policy of Strong Capital Management, Inc., Strong Investments,
Inc. and Flint Prairie, L. L. C. covers both GIVING GIFTS TO and ACCEPTING GIFTS
FROM clients, brokers, persons with whom we do business or others (collectively,
"vendors"). It is based on the applicable requirements of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. ("NASD") and is
included as part of the firm's Codes of Ethics.
Under our policy, associates may not give gifts to or accept gifts from
vendors with a value in excess of $100 PER PERSON PER YEAR and must report to
the firm annually if they accept certain types of gifts. The NASD defines a
"gift" to include any kind of gratuity. Since giving or receiving any gifts in a
business setting may give rise to an appearance of impropriety or may raise a
potential conflict of interest, we are relying on your professional attitude and
good judgment to ensure that our policy is observed to the fullest extent
possible. The discussion below is designed to assist you in this regard.
Questions regarding the appropriateness of any gift should be directed to
the Legal/Compliance Department.
1. GIFTS GIVEN BY ASSOCIATES
Under applicable NASD rules, an associate may not give any gift with a
value in excess of $100 per year to any person associated with a securities or
financial organization, including exchanges, broker-dealers, commodity firms,
the news media, or clients of the firm. Please note, however, that the firm may
not take a tax deduction for any gift with a value exceeding $25.
This memorandum is not intended to authorize any associate to give a gift
to a vendor -- appropriate supervisory approval must be obtained before giving
any gifts.
2. GIFTS ACCEPTED BY ASSOCIATES
On occasion, because of their position within the firm, associates may be
offered, or may receive without notice, gifts from vendors. Associates may not
accept any gift or form of entertainment from vendors (E.G., tickets to the
theater or a sporting event where the vendor does not accompany the associate)
other than gifts of NOMINAL VALUE, which the NASD defines as under $100 in total
from any vendor in any year (managers may, if they deem it appropriate for their
department, adopt a lower dollar ceiling). Any gift accepted by an associate
must be reported to the firm, subject to certain exceptions (see heading 4
below). In addition, note that our gift policy does not apply to normal and
customary business entertainment or to personal gifts (see heading 3 below).
Associates may not accept a gift of cash or a cash equivalent (E.G., gift
certificates) in ANY amount, and under no circumstances may an associate solicit
a gift from a vendor.
Associates may wish to have gifts from vendors donated to charity,
particularly where it might be awkward or impolite for an associate to decline a
gift not permitted by our policy. In such case, the gift should be forwarded to
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<PAGE>
Legal, who will arrange for it to be donated to charity. Similarly, associates
may wish to suggest to vendors that, in lieu of an annual gift, the vendors make
a donation to charity. In either situation discussed in this paragraph, an
associate would not need to report the gift to the firm (see heading 4 below).
3. EXCLUSION FOR BUSINESS ENTERTAINMENT/PERSONAL GIFTS
Our gift policy does not apply to normal and customary business meals and
entertainment with vendors. For example, if an associate has a business meal and
attends a sporting event or show with a vendor, that activity would not be
subject to our gift policy, provided the vendor is present. If, on the other
hand, a vendor gives an associate tickets to a sporting event and the associate
attends the event without the vendor also being present, the tickets would be
subject to the dollar limitation and reporting requirements of our gift policy.
Under no circumstances may associates accept business entertainment that is
extraordinary or extravagant in nature.
In addition, our gift policy does not apply to usual and customary gifts
given to or received from vendors based on a personal relationship (E.G., gifts
between an associate and a vendor where the vendor is a family member or
personal friend).
4. REPORTING
The NASD requires gifts to be reported to the firm. Except as noted below,
associates must report annually all gifts given to or accepted from vendors
(Legal will distribute the appropriate reporting form to associates).
Associates are NOT required to report the following: (i) usual and
customary promotional items given to or received from vendors (E.G., hats, pens,
T-shirts, and similar items marked with a firm's logo), (ii) items donated to
charity through Legal, or (iii) food items consumed on the firm's premises
(E.G., candy, popcorn, etc.).
January 1, 1999
25
<PAGE>
Appendix 9
INSIDER TRADING POLICY AND PROCEDURES
DESIGNED TO DETECT AND PREVENT INSIDER TRADING
A. POLICY STATEMENT.
1. INTRODUCTION. Strong Capital Management, Inc., Strong Investments, Inc.,
Heritage Reserve Development Corporation, Flint Prairie, L. L. C. and such other
companies which adopt these Policies and Procedures (all of the foregoing
entities are collectively referred to herein as "Strong") seek to foster a
reputation for integrity and professionalism. That reputation is a vital
business asset. The confidence and trust placed in Strong by clients is
something we should value and endeavor to protect. To further that goal, the
Policy Statement implements procedures to deter the misuse of material,
nonpublic information in securities transactions.
2. PROHIBITIONS. Accordingly, associates are prohibited from trading,
either personally or on behalf of others (including advisory clients), on
material, nonpublic information or communicating material, nonpublic information
to others in violation of the law. This conduct is frequently referred to as
"insider trading." This policy applies to every associate and extends to
activities within and outside their duties at Strong. Any questions regarding
this policy should be referred to the Compliance Department.
3. GENERAL SANCTIONS. Trading securities while in possession of material,
nonpublic information or improperly communicating that information to others may
expose you to stringent penalties. Criminal sanctions may include a fine of up
to $1,000,000 and/or ten years imprisonment. The SEC can recover the profits
gained or losses avoided through the violative trading, a penalty of up to three
times the illicit windfall and an order permanently barring you from the
securities industry. Finally, you may be sued by investors seeking to recover
damages for insider trading violations.
4. INSIDER TRADING DEFINED. The term "insider trading" is not defined in
the federal securities laws, but generally is used to refer to the use of
material, nonpublic information to trade in securities (whether or not one is an
"insider") or to communications of material, nonpublic information to others.
While the law concerning insider trading is not static, it is currently
understood that the law generally prohibits:
a. trading by an insider, while in possession of material, nonpublic
information;
b. trading by a non-insider, while in possession of material,
nonpublic information, where the information either was disclosed to the
non-insider in violation of an insider's duty to keep it confidential or
was misappropriated;
c. recommending the purchase or sale of securities on the basis of
material, nonpublic information;
d. communicating material, nonpublic information to others; or
26
<PAGE>
e. providing substantial assistance to someone who is engaged in any
of the above activities.
The elements of insider trading and the penalties for such unlawful conduct
are described below. Any associate who, after reviewing these Policies and
Procedures has any question regarding insider trading should consult with the
Compliance Department. Often, a single question can forestall disciplinary
action or complex legal problems.
5. TENDER OFFERS. Tender offers represent a particular concern in the law
of insider trading for two reasons. First, tender offer activity often produces
extraordinary gyrations in the price of the target company's securities. Trading
during this time period is more likely to attract regulatory attention (and
produces a disproportionate percentage of insider trading cases). Second, the
SEC has adopted a rule which expressly forbids trading and "tipping" while in
possession of material, nonpublic information regarding a tender offer received
from the tender offeror, the target company or anyone acting on behalf of
either. Associates should exercise particular caution any time they become aware
of nonpublic information relating to a tender offer.
6. CONTACT THE COMPLIANCE DEPARTMENT. To protect yourself, our clients, and
Strong, you should contact the Compliance Department immediately if you believe
that you may have received material, nonpublic information.
B. PROCEDURES DESIGNED TO DETECT AND PREVENT INSIDER TRADING. The following
procedures have been established to aid Strong and all associates in avoiding
insider trading, and to aid Strong in preventing, detecting, and imposing
sanctions against insider trading. Every associate must follow these procedures
or risk serious sanctions, including dismissal, substantial personal liability
and criminal penalties. Any questions about these procedures should be directed
to the Compliance Department.
1. INITIAL QUESTIONS. Before trading in the Securities of a company about
which an associate may have potential inside information, an associate, whether
trading for himself or herself or others, should ask himself or herself the
following questions:
a. IS THE INFORMATION MATERIAL? Is this information that an investor
would consider important in making his or her investment decisions? Is this
information that would substantially affect the market price of the
securities if generally disclosed?
b. IS THE INFORMATION NONPUBLIC? To whom has this information been
provided? Has the information been effectively communicated to the market
place by being published in Reuters, THE WALL STREET JOURNAL or other
publications of general circulation?
2. MATERIAL AND NONPUBLIC INFORMATION. If, after consideration of the
above, any associate believes that the information is material and nonpublic, or
if an associate has questions as to whether the information is material and
nonpublic, he or she should take the following steps:
a. Report the matter immediately to the Compliance Department.
27
<PAGE>
b. Do not purchase or sell the Securities either on the associate's
own behalf or on the behalf of others.
c. Do not communicate the information to anyone, other than to the
Compliance Department.
d. After the Compliance Department has reviewed the issue, the
associate will be instructed to continue the prohibitions against trading
and communication, or he or she will be allowed to trade and communicate
the information.
3. CONFIDENTIALITY. Information in an associate's possession that is
identified as material and nonpublic may not be communicated to anyone, include
persons within Strong, except as otherwise provided herein. In addition, care
should be taken so that such information is secure. For example, files
containing material, nonpublic information should be sealed, access to computer
files containing material, nonpublic information should be restricted and
conversations containing such information, if appropriate at all, should be
conducted in private (for example, not by cellular telephone to avoid potential
interception).
4. ASSISTANCE OF THE COMPLIANCE DEPARTMENT. If, after consideration of the
items set forth in Section B.2., doubt remains as to whether information is
material or nonpublic, or if there is any unresolved question as to the
applicability or interpretation of the foregoing procedures, or as to the
propriety of any action, it must be discussed with the Compliance Department
before trading or communicating the information to anyone.
5. REPORTING REQUIREMENT. In accordance with Strong's Code of Ethics, every
associate must arrange for the Compliance Department to receive directly from
the broker, dealer, or bank in question, duplicate copies of each confirmation
for each Securities Transaction and periodic statement for each brokerage
account in which such associate has a beneficial interest.
C. INSIDER TRADING EXPLANATIONS.
1. WHO IS AN INSIDER? The concept of "insider" is broad. It includes
officers, directors and associates of a company. In addition, a person can be a
"temporary insider" if he or she enters into a special confidential relationship
in the conduct of a company's affairs and as a result is given access to
information solely for the company's purposes. A temporary insider can include,
among others, a company's attorneys, accountants, consultants, bank lending
officers and the associates of such organizations. In addition, Strong may
become a temporary insider. According to the United States Supreme Court, the
company must expect the outsider to keep the disclosed nonpublic information
confidential, and the relationship must at least imply such a duty before the
outsider will be considered an insider.
2. WHAT IS MATERIAL INFORMATION? Trading on inside information is not a
basis for liability unless the information is material. "Material information"
generally is defined as information for which there is a substantial likelihood
that a reasonable investor would consider it important in making his or her
investment decisions, or information that is reasonably certain to have a
substantial effect on the price of a company's securities. It need not be
important that it would have changed the investor's decision to buy or sell. No
simple "bright line" test exists to determine when information is material;
28
<PAGE>
assessments of materiality involve a highly fact-specific inquiry. For this
reason, you should direct any question about whether information is material to
the Compliance Department.
Material information often relates to a company's results and operations
including, for example, dividend changes, earnings results, changes in
previously released earnings estimates, significant merger or acquisition
proposals or agreements, major litigation, liquidation problems and
extraordinary management developments.
Material information also may relate to the market for a company's
securities. Information about a significant order to purchase or sell securities
may, in some contexts, be deemed material.
Material information does not have to relate to a company's business. For
example, in CARPENTER V. U.S., 108 U.S. 316 (1987), the United States Supreme
Court considered as material certain information about the contents of a
forthcoming newspaper column that was expected to affect the market price of a
security. In that case, a Wall Street Journal reporter was found criminally
liable for disclosing to others the dates that reports on various companies
would appear in THE WALL STREET Journal and whether those reports would be
favorable or unfavorable.
3. WHAT IS NONPUBLIC INFORMATION? Information is nonpublic until it has
been effectively disseminated broadly to investors in the market place. One must
be able to point to some fact to show that the information is generally public.
For example, information found in a report filed with the SEC, or appearing in
Dow Jones, Reuters Economic Services, THE WALL STREET JOURNAL, or other
publications of general circulation would be considered public.
4. WHAT ARE THE PENALTIES FOR INSIDER TRADING? Penalties for trading on or
communicating material, nonpublic information are severe, both for individuals
involved in such unlawful conduct and their employers. A person can be subject
to some or all of the penalties below even if he or she does not personally
benefit from the violation. Penalties include: (a) civil injunctions; (b) treble
damages; (c) disgorgement of profits; (d) jail sentences; (e) fines for the
person who committed the violation of up to three times the profit gained or
loss avoided, whether or not the person actually benefited; and (f) fines for
the employer or other controlling person of up to the greater of $1,000,000 or
three times the amount of the profit gained or loss avoided.
In addition to the foregoing, any violation of this Policy with Respect to
Insider Trading can be expected to result in serious sanctions, including
dismissal of the person or persons involved.
January 1, 1999
29
<PAGE>
Appendix 10
ELECTRONIC TRADING AUTHORIZATION FORM
Authorization has been granted to ____________________________ ("Access Person")
to open an Electronic Trading Account(1) at ________________ ("Brokerage Firm").
As a condition of approval, the Access Person agrees to the following
requirements, relating to all Securities Transactions:
1. All Securities Transactions as defined in the Code of Ethics, except those
specifically exempt, must be precleared by the Compliance Department;
2. All Securities Transactions will be placed and executed by the close of the
SAME trading day that the authorization is granted, otherwise the
authorization will expire. This includes Limit Orders. There will be no
open "until filled" orders;
3. The Access Person will provide the Compliance Department with documentation
from the Internet Site that shows when the order was placed and executed.
4. The Access Person will arrange for the Compliance Department to receive
directly from the Electronic Trading Firm, duplicate copies of each
confirmation for each Securities Transaction and periodic statements for
each brokerage account in which the Access Person has a Beneficial
Interest. THE ACCESS PERSON MAY NOT PLACE TRADES ON HIS OR HER OWN BEHALF
UNTIL THESE ARRANGEMENTS HAVE BEEN MADE.
5. The Access Person will comply with the Code of Ethics in all other
respects.
I hereby agree to the terms and conditions stated above. Any abuse of this
privilege may result in disciplinary action by the firm.
- ------------------------------------ ----------------------------------------
Access Person Date
AUTHORIZATION
- ------------------------------------ ----------------------------------------
Director of Compliance (or designee) Date
- ----------
(1) Electronic Trading Account includes brokerage accounts where Securities
Transactions are placed electronically via the Internet or the telephone.
30
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Appendix 11
TO: ALL ACCESS PERSONS
FROM: Director of Compliance
Subject: Social Security Number/Tax ID Information
Strong's Code of Ethics requires the Compliance Department to monitor the
personal investing activity of Access Persons, including investments in mutual
funds. To assist in this, we ask that you please provide your Social Security
Number, as well as the SSN of each member of your "IMMEDIATE FAMILY". In
addition, please list all accounts in which you may have a "BENEFICIAL
INTEREST".
(Please refer to your copy of the Code of Ethics for a definition of the
underlined words.)
Please complete this form return it to the Director of Compliance at your
earliest convenience. Thank you for your cooperation.
- --------------------------------------------------------------------------------
(Print Name) (SSN/TIN)
- --------------------------------------------------------------------------------
(Print Name) (SSN/TIN)
- --------------------------------------------------------------------------------
(Print Name) (SSN/TIN)
- --------------------------------------------------------------------------------
(Print Name) (SSN/TIN)
- --------------------------------------------------------------------------------
(Print Name) (SSN/TIN)
- --------------------------------------------------------------------------------
(Print Name) (SSN/TIN)
31
[JANUS LOGO]
JANUS ETHICS RULES
"ACT IN THE BEST INTEREST OF OUR INVESTORS"
EARN THEIR CONFIDENCE WITH EVERY ACTION"
- --------------------------------------------------------------------------------
CODE OF ETHICS
INSIDER TRADING POLICY
GIFT POLICY
OUTSIDE EMPLOYMENT POLICY
- --------------------------------------------------------------------------------
LAST REVISED MARCH 1, 2000
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
DEFINITIONS ...................................................................1
INTRODUCTION...................................................................4
CAUTION REGARDING PERSONAL TRADING ACTIVITIES................................4
COMMUNICATIONS WITH OUTSIDE TRUSTEES/DIRECTORS...............................4
CODE OF ETHICS.................................................................5
OVERVIEW.....................................................................5
GENERAL PROHIBITIONS.........................................................5
TRADING RESTRICTIONS.........................................................6
EXCLUDED TRANSACTIONS......................................................6
DISCLOSURE OF CONFLICTS....................................................7
PRECLEARANCE...............................................................7
TRADING BAN ON PORTFOLIO MANAGERS AND ASSISTANT PORTFOLIO MANAGERS.........8
BAN ON IPOs AND HOT ISSUES.................................................8
60 DAY RULE................................................................8
BLACKOUT PERIOD............................................................8
FIFTEEN DAY RULE...........................................................8
SEVEN DAY RULE.............................................................9
SHORT SALES................................................................9
HEDGE FUNDS, INVESTMENT CLUBS, AND OTHER INVESTMENTS.......................9
PRECLEARANCE PROCEDURES......................................................9
GENERAL PRECLEARANCE.......................................................9
PRECLEARANCE REQUIREMENTS FOR INVESTMENT PERSONNEL........................10
PRECLEARANCE OF COMPANY STOCK.............................................10
PRECLEARANCE OF TENDER OFFERS AND STOCK PURCHASE PLANS....................11
FOUR DAY EFFECTIVE PERIOD.................................................11
REPORTING REQUIREMENTS......................................................11
ACCOUNT STATEMENTS........................................................11
HOLDINGS REPORTS..........................................................12
PERSONAL SECURITIES TRANSACTION REPORTS...................................12
NON-INFLUENCE AND NON-CONTROL ACCOUNTS....................................12
OTHER REQUIRED FORMS........................................................13
ACKNOWLEDGMENT OF RECEIPT FORM............................................13
ANNUAL CERTIFICATION FORM.................................................13
OUTSIDE DIRECTOR/TRUSTEE REPRESENTATION FORM..............................13
INSIDER TRADING POLICY........................................................14
BACKGROUND INFORMATION......................................................14
WHO IS AN INSIDER?........................................................15
WHEN IS INFORMATION NONPUBLIC?............................................15
WHAT IS MATERIAL INFORMATION?.............................................15
WHEN IS INFORMATION MISAPPROPRIATED?......................................15
PENALTIES FOR INSIDER TRADING.............................................16
WHO IS A CONTROLLING PERSON?..............................................16
PROCEDURES TO IMPLEMENT POLICY .............................................16
<PAGE>
IDENTIFYING MATERIAL INSIDE INFORMATION...................................16
REPORTING INSIDE INFORMATION..............................................17
WATCH AND RESTRICTED LISTS................................................17
PROTECTING INFORMATION....................................................18
RESPONSIBILITY TO MONITOR TRANSACTIONS....................................19
RECORD RETENTION..........................................................19
TENDER OFFERS.............................................................19
GIFT POLICY...................................................................20
GIFT GIVING.................................................................20
GIFT RECEIVING..............................................................20
CUSTOMARY BUSINESS AMENITIES................................................20
OUTSIDE EMPLOYMENT POLICY.....................................................21
PENALTY GUIDELINES............................................................22
OVERVIEW....................................................................22
PENALTY GUIDELINES .......................................................22
SUPERVISORY AND COMPLIANCE PROCEDURES.........................................23
SUPERVISORY PROCEDURES......................................................23
PREVENTION OF VIOLATIONS..................................................23
DETECTION OF VIOLATIONS...................................................23
COMPLIANCE PROCEDURES.......................................................24
REPORTS OF POTENTIAL DEVIATIONS OR VIOLATIONS.............................24
ANNUAL REPORTS............................................................24
RECORDS ..................................................................24
INSPECTION................................................................25
CONFIDENTIALITY...........................................................25
FILING OF REPORTS.........................................................25
THE ETHICS COMMITTEE........................................................25
MEMBERSHIP OF THE COMMITTEE...............................................25
COMMITTEE MEETINGS........................................................25
SPECIAL DISCRETION........................................................26
GENERAL INFORMATION ABOUT THE ETHICS RULES....................................27
DESIGNEES...................................................................27
ENFORCEMENT.................................................................27
INTERNAL USE................................................................27
FORMS.........................................................................28
<PAGE>
JANUS ETHICS RULES
"ACT IN THE BEST INTEREST OF OUR INVESTORS - EARN THEIR
CONFIDENCE WITH EVERY ACTION"
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DEFINITIONS
- --------------------------------------------------------------------------------
The following definitions are used throughout this document. You are responsible
for reading and being familiar with each definition.
1. "Access Person" shall mean:
1) Any trustee, director, officer or Advisory Person of the Janus Funds
or JCC;
2) Any director or officer of JDI who in the ordinary course of his or
her business makes, participates in or obtains information regarding
the purchase or sale of securities for the Janus Funds or for the
advisory clients or whose functions or duties as part of the ordinary
course of his or her business relate to the making of any
recommendation to the Janus Funds or advisory clients regarding the
purchase or sale of securities; and
3) Any other persons designated by the Ethics Committee as having access
to current trading information.
2. "Advisory Person" shall mean:
1) Any employee of the Janus Funds or JCC (or of any company in a control
relationship to the Janus Funds or JCC) who in connection with his or
her regular functions or duties, makes, participates in or obtains
information regarding the purchase or sale of a security by the Funds
or for the account of advisory clients, or whose functions relate to
the making of any recommendations with respect to such purchases and
sales; and
2) Any natural person in a control relationship to the Funds or JCC who
obtains information concerning recommendations made to the Funds or
for the account of Clients with regard to the purchase or sale of a
security.
3. "Beneficial Ownership" shall be interpreted in the same manner as it would
be under Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 in
determining whether a person is subject to the provisions of Section 16
except that the determination of direct or indirect Beneficial Ownership
shall apply to all Covered Securities which an Access Person has or
acquires. For example, in addition to a person's own accounts the term
"Beneficial Ownership" encompasses securities held in the name of a spouse
or equivalent domestic partnership, minor children, a relative sharing your
home, or certain trusts under which you or a related party is a
beneficiary, or held under other arrangements indicating a sharing of
financial interest.
4. "Company Stock" is any stock or option issued by Janus, Stilwell Financial,
Inc. ("Stilwell") or Kansas City Southern Industries, Inc. ("KCSI").
<PAGE>
5. "Control" shall have the same meaning as that set forth in Section 2(a)(9)
of the 1940 Act.
6. "Covered Persons" are all Directors, Trustees, officers, and full-time,
part-time or temporary employees of Janus, and persons working at Janus on
a contract basis.
7. "Covered Securities" generally include all securities (including Company
Stock), whether publicly or privately traded, and any option, future,
forward contract or other obligation involving a security or index thereof,
including an instrument whose value is derived or based on any of the above
(a "derivative"). The term Covered Security includes any separate security,
which is convertible into or exchangeable for, or which confers a right to
purchase such security. The following investments are not Covered
Securities:
* shares of registered open-end investment companies (e.g., mutual
funds);
* direct obligations of the U.S. government (e.g., Treasury securities),
or any derivative thereof;
* securities representing a limited partnership interest in a real
estate limited partnership;
* high-quality money market instruments, such as certificates of
deposit, bankers acceptances, repurchase agreements, commercial paper,
and U.S. government agency obligations;
* insurance contracts, including life insurance or annuity contracts;
* direct investments in real estate, business franchises or similar
ventures; and
* physical commodities (including foreign currencies), or any
derivatives thereof.
8. "Designated Compliance Representatives" are David Kowalski and Ernie
Overholt or their designee(s).
9. "Designated Legal Representatives" are Bonnie Howe and Heidi Walter or
their designee(s).
10. "Designated Trading Operations Representatives" are Lesa Finney, John
Porro, and Mark Farrell.
11. "Directors" are directors of JCC.
12. "Executive Committee" is comprised of Thomas Bailey, Jim Craig, Thomas
Early, Steve Goodbarn, Margie Hurd, and Mark Whiston.
13. "Executive Investment Committee" is comprised of Jim Craig, Jim Goff, Helen
Hayes, Warren Lammert, and Scott Schoelzel.
14. "Ethics Committee" is comprised of Thomas Early, Steve Goodbarn, David
Kowalski and Ernie Overholt.
15. "Initial Public Offering" means an offering of securities registered under
the Securities Act of 1933, the issuer of which, immediately before the
registration, was not subject to the reporting requirements of sections 13
or 15(d) of the Securities Exchange Act of 1934.
16. "Inside Trustees and Directors" are Trustees and Directors who are also
employed by Janus.
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17. "Investment Personnel" shall mean (i) a person who makes decisions
regarding the purchase or sale of securities by or on behalf of the Janus
Funds or advisory clients and any person such as an analyst or trader who
directly assists in the process, and (ii) any natural person who controls
the Janus Funds or JCC and who obtains information concerning
recommendations made to the Funds regarding the purchase or sale of Covered
Securities by the Funds.
18. "Janus" is Janus Investment Fund, Janus Aspen Series, Janus Capital
Corporation, Janus Service Corporation, Janus Distributors, Inc., Janus
Capital International Ltd., Janus International (UK) Ltd., Janus Capital
Trust Manager Ltd., Janus Universal Funds, and Janus World Funds Plc.
19. "Janus Funds" are Janus Investment Fund, Janus Aspen Series, Janus
Universal Funds, and Janus World Funds Plc.
20. "JCC" is Janus Capital Corporation, Janus Capital International Ltd., Janus
International (UK) Ltd. and Janus Capital Trust Manager Ltd.
21. "JDI" is Janus Distributors, Inc.
22. "JDI's Operations Manager" is Dana Stephens and/or her designee(s).
23. "Limited Offering" means an offering that is exempt from registration under
the Securities Act of 1933 pursuant to section 4(2) or section 4(6) or
pursuant to rule 504, rule 505 or rule 506 thereunder.
24. "NASD" is the National Association of Securities Dealers, Inc.
25. "Non-Access Person" is any person that is not an Access Person.
26. "Outside Directors" are Directors who are not employed by Janus.
27. "Outside Trustees" are Trustees who are not "interested persons" of the
Janus Funds within the meaning of Section 2(a)(9) of the 1940 Act.
28. "Registered Persons" are persons registered with the NASD by JDI.
29. "Security Held or to be Acquired" means any Covered Security which, within
the most recent 15 days (i) is or has been held by the Janus Funds; or (ii)
is being or has been considered by the Janus Funds or JCC for purchase.
30. "SEC" is Securities and Exchange Commission.
31. "Trustees" are trustees of Janus Investment Fund and Janus Aspen Series.
These definitions may be updated from time to time to reflect changes in
personnel.
3
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INTRODUCTION
- --------------------------------------------------------------------------------
These Ethics Rules ("Rules") apply to all Covered Persons. The Rules apply
to transactions for your personal accounts and any other accounts you
Beneficially Own. You may be deemed the beneficial owner of any account in which
you have a direct or indirect financial interest. Such accounts include, among
others, accounts held in the name of your spouse or equivalent domestic
partnership, your minor children, a relative sharing your home, or certain
trusts under which you or such persons are a beneficiary.
The Rules are intended to ensure that you (i) at all times place first the
interests of the Janus Funds, investment companies for which Janus serves as
subadviser, and other advisory clients ("Clients"); (ii) conduct all personal
trading consistent with the Rules and in such a manner as to avoid any actual or
potential conflict of interest or any abuse of your position of trust and
responsibility; and (iii) not use any material nonpublic information in
securities trading. The Rules also establish policies regarding other matters,
such as outside employment and the giving or receiving of gifts.
You are required to read and retain these Rules and to sign and return the
attached Acknowledgment of Receipt Form to Compliance upon commencement of
employment or other services. On an annual basis thereafter, you will be
required to complete an Annual Certification Form. The Annual Certification Form
confirms that (i) you have received, read and asked any questions necessary to
understand the Rules; (ii) you agree to conduct yourself in accordance with the
Rules; and (iii) you have complied with the Rules during such time as you have
been associated with Janus. Depending on your status, you may be required to
submit additional reports and/or obtain clearances as discussed more fully
below.
Unless otherwise defined, all capitalized terms shall have the same meaning
as set forth in the Definitions section.
CAUTION REGARDING PERSONAL TRADING ACTIVITIES
Certain personal trading activities may be risky not only because of the
nature of the transactions, but also because action necessary to close out a
position may become prohibited for some Covered Persons while the position
remains open. For example, you may not be able to close out short sales and
transactions in derivatives. Furthermore, if JCC becomes aware of material
nonpublic information, or if a Client is active in a given security, some
Covered Persons may find themselves "frozen" in a position. JCC will not bear
any losses in personal accounts resulting from the application of these Rules.
COMMUNICATIONS WITH OUTSIDE TRUSTEES/DIRECTORS
As a regular business practice, JCC attempts to keep Directors and Trustees
informed with respect to its investment activities through reports and other
information provided to them in connection with board meetings and other events.
In addition, Janus personnel are encouraged to respond to inquiries from
Directors and Trustees, particularly as they relate to general strategy
considerations or economic or market conditions affecting Janus. However, it is
JCC's policy not to communicate specific trading information and/or advice on
specific issues to Outside Directors and Outside Trustees (i.e., no information
should be given on securities for which current activity is being considered for
Clients). Any pattern of repeated requests by such Directors or Trustees should
be reported to the Chief Compliance Officer or the Compliance Manager.
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CODE OF ETHICS
- --------------------------------------------------------------------------------
OVERVIEW
In general, it is unlawful for persons affiliated with investment
companies, their principal underwriters or their investment advisers to engage
in personal transactions in securities held or to be acquired by a registered
investment company, if such personal transactions are made in contravention of
rules which the SEC has adopted to prevent fraudulent, deceptive and
manipulative practices. Such rules require each registered investment company,
investment adviser and principal underwriter to adopt its own written code of
ethics containing provisions reasonably necessary to prevent its employees from
engaging in such conduct, and to maintain records, use reasonable diligence, and
institute such procedures as are reasonably necessary to prevent violations of
such code. This Code of Ethics ("Code") and information reported hereunder will
enable Janus to fulfill these requirements.
GENERAL PROHIBITIONS
The following activities are prohibited for applicable Covered Persons
(remember, if you work at Janus full-time, part-time, temporarily or on a
contract basis, or you are a Trustee or Director, you are a Covered Person).
Persons who violate any prohibition may be required to disgorge any profits
realized in connection with such violation to a charitable organization selected
by the Ethics Committee and may be subject to other sanctions imposed by the
Ethics Committee, as outlined in the Penalty Guidelines.
1. Covered Persons may not cause a Client to take action, or to fail to
take action, for personal benefit, rather than to benefit such Client.
For example, a Covered Person would violate this Code by causing a
Client to purchase a security owned by the Covered Person for the
purpose of supporting or increasing the price of that security or by
causing a Client to refrain from selling a security in an attempt to
protect a personal investment, such as an option on that security.
2. Covered Persons may not use knowledge of portfolio transactions made
or contemplated for Clients to profit, or cause others to profit, by
the market effect of such transactions.
3. Covered Persons may not disclose current portfolio transactions made
or contemplated for Clients as well as any other nonpublic information
to anyone outside of Janus.
4. Covered Persons may not engage in fraudulent conduct in connection
with the purchase or sale of a Security Held or to be Acquired by a
Client, including without limitation:
1) Employing any device, scheme or artifice to defraud any Client;
2) Making to any Client any untrue statement of material fact or
omitting to state to any Client a material fact necessary in
order to make the statements made, in light of the circumstances
under which they are made, not misleading;
3) Engaging in any act, practice or course of business which
operates or would operate as a fraud or deceit upon any Client;
4) Engaging in any manipulative practice with respect to any Client;
or
5
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5) Investing in derivatives to evade the restrictions of this Code.
Accordingly, individuals may not use derivatives to take
positions in securities that would be otherwise prohibited by the
Code if the positions were taken directly.
5. Investment Personnel may not serve on the board of directors of a publicly
traded company without prior written authorization from the Ethics
Committee. No such service shall be approved without a finding by the
Ethics Committee that the board service would not be inconsistent with the
interests of Clients. If board service is authorized by the Ethics
Committee, the Investment Personnel serving as director normally should be
isolated from those making investment decisions with respect to the company
involved through "Chinese Walls" or other procedures.
TRADING RESTRICTIONS
The trading restrictions of the Code apply to all direct or indirect
acquisitions or dispositions of Covered Securities, whether by purchase, sale,
tender offers, stock purchase plan, gift, inheritance, or otherwise. Unless
otherwise noted, the following trading restrictions are applicable to any
transaction in a Covered Security Beneficially Owned by a Covered Person.
Outside Directors and Outside Trustees are exempt from certain trading
restrictions because of their limited access to current information regarding
Client investments.
Any disgorgement of profits required under any of the following
provisions shall be donated to a charitable organization selected by the Ethics
Committee, as outlined in the Penalty Guidelines. However, if disgorgement is
required as a result of trades by a portfolio manager that conflicted with that
manager's own Clients, disgorgement proceeds shall be paid directly to such
Clients. If disgorgement is required under more than one provision, the Ethics
Committee shall determine in its sole discretion the provision that shall
control.(1)
EXCLUDED TRANSACTIONS
Some or all of the trading restrictions listed below do not apply to
the following transactions; however, these transactions must still be reported
to Compliance (see Reporting Requirements):
* Tender offer transactions are exempt from all trading restrictions except
preclearance.
- ----------
(1) Unless otherwise noted, restrictions on personal transactions apply to
transactions involving Covered Securities, including any derivative thereof.
When determining the amount of disgorgement required with respect to a
derivative, consideration will be given to price differences in both the
derivative and the underlying securities, with the lesser amount being used for
purposes of computing disgorgement. For example, in determining whether
reimbursement is required when the applicable personal trade is in a derivative
and the Client transaction is in the underlying security, the amount shall be
calculated using the lesser of (a) the difference between the price paid or
received for the derivative and the closing bid or ask price (as appropriate)
for the derivative on the date of the Client transaction, or (b) the difference
between the last sale price, or the last bid or ask price (as appropriate) of
the underlying security on the date of the derivative transaction, and the price
received or paid by the Client for the underlying security. Neither preclearance
nor disgorgement shall be required if such person"s transaction is to close,
sell or exercise a derivative within five days of its expiration.
6
<PAGE>
* The acquisition of securities through stock purchase plans are exempt
from all trading restrictions except preclearance, the trading ban on
portfoli* managers and assistant portfolio managers, and the seven day
rule. (Note: the sales of securities acquired through a stock purchase
plan are subject to all of the trading restrictions of the Code).
* The acquisition of securities through stock dividends, automatic
dividend reinvestment plans, stock splits, reverse stock splits,
mergers, consolidations, spin-offs, or other similar corporate
reorganizations or distributions generally applicable to all holders
of the same class of such securities are exempt from all trading
restrictions. The acquisition of securities through the exercise of
rights issued by an issuer pro rata to all holders of a class of
securities, to the extent the rights were acquired in the issue are
exempt from all trading restrictions.
* Non-discretionary transactions in Company Stock (e.g., the acquisition
of securities through Stilwell or KCSI's Employee Stock Purchase Plan
("ESPP") or the receipt of options in Company Stock as part of a
compensation or benefit plan) are exempt from all trading
restrictions. Discretionary transactions in Company Stock issued by
JCC are exempt from all trading restrictions. Discretionary
transactions in Company Stock issued by Stilwell or KCSI (e.g.,
exercising options or selling ESPP Stock) are exempt from all trading
restrictions except preclearance (See procedures for Preclearance of
Company Stock).
* The acquisition of securities by gift or inheritance is exempt from
all trading restrictions. (Note: the sales of securities acquired by
gift or inheritance are subject to all trading restrictions of --- the
Code).
* Transactions in options on and securities based on the following
indexes are exempt from all trading restrictions: S&P 500 Index, S&P
MidCap 400 Index, S&P 100 Index, FTSE 100 Index or Nikkei 225 Index.
DISCLOSURE OF CONFLICTS
If an Investment Person is planning to invest or make a recommendation to
invest in a security for a Client, and such person has a material interest in
the security, such person must first disclose such interest to his or her
manager or the Chief Investment Officer. The manager or Chief Investment Office
shall conduct an independent review of the recommendation to purchase the
security for Clients. The manager or Chief Investment Officer may review the
recommendation only if he or she has no material interest in the security. A
material interest is Beneficial Ownership of any security (including
derivatives, options, warrants or rights), offices, directorships, significant
contracts, or interests or relationships that are likely to affect such person's
judgment.
PRECLEARANCE
Access Persons (except Outside Directors and Outside Trustees) must obtain
preclearance prior to engaging in any personal transaction in Covered
Securities. (See Preclearance Procedures below).
7
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TRADING BAN ON PORTFOLIO MANAGERS AND ASSISTANT PORTFOLIO MANAGERS
Portfolio managers and their assistants are prohibited from trading
personally in Covered Securities. However, the following types of transactions
are exempt from this policy, but are subject to all applicable provisions of the
Rules, including preclearance:
* Purchases or sales of Company Stock;
* The sale of any security that is not held by any Client; and
* The sale of any security in order to raise capital to fund a
significant life event. For example, purchasing a home or automobile,
or paying medical or education expenses.
BAN ON IPOs AND HOT ISSUES
Covered Persons (except Outside Directors and Outside Trustees) may not
purchase securities in an initial public offering or in a secondary offering
that constitutes a "hot issue" as defined in NASD rules. Such securities may be
purchased or received, however, where the individual has an existing right to
purchase the security based on his or her status as an investor, policyholder or
depositor of the issuer. In addition, securities issued in reorganizations are
also outside the scope of this prohibition if the transaction involves no
investment decision on the part of the Covered Person except in connection with
a shareholder vote.
60 DAY RULE
Access Persons (except Outside Directors and Outside Trustees) shall
disgorge any profits realized in the purchase and sale, or sale and purchase, of
the same or equivalent Covered Securities within sixty (60) calendar days if a
Client held or traded the security during the sixty (60) calendar day period.
BLACKOUT PERIOD
No Access Person may engage in a transaction in a Covered Security when
such person knows or should have known at the time there to be pending, on
behalf of any Client, a "buy" or "sell" order in that same security. The
existence of pending orders will be checked by Compliance as part of the
Preclearance process. Preclearance may be given when any pending Client order is
completely executed or withdrawn.
FIFTEEN DAY RULE
Any Access Person (except Outside Directors and Outside Trustees) who buys
or sells a Covered Security within fifteen calendar days before such security is
bought or sold on behalf of any Client must disgorge any price advantage
realized. The price advantage shall be the favorable spread, if any, between the
price paid or received by such person and the least favorable price paid or
received by a Client during such period.2 The Ethics Committee has the authority
by unanimous action to exempt any person from the fifteen-day rule if such
person is selling a security to raise capital to fund a significant life event.
For example, purchasing a home or automobile, or paying medical or education
expenses. In order for the Ethics Committee to consider such exemption, the life
event must occur within thirty (30) calendar days of the security transaction,
and the person must provide written confirmation of the event.
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2 Personal purchases are matched only against subsequent Client purchases
and personal sales are matched only against subsequent Client sales for purposes
of this restriction.
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SEVEN DAY RULE
Any portfolio manager or assistant portfolio manager who buys or sells a
Covered Security within seven calendar days before or after he or she trades in
that security on behalf of a Client shall disgorge any profits realized on such
transaction.
SHORT SALES
Any Access Person who sells short a Covered Security that such person knows
or should have known is held long by any Client shall disgorge any profit
realized on such transaction. This prohibition shall not apply, however, to
securities indices or derivatives thereof (such as futures contracts on the S&P
500 index). Client ownership of Covered Securities will be checked as part of
the Preclearance process.
HEDGE FUNDS, INVESTMENT CLUBS, AND OTHER INVESTMENTS
No Access Person (except Outside Directors and Outside Trustees) may
participate in hedge funds, partnerships, investment clubs, or similar
investment vehicles, unless such person does not have any direct or indirect
influence or control over the trading. Covered Persons wishing to rely upon this
provision must submit a Certification of Non-Influence and Non-Control Form to
the Compliance Manager for approval. (See Non-Influence and Non-Control Accounts
section below.)
PRECLEARANCE PROCEDURES
Access Persons must obtain preclearance for all applicable transactions in
Covered Securities in which such person has a Beneficial Interest. A
Preclearance Form must be completed and forwarded to Compliance. Compliance
shall promptly notify the person of approval or denial of the transaction.
Notification of approval or denial of the transaction may be given verbally;
however, it shall be confirmed in writing within seventy-two (72) hours of
verbal notification. When preclearance has been approved, the person then has
four business days from and including the day of first notification to execute
the trade.
GENERAL PRECLEARANCE
General preclearance shall be obtained from an authorized person from each
of the following three groups:
* A DESIGNATED LEGAL OR COMPLIANCE REPRESENTATIVE, who will present the
personal investment to the attendees of the weekly investment meeting,
whereupon an opportunity will be given to orally object. An attendee
of the weekly investment meeting shall object to such clearance if
such person knows of a conflict with a pending Client transaction or a
transaction known by such attendee to be under consideration for a
Client. Objections to such clearance should also take into account,
among other factors, whether the investment opportunity should be
reserved for a Client. If no objections are raised, the Designated
Legal or Compliance Representative shall so indicate by signing the
Preclearance Form. Such approval shall not be required for sales of
securities not held by any Clients.
In place of this authorization, Investment Personnel are required to
obtain approvals from all Executive Investment Committee members as
noted in the section below entitled Preclearance Requirements for
Investment Personnel.
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* A DESIGNATED TRADING OPERATIONS REPRESENTATIVE, who may provide
clearance if such Representative knows at the time of the request of
no pending "buy" or "sell" order in the security on behalf of a Client
and no such trades are known by such person to be under consideration.
* The COMPLIANCE MANAGER, OR A DESIGNATED LEGAL OR COMPLIANCE
REPRESENTATIVE IF THE COMPLIANCE MANAGER IS NOT AVAILABLE, who may
provide clearance if no legal prohibitions are known by such person to
exist with respect to the proposed trade. Approvals for such clearance
should take into account, among other factors, the existence of any
Watch List or Restricted List and, to the extent reasonably
practicable, recent trading activity and holdings of Clients.
No authorized person may preclear a transaction in which such person has a
Beneficial Interest.
PRECLEARANCE REQUIREMENTS FOR INVESTMENT PERSONNEL
Trades by Investment Personnel may not be precleared by presentation at the
weekly investment meeting. Instead, Investment Personnel must obtain the
following management approvals. However, such approvals shall not be required
for sales of securities not held by any Clients:
* TRADES IN EQUITY SECURITIES require prior written approval from all
members of the Executive Investment Committee, Investment Person's
manager and either Ron Speaker or Sandy Rufenacht;
* TRADES IN DEBT SECURITIES require prior written approval from all
senior fixed income portfolio managers, either Jim Craig or two other
Executive Investment Committee members, and Investment Person's
manager.
A portfolio manager may not preclear his or her own transaction.
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PRECLEARANCE OF COMPANY STOCK
Officers of Janus and certain persons designated by Compliance who wish to
make discretionary transactions in Stilwell or KCSI securities, or derivatives
thereon, must preclear such transactions. A Company Stock Preclearance Form must
be completed and forwarded to Compliance. Compliance shall promptly notify the
person of approval or denial for the transaction. Notification of approval or
denial for the transaction may be given verbally; however, it shall be confirmed
in writing within seventy-two (72) hours of verbal notification. When
preclearance has been approved, the person then has four business days from and
including the day of first notification to execute the trade.
If such persons are subject to the provisions of Section 16(b) of the
Securities Exchange Act of 1934, trading will generally be allowed only in the
ten (10) business day period beginning seventy-two (72) hours after Stilwell or
KCSI files its quarterly results with the SEC (e.g., 10Q or 10K filing, not
earnings release). To preclear the trade, the Compliance Manager or such other
Representative shall discuss the transaction with Janus's General Counsel or
Chief Financial Officer.
PRECLEARANCE OF TENDER OFFERS AND STOCK PURCHASE PLANS
Access Persons (other than Outside Directors and Outside Trustees) who wish
to participate in a tender offer or stock purchase plan must preclear such
trades only with the Compliance Manager prior to submitting notice to
participate in such tender offer or notice of participation in such stock
purchase plan to the applicable company. To preclear the trade, the Compliance
Manager shall consider all material factors relevant to a potential conflict of
interest between the Access Person and Clients. In addition, any increase of
$100 or more to a pre-existing stock purchase plan must be precleared.
FOUR DAY EFFECTIVE PERIOD
Clearances to trade will be in effect for only four trading/business days
from and including the date of the last Authorized Person's signature (which may
not be provided more than one day after the first Authorized Person's
signature). For tender offers, stock purchase plans, exercise of Company Stock
and similar transactions, the date the request is submitted to the company
processing the transaction will be considered the trade date for purposes of
this requirement. Open orders, including stop loss orders, will generally not be
allowed unless such order is expected to be completed within the four day
effective period. It is necessary to re-preclear transactions not executed
within the four day effective period.
REPORTING REQUIREMENTS
ACCOUNT STATEMENTS
ACCESS PERSONS (other than Outside Trustees) and REGISTERED PERSONS must
notify Compliance of each brokerage account in which they have a Beneficial
Interest and must arrange for their brokers or financial institutions to provide
to Compliance, on a timely basis, duplicate account statements and confirmations
showing all transactions in brokerage or commodities accounts in which they have
a Beneficial Interest. A Personal Brokerage Account Disclosure Form should be
completed for this purpose.
PLEASE NOTE THAT, EVEN IF SUCH PERSON DOES NOT TRADE COVERED SECURITIES IN
A PARTICULAR BROKERAGE OR COMMODITIES ACCOUNT (E.G., TRADING MUTUAL FUNDS IN A
SCHWAB ACCOUNT), THE REPORTING OF DUPLICATE ACCOUNT STATEMENTS AND CONFIRMATIONS
IS STILL REQUIRED. HOWEVER, IF SUCH PERSON ONLY USES A PARTICULAR BROKERAGE
ACCOUNT FOR CHECKING ACCOUNT PURPOSES, AND NOT INVESTMENT PURPOSES, HE OR SHE
MAY IN LIEU OF REPORTING DUPLICATE ACCOUNT STATEMENTS, REPORT DUPLICATE TRADE
CONFIRMATIONS AND MAKE A QUARTERLY REPRESENTATION TO COMPLIANCE INDICATING THAT
NO INVESTMENT TRANSACTIONS OCCURRED IN THE ACCOUNT DURING THE CALENDAR QUARTER.
Reporting of accounts that do not allow any trading in Covered Securities (e.g.,
a mutual fund account held directly with the fund sponsor) is not required.
Covered Persons must notify Compliance of each reportable account at the
time it is opened, and annually thereafter, including the name of the firm and
the name under which the account is carried. A Personal Brokerage Account
Disclosure Form should be completed for this purpose.
Certain transactions might not be reported through a brokerage account,
such as private placements, inheritances or gifts. In these instances, Access
Persons must report these transactions within ten (10) calendar days using a
Personal Securities Transaction Report as noted below.
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REGISTERED PERSONS ARE REMINDED THAT THEY MUST ALSO INFORM ANY BROKERAGE FIRM
WITH WHICH THEY OPEN AN ACCOUNT, AT THE TIME THE ACCOUNT IS OPENED, THAT THEY
ARE REGISTERED WITH JDI.
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NON-ACCESS PERSONS who engage in an aggregate of $25,000 or more of
transactions in Covered Securities within a calendar year must provide
Compliance with an Annual Transaction Report listing all such transactions in
all accounts in which such person has a Beneficial Interest. Compliance will
request this information annually and will spot check all or a portion of such
transactions or accounts.
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HOLDINGS REPORTS
ACCESS PERSONS (other than Outside Trustees) must, within ten (10) calendar
days after becoming an Access Person, provide Compliance with a Holdings Report
which lists all Covered Securities beneficially held and any brokerage accounts
through which such securities are maintained. In addition, such persons must
provide a brief description of any positions held (e.g., director, officer,
other) with for-profit entities other than Janus. The report must contain
information current as of no more than thirty (30) calendar days from the time
the report is submitted.
PERSONAL SECURITIES TRANSACTION REPORTS
ACCESS PERSONS (other than Outside Trustees) must provide a Personal
Securities Transaction Report within ten (10) calendar days after any month end
showing all transactions in Covered Securities for which confirmations are known
by such person to not have been timely provided to Janus, and all such
transactions that are not effected in brokerage or commodities accounts,
including without limitation non-brokered private placements, and transactions
in securities that are in certificate form, which may include gifts,
inheritances, and other transactions in Covered Securities.
OUTSIDE TRUSTEES need only report a transaction in a Covered Security if
such person, at the time of that transaction, knew or, in the ordinary course of
fulfilling his or her official duties as a Trustee should have known, that,
during the fifteen-day period immediately preceding the date of his or her
personal transaction, such security was purchased or sold by, or was being
considered for purchase or sale on behalf of, any Janus Fund for which such
person acts as Trustee.
SUCH PERSONS MUST PROMPTLY COMPLY WITH ANY REQUEST OF THE COMPLIANCE MANAGER TO
PROVIDE TRANSACTION REPORTS REGARDLESS OF WHETHER THEIR BROKER HAS BEEN
INSTRUCTED TO PROVIDE DUPLICATE CONFIRMATIONS. SUCH REPORTS MAY BE REQUESTED,
FOR EXAMPLE, TO CHECK THAT ALL APPLICABLE CONFIRMATIONS ARE BEING RECEIVED OR TO
SUPPLEMENT THE REQUESTED CONFIRMATIONS WHERE A BROKER IS DIFFICULT TO WORK WITH
OR OTHERWISE FAILS TO PROVIDE DUPLICATE CONFIRMATIONS ON A TIMELY BASIS.
NON-INFLUENCE AND NON-CONTROL ACCOUNTS
The Rules shall not apply to any account, partnership, or similar
investment vehicle over which a Covered Person has no direct or indirect
influence or control. Covered Persons wishing to rely upon this provision are
required to receive approval from the Ethics Committee. In order to request such
approval, a Certification of Non-Influence and Non-Control Form must be
submitted to the Compliance Manager.
Any account beneficially owned by a Covered Person that is managed by JCC
in a discretionary capacity is not covered by these Rules so long as such person
has no direct or indirect influence or control over the account. The employment
relationship between the account-holder and the individual managing the account,
in the absence of other facts indicating control, will not be deemed to give
such account-holder influence or control over the account.
OTHER REQUIRED FORMS
In addition to the Preclearance Form, Preclearance Form for Company Stock,
Personal Brokerage Account Disclosure Form, Holdings Report, Report of Personal
Securities Transactions, Annual Transaction Report, and Certification of
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Non-Influence and Non-Control Form discussed above, the following forms
(available through Lotus Notes) must be completed if applicable to you:
ACKNOWLEDGMENT OF RECEIPT FORM
Each Covered Person must provide Compliance with an Acknowledgment of
Receipt Form within ten (10) calendar days of commencement of employment or
other services certifying that he or she has received a current copy of the
Rules and acknowledges, as a condition of employment, that he or she will comply
with the Rules in their entirety.
ANNUAL CERTIFICATION FORM
Each Covered Person must provide Compliance annually within thirty (30)
calendar days from date of request with an Annual Certification Form certifying
that he or she:
1) Has received, read and understands the Rules;
2) Has complied with the requirements of the Rules; and
3) Has disclosed or reported all open brokerage and commodities accounts,
personal holdings and personal securities transactions required to be
disclosed or reported pursuant to the requirements of the Rules.
OUTSIDE DIRECTOR/TRUSTEE REPRESENTATION FORM
All Outside Directors and Outside Trustees must, upon commencement of
services and annually thereafter, provide Compliance with an Outside
Director/Trustee Representation Form. The Form declares that such persons agree
to refrain from trading in any securities when they are in possession of any
information regarding trading recommendations made or proposed to be made to any
Client by Janus or its officers or employees.
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INSIDER TRADING POLICY
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BACKGROUND INFORMATION
The term "insider trading" is not defined in the federal securities
statutes, but generally is used to refer to the use of material nonpublic
information to trade in securities (whether or not one is an "insider") or to
communications of material nonpublic information to others.
While the law concerning insider trading can be complex and unclear, you
should assume that the law prohibits:
* Trading by an insider, while in possession of material nonpublic
information,
* Trading by a non-insider, while in possession of material nonpublic
information, where the information was disclosed to the non-insider
(either directly or through one or more intermediaries) in violation
of an insider's duty to keep it confidential,
* Communicating material nonpublic information to others in breach of a
duty not to disclose such information, and
* Misappropriating confidential information for securities trading
purposes, in breach of a duty owed to the source of the information to
keep the information confidential.
Trading based on material nonpublic information about an issuer does not
violate this policy unless the trader (i) is an "insider" with respect to an
issuer; (ii) receives the information from an insider or from someone that the
trader knows received the information from an insider, either directly or
indirectly, or (iii) misappropriates the nonpublic information or obtains or
misuses it in breach of a duty of trust and confidence owed to the source of the
information. Accordingly, trading based on material nonpublic information about
an issuer can be, but is not necessarily, a violation of this Policy. Trading
while in possession of material nonpublic information relating to a tender offer
is prohibited under this Policy regardless of how such information was obtained.
Application of the law of insider trading to particular transactions can be
difficult, particularly if it involves a determination about trading based on
material nonpublic information. You legitimately may be uncertain about the
application of this Policy in particular circumstances. If you have any
questions regarding the application of the Policy or you have any reason to
believe that a violation of the Policy has occurred or is about to occur, you
should contact the Chief Compliance Officer or the Compliance Manager.
The following discussion is intended to help you understand the principal
concepts involved in insider trading.
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WHO IS AN INSIDER?
The concept of "insider" is broad. It includes officers, directors and
employees of a company. In addition, a person can be a "temporary insider" if he
or she enters into a special confidential relationship in the conduct of a
company's affairs and as a result is given access to information solely for the
company's purposes. A temporary insider can include, among others, a company's
attorneys, accountants, consultants, bank lending officers, and the employees of
such organizations. In addition, one or more of the Janus entities may become a
temporary insider of a company it advises or for which it performs other
services. To be considered an insider, the company must expect the outsider to
keep the disclosed nonpublic information confidential and/or the relationship
must at least imply such a duty.
WHEN IS INFORMATION NONPUBLIC?
Information remains nonpublic until it has been made public. Information
becomes public when it has been effectively communicated to the marketplace,
such as by a public filing with the SEC or other governmental agency, inclusion
in the Dow Jones "tape" or publication in The Wall Street Journal or another
publication of general circulation. Moreover, sufficient time must have passed
so that the information has been disseminated widely.
WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally means information for
which there is a substantial likelihood that a reasonable investor would
consider it important in making his or her investment decisions, or information
that is reasonably certain to have a substantial effect on the price of a
company's securities. Information that should be considered material includes,
but is not limited to: dividend changes, earnings estimates, changes in
previously released earnings estimates, significant merger or acquisition
proposals or agreements, major litigation, liquidation problems, and
extraordinary management developments.
Material information may also relate to the market for a company's
securities. Information about a significant order to purchase or sell securities
may, in some contexts, be deemed material. Similarly, prepublication information
regarding reports in the financial press also may be deemed material. For
example, the Supreme Court upheld the criminal convictions of insider trading
defendants who capitalized on prepublication information about The Wall Street
Journal's "Heard on the Street" column.
WHEN IS INFORMATION MISAPPROPRIATED?
The misappropriation theory prohibits trading on the basis of non-public
information by a corporate "outsider" in breach of a duty owed not to a trading
party, but to the source of confidential information. Misappropriation of
information occurs when a person obtains the non-public information through
deception or in breach of a duty of trust and loyalty to the source of the
information.
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PENALTIES FOR INSIDER TRADING
Penalties for trading on or communicating material nonpublic information
are severe, both for individuals involved in such unlawful conduct and their
employers or other controlling persons. A person can be subject to some or all
of the penalties below even if he or she does not personally benefit from the
violation. Penalties include:
* Civil injunctions
* Treble damages
* Disgorgement of profits
* Jail sentences for up to 10 years
* Fines up to $1,000,000 (or $2,500,000 for corporations and other
entities)
* Civil penalties for the person who committed the violation of up to
three times the profit gained or loss avoided, whether or not the
person actually benefited, and
* Civil penalties for the employer or other controlling person of up to
the greater of $1,000,000 or three times the amount of the profit
gained or loss avoided.
In addition, any violation of the law may result in serious sanctions by
Janus, including termination of employment.
WHO IS A CONTROLLING PERSON?
Included as controlling persons are Janus and its Directors, Trustees and
officers. If you are a Director, Trustee or officer, you have a duty to act to
prevent insider trading. Failure to fulfill such a duty may result in penalties
as described above.
PROCEDURES TO IMPLEMENT POLICY
The following procedures have been established to aid the Directors,
Trustees, officers and employees of Janus in avoiding insider trading, and to
aid Janus in preventing, detecting and imposing sanctions against insider
trading.
IDENTIFYING MATERIAL INSIDE INFORMATION
Before trading for yourself or others, including the Janus Funds or other
Clients, in the securities of a company about which you may have potential
inside information, ask yourself the following questions:
* To whom has this information been provided? Has the information been
effectively communicated to the marketplace?
* Has this information been obtained from either the issuer or from
another source in breach of a duty to that source to keep the
information confidential?
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* Is the information material? Is this information that an investor
would consider important in making his or her investment decisions? Is
this information that would affect the market price of the securities
if generally disclosed?
Special caution should be taken with respect to potential inside
information regarding JCC. Although JCC's shares are not publicly traded, JCC's
parent, KCSI, is a publicly traded company. KCSI owns 82% of the stock of JCC.
As a result, potential inside information regarding JCC may affect trading in
KCSI stock and should be reported pursuant to the procedures set forth below.
The following is a non-exclusive list of situations that Investment Personnel
should report immediately pursuant to the procedures below: (i) participation in
private placements; (ii) the receipt of any information from an issuer pursuant
to a confidentiality agreement; (iii) participation on or receipt of information
from a bankruptcy committee of an issuer; and (iv) receipt of information
regarding earnings or sales figures in advance of the public release of those
numbers.
REPORTING INSIDE INFORMATION
If, after consideration of the above, you believe that the information is
material and nonpublic, or if you have questions as to whether the information
is material and nonpublic, you should take the following steps:
* Do not purchase or sell the securities on behalf of yourself or
others, including Clients.
* Do not communicate the information inside or outside of Janus, other
than to the Chief Compliance Officer or the Compliance Manager.
* Immediately advise the Chief Compliance Officer or Compliance Manager
of the nature and source of such information. The Chief Compliance
Officer or Compliance Manager will review the information with the
Ethics Committee.
* Depending upon the determination made by the Ethics Committee, or by
the Chief Compliance Officer until the Committee can be convened, you
may be instructed to continue the prohibition against trading and
communication and the Compliance Manager will place the security on a
Restricted List or Watch List, as described below. Alternatively, if
it is determined that the information obtained is not material
nonpublic information, you may be allowed to trade and communicate the
information.
WATCH AND RESTRICTED LISTS
Whenever the Ethics Committee or the Chief Compliance Officer determines
that a Director, Trustee, officer or employee of Janus is in possession of
material nonpublic information with respect to a company (regardless of whether
it is currently owned by any Client) such company will either be placed on a
Watch List or on a Restricted List.
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WATCH LIST
If the security is placed on a Watch List, the flow of the information to
other Janus personnel will be restricted in order to allow such persons to
continue their ordinary investment activities. This procedure is commonly
referred to as a "Chinese Wall."
RESTRICTED LIST
If the Ethics Committee or the Chief Compliance Officer determines that
material nonpublic information is in the possession of a Director, Trustee,
officer, or employee of Janus and cannot be adequately isolated through the use
of a Chinese Wall, the company will be placed on the Restricted List. While a
company is on the Restricted List, no Investment Person shall initiate or
recommend any transaction in any Client account, and no Access Person shall be
precleared to transact in any account in which he or she has a beneficial
interest, with respect to the securities of such company. The Ethics Committee
or the Chief Compliance Officer will also have the discretion of placing a
company on the Restricted List even though no "break in the Chinese Wall" has or
is expected to occur with respect to the material nonpublic information about
the company. Such action may be taken by such persons for the purpose of
avoiding any appearance of the misuse of material nonpublic information.
The Ethics Committee or the Chief Compliance Officer will be responsible
for determining whether to remove a particular company from the Watch List or
Restricted List. The only persons who will have access to the Watch List or
Restricted List are members of the Ethics Committee, Designated Legal or
Compliance Representatives and such persons who are affected by the information.
The Watch List and Restricted List are highly confidential and should, under no
circumstances, be discussed with or disseminated to anyone other than the
persons noted above.
PROTECTING INFORMATION
Directors, Trustees, officers and employees of Janus shall not disclose any
nonpublic information (whether or not it is material) relating to Janus or its
securities transactions to any person outside Janus (unless such disclosure has
been authorized by the Chief Compliance Officer). Material nonpublic information
may not be communicated to anyone, including any Director, Trustee, officer or
employee of Janus, except as provided in this Policy. Access to such information
must be restricted. For example, access to files containing material nonpublic
information and computer files containing such information should be restricted,
and conversations containing such information, if appropriate at all, should be
conducted in private.
To insure the integrity of the Chinese Wall and to avoid unintended
disclosures, it is important that all employees take the following steps with
respect to confidential or nonpublic information:
* Do not discuss confidential information in public places such as
elevators, hallways or social gatherings.
* To the extent practical, limit access to the areas of the firm where
confidential information could be observed or overheard to employees
with a business need for being in the area.
* Avoid use of speakerphones in areas where unauthorized persons may
overhear conversations.
* Avoid use of wireless and cellular phones, or other means of
communication, which may be intercepted.
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* Where appropriate, maintain the confidentiality of Client identities
by using code names or numbers for confidential projects.
* Exercise care to avoid placing documents containing confidential
information in areas where they may be read by unauthorized persons
and to store such documents in secure locations when they are not in
use.
* Destroy copies of confidential documents no longer needed for a
project unless required to be saved pursuant to applicable record
keeping policies or requirements.
RESPONSIBILITY TO MONITOR TRANSACTIONS
Compliance will monitor transactions of Clients and employees for which
reports are received to detect the existence of any unusual trading activities
with respect to companies on the Watch and Restricted Lists. Compliance will
immediately report any unusual trading activity directly to the Compliance
Manager, and in his or her absence, the Chief Compliance Officer, who will be
responsible for determining what, if any, action should be taken.
RECORD RETENTION
Compliance shall maintain copies of the Watch List and Restricted List for
a minimum of six years.
TENDER OFFERS
Tender offers represent a particular concern in the law of insider trading
for two reasons. First, tender offer activity often produces extraordinary
fluctuations in the price of the target company's securities. Trading during
this time period is more likely to attract regulatory attention (and produces a
disproportionate percentage of insider trading cases). Second, the SEC has
adopted a rule which expressly forbids trading and "tipping" while in possession
of material nonpublic information regarding a tender offer received from the
tender offeror, the target company or anyone acting on behalf of either. Janus
employees and others subject to this Policy should exercise particular caution
any time they become aware of nonpublic information relating to a tender offer.
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GIFT POLICY
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Gifts may be given (OR ACCEPTED) only if they are in accordance with
normally accepted business practices and do not raise any question of
impropriety. A question of impropriety may be raised if a gift influences or
gives the appearance of influencing the recipient. The following outlines
Janus's policy on giving and receiving gifts to help us maintain those standards
and is applicable to all Inside Directors and Inside Trustees, officers and
employees of Janus.
GIFT GIVING
Neither you nor members of your immediate family may give any gift, series
of gifts, or other thing of value, including cash, loans, personal services, or
special discounts ("Gifts") in excess of $100 per year to any Client or any one
person or entity that does or seeks to do business with or on behalf of Janus or
any Client (collectively referred to herein as "Business Relationships").
GIFT RECEIVING
Neither you nor members of your immediate family may receive any Gift of
material value from any single Business Relationship. A Gift will be considered
material in value if it influences or gives the appearance of influencing the
recipient.
In the event the aggregate fair market value of all Gifts received by you
from any single Business Relationship is estimated to exceed $250 in any
12-month period, you must immediately notify your manager. Managers that receive
such notification must report this information to the Compliance Manager if it
appears that such Gifts may have improperly influenced the receiver. If the Gift
is made in connection with the sale or distribution of registered investment
company or variable contract securities, the aggregate fair market value of all
such Gifts received by you from any single Business Relationship may never
exceed $100 in any 12-month period.
Occasionally, Janus employees are invited to attend or participate in
conferences, tour a company's facilities, or meet with representatives of a
company. Such invitations may involve traveling and may require overnight
lodging. Generally, Janus must pay for all travel and lodging expenses provided
in connection with such activities. However, if appropriate, and with prior
approval from your manager, you may accept travel related amenities if the costs
are considered insubstantial and are not readily ascertainable.
The solicitation of a Gift is prohibited (I.E., YOU MAY NOT REQUEST A GIFT,
SUCH AS TICKETS TO A SPORTING EVENT, BE GIVEN TO YOU).
CUSTOMARY BUSINESS AMENITIES
Customary business amenities are not considered Gifts so long as such
amenities are business related (E.G., IF YOU ARE ACCEPTING TICKETS TO A SPORTING
EVENT, THE OFFERER MUST GO WITH YOU), reasonable in cost, appropriate as to time
and place, and neither so frequent nor so costly as to raise any question of
impropriety. Customary business amenities which you and, if appropriate, your
guests, may accept (OR GIVE) include an occasional meal, a ticket to a sporting
event or the theater, greens fees, an invitation to a reception or cocktail
party, or comparable entertainment.
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OUTSIDE EMPLOYMENT POLICY
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No Inside Director, Inside Trustee, officer or employee of Janus shall
accept employment or compensation as a result of any business activity (other
than a passive investment), outside the scope of his relationship with Janus
unless such person has provided prompt written notice of such employment or
compensation to the Chief Compliance Officer (or, for Registered Persons, to
JDI's Operations Manager), and, in the case of securities-related employment or
compensation, has received the prior written approval of the Ethics Committee.
Registered Persons are reminded to update and submit their Outside Business
Activity Disclosure forms as appropriate pursuant to JDI's Written Supervisory
Procedures and applicable NASD rules.
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PENALTY GUIDELINES
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OVERVIEW
Covered Persons who violate any of the requirements, restrictions, or
prohibitions of the Rules may be subject to sanctions imposed by the Ethics
Committee. The following guidelines shall be used by the Compliance Manager for
recommending remedial actions for Covered Persons who violate prohibitions or
disregard requirements of the Rules. Deviations from the Fifteen-Day Rule are
not considered to be violations under the Rules and, therefore, are not subject
to the penalty guidelines.
Upon learning of a potential deviation from, or violation of the Rules, the
Compliance Manager will provide a written recommendation of remedial action to
the Ethics Committee. The Ethics Committee has full discretion to approve such
recommendation or impose other sanctions it deems appropriate. The Ethics
Committee will take into consideration, among other things, whether the
violation was a technical violation of the Rules or inadvertent oversight (i.e.,
ill-gotten profits versus general oversight). The guidelines are designed to
promote consistency and uniformity in the imposition of sanctions and
disciplinary matters.
PENALTY GUIDELINES
Outlined below are the guidelines for the sanctions that may be imposed on
Covered Persons who fail to comply with the Rules:
* 1st violation- Compliance will send a memorandum of reprimand to the
person, copying his or her supervisor. The memorandum will generally
reinforce the person's responsibilities under the Rules, educate the
person on the severity of personal trading violations and inform the
person of the possible penalties for future violations of the Rules;
* 2nd violation- Janus's Chief Investment Officer, James Craig, will
meet with the person to discuss the violations in detail and will
reinforce the importance of complying with the Rules;
* 3rd violation- Janus's Chairman of the Board, Thomas Bailey, will meet
with the person to discuss the violations in detail and will reinforce
the importance of complying with the Rules;
* 4th violation- The Executive Committee will impose such sanctions as
it deems appropriate, including without limitation, a letter of
censure, fines, withholding of bonus payments, or suspension or
termination of employment or personal trading privileges.
In addition to the above disciplinary sanctions, such persons may be
required to disgorge any profits realized in connection with such violation. All
disgorgement proceeds collected will be donated to a charitable organization
selected by the Ethics Committee. The Ethics Committee may determine to impose
any of the sanctions set forth in item 4 above, including termination,
immediately and without notice if it determines that the severity of any
violation or violations warrants such action. All sanctions imposed will be
documented in such person's personal trading file maintained by Janus, and will
be reported to the Executive Committee.
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SUPERVISORY AND COMPLIANCE PROCEDURES
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The Chief Compliance Officer and Compliance Manager are responsible for
implementing supervisory and compliance review procedures. Supervisory
procedures can be divided into two classifications: prevention of violations and
detection of violations. Compliance review procedures include preparation of
special and annual reports, record maintenance and review, and confidentiality
preservation.
SUPERVISORY PROCEDURES
PREVENTION OF VIOLATIONS
To prevent violations of the Rules, the Compliance Manager should, in
addition to enforcing the procedures outlined in the Rules:
1. Review and update the Rules as necessary, at least once annually,
including but not limited to a review of the Code by the Chief
Compliance Officer, the Ethics Committee and/or counsel;
2. Answer questions regarding the Rules, or refer the same to the Chief
Compliance Officer;
3. Request from all persons upon commencement of services, and annually
thereafter, any applicable forms and reports as required by the Rules;
4. Identify all Access Persons and notify them of their responsibilities
and reporting requirements;
5. Write letters to the securities firms requesting duplicate
confirmations and account statements where necessary; and
6. With such assistance from the Human Resources Department as may be
appropriate, maintain a continuing education program consisting of the
following:
1) Orienting Covered Persons who are new to Janus to the Rules, and
2) Further educating Covered Persons by distributing memos or other
materials that may be issued by outside organizations such as the
Investment Company Institute discussing the issue of insider
trading and other issues raised by the Rules.
DETECTION OF VIOLATIONS
To detect violations of these Rules, the Compliance Manager should, in
addition to enforcing the procedures outlined in the Rules:
* Implement procedures to review holding and transaction reports,
confirmations, forms and statements relative to applicable
restrictions, as provided under the Code; and
* Implement procedures to review the Restricted and Watch Lists relative
to applicable personal and Client trading activity, as provided under
the Policy.
Spot checks of certain information are permitted as noted under the Code.
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COMPLIANCE PROCEDURES
REPORTS OF POTENTIAL DEVIATIONS OR VIOLATIONS
Upon learning of a potential deviation from, or violation of the Rules, the
Compliance Manager shall report such violation to the Chief Compliance Officer,
together with all documents relating to the matter. The Chief Compliance Officer
shall either present the information at the next regular meeting of the Ethics
Committee, or conduct a special meeting. The Ethics Committee shall thereafter
take such action as it deems appropriate (see Penalty Guidelines).
ANNUAL REPORTS
The Compliance Manager shall prepare a written report to the Ethics
Committee and the Trustees at least annually. The written report to the Trustees
shall include any certification required by Rule 17j-1. This report shall set
forth the following information, and shall be confidential:
* Copies of the Rules, as revised, including a summary of any changes
made since the last report;
* Identification of any material issues arising under the Rules
including material violations requiring significant remedial action
since the last report;
* Identification of any material conflicts that arose since the last
report; and
* Recommendations, if any, regarding changes in existing restrictions or
procedures based upon Janus's experience under these Rules, evolving
industry practices, or developments in applicable laws or regulations.
The Trustees must initially approve these Rules within the time frame
required by Rule 17-1. Any material changes to these Rules must be approved
within six months.
RECORDS
Compliance shall maintain the following records on behalf of each Janus
entity:
* A copy of this Code and any amendment thereof which is or at any time
within the past five years has been in effect.
* A record of any violation of this Code, or any amendment thereof, and
of any action taken as a result of such violation.
* Files for personal securities transaction confirmations and account
statements, all reports and other forms submitted by Covered Persons
pursuant to these Rules and any other pertinent information.
* A list of all persons who are, or have been, required to make reports
pursuant to these Rules.
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* A list of persons who are, or within the last five years have been
responsible for, reviewing transaction and holdings reports.
* A copy of each report made to the Trustees pursuant to this Code.
INSPECTION
The records and reports maintained by Compliance pursuant to the Rules
shall at all times be available for inspection, without prior notice, by any
member of the Ethics Committee.
CONFIDENTIALITY
All procedures, reports and records monitored, prepared or maintained
pursuant to these Rules shall be considered confidential and proprietary to
Janus and shall be maintained and protected accordingly. Except as otherwise
required by law or this Policy, such matters shall not be disclosed to anyone
other than to members of the Ethics Committee, as requested.
FILING OF REPORTS
To the extent that any report, form acknowledgment or other document is
required to be in writing and signed, such documents may be submitted in by
e-mail or other electronic form approved by Compliance. Any report filed with
the Chief Compliance Officer or Compliance Manager of JCC shall be deemed filed
with the Janus Funds.
THE ETHICS COMMITTEE
The purpose of this Section is to describe the Ethics Committee. The Ethics
Committee is created to provide an effective mechanism for monitoring compliance
with the standards and procedures contained in the Rules and to take appropriate
action at such times as violations or potential violations are discovered.
MEMBERSHIP OF THE COMMITTEE
The Committee consists of Thomas A. Early, Vice President and General
Counsel; Steven R. Goodbarn, Vice President of Finance, Treasurer and Chief
Financial Officer; David Kowalski, Vice President and Chief Compliance Officer;
and Ernie C. Overholt, Compliance Manager. The Compliance Manager currently
serves as the Chairman of the Committee. The composition of the Committee may be
changed from time to time.
COMMITTEE MEETINGS
The Committee shall generally meet every four months or as often as
necessary to review operation of the compliance program and to consider
technical deviations from operational procedures, inadvertent oversights, or any
other potential violation of the Rules. Deviations alternatively may be
addressed by including them in the employee's personnel records maintained by
Janus. Committee meetings are primarily intended for consideration of the
general operation of the compliance program and substantive or serious
departures from standards and procedures in the Rules.
Such other persons may attend a Committee meeting, at the discretion of the
Committee, as the Committee shall deem appropriate. Any individual whose conduct
has given rise to the meeting also may be called upon, but shall not have the
right, to appear before the Committee.
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It is not required that minutes of Committee meetings be maintained; in
lieu of minutes the Committee may issue a report describing any action taken.
The report shall be included in the confidential file maintained by the
Compliance Manager with respect to the particular employee or employees whose
conduct has been the subject of the meeting.
SPECIAL DISCRETION
The Committee shall have the authority by unanimous action to exempt any
person or class of persons or transaction or class of transactions from all or a
portion of the Rules, provided that:
* The Committee determines, on advice of counsel, that the particular
application of all or a portion of the Rules is not legally required;
* The Committee determines that the likelihood of any abuse of the Rules
by such exempted person(s) or as a result of such exempted transaction
is remote;
* The terms or conditions upon which any such exemption is granted is
evidenced in writing; and
* The exempted person(s) agrees to execute and deliver to the Compliance
Manager, at least annually, a signed Acknowledgment Form, which
Acknowledgment shall, by operation of this provision, include such
exemptions and the terms and conditions upon which it was granted.
The Committee shall also have the authority by unanimous action to impose
such additional requirements or restrictions as it, in its sole discretion,
determines appropriate or necessary, as outlined in the Penalty Guidelines.
Any exemption, and any additional requirement or restriction, may be
withdrawn by the Committee at any time (such withdrawal action is not required
to be unanimous).
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GENERAL INFORMATION ABOUT THE ETHICS RULES
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DESIGNEES
The Compliance Manager and the Chief Compliance Officer may appoint
designees to carry out their functions pursuant to these Rules.
ENFORCEMENT
In addition to the penalties described in the Penalty Guidelines and
elsewhere in the Rules, upon discovering a violation of the Rules, the Janus
entity with which you are associated may impose such sanctions as it deems
appropriate, including without limitation, a letter of censure or suspension or
termination of employment or personal trading privileges of the violator. All
material violations of the Rules and any sanctions imposed with respect thereto
shall be reported periodically to the Directors and Trustees and the directors
of any other Janus entity which has been directly affected by the violation.
INTERNAL USE
The Rules are intended solely for internal use by Janus and do not
constitute an admission, by or on behalf of such companies, their controlling
persons or persons they control, as to any fact, circumstance or legal
conclusion. The Rules are not intended to evidence, describe or define any
relationship of control between or among any persons. Further, the Rules are not
intended to form the basis for describing or defining any conduct by a person
that should result in such person being liable to any other person, except
insofar as the conduct of such person in violation of the Rules may constitute
sufficient cause for Janus to terminate or otherwise adversely affect such
person's relationship with Janus.
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HARRIS ASSOCIATES L.P., HARRIS ASSOCIATES SECURITIES L.P. AND
HARRIS ASSOCIATES INVESTMENT TRUST
CODE OF ETHICS AND STATEMENT ON INSIDER TRADING
-(EFFECTIVE _______, 2000)
I. DEFINITIONS
A. FIRM OR HARRIS. The term "Firm" or "Harris" shall include Harris Associates
L.P. ("HALP") and Harris Associates Securities L.P. ("HASLP").
B. TRUST. The term "Trust" shall mean Harris Associates Investment Trust,
including any series of shares of beneficial interest of the Trust (each, a
"Fund").
C. EMPLOYEE. The term "Employee" shall include any person employed by the
Firm, whether on a full or part-time basis and all partners, officers,
shareholders and directors of the Firm.
D. ACCESS PERSON. The term "Access Person" shall have the meaning set forth in
Section 17j-1(a)(1) of the Investment Company Act of 1940 and rules
thereunder (the "Act"). Accordingly, Access Person means any director,
officer, general partner, or Advisory Person (as defined below) of the Fund
or HALP, but shall not include any trustee of the Trust who is not an
"interested person" of the Trust.
E. ADVISORY PERSON. The term "Advisory Person" shall have the meaning set
forth in Section 17j-l(a)(2) of the Act. Accordingly, Advisory Person means
any Employee of the Firm, who, in connection with his or her regular
functions or duties, makes, participates in, or obtains information
regarding the purchase or sale of Covered Securities (as defined below) by
a Client (as defined below), or whose functions relate to the making of any
recommendations with respect to purchases and sales. For the purpose of
this Code, each Employee of the Firm with an office at the Firm's principal
place of business shall be deemed to be an Advisory Person.
F. PERSONS SUBJECT TO THIS CODE. Each Employee is subject to this Code.
G. COVERED SECURITY. The term "Covered Security" shall have the meaning set
forth in Section 2(a)(36) of the Act,1 including any right to acquire such
security, except that it shall not include securities which are direct
obligations of the Government of the United States, bankers' acceptances,
bank certificates of deposit, commercial paper, high quality short-term
debit instruments (including repurchase agreements), and shares issued by
open-end investment companies.
H. BENEFICIAL INTEREST OR OWNERSHIP. The term "beneficial interest or
ownership" shall be interpreted in the same manner as it would be under
Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 in determining
whether a person is subject to the provisions of Section 16 of the
Securities Exchange Act of 1934 and rules thereunder, which includes any
interest in which a person, directly or indirectly, has or shares a direct
or indirect pecuniary interest. A pecuniary interest is the opportunity,
directly or indirectly, to profit or share in any profit derived from any
transaction. Each person will be assumed to have a pecuniary interest, and
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(1) SEE. 2(a)(36) "Security" means any note, stock, treasury stock, bond,
debenture, evidence of indebtedness, certificate of interest or
participation in any profit-sharing agreement, collateral-trust
certificate, preorganization certificate or subscription, transferable
share, investment contract, voting-trust certificate, certificate of
deposit for a security, fractional undivided interest in oil, gas, or other
mineral rights, any put, call, straddle, option, or privilege on any
security (including a certificate of deposit) or on any group or index of
securities (including any interest therein or based on the value thereof),
or any put, call, straddle, option, or privilege entered into on a national
securities exchange relating to foreign currency, or, in general, any
interest or instrument commonly known as a "security," or any certificate
of interest or participation in, temporary or interim certificate for,
receipt for, guarantee of, or warrant or right to subscribe to or purchase,
any of the foregoing.
<PAGE>
therefore, beneficial interest or ownership, in all securities held by that
person, that person's spouse, all members of that person's immediate family
and adults sharing the same household with that person (other than mere
roommates) and all minor children of that person and in all accounts
subject to their direct or indirect influence or control and/or through
which they obtain the substantial equivalent of ownership, such as trusts
in which they are a trustee or beneficiary, partnerships in which they are
the general partner, corporations in which they are a controlling
shareholder or any other similar arrangement. Any questions an Employee may
have about whether an interest in a security or an account constitutes
beneficial interest or ownership should be directed to the Firm's General
Counsel or Compliance Department. Examples of beneficial interest or
ownership are attached as Appendix A.
I. CLIENT. The term "Client" shall mean any client of HALP, including any
Fund.
II. CODE OF ETHICS
A. GENERAL STATEMENT
Harris seeks to foster a reputation for integrity and professionalism.
That reputation is a vital business asset. The confidence and trust placed in us
by investors in mutual funds and clients with accounts advised by the Firm is
something that is highly valued and must be protected. As a result, any activity
which creates even the suspicion of misuse of material non-public information by
the Firm or any of its Employees, which gives rise to or appears to give rise to
any breach of fiduciary duty owed to any Client, or which creates any actual or
potential conflict of interest between any Client and the Firm or any of its
Employees or even the appearance of any conflict of interest must be avoided and
is prohibited.
The Investment Company Act and rules make it illegal for any person
covered by the Code, directly or indirectly, in connection with the purchase or
sale of a security held or to be acquired by the Trust to:
a. employ any device, scheme, or artifice to defraud the Trust;
b. make 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 circumstances under which they are made, not misleading
or in any way mislead the Trust regarding a material fact;
c. engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon the Trust; or
d. engage in any manipulative practice with respect to the Trust.
The restrictions on personal securities transactions contained in this Code are
intended to help the Firm monitor for compliance with these prohibitions.
Additionally, the federal securities laws require that an investment
adviser maintain a record of every transaction in any Covered Security in which
an Advisory Person acquires any direct or indirect beneficial interest or
ownership, except any transaction in an account in which the Employee has no
direct or indirect control or influence.
To attempt to ensure that each Person Subject to this Code satisfies
this Code and these record keeping obligations, the Firm has developed the
following rules relating to personal securities trading, outside employment,
personal investments with external investment managers and confidentiality. The
General Counsel, Chief Executive Officer, and Compliance Officer, acting in
concert, has the authority to grant written waivers of the provisions of this
Code in appropriate instances. However, the Firm expects that waivers will be
granted only in rare instances, and some provisions of the Code that are
mandated by the Act cannot be waived.
<PAGE>
B. RESTRICTIONS ON EMPLOYEE TRADING
No trading activity by an Employee in any security in which an Employee has any
beneficial interest or ownership which is also the subject of a Client portfolio
purchase or sale shall disadvantage or appear to disadvantage such Client
transaction. Further, the following specific restrictions apply to all trading
activity for Advisory Persons:
i) Any transaction in a security in anticipation of client orders
("frontrunning") is prohibited,
ii) Any transaction in a security which is the subject of a Firm
recommendation is prohibited until the tenth business day following
the dissemination of the recommendation, or any longer period
specified in this Code,
iii) Any transaction in a security which the Advisory Person knows or has
reason to believe is being purchased or sold or considered for
purchase or sale(2) by any investment company advised by the Firm is
prohibited until the transaction by such investment company has been
completed or consideration of such transaction has been abandoned,(3)
iv) Any same day transaction in a security in which any investment company
advised by the Firm has a pending or actual transaction is prohibited.
If an Advisory Person places a same day trade for such security prior
to the investment company placing an order the Employee's order will
be canceled,
v) Any transaction in a security within two business days after any
investment company advised by the Firm has traded in that security is
prohibited,
vi) Any transaction involving options relating to any security on the
Firm's approved list or which are held by any investment company
advised by the Firm is prohibited, and
vii) Any acquisition of an equity security in an initial public offering is
prohibited.
Additionally, no Employee of the Firm shall knowingly sell to or
purchase from the Funds or HAIT any security or other property except, in the
case of the Funds, securities issued by the Funds.
C. PERSONAL INVESTMENTS WITH EXTERNAL MONEY MANAGERS.
All investments in which an Advisory Person has any beneficial interest
or ownership placed with external investment managers (including interests in
limited partnerships or trust vehicles, managed accounts, variable annuities or
foreign entities) or in any account in which an Advisory Person has discretion
must be approved in writing by the Compliance Department and the Chief Executive
Officer prior to the commitment of initial capital.
Additionally, "Investment Personnel" must obtain approval prior to
investing or acquiring a beneficial ownership interest in a Limited Offering,
whether directly or indirectly. "Investment Personnel" is defined in Section
17j-1(a)(7) of the Act and shall be deemed to include any officer of HAI with an
office in the Firm's principal place of business; any officer of HAI who, in
connection with his or her regular functions or duties, makes or participates in
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(2) A security is "being considered for purchase or sale", the earlier of, when
a recommendation to purchase or sell has been made and communicated or the
security is placed on the research project list and, with respect to the
person making the recommendation, when such person seriously considers
making such a recommendation.
(3) Among the clients of the Firm are private investment partnerships
(partnerships) in which various Employees of the Firm have equity
interests. This trading prohibition shall not restrict purchases or sales
for the accounts of such partnerships provided that the Trust and such
accounts are treated fairly and equitably in connection with such purchases
and sales.
<PAGE>
making recommendations regarding the purchase or sale of securities; any Harris
portfolio manager; any member of the Harris stock selection group; any Harris
financial analyst; or any Harris fund manager. A "Limited Offering" is generally
defined as a private placement and can include interests in real estate or oil
and gas limited partnership interests and other privately placed securities and
funds. The Investment Personnel must (i) provide notice in writing to the Chief
Executive Officer and the Compliance Department prior to acquiring ownership,
and (ii) obtain the written approval of the Chief Executive Officer and the
Compliance Department prior to acquiring ownership. The Compliance Department
shall maintain a copy of such approval and reasons supporting the approval as
provided under Section IV of this Code.
The Compliance Department will maintain a list of investment managers
used by Partnerships managed internally and a list of investment managers used
by Advisory Persons.
If an Advisory Person has been notified that an investment manager is
used by the Partnerships' managed internally, an Advisory Person must notify the
Compliance Department and the Head of the Multi-Manager Area of any material
withdrawal of their investment with such investment manager at least two working
days prior to an Advisory Person submitting any notice of such withdrawal. To
avoid a conflict of interest or the appearance of any conflict, an Advisory
Person should also note the reason for the withdrawal if it relates to the
investment manager's performance, organization or perceived ability to execute
their trading strategy.
D. ADDITIONAL RESTRICTION ON FUND MANAGERS OF INVESTMENT COMPANY ACCOUNTS.
Any Access Person who is a fund manager of any investment company that
is advised by the Firm is prohibited from buying or selling a security within
fifteen calendar days before and after the investment company that he/she
manages trades in that security. Any profits realized on trades within the
proscribed periods shall be required to be disgorged.(4)
E. PROCEDURES TO IMPLEMENT TRADING RESTRICTIONS AND REPORTING OBLIGATIONS.
1) TRADING THROUGH HARRIS' TRADING DESK.
All transactions in Covered Securities in which an Advisory Person has
any beneficial interest or ownership or in any accounts in which an Advisory
Person has discretion, other than fee paying accounts ("Advisory Person
account"), must be processed through the Firm's trading desk.
Transactions at other brokers or banks are not permitted except in
unusual circumstances and then only after the Advisory Person has: (i) provided
notice in writing to his/her Supervisor and the Compliance Department prior to
opening or placing an initial order in an account with such other broker or
bank, (ii) obtained the written approval of his/her Supervisor and the
Compliance Department prior to opening or placing an initial order in such
account, (iii) provided such other broker or bank with a written notice of the
Advisory Person's affiliation with Harris and request that copies of
confirmations and statements be sent to the Firm's Compliance Department, and
provide a report to the Firm that includes the name of the broker or bank with
whom the account was established, the date the account was established, and the
date the report is submitted. A copy of such written notice and request should
also be provided to his/her Supervisor and the Compliance Department.
Even after an Advisory Person has obtained approval to execute
transactions through another broker or bank, the Advisory Person must still
present the Firm's trading desk with an order ticket for an order to be executed
at the other broker or bank. In those exceptional situations in which it is
inappropriate for the Firm's trading desk to place the order, the Advisory
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(4) Any profits disgorged shall be given to a tax exempt charitable
organization of Harris' choosing.
<PAGE>
Person must promptly present the trading desk with a completed order ticket
reflecting the details of the transaction and clearly indicating that the
transaction has been completed.
2) MONITORING OF TRADES.
Transactions for an account of an Advisory Person that are executed
through the Firm's trading desk are to be monitored by the Trading Department
and reviewed and approved by the Chief Executive Officer (or such party to whom
he delegates). These transactions are unsolicited brokerage transactions, should
be so marked on the original order ticket and may not be executed if they are in
conflict with discretionary orders. Should a conflict arise, sharing of
executions may be approved by the Head of the Investment Advisory Department, or
in his/her absence, the Manager of the Trading Department. Employee accounts
must be opened in the 40000 office range.
The Firm will provide to the Compliance Department information
(including the title of each Covered Security involved, the date of the
transaction, the interest rate and maturity rate (if applicable), the number of
shares and principal amount of each Covered Security involved, the nature of the
transaction (i.e. buy/sell), the price at which the transaction was effected,
the name of the broker or bank through which the transaction was effected, and
the date on which the report is submitted) about transactions in the accounts of
Advisory Persons who have accounts with the Firm.
Transactions at other brokers or banks, in addition to being placed
through the trading desk, are to be monitored by the Compliance Department. To
accomplish this, an Access Person shall submit to the Compliance Department
within ten days after any transaction a report which includes the title of the
Covered Security, the date of the transaction, the interest rate and maturity
rate (if applicable), the number of shares and principal amount of each Covered
Security involved, the nature of the transaction (i.e. buy/sell), the price at
which the transaction was effected, the name of the broker or bank through which
the transaction was effected and the date on which the report is submitted. This
requirement may be satisfied by having the broker or bank send the Firm
duplicate copies of confirmations and statements, provided that such
confirmations and statements contain all of the information otherwise required
to be provided in the report. The Compliance Department will maintain copies of
all such transaction reports.
3) CANCELLATION OF TRADES.
Any transaction for an account of an Access Person is subject to
cancellation or reversal if it is determined by either the Chief Executive
Officer (or such party to whom he delegates), the Manager of the Trading
Department or the Compliance Department that the transaction is or was in
conflict with or appeared to be in conflict with any Client transaction or any
of the trading restrictions of this Code. Cancellations or reversals of
transactions may be required after an extended period past the settlement date.
The Manager of the Trading Department may also prevent the execution of orders
for an Advisory Person's account if it appears that the trade may have to be
canceled or reversed.
Client transactions include transactions for any investment company
managed by the Firm, any other discretionary advisory clients or any other
accounts managed or advised by Employees of the Firm for a fee.
The determination that a transaction of an Access Person may conflict
with a Client transaction will be subjective and individualized and may include
questions about timely and adequate dissemination of information, availability
of bids and offers, as well as many other factors deemed pertinent for that
transaction or series of transactions. It is possible that a cancellation or
reversal of a transaction could be costly to an Access Person or his/her family.
Therefore, great care is required to adhere to the Firm's trading restrictions
and avoid conflicts or the appearance of conflicts.
<PAGE>
4) PARTICIPATION IN DIVIDEND REINVESTMENT PLANS AND SYSTEMATIC PURCHASE
PLANS.
Advisory Persons may purchase securities through dividend reinvestment
plans or systematic purchase plans without processing such transactions through
the Firm's trading desk. Purchases are permitted only after the Employee has:
(i) provided notice in writing to his/her Supervisor and the Compliance
Department prior to opening an account or placing an initial purchase, and (ii)
obtained the written approval of his/her Supervisor and the Compliance
Department prior to opening an account or placing an initial purchase. Even
after the Advisory Person has obtained approval to invest in such a plan, the
Advisory Person must provide the Compliance Department with duplicate copies of
statements within ten days after the end of each quarter. Such report or
statements must contain all of the information required to be reported with
respect to transactions in Covered Securities under II(F)(2) above. The
Compliance Department will maintain copies of all such transaction reports.
5) REPORTING ALL OTHER SECURITIES TRANSACTIONS.
Because the obligations of an investment adviser to maintain records of
Employee's personal securities transactions is broader than the type of
transactions discussed above in this Section, all Employees have the following
additional reporting obligations. Any transaction in a Covered Security not
required to be placed through the Firm's trading desk in which an Employee has
any beneficial interest or ownership (such as, real estate or oil and gas
limited partnership interests and other privately placed securities and funds)
must be reported to the Compliance Department. This report must be submitted
within ten days after the end of each quarter and include: the title, price,
number of shares and principal amount of each Covered Security involved, the
date and nature of the transaction (i.e. buy/sell), the name of the broker or
bank used, if any, interest rate and maturity, if applicable, and the date on
which the report is submitted. This report may be in any form, including a copy
of a confirmation or monthly statement. However, no report is necessary for any
transaction in an account in which the Employee has no control or influence.
6) INITIAL AND ANNUAL REPORTING REQUIREMENTS.
Each Access Person shall initially disclose in writing to the
Compliance Department within 10 business days of becoming an Access Person, and
annually thereafter within 30 business days after each calendar year-end, the
title, number of shares and principal amount of all Covered Securities
beneficially owned by such Access Person as of the date of becoming a Access
Person, or as of the preceding December 31 for annual reporting and the name of
the broker or bank with whom the Access Person maintains an account in which he
or she has beneficial ownership of any Covered Security. The first such annual
report under this amended Code of Ethics shall be made by January 30, 2001. An
Access Person need not make an Initial or Annual Report for Covered Securities
held in any account over which the Employee has no direct or indirect influence
or control.
F. CONFIDENTIALITY & OBLIGATIONS OF EMPLOYEES
During the period of employment with the Firm an Employee will have
access to certain "confidential information" concerning the Firm and its
clients. This information is a valuable asset and the sole property of the Firm
and may not be misappropriated and used outside of the Firm by an Employee or
former Employee. "Confidential Information", defined as all information not
publicly available about the business of the Firm, may include, but is not
limited to, Client and prospect names and records, research, trading and
portfolio information and systems, information concerning externally managed
entities or accounts which have been considered or made on behalf of fee paying
clients, and the financial records of the Firm and/or its Employees. In order to
protect the interests of the Firm, an Employee or ex-Employee shall not, without
the express written consent of the Firm's Chief Executive Officer, disclose
directly or indirectly confidential information to anyone outside of the Firm.
An Employee should be extremely careful to avoid inadvertent disclosures and to
exercise maximum effort to keep confidential information confidential. Any
questions concerning the confidentiality of information should be directed to
the Chief Executive Officer or the General Counsel. An abuse of the Firm's
<PAGE>
policy of confidentiality could subject an Employee to immediate disciplinary
action that may include dismissal from the Firm.
G. OUTSIDE EMPLOYMENT, ASSOCIATIONS AND BUSINESS ACTIVITIES
1) OUTSIDE EMPLOYMENT AND ASSOCIATIONS.
It is Harris's policy not to permit Advisory Persons to hold outside
positions of authority, including that of being an officer, partner, director or
employee of another business entity (except in the case of entities managed by
the Firm). Also, Harris requires that all Advisory Persons make their positions
with the Firm a full-time job. The approval of Harris, and in some cases the
approval of the NASD, is required before any Advisory Person may hold any
outside position for any business organization, regardless of whether such
position is compensated or not. Any exception to this policy must be approved in
writing by the Firm's Chief Executive Officer (or other person as he may
delegate) and the Access Person's Supervisor, and a copy of such approval shall
be provided by the Advisory Person to the Compliance Department. Any change in
the status of such approved position immediately must be reported in writing to
the Compliance Department and the Advisory Person's Supervisor. Any income or
compensation received by an Advisory Person for serving in such position must be
paid in full to the Firm. Under no circumstance may an Advisory Person represent
or suggest that Harris has approved or recommended the business activities of
the outside organization or any person associated with it.
2) OUTSIDE BUSINESS ACTIVITIES.
To further avoid actual or potential conflicts of interest and to
maintain impartial investment advice, and equally important, the appearance of
impartial investment advice, each Advisory Person must disclose in writing to
the Compliance Department any special relationships and/or investments or
business activities that they or their families have which could influence the
investment activities of the Firm. If an Employee has any questions about any
activities and the need for disclosure, the Employee should be cautious and
direct any questions to the Firm's General Counsel or Compliance Department.
H. CERTIFICATION OF COMPLIANCE BY ACCESS PERSONS.
Each Access Person is required to certify annually that (i) he or she
has read and understands the Code, (ii) recognizes that he or she is subject to
the Code, and (iii) he or she has disclosed or reported all Personal Securities
Transactions required to be disclosed or reported under the Code. The Firm shall
annually distribute a copy of the Code and request certification by all Persons
Subject to this Code and shall be responsible for ensuring that all personnel
comply with the certification requirement.
Each Access Person who has not engaged in any personal securities
transactions during the preceding year for which a report was required to be
filed pursuant to the Code shall include a certification to that effect in his
or her annual certification.
I. ANNUAL REPORT TO THE TRUST'S BOARD OF TRUSTEES.
The officers of the Trust shall prepare an annual report to the board
of trustees of the Trust that:
1. summarizes existing procedures concerning personal investing and any
changes in those procedures during the past year;
2. describes issues that arose during the previous year under the Code or
procedures concerning personal investing, including but not limited to
information about material violations of the Code and sanctions
imposed;
<PAGE>
3. certifies to the board that the Trust has adopted procedures
reasonably necessary to prevent its Investment Personnel and Access
Persons from violating the Code; and
4. identifies any recommended changes in existing restrictions or
procedures based upon experience under the Code, evolving industry
practices, or developments in applicable laws or regulations.
III. POLICY STATEMENT ON INSIDER TRADING
A. BACKGROUND
Trading securities while in possession of material, nonpublic
information or improperly communicating that information to others may expose
you to stringent penalties. Criminal sanctions may include a fine of up to
$1,000,000 and/or ten years imprisonment. The Securities and Exchange Commission
(SEC) can recover the profits gained or losses avoided through the violative
trading, obtain a penalty of up to three times the illicit windfall and issue an
order permanently baring you from the securities industry. Finally, you may be
sued by investors seeking to recover damages for insider trading violations.
Regardless of whether a government inquiry occurs, Harris views
seriously any violation of this Policy Statement. Such violations constitute
grounds for disciplinary sanctions, including dismissal.
The law of insider trading is unsettled; an individual legitimately may
be uncertain about the application of the Policy Statement in a particular
circumstance. Often, a single question can forestall disciplinary action or
complex legal problems. You should direct any questions relating to the Policy
Statement to the General Counsel, or, in her absence, a member of the Stock
Selection Group, or the Compliance Department. You also must notify the General
Counsel, or, in her absence, a member of the Stock Selection Group or the
Compliance Department immediately if you have any reason to believe that a
violation of the Policy Statement has occurred or is about to occur.
B. POLICY STATEMENT ON INSIDER TRADING
No person to whom this Policy Statement applies may TRADE, either
personally or on behalf of others (such as Clients), while in possession of
material, nonpublic information; nor may such persons COMMUNICATE material,
nonpublic information to others in violation of the law. This Policy Statement
is drafted broadly; it will be applied and interpreted in a similar manner. This
Policy Statement applies to securities trading and information handling by all
Access Persons (including their spouses, minor children and adult members of
their households).
The section below reviews principles important to this Policy
Statement.
1. WHAT IS MATERIAL INFORMATION?
Information is "material" when there is a substantial likelihood that a
reasonable investor would consider it important in making his or her investment
decisions. Generally, this is information whose disclosure will have a
substantial effect on the price of a company's securities. No simple "bright
line" test exists to determine when information is material; assessments of
materiality involve a highly fact-specific inquiry. For this reason, you should
direct any questions about whether information is material to the General
Counsel, or, in her absence, a member of the Stock Selection Group, or
Compliance Department.
Material information often relates to a company's results and
operations including, for example, dividend changes, earnings results, changes
in previously released earnings estimates, significant merger or acquisition
proposals or agreements, major litigation, liquidation problems, and
extraordinary management developments.
<PAGE>
Material information also may relate to the MARKET for a company's
securities. Information about a significant order to purchase or sell securities
may, in some contexts, be deemed material. Similarly, prepublication information
regarding reports in the financial press also may be deemed material.
2. WHAT IS NONPUBLIC INFORMATION?
Information is "nonpublic" until it has been disseminated broadly to
investors in the marketplace. Tangible evidence of such dissemination is the
best indication that the information is public. For example, information is
public after it has become available to the general public through a public
filing with the SEC or some other governmental agency, the Dow Jones "tape" or
the WALL STREET JOURNAL or some other publication of general circulation, and
after sufficient time has passed so that the information has been disseminated
widely.
3. IDENTIFYING INSIDE INFORMATION
Before executing any trade for yourself or others, including Clients,
you must determine whether you have access to material, nonpublic information.
If you think that you might have access to material, nonpublic information, you
should take the following steps:
i. Immediately alert the Trading Department to restrict trading in
security on the restricted list maintained in the trading room.
No reason or explanation should be given to the Trading
Department for the restriction.
ii. Report the information and proposed trade immediately to the
General Counsel, or a member of the Stock Selection Group.
iii. Do not purchase or sell the securities on behalf of yourself or
others, including Clients.
iv. Do not communicate the information inside or outside Harris other
than to the above individuals.
v. After the above individuals have reviewed the issue, the Firm
will determine whether the information is material and nonpublic
and, if so, what action the Firm should take.
4. CONTACTS WITH PUBLIC COMPANIES
For Harris, contacts with public companies represent an important part
of our research efforts. Harris may make investment decisions on the basis of
the Firm's conclusions formed through such contacts and analysis of
publicly-available information. Difficult legal issues arise, however, when, in
the course of these contacts, an Access Person becomes aware of MATERIAL,
nonpublic information. This could happen, for example, if a company's Chief
Financial Officer prematurely discloses quarterly results to an analyst or an
investor relations representative makes a selective disclosure of adverse news
to a handful of investors. In such situations, Harris must make a judgment as to
its further conduct. To protect yourself, Clients and the Firm, you should
contact the General Counsel, or in her absence, a member of the Stock Selection
Group, or Compliance Department immediately if you believe that you may have
received material, nonpublic information.
5. TENDER OFFERS
Tender offers represent a particular concern in the law of insider
trading for two reasons. First, tender offer activity often produces
extraordinary gyrations in the price of the target company's securities. Trading
during this time period is more likely to attract regulatory attention (and
produces a disproportionate percentage of insider trading cases). Second, the
SEC has adopted a rule which expressly forbids trading and "tipping" while in
possession of material, nonpublic information regarding a tender offer received
from the tender offer, the target company or anyone acting on behalf of either.
Employees should exercise particular caution any time they become aware of
nonpublic information relating to a tender offer.
C. PROCEDURES TO IMPLEMENT THE POLICY STATEMENTON INSIDER TRADING
1. PERSONAL SECURITIES TRADING
The restrictions on Employee trading and procedures to implement those
restrictions and the Firm's reporting obligations which are set forth in Section
II above constitute the same procedures to implement this Policy Statement.
Review those procedures carefully and direct any questions about their scope or
applicability to the General Counsel or the Compliance Department.
2. RESTRICTIONS ON DISCLOSURES
Harris Employees shall not disclose any nonpublic information (whether
or not it is material) relating to Harris or its securities transactions to any
person outside Harris (unless such disclosure has been authorized by Harris).
Material, nonpublic information may not be communicated to anyone, including
persons within Harris, except as provided in Section III(B)(3) above. Such
information must be secured. For example, access to files containing material,
nonpublic information and computer files containing such information should be
restricted, and conversations containing such information, if appropriate at
all, should be conducted in private.
IV. RETENTION OF RECORDS
The Compliance Department or the Secretary of the Trust will maintain
the records listed below for a period of five years. Such records shall be
maintained at the Firm's principal place of business in an easily accessible
place:
(i) a list of all persons subject to the Code during that
period;
(ii) receipts signed by all persons subject to the Code
acknowledging receipt of copies of the Code and
acknowledging that they are subject to it;
(iii)a copy of each Code of Ethics that has been in effect at
any time during the period;
(iv) a copy of each report filed pursuant to the Code and a
record of any known violations and actions taken as a result
thereof during the period as well as record of all persons
responsible for reviewing these reports; and
(v) a copy of any decision and the reasons supporting the
decision, to approve the acquisition by Investment Personnel
of Limited Offerings.
<PAGE>
ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS AND STATEMENT ON
INSIDER TRADING
FOR ACCESS PERSONS
CODE OF ETHICS. Harris Associates L.P. ("HALP"), Harris Associates
Securities L.P. ("HASLP") and Harris Associates Investment Trust (the "Trust")
have adopted a written Code of Ethics and Statement on Insider Trading (the
"Code") to avoid potential conflicts of interest by HALP and HASLP personnel and
to govern the use and handling of material non-public information. A copy of the
Code is attached to this acknowledgement. As a condition of your continued
employment with HALP and HASLP, and/or the retention of your position, if any,
as an officer of the Trust, you are required to read, understand and abide by
the Code.
COMPLIANCE PROGRAM. The Code requires that all personnel furnish to the
Compliance Department information regarding any investment account in which you
have a "beneficial interest." You are also required to furnish to the Compliance
Department copies of your monthly or quarterly account statements, or other
documents, showing all purchases or sales of securities in any such account, or
which are effected by you or for your benefit, or the benefit of any member of
your household. Additionally, you are required to furnish a report of your
personal securities holdings within ten days of commencement of your employment
with HALP or HASLP and annually thereafter. These requirements apply to any
investment account, such as an account at a brokerage house, trust account at a
bank, custodial account or similar types of accounts.
This compliance program also requires that you report any contact with
any securities issuer, government or its personnel, or others, that, in the
usual course of business, might involve material non- public financial
information. The Code requires that you bring to the attention of the General
Counsel any information you receive from any source which might be material
non-public information.
Any questions concerning the Code should be directed to the General
Counsel or the Compliance Department.
I affirm that I have read and understand the Code. I agree to the terms
and conditions set forth in the Code.
- ----------------------------------- -------------------
Signature Date
<PAGE>
ANNUAL AFFIRMATION OF COMPLIANCE
FOR ACCESS PERSONS
I affirm that:
1. I have again read and, during the past year to the best of my
knowledge, have complied with the Code of Ethics and Statement of
Insider Trading (the "Code").
2. I have provided to the Compliance Department the names and
addresses of each investment account that I have with any firm,
including, but not limited to, broker- dealers, banks and others.
(List of known accounts attached.)
3. I have provided to the Compliance Department copies of account
statements or other reports showing each and every transaction in
any security in which I have a beneficial interest, as defined in
the Code, during the most recently ended calendar year
or
During the most recent calendar year there were no transactions
in any security in which I had a beneficial interest required to
be reported pursuant to the Code.
4. I have provided to the Compliance Department a report of my
personal securities holdings as of the end of the most recent
calendar year, including all required information for each
security in which I have any direct or indirect beneficial
ownership.
- ----------------------------------- ------------------
Signature Date
<PAGE>
APPENDIX A
EXAMPLES OF BENEFICIAL INTEREST
For purposes of the Code, you will be deemed to have a beneficial
interest in a security if you have the opportunity, directly or indirectly, to
profit or share in any profit derived from a transaction in the security.
Examples of beneficial ownership under this definition include:
* securities you own, no matter how they are registered, and including
securities held for you by others (for example, by a custodian or
broker, or by a relative, executor or administrator) or that you have
pledged to another (as security for a loan, for example);
* securities held by a trust of which you are a beneficiary (except
that, if your interest is a remainder interest and you do not have or
participate in investment control of trust assets, you will not be
deemed to have a beneficial interest in securities held by the trust);
* securities held by you as trustee or co-trustee, where either you or
any member of your immediate family (I.E., spouse, children or
descendants, stepchildren, parents and their ancestors, and
stepparents, in each case treating a legal adoption as blood
relationship) has a beneficial interest (using these rules) in the
trust.
* securities held by a trust of which you are the settlor, if you have
the power to revoke the trust without obtaining the consent of all the
beneficiaries and have or participate in investment control;
* securities held by any partnership in which you are a general partner,
to the extent of your interest in partnership capital or profits;
* securities held by a personal holding company controlled by you alone
or jointly with others;
* securities held by (i) your spouse, unless legally separated, or you
and your spouse jointly, or (ii) your minor children or any immediate
family member of you or your spouse (including an adult relative),
directly or through a trust, who is sharing your home, even if the
securities were not received from you and the income from the
securities is not actually used for the maintenance of your household;
or
* securities you have the right to acquire (for example, through the
exercise of a derivative security), even if the right is not presently
exercisable, or securities as to which, through any other type of
arrangement, you obtain benefits substantially equivalent to those of
ownership.
You will NOT be deemed to have beneficial ownership of securities in the
following situations:
* securities held by a limited partnership in which you do not have a
controlling interest and do not have or share investment control over
the partnership's portfolio; and
* securities held by a foundation of which you are a trustee and donor,
provided that the beneficiaries are exclusively charitable and you
have no right to revoke the gift.
These examples are not exclusive. There are other circumstances in which you may
be deemed to have a beneficial interest in a security. Any questions about
whether you have a beneficial interest should be directed to the General Counsel
or Compliance Department.
BPI GLOBAL ASSET MANAGEMENT LLP
CODE OF ETHICS AND RULES FOR PERSONAL INVESTING
INTRODUCTION
BPI Global Asset Management LLP (the "Adviser"), recognizes that the
knowledge of present to future portfolio transactions and, in certain instances,
the power to influence portfolio transactions made by or for any client for
which the Adviser serves as an investment adviser (a "Client") which may be
possessed by certain of its staff could place such individuals, if they engage
in personal transactions in securities, in a position where their personal
interest may conflict with that of such Client.
The Adviser has adopted this Code of Ethics to prohibit certain types of
personal securities transactions which may create conflicts of interest (or at
least the potential for or the appearance of a conflict of interest), to specify
certain permitted personal investments and to establish reporting requirements
and enforcement procedures.
In general, all of the personnel of the Adviser (referred to in this Code
as "staff") are expected to:
* act with integrity, competence, dignity and in an ethical manner when
dealing with the public, clients, prospects, employers, employees and
fellow staff
* practice and encourage others to practice in a professional and
ethical manner that will reflect credit on our staff
* strive to maintain and improve their competence
* use reasonable care and exercise independent professional judgement
where appropriate
In addition, all staff shall not, in connection with the purchase or sale,
directly or indirectly, by such person of a security held or to be acquired by
any Client:
* employ any device, scheme or artifice to defraud such Client;
* make to such Client any untrue statement of a material fact or omit to
state to such Client a material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading;
<PAGE>
* engage in any act, practice or course of business which would operate
as a fraud or deceit upon such Client; or
* engage in any manipulative practice with respect to Client.
STATEMENT OF GENERAL PRINCIPLES
In recognition of the trust and confidence placed in the Adviser by its
Clients, the Adviser has adopted the following general principles to guide the
actions of its employees, officers and directors:
* The interests of our Clients are paramount, and all staff must conduct
themselves in all situations by placing the interests of the Clients
before their own.
* All personal transactions in securities by staff must be accomplished
so as to avoid even the appearance of a conflict of interest on the
part of such personnel with the interests of our Clients.
* All staff must avoid actions or activities that allow (or appear to
allow) a person to profit or benefit from his or her position with
respect to the Clients, or that otherwise bring into question the
person's independence or judgment.
DEFINITIONS
In this Code of Ethics, the following capitalized terms have the following
meanings:
(1) "ACCESS PERSON" shall mean:
(i) each Officer or Manager of the Adviser;
(ii) each employee of the Adviser who makes any investment
recommendation or who participates in the determination of which
recommendation is to be made;
(iii)any employee who, in connection with his or her duties, obtains
or could obtain or could obtain any information concerning which
Securities are being traded or recommended prior to the effective
dissemination of such recommendations or of the information
concerning such recommendations ("Information") to the public;
and
<PAGE>
(iv) any of the following persons who obtain Information prior to the
effective dissemination of the Information to the public: (a) any
person who is in a control relationship to the Advisor, (b) any
affiliated person of such controlling person, and (c) any
affiliated person of such affiliated person.
(2) "BENEFICIAL OWNERSHIP" of a security is to be determined in the same
manner as it is for purposes of Section 16 of the SECURITIES EXCHANGE
ACT OF 1934, as amended (the "Exchange Act"). This means that a person
should generally consider himself the beneficial owner of any
securities in which he has a direct or indirect monetary interest. IN
ADDITION, A PERSON SHOULD CONSIDER HIMSELF OR HERSELF THE BENEFICIAL
OWNER OF SECURITIES HELD BY HIS OR HER SPOUSE, HIS OR HER MINOR
CHILDREN, A RELATIVE WHO SHARES HIS OR HER HOME, OR OTHER PERSONS BY
REASON OF ANY CONTRACT, ARRANGEMENT, UNDERSTANDING OR RELATIONSHIP
THAT PROVIDES HIM OR HER WITH SOLE OR SHARED VOTING OR INVESTMENT
POWER.
(3) "COMPLIANCE OFFICER" shall mean the Controller of the Adviser.
(4) "CONTROL" means the power to exercise a controlling influence over the
management or policies of a company, unless such power is solely the
result of an official position with such company. Ownership of 25% or
more of a company's outstanding voting securities is presumed to give
the holder control over the company. Such presumption may be countered
by the facts and circumstances of a given situation.
(5) "SECURITY" shall have the same meaning as that set forth in Section
2(a)(18) of the INVESTMENT ADVISERS ACT OF 1940 (the "1940 Act")
PERMITTED PURCHASES AND SALES OF SECURITIES
An Access Person may only invest in and dispose of the following Securities
("Permitted Securities") over which he or she has Beneficial Ownership:
* units or shares of registered open-ended mutual funds
* shares or options of BPI Financial Corporation or units or shares of
public limited partnerships, investment funds and companies managed or
administered by the Adviser and/or its affiliates (including without
limitation, BPI Capital Management Corporation)
* stock index securities approved by the Compliance Officer from time to
time
<PAGE>
* securities issued by the Government of the United States or an agency
thereof, bankers' acceptances, bank certificates of deposit or
commercial paper
* securities held in a fully managed account managed by a registered
investment advisor which is not affiliated with the Access Person and
over which the Access Person has no discretion in respect of
individual investments and in respect of which the Access Person is
not in any way consulted with at any time prior to any particular
transaction or advised of any transaction other than by way of a
statement of account issued no earlier than 5 business days after the
end of the applicable reporting period
* shares, options or other securities of a private company which carries
on, directly or through subsidiaries, an active business and which
does not invest in Non-Permitted Securities where the Access Person
has a close personal or business relationship (other than a
relationship arising because of the Access Person's relationship with
the Adviser) with the founder or promoter of the issuer, but
specifically excluding any securities of a private company offered
pursuant to or as a part of an initial public offering or private
placement where it may reasonably be contemplated that such company
may within one year become a public company
The purchase of Permitted Securities will not be considered to be in conflict
with the interests of Clients and will not require pre-clearance by the
Compliance Officer.
TRANSITIONAL PROVISIONS
In the event that an Access Person as of April 1, 1997 (or if the employment of
the Access Person commenced after such date, on the commencement of employment
with the Adviser) has Beneficial Ownership in Securities that are not Permitted
Securities ("Non-Permitted Securities"), he or she may continue to hold such
Securities provided that any sale of such Securities must comply with the
following pre-clearance rules.
Any sale of a Non-Permitted Security by an Access Person must be pre-cleared by
the Compliance Officer prior to proceeding with the transaction. No transaction
in Non-Permitted Securities may be effected without the prior written approval
of the Compliance Officer.
The following sales of Non-Permitted Securities shall generally be entitled to
clearance from the Compliance Officer:
(a) Sales of Securities which appear upon reasonable inquiry and
investigation to present no reasonable likelihood of harm to our
Clients and which are otherwise in accordance with the law.
<PAGE>
(b) Sales of Securities which are not eligible for purchase or sale by any
Client, as determined by reference to the investment objectives and
restrictions of the Clients.
(c) The portfolio managers of the Adviser do not anticipate future trading
in the Security in such a manner that could provide a personal benefit
to the Access Person.
(d) There is no pending buy or sell order by the portfolio managers of the
Adviser for the Security which has not been executed or withdrawn and,
if the Access Person is the portfolio manager, there has not been
trading in the Security by the portfolio manager on behalf of a client
of the Adviser within the previous 5 trading days.
The requirements for the purchase or sale of Non-Permitted Securities shall not
apply to the following transactions:
(a) purchases or sales over which the Access Person has no direct or
indirect influence or control;
(b) purchases which are part of an automatic dividend reinvestment plan;
or
(c) purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its Securities, to the extent such
rights were acquired from such issuer.
All requests to the Compliance Officer for the pre-clearance of the sale of a
Non-Permitted Security must be in writing in the form set out in Schedule 1
hereto, being a certificate of the Access Person that he or she:
(a) does not possess material non-public information relating to the
Security;
(b) is not aware of any proposed trade or investment program for that
Security on behalf of any Client;
(c) believes that the proposed trade is available to any market
participant on the same terms; and
(d) will provide any other information requested by the Compliance Officer
for the proposed trade.
The pre-approval of the Compliance Officer of any sale of a Non-Permitted
Security shall be valid on the day such approval is given and on the next
trading day (the "Approved Period"). The Access Person must re-apply to the
Compliance Officer for approval to sell such Non-Permitted Security at any time
after the Approval Period.
<PAGE>
In the event that an Access Person disposes of Non-Permitted Securities in
accordance with these transitional rules within 60 days of having acquired such
Securities, any profit on such short term sale shall be disgorged to a charity
designated by the Compliance Officer.
TRANSITIONAL PERSONAL HOLDINGS BY A PORTFOLIO MANAGER
If a portfolio manager of the Adviser has Beneficial Ownership of a
Non-Permitted Security which he or she desires to purchase on behalf of a
Client, the purchase decision must be made by another portfolio manager who has
no Beneficial Ownership of the Non-Permitted Security and confirmed by the
Compliance Officer.
PURCHASE AND SALE OF SECURITIES OF A PUBLICLY-TRADED
COMPANY BY AN ACCESS PERSON WHO IS A DIRECTOR
It is the policy of the Advisor that it will not invest in securities of a
publicly-traded company of which an Access Person is an officer, director or
significant shareholder or is in a similar relationship with the company. In the
event that an Access Person is granted permission to hold such a position with a
publicly-traded company as contemplated below under "Acting as a Director", such
Access Person may purchase and sell securities of such company upon the prior
written approval of the Compliance Officer in the manner as described above
under "Transitional Provisions".
REPORTING OBLIGATIONS OF ACCESS PERSONS
(1) Each Access Person shall sign an acknowledgement at the time this Code
is adopted or at the time such person becomes an Access Person and on
an annual basis thereafter that he or she has read, understands and
agrees to abide by the Code. Such acknowledgement shall be in the form
set out in Schedule 2 hereto.
(2) Each Access Person shall within 15 days of the implementation of this
Policy or on the commencement of employment (whichever is later) and
of January 1 of each year thereafter file with the Compliance Officer
a list of all Permitted and Non-Permitted Securities Beneficially
Owned by the Access Person.
(3) Each Access Person shall report to the Compliance Officer each
transaction in Non-Permitted Securities in which the person has, or by
reason of such transaction acquires, any direct or indirect Beneficial
Ownership within 5 days of such transaction. Each Access Person shall
provide on a timely basis to the Compliance Officer duplicate copies
of all trading account statements relating to personal securities
transactions.
(4) Each Access Person shall file with the Compliance Officer not later
than 10 days after the end of the calendar quarter quarterly reports
on purchases and sales of Non-Permitted Securities which obligation
may be fulfilled by ensuring that duplicate copies of monthly
<PAGE>
statements of portfolio holdings are delivered to the Compliance
Officer by the applicable dealer. Any Access Person who is a
Compliance Officer shall submit confidential quarterly reports with
respect to his or her own personal securities transactions to an
officer designated to receive his or her reports (the "Alternate
Compliance Officer"), who shall act in all respects in the manner
prescribed herein for the Compliance Officer. Any such report may
contain a statement that the report shall not be construed as an
admission by the person making such report that he or she has any
direct or indirect Beneficial Ownership in the Security to which the
report relates. Every report on transactions involving Non- Permitted
Securities shall contain the following information:
(a) the date of the transaction, the title and the number of shares
or the principal amount of each Security involved;
(b) the nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
(c) the price at which the transaction was effected;
(d) the name of the broker, dealer or bank with or through whom the
transaction was effected; and
(e) the date the report was signed.
(5) In the event no reportable transactions occurred during the quarter,
the report should be so noted and returned, signed and dated.
All reports and statements received by the Compliance Officer from Access
Persons shall be kept confidential by the Compliance Officer and will only be
disclosed to others if the disclosure is required to enforce compliance with
this Code or is lawfully requested by securities regulators.
ROLE OF THE COMPLIANCE OFFICER
REVIEW AND ENFORCEMENT
The Compliance Officer shall review reported personal securities transactions
and the Clients' securities transactions to determine whether a violation of
this Code may have occurred. Before making any determination that a violation
has been committed by any person, the Compliance Officer shall give such person
an opportunity to supply additional explanatory material.
<PAGE>
If the Compliance Officer determines that a violation of this Code has occurred,
he or she shall provide a written report to the Managers of the Adviser and
impose upon the individual such sanctions as he or she deems appropriate, which
may range from a written warning, suspension with or without pay, termination of
employment and/or disgorgement of profits.
In the event that the Access Person disagrees as to whether a violation occurred
or with the appropriateness of the sanction, such Access Person may request that
the Managers of Adviser who are not Access Persons review such decisions, it
being understood that the decision of such Managers shall be final and binding
upon the Adviser and the Access Person.
RECORDS
The Compliance Officer on behalf of the Adviser shall maintain records in the
manner and to the extent set forth below, which records shall be available for
examination by representatives of The Securities and Exchange Commission:
(1) a copy of this Code and any other code which is, or, at any time
within the past five years has been, in effect shall be preserved in
an easily accessible place;
(2) a list of all Access Persons from time to time;
(3) a record of any violation of this Code and of any action taken as a
result of such violation shall be preserved in an easily accessible
place for a period of not less than five years following the end of
the fiscal year in which the violation occurs;
(4) a copy of each report made by an Access Person pursuant to this Code
shall be preserved in an easily accessible place for a period of not
less than five years from the end of the fiscal year in which it is
made; and
(5) a list of persons who are, or within the past five years have been,
Access Persons shall be maintained in an easily accessible place.
ANNUAL REPORT TO MANAGERS OF THE ADVISER
It is acknowledged that a majority of the Managers of the Adviser do not
participate in the day to day management of the Adviser and that such Managers
shall have general oversight responsibility for this Code. On an annual basis
the Compliance Officer shall report to these Managers in writing:
(a) summarizing the existing procedures concerning personal investing and
any changes made to the procedures in the past year;
<PAGE>
(b) as to compliance with the Code, summarizing any instances of
non-compliance and the sanctions imposed by the Compliance Officer and
providing any other information as may be requested by such Managers
from time to time; and
(c) recommending any changes or modifications to the Code which in the
opinion of the Compliance Officer would be desirable or beneficial due
to legal and business developments and the Adviser's experience in
administering the Code.
GIFTS AND GRATUITIES
No Access Person shall accept or receive any gift or other thing of more than de
minimis value from any person or entity that does business with or on behalf of
the Adviser.
ACTING AS A DIRECTOR
It is the policy of the Adviser that it will not invest in securities of a
publicly traded company of which Access Person is an officer, director or
significant shareholder or is in a similar relationship with the company.
Accordingly, no Access Person may hold or accept a position as a director,
officer, trustee or general partner of a publicly-traded company or be a
significant shareholder of a public company unless such position has been
presented to and approved by the Compliance Officer on the basis that it is
consistent with the interests of the Clients.
April 1, 1997
<PAGE>
SCHEDULE 1
BPI GLOBAL ASSET MANAGEMENT LLP
REQUEST FOR PRE-CLEARANCE OF
THE SALE OF A NON-PERMITTED SECURITY
TO: COMPLIANCE OFFICER
RE: SALE OF ______ (NUMBER) SHARES OF ________________________(NAME OF ISSUER
AND SECURITY).
As required by the Code of Ethics and Rules for Personal Investing of BPI Global
Asset Management LLP (the "Code"), this shall serve as my request to receive
pre-clearance for the sale of the aforementioned security(ies). In connection
therewith, I certify that:
* I do not possess material non-public information relating to that Security;
* I am not aware of any proposed trade or investment program for that
Security on behalf of any Client (as that term is defined in the Code);
* I believe that the proposed trade is available to any market participant on
the same terms; and
* I will provide any other information requested by you for the proposed
trade.
I understand that this pre-approval of this sale of a Non-Permitted Security
shall be valid on the day such approval is given and on the next trading day.
After such period, I must re-apply to you for pre-approval to sell such
Non-Permitted Security.
I further understand that if such security was acquired within 60 days of the
sale date, any profit on such short-term sale shall be disgorged in accordance
with the Code.
- ------------------------------- ----------------- ---------------
Employee Signature Employee Name Date
PRE-APPROVAL GRANTED
- ------------------------------- -----------------
Compliance Officer Signature Date
<PAGE>
SCHEDULE 2
BPI GLOBAL ASSET MANAGEMENT LLP
CODE OF ETHICS AND RULES FOR PERSONAL INVESTING
TO: COMPLIANCE OFFICER
RE: ACKNOWLEDGEMENT OF RECEIPT OF CODE OF ETHICS AND RULES FOR PERSONAL
INVESTING
1. As required by the Code of Ethics and Rules for Personal Investing (the
"Code") of BPI Global Asset Management LLP (the "Advisor") I acknowledge
that I have read, understand and agree to abide by the Code.
2. Further, I understand that I may only invest in and dispose of Permitted
Securities (as defined in the Code) over which I have Beneficial Ownership
(as defined in the Code);
3. Please initial one of the following:
_______ I will cause to be provided on a timely basis to the Compliance
Officer duplicate copies of all trading account statements relating to
personal securities transactions.
_______ I have no trading account at the present time, but will notify the
Compliance Officer if I open a trading account and will cause duplicate
copies of all trading account statements to be provided to the Compliance
Officer if and when I establish such an account.
4. I attach a list of all Permitted and Non-Permitted Beneficially Owned by me
as of the date hereof.
- ------------------------------- ----------------- ---------------
Employee Signature Employee Name Date
MASTHOLM ASSET MANAGEMENT INC.
CODE OF ETHICS AND PROFESSIONAL STANDARDS
AND GUIDELINES FOR AVOIDING PROHIBITED ACTS
A11 employees of Masthohn Asset Management Inc. ("MAM"), in conducting their
personal securities transactions, owe a fiduciary duty to all MAM's clients,
including the investment companies for which MAM serves as investment adviser.
The term "Fund" is used herein to mean each registered investment company for
which MAM serves as investment adviser or sub-investment adviser. The
fundamental standard to be followed in personal securities transactions is that
Employees may not take inappropriate advantage of their positions. All personal
securities transactions by Employees must be conducted in such interest and the
interests of each client, or any abuse of an Employee's position of trust and
responsibility. Potential conflicts arising from personal investment activities
could include buying or selling securities based on knowledge of a client's
trading position or plans (sometimes referred to as front-running), and
acceptance of personal favors that could influence trading judgements on behalf
of a client. In addition to the foregoing, this Code of Ethics is intended to
prevent Employees from engaging in any act, practice or course of business
prohibited by Rule 17j-1 under the Investment Company Act of 1940 (the "Act").
Rule 17j-1 prohibits directors, officers and advisory personnel of an investment
adviser, in connection with the purchase or sale by any such person of a
security held or to be acquired by an investment company, from engaging in
manipulative practices or employing any scheme to defraud the investment
company, from making any untrue statements to the investment company and from
failing to disclose to the investment company material information.
While this Code of Ethics is designed to address identified conflicts and
potential conflicts, it cannot possibly be written broadly enough to cover all
potential situations. In this regard, Employees are expected to adhere not only
to the letter, but also the spirit, of the policies contained herein. For
example, the restrictions contained herein on the purchase or sale of a security
would include the purchase or sale of an equivalent security, such as the
writing of an option to purchase or sell a security.
Absent the approval of MAM's Compliance Officer and except for certain limited
exceptions for managed accounts where the Employee has no discretion,
self-directed IRA accounts and certain estate or trust accounts, all Employees
must provide any brokerage account records to the Compliance Officer upon
request.
The restrictions contained in this Code of Ethics apply to all securities in
which an Employee has my direct or indirect "beneficial ownership" - and may
encompass transactions in securities that are not effected in Employee Brokerage
Accounts such as interests in limited partnerships or transactions effected for
the account of another individual or entity if the Employee may share in the
profit from the transaction. Accordingly, all securities transactions in which
an Employee has or would acquire any direct or indirect beneficial ownership,
whether effected through an Employee Account or not, must be approved in advance
as provided below in paragraph C of this section.
In furtherance of the above principles, this Code of Ethics contains certain
restrictions on personal securities transactions by Employees of MAM, certain
restrictions on other activities of Employees when an actual or potential
conflict of interest between an Employee and a client may exist, and certain
reporting requirements to enable MAM to ensure compliance with this Code of
Ethics. Any questions regarding the application or scope of the restrictions and
reporting requirements contained herein should be directed to MAM's Compliance
Officer.
All of the restrictions and reporting requirements contained herein apply to
each of MAM's Employees. Certain additional restrictions apply to "Portfolio
Managers". For purposes of this Code of Ethics, Employees also includes all
<PAGE>
directors and officers of MAM, unless otherwise determined by the Compliance
Officer. "Portfolio Manager" includes only directors, officers or employees of
MAM having direct responsibility and authority to make investment decisions on
behalf of a client. The Compliance Officer will notify each Employee deemed to
be a Portfolio Manager for purposes of this Code of Ethics.
II. Prohibitions; Exemptions
1. PROHIBITED PURCHASES AND SALES
EMPLOYEES
A. No Employee may purchase or sell, directly or indirectly, any security
in which that Employee has, or by reason of the transaction would acquire, any
direct or indirect beneficial ownership and which to the actual knowledge of
that Employee at the time of such purchase or sale:
(i) is being actively considered for purchase or sale for any client
account; or
(ii) is in the process of being purchased or sold by any client amount.
B. No MAM employee may buy or sell for themselves any equity securities in
any company domiciled outside the United States without permission of the
Compliance Officer or the Chief Investment Officer.
C. With the approval of the Compliance Officer or the Chief Investment
Officer, individuals may buy individual equity securities subject to a minimum
holding period of 90 days.
D. Employees may not purchase, directly or indirectly, any security in an
initial public offering.
2. EXEMPTIONS FROM CERTAIN PROHIBITIONS
A. The prohibited purchase and sale transactions described in paragraph
II.1. above do not apply to the following personal securities transactions:
purchases or sales effected in any account over which the Employee has
no direct or indirect influence or control;
purchases or sales which are non-violitional on the part of either the
Employee or the relevant client account;
purchases which are part of an automatic dividend reinvestment plan
(other than pursuant to a cash purchase plan option);
purchase effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent the
rights were acquired from that issuer, and sales of the rights so
acquired;
purchases or sales of (i) "long-term" debt securities (securities with
a remaining maturity of more than 397 days) issued by the U.S.
government or "short-term" debt securities (securities with a
remaining maturity of 397 days or less) issued or guaranteed as to
principal or interest by the U.S. government or by a person controlled
or supervised by and acting as an instrumentality of the U.S.
government, (ii) bankers' acceptances and bank certificates of
<PAGE>
deposit, (iii) commercial paper and (iv) shares of registered open-end
investment companies (each of the foregoing being referred to herein
as "Exempt Securities"); and
any other purchase or sale which the Compliance Officer approves on
the grounds that the chance of conflict of interest is remote.
B. Any personal securities transaction approved pursuant to paragraphs
II.2.A(6) and II.2.C. shall be reported to the Compliance Officer within 15 days
after the end of the month during which such approval occurred.
3. PROHIBITED RECOMMENDATIONS
All Employees are subject to the following restrictions on making
recommendations to each client account:
A. Subject to certain exceptions indicated below for Exempt Securities
(as defined in paragraph II.2.A(5) above) no Employee may recommend the purchase
or sale of any security to or for any client account without first having
disclosed his or her interest, if any, in such security or the issuer thereof to
the Compliance Officer, including without limitation:
any direct or indirect beneficial ownership of any security (other
than an Exempt Security) of such issuer, including any security
received in a private securities transaction;
any contemplated purchase or sale by such person of such security
(other than an Exempt Security);
any position with such issuer or its affiliates; or
any present or proposed business relationship between such issuer or
its affiliates and such person or any party in which such person has a
significant interest.
B. In circumstances in which Employees are required to disclose an interest
in a security or an issuer acquired in a private securities transaction to the
Compliance Officer, as described above, MAM's decision to purchase or sell a
security (or to recommend the purchase or sale of a security) of the same issuer
for any client account shall be subject to an independent review by a Portfolio
Manager or Portfolio Managers with no personal interest in the issuer.
C. PRE-CLEARANCE OF PERSONAL SECURITIES TRANSACTIONS
1. All Employees must obtain approval from the Compliance Officer prior to
entering into personal securities transaction involving the purchase or sale of
any security, including any security to be acquired in a private transaction,
except for transactions included in paragraphs II.2.A.(1), A(2), A(3) or A(4).
2. In addition, all transactions in equity securities must be approved by
the person or persons designated from time to time by the Compliance Officer.
3. In connection with obtaining approval for any personal securities
transaction, Employees must describe to the Compliance Officer in detail any
factors which might be relevant to a conflict of interest analysis, including
the existence, to the Employee's knowledge, of any economic relationship between
the transaction and securities held or to be acquired by any MAM client.
<PAGE>
D. PROHIBITIONS ON GIFTS AND SERVICES
1. Employees may not accept gifts or other things for more than $100 in
value from any person or entity that is known by such Employee to be doing
business with or on behalf of any client account or MAM without the approval of
the Compliance Officer.
2. Employees shall not serve on the boards of directors of publicly held
companies (other than Funds), absent prior approval from the Board of Directors
of each relevant Fund, as determined by the Compliance Officer, and approval of
MAM's Compliance Officer. Such approval should be based on a determination that
board service would be consistent with the best interests of the shareholders of
each such Fund.
E. REPORTING
1. INITIAL REPORTING
All Employees must report all personal securities holdings upon
commencement of employment with MAM.
2. QUARTERLY REPORTING
A. Subject to the provisions of paragraph B, below, every Employee
shall either report to MAM the information described in paragraph C, below, with
respect to transactions in any security in which the Employee has, or by reason
of the transaction acquires, any direct or indirect beneficial ownership in the
security or, in the alternative, make the representation in paragraph D below.
B. An Employee is not required to make a report with respect to any
transaction effected for any account over which the Employee does not have any
direct or indirect influence, provided, however, that if the Employee is relying
upon the provisions of this paragraph B to avoid making such a report, the
Employee shall, not later than 10 days after the end of each calendar quarter,
identify any such account in writing and certify in writing that he or she had
no direct or indirect influence over any such account.
C. Every quarterly report pursuant to this paragraph 2 shall be
submitted to the Compliance Officer not later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates was
effected and shall contain the following instructions:
(i) the date of the transaction, the title and the number of shares and the
principal amount of each security involved.
(ii) the nature of the transaction (i.e., purchase, sale or any other type of
acquisition or disposition);
(iii) the price at which the transaction was effected;
(iv) the name of the broker, dealer or bank with or through whom the
transaction was effected; and
(v) a description of any factors potentially relevant to a conflict of interest
analysis, including the existence, to the Employee's knowledge, of any
economic relationship between the transaction and securities held or to be
acquired by any client account.
D. If no transactions were conducted by an Employee during a calendar
quarter that are subject to the reporting requirements described above, such
Employee shall, not later than 10 days after the end of that calendar quarter,
provide a written representation to that effect to the Compliance Officer.
<PAGE>
E. An Employee need not separately report to MAM information regarding
transactions conducted through securities accounts, provided that copies of the
relevant confirmations and statements are furnished to MAM as required by
paragraph V.4. below. This option may be revoked by the Compliance Officer for
Employees who fail to make timely filings required under this Code of Ethics or
who fail to provide required disclosures, confirmations or statements.
3. ANNUAL REPORTING AND CERTIFICATION
A. All Employees must report all personal securities holdings to the
Compliance Officer within 30 days after the end of each calendar year, together
with a list of all accounts maintained at brokerage firms which are subject to
the provisions of this Code of Ethics, including the names of the firms and the
account numbers.
B. All Employees are required to certify annually that they have read
and understand this Code of Ethics and recognize that they are subject to the
provisions hereof and will comply with the policy and procedures stated herein.
Further, all Employees are required to certify annually that they have complied
with the requirements of this Code of Ethics and that they have reported all
personal securities transactions required to be disclosed or reported pursuant
to the requirements of such policies. A copy of the certification form to be
used in complying with this paragraph B is attached to this Code of Ethics as
Appendix 2.
4. BROKERAGE CONFIRMATIONS AND STATEMENTS
All Employees must direct their brokers to supply to the Compliance
Officer, on a timely basis, duplicate copies of confirmations of any purchase or
sale of a security.
5. MISCELLANEOUS
Any report under this Code of Ethics may contain a statement that the
report shall not be construed as an admission by the person making the report
that the person has any direct or indirect beneficial ownership in the
securities to which the report relates.
F. CONFIDENTIALITY
No Employee shall reveal to any other person (except in the normal
course, of his or her duties on behalf o the MAM) any information regarding
securities transactions by any client or consideration by any client or MAM of
any such securities transaction.
All information obtained from any Employee pursuant to this Code of
Ethics shall be kept in strict confidence, except that reports of securities
transactions hereunder will be made available to the Securities and Exchange
Commission or any other regulatory or self-regulatory organization to the extent
required by law or regulation.
G. SANCTIONS
Any trades made in violation of the provisions set forth under
paragraphs II.I.C. and E. must be unwound, or, if that is impractical, any
profits realized on trades made in violation of these prohibitions must be
disgorged to the appropriate client or clients (or, alternatively, to a
charitable organization) under the direction of the Compliance Officer.
Upon discovering a violation of this Code of Ethics, the Senior
Managers of MAM may impose any sanctions it deems appropriate, including a
letter of censure or the suspension or termination of the employment of the
violator.
ARTISAN FUNDS, INC.
ARTISAN PARTNERS LIMITED PARTNERSHIP
ARTISAN DISTRIBUTORS LLC
CODE OF ETHICS
AND
POLICY AND PROCEDURES TO PREVENT
MISUSE OF INSIDE INFORMATION
(Effective January 27, 2000)
The policy of Artisan Partners Limited Partnership ("Artisan Partners") and
Artisan Distributors LLC ("Artisan Distributors") is to avoid any conflict of
interest, or the appearance of any conflict of interest, between the interests
of any client of Artisan Partners ("Client"), including Artisan Funds, Inc.
("Artisan Funds") and its shareholders, and the interests of Artisan Partners
and Artisan Distributors or their officers, partners, and employees.
The Investment Company Act and rules require that Artisan Funds, Artisan
Partners and Artisan Distributors establish standards and procedures for the
detection and prevention of certain conflicts of interest, including activities
by which persons having knowledge of the investments and investment intentions
of Artisan Funds might take advantage of that knowledge for their own benefit.
The Code has been adopted by Artisan Funds, Artisan Partners and Artisan
Distributors to meet those concerns and legal requirements.
This Code also contains procedures designed to prevent the misuse of inside
information by Artisan Partners and Artisan Distributors or their personnel. The
business of Artisan Partners depends on investor confidence in the fairness and
integrity of the securities markets. Insider trading poses a significant threat
to that confidence. Trading securities while in possession of inside information
or improperly communicating that information to others may expose you to
stringent penalties. Criminal sanctions may include a fine of up to $1,000,000
and/or ten years imprisonment. The Securities and Exchange Commission can
recover the profits gained or losses avoided, a penalty of up to three times the
illicit windfall and an order permanently barring you from the securities
industry. Finally, you may be sued by investors seeking to recover damages for
insider trading violations.
The Code is drafted broadly; it will be applied and interpreted in a similar
manner. You may legitimately be uncertain about the application of the Code in a
particular circumstance. Often, a single question can forestall disciplinary
action or complex legal problems. You should direct any questions relating to
this policy to Lawrence A. Totsky, Artisan Partners' Compliance Officer; Janet
Olsen, Counsel to Artisan Funds; or Andrew A. Ziegler, Managing Director. You
also must notify the Compliance Officer immediately if you have any reason to
believe that a violation of the policy has occurred or is about to occur.
I. INVESTMENT COMPANY ACT PROHIBITIONS
The Investment Company Act and rules make it illegal for any person covered by
the Code, directly or indirectly, in connection with the purchase or sale of a
security held or to be acquired by Artisan Funds to:
a. employ any device, scheme, or artifice to defraud Artisan Funds;
b. make 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 circumstances under which they are made, not misleading or in any
way mislead Artisan Funds regarding a material fact;
c. engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon Artisan Funds; or
d. engage in any manipulative practice with respect to Artisan Funds.
The restrictions on Personal Securities Transactions contained in this Code are
intended to help Artisan Partners monitor for compliance with these
prohibitions.
II. DEFINITIONS
When used in this Code, the following terms have the meanings described below:
A. Personal Securities Transaction. The Code regulates Personal Securities
Transactions as a part of the effort by Artisan Funds, Artisan Partners and
Artisan Distributors to detect and prevent conduct that might violate the
general prohibitions outlined above. A Personal Securities Transaction is a
transaction in a security in which the person subject to this Code has a
beneficial interest.
1. Security. Security is defined very broadly, and means any note, stock,
bond, debenture, investment contract, or limited partnership interest,
and includes any right to acquire any security (an option or warrant,
for example).
2. Beneficial interest. You have a beneficial interest in a security in
which you have, directly or indirectly, the opportunity to profit or
share in any profit derived from a transaction in the security, or in
which you have an indirect interest including beneficial ownership by
your spouse or minor children or other dependents living in your
household, or your share of securities held by a partnership of which
you are a general partner. Technically, the rules under section 16 of
the Securities Exchange Act of 1934 will be applied to determine if
you have a beneficial interest in a security (even if the security
would not be within the scope of section 16). Examples of beneficial
interest are attached as Appendix A.
<PAGE>
B. Inside Information. Inside information is information that is both material
and non-public that was (i) acquired in violation of a duty to keep the
information confidential, or (ii) misappropriated. For example, if an
officer of an issuer breaches his duty to the issuer and conveys
information that should have been kept confidential, that information is
"inside information," even if you learn it third- or fourth-hand. In
contrast, a conclusion drawn by a securities analyst from
publicly-available information is not inside information, even if the
analyst's conclusion is both material and non-public.
Deciding whether information that is material and non-public is "inside"
information is often difficult. For that reason, Artisan Partners' policies are
triggered by the possession of material, non-public information, whether or not
the information is "inside" information that will result in a trading
restriction.
1. Material Information. Information is "material" when there is a substantial
likelihood that a reasonable investor would consider it important in making
his or her investment decisions. Generally, this is information whose
disclosure will have a substantial effect on the price of a company's
securities. No simple "bright line" test exists to determine when
information is material; assessments of materiality involve a highly
fact-specific inquiry. For this reason, you should direct any questions
about whether information is material to the Compliance Officer.
Material information often relates to a company's results and operations
including, for example, dividend changes, earnings results, changes in
previously released earnings estimates, significant merger or acquisition
proposals or agreements, major litigation, liquidation problems, and
extraordinary management developments.
Material information also may relate to the market for a company's
securities. Information about a significant order to purchase or sell
securities may, in some contexts, be deemed material. Similarly,
prepublication information regarding reports in the financial press also
may be deemed material. For example, the Supreme Court upheld the criminal
convictions of insider trading defendants who capitalized on prepublication
information about THE WALL STREET JOURNAL'S Heard on the Street column.
2. Non-Public Information. Information is "public" when it has been
disseminated broadly to investors in the marketplace. Tangible evidence of
such dissemination is the best indication that the information is public.
For example, information is public after it has become available to the
general public through a public filing with the SEC or some other
governmental agency, the Dow Jones "tape" or THE WALL STREET JOURNAL or
some other publication of general circulation, and after sufficient time
has passed so that the information has been disseminated widely.
2
<PAGE>
C. Investment Personnel. The restrictions on Personal Securities
Transactions and some of the compliance procedures contained in this
Code differentiate among groups of people based on their positions and
responsibilities with Artisan Partners and Artisan Distributors.
Investment Personnel (individually, an "Investment Person") are those
who make, or participate in making, investment decisions or
recommendations for Clients, or who, because of their positions with
Artisan Funds, Artisan Partners or Artisan Distributors, can be
expected to have more information about the portfolio transactions of
Clients. Investment Personnel are:
* each portfolio manager working for Artisan Funds/Artisan
Partners;
* each analyst working for Artisan Partners;
* each trader;
* support staff working directly with portfolio managers and
analysts;
* each officer or director of Artisan Funds employed by Artisan
Partners or an affiliated company of Artisan Partners;
* each partner or officer of Artisan Partners; and
* employees of Artisan Partners who work on fund accounting
matters.
D. Access Personnel. Access personnel are all employees of Artisan Partners or
Artisan Distributors who are not Investment Personnel described above.
III. RESTRICTIONS
Every person subject to the Code shall comply with the following restrictions:
A. No Insider Trading. No person subject to the Code may engage in any
transaction in a security (either a Personal Securities Transaction or a
transaction for a Client), while in possession of inside information.
If you think that you might have material, non-public information, you
should take the following steps:
1. Report the information and proposed trade immediately to the
Compliance Officer.
2. Do not purchase or sell the securities on behalf of yourself or
others, including investment companies or private accounts managed by
<PAGE>
Artisan Partners until Artisan Partners has made a determination as to
the need for trading restrictions.
3. Do not communicate the information inside or outside Artisan Partners,
other than to the Compliance Officer.
4. After the Compliance Officer has reviewed the issue, Artisan Partners
will determine whether the information is material and non-public and,
if so, whether any trading restrictions apply and what action, if any,
the firm should take.
Trading during a tender offer represents a particular concern in the
law of insider trading. Each person subject to this Code should
exercise particular caution any time they become aware of non-public
information relating to a tender offer.
Contacts with public companies represent an important part of Artisan
Partner s' research efforts. Difficult legal issues arise, however,
when, in the course of these contacts, an Artisan Partners employee or
other person subject to this policy becomes aware of material,
non-public information. In such situations, Artisan Partners must make
a judgment as to its further conduct.
Consult with the Compliance Officer before taking any action.
B. No Communication of Material Non-Public Information. No person subject to
the Code may communicate material, non-public information to others in
violation of the law. Conversations containing such information, if
appropriate at all, should be conducted in private (for example, not by
cellular telephone, to avoid potential interception).
Access to files containing material, non-public information and computer
files containing such information should be restricted, including by
maintenance of such materials in locked cabinets, or through the use of
passwords or other security devices for electronic data.
C. Foreign Corrupt Practices. As required by the Foreign Corrupt Practices
Act, no person covered by the Code shall offer, pay, promise to pay or
authorize payment of any money or anything of value to a foreign official,
foreign political party (or official thereof) or any candidate for foreign
political office for purposes of influencing any act or decision of that
person in his or its official capacity, or inducing that person to use his
or its influence with a foreign government to influence any act or decision
of that government.
<PAGE>
D. No Transactions with Artisan Funds or a Client. No investment person or
access person shall knowingly sell to or purchase from Artisan Funds or any
other Client any security or other property, except that shares of a
portfolio of Artisan Funds may be purchased from and redeemed by Artisan
Funds.
E. No Conflicting Transactions. No investment person or access person shall
engage in a Personal Securities Transaction which the person knows or has
reason to believe is being purchased or sold or considered for purchase or
sale by a Client, until the Client's transactions have been completed or
consideration of such transactions has been abandoned. A security will be
treated as "under consideration if an investment team anticipates
purchasing or selling the security within 14 calendar days or if it is on
an investment team's "watch list."
F. Initial Public Offerings. No investment person or access person shall
acquire any security in an initial public offering, except (i) with the
prior consent of the Compliance Officer or Andrew A. Ziegler based on a
determination that the acquisition does not conflict with the Code or its
underlying policies, or the interests of Artisan Partners or its Clients,
and (ii) in circumstances in which the opportunity to acquire the security
has been made available to the person for reasons other than the person's
relationship with Artisan Partners or its Clients. Such circumstances might
include, for example:
* an opportunity to acquire securities of an insurance company
converting from a mutual ownership structure to a stockholder
ownership structure, if the person's ownership of an insurance
policy issued by that company conveys that opportunity;
* an opportunity resulting from the person's pre-existing ownership
of an interest in the IPO company or an investor in the IPO
company; or
* an opportunity made available to the person's spouse, in
circumstances permitting the Compliance Officer or Mr. Ziegler
reasonably to determine that the opportunity is not being made
available indirectly because of the person's relationship with
Artisan Partners or its Clients (for example, because of the
spouse's employment).
G. Private Placements. No investment person or access person shall acquire any
security in a private placement without the express written prior approval
of the Compliance Officer or Andrew A. Ziegler. In deciding whether that
approval should be granted, each of those persons will consider whether the
investment opportunity should be reserved for Clients, and whether the
opportunity has been offered because of the person's relationship with
Artisan Partners or its Clients. An investment person who has been
authorized to acquire a security in a private placement must disclose that
investment if he or she later participates in consideration of an
investment in that issuer for a Client's account. Any investment decision
for a Client relating to that security must be made by other investment
personnel.
H. Short-Term Trading. No investment person may profit from the purchase
and sale, or sale and purchase, of the same (or equivalent) securities
within 60 days. Any profit so realized will be returned to Artisan
Partners and then donated to a charitable organization selected by
Artisan Partners. However, such prohibition shall not apply to any
option or futures contract on a broadly traded index, or to any
transaction which has received the prior approval of the Compliance
Officer or Andrew A. Ziegler.
<PAGE>
I. High-Risk Trading Activities. Certain high-risk trading activities, if used
in the management of a partner, officer or employee's personal trading
portfolio, are risky not only because of the nature of the securities
transactions themselves, but also because of the potential that action
necessary to close out the transactions may become prohibited during the
duration of the transactions. Examples of such activities include short
sales of common stock and trading in derivative instruments. If Artisan
Partners becomes aware of material, non-public information about the issuer
of the underlying securities, Artisan Partners personnel may find
themselves "frozen" in a position in a derivative security. Artisan
Partners will not bear any losses in personal accounts as a result of
implementation of this policy.
J. Gifts. No investment person or access person may accept any gift or other
thing of more than a $100 value from any person or entity that does
business with or on behalf of Artisan Partners, Artisan Funds or Artisan
Distributors, or seeks to do business with or on behalf of Artisan
Partners, Artisan Funds or Artisan Distributors. Gifts in excess of this
value must either be returned to the donor or paid for by the recipient. It
is not the intent of the Code to prohibit the everyday courtesies of
business life. Therefore, excluded from this prohibition are an occasional
meal or ticket to a theater, entertainment, or sporting event that is an
incidental part of a meeting that has a clear business purpose.
K. Service as a Director. No investment person or access person may serve as a
member of the board of directors or trustees of any business organization,
other than a civic or charitable organization, without the prior written
approval of the Compliance Officer or Mr. Ziegler based on a determination
that the board service would not be inconsistent with the interests of
Artisan Partners or of its Clients. If an investment person is serving as a
board member, that investment person shall not participate in making
investment decisions relating to the securities of the company on whose
board he or she sits.
IV. COMPLIANCE PROCEDURES
A. Execution of Personal Securities Transactions through Disclosed Brokerage
Accounts; Duplicate Confirmations. All Personal Securities Transactions
must be conducted through brokerage or other accounts that have been
identified to the Compliance Officer. Each such brokerage or other account
must be set up to deliver duplicate copies of all confirmations and
statements to the Compliance Officer. No exceptions will be made to this
policy. All Investment Personnel and Access Persons shall cooperate in all
aspects with the Compliance Officer and/or his designee in securing
confirmations and statements in a timely manner.
B. Preclearance. Except as provided below, all Personal Securities
Transactions must be cleared in advance by the Compliance Officer or Mr.
Ziegler. Personal Securities Transactions by Mr. Totsky must be approved by
Mr. Ziegler. Personal Securities Transactions by Ms. Ziegler or Mr. Ziegler
must be approved by Mr. Totsky. If the proposed trade is not executed
within two business days after preclearance, the preclearance will expire
and the request must be made again.
<PAGE>
Transactions in the following securities are exempt from the preclearance
requirement:
1. securities listed as exempt in Section V;
2. municipal securities;
3. straight debt securities;
4. securities of companies with aggregate market capitalizations of
greater than $10 billion;
5. listed index options and futures; and
6. transactions in an account (including an investment advisory
account, trust account or other account) of such person (either
alone or with others) over which a person other than the
investment person or access person (including an investment
adviser or trustee) exercises investment discretion if:
* the investment person or access person does not know of the
proposed transaction until after the transaction has been
executed;
* the investment person or access person has previously
identified the account to the Compliance Officer and has
affirmed to the Compliance Officer that (in some if not all
cases) he or she does not know of proposed transactions in
that account until after they are executed.
This exclusion from the preclearance requirement is based upon
the employee not having knowledge of any transaction until after
that transaction is executed. Therefore, notwithstanding this
general exclusion, if the investment person or access person
becomes aware of any transaction in such investment advisory
account before it is executed, the investment person must seek
preclearance of that transaction before it is executed.
C. Blackout Periods.
1. Investment Personnel. No Personal Securities Transaction of an invest-
ment person will be cleared (as provided in B., above) if Artisan
Funds or any Client (1) has a conflicting order pending or (2) is
actively considering a purchase or sale of the same security. A
conflicting order is any order for the same security, or an option on
or warrant for that security, that has not been fully executed. A
purchase or sale of a security is being "actively considered" (a) when
a recommendation to purchase or sell has been made for a Client and is
pending, or, (b) with respect to the person making the recommendation,
when that person is seriously considering making the recommendation
within 14 calendar days, or, (c) the security is on the "watch list."
Absent extraordinary circumstances, a Personal Securities Transaction
for an investment person will not be approved until the sixth business
day after completion of any transaction for a Client.
<PAGE>
2. Access Personnel. No Personal Securities Transaction of an access
person may be executed on a day during which Artisan Funds or any
other client has a pending order in the same security until that order
is fully executed or withdrawn.
D. Disclosure of Personal Holdings. Each investment person and access person
shall disclose his or her personal securities holdings (not including
shares of open-end investment companies (mutual funds), direct obligations
of the U.S. government (U.S. treasury bills, notes and bonds) and money
market instruments, including bank certificates of deposit, bankers'
acceptances, commercial paper and repurchase agreements) no later than ten
days after commencement of employment with Artisan Partners, and annually
thereafter as of December 31 of each year. Annual reports shall be
delivered to the Compliance Officer no later than January 30 of the
following year. The initial holdings and annual holdings reports shall
contain the following information:
* title, interest rate and maturity date (if applicable), number of
shares and the principal amount of each security held beneficially;
* the name of any broker, dealer or bank with or through which the
investment person maintains an account; and
* the date the report is submitted.
E. Dealing with Certificated Securities. The receipt of certificated
securities must be reported as described in F., below. Any subsequent
transaction in such securities must be conducted through a disclosed
brokerage account for which the Compliance Officer receives duplicate
confirmations and account statements. No person subject to the Code shall
request withdrawal of securities from such a brokerage account in
certificated form.
F. Reporting Personal Securities Transactions.
1. Each investment person and access person shall (i) identify to Artisan
Partners each brokerage or other account in which the access person
has a beneficial interest and (ii) instruct the broker or custodian to
deliver to the Compliance Officer duplicate confirmations of all
transactions and duplicate monthly statements.
2. Each investment person and access person shall report all Personal
Securities Transactions during a month to the Compliance Officer no
later than ten days after the end of the month,
Monthly transaction reports shall include the following information:
For each transaction:
* the date of the transaction;
* title, interest rate and maturity date (if applicable), number of
shares and the principal amount of each security involved;
<PAGE>
* the nature of the transaction (i.e., purchase, sale, gift, or
other type of acquisition or disposition);
* the price at which the transaction was effected;
* the name of the broker, dealer or bank with or through which the
transaction was effected; and
* the date the report is submitted.
In addition, for each account established during the month in which
securities are held for the benefit of an investment person or access
person, the monthly report shall include:
* the name of the broker, dealer or bank with whom the account was
established;
* the date the account was established; and
* the date the report is submitted.
3. Reports relating to the Personal Securities Transactions of the
Compliance Officer shall be delivered to Mr. Ziegler.
G. Form of Reports. Reports of Personal Securities Transactions may be in any
form (including copies of confirmations or monthly statements) but must
include the information required by Section IV(F)(2).
If a Personal Securities Transaction has been executed through Artisan
Partners' trading desk, the trading department will provide the necessary
information to the Compliance Officer and no further report will be
required.
Any Personal Securities Transaction of an investment person or access
person which for any reason does not appear in the trading or brokerage
records described above (for example, the receipt of certificated
securities by gift or inheritance) shall be reported as required by Section
IV(F)(2).
H. Monitoring of Transactions. Artisan Partners' Compliance Officer or his
designee will monitor the trading patterns of investment personnel and
access personnel, the trading of Artisan Funds and other Clients, and
trading for Artisan Partners' own account (if any) for compliance with this
Code, including the provisions intended to prevent the misuse of inside
information. The trading of the Compliance Officer will be monitored by Mr.
Ziegler.
I. Educational Efforts. The Compliance Officer shall provide, on a regular
basis, an education program to familiarize persons subject to the Code with
the provisions of the Code and to answer questions regarding the Code. The
Compliance Officer shall also be available to answer questions regarding
the Code and to resolve issues of whether information is inside information
and to determine what action, if any, should be taken.
<PAGE>
J. Certification of Compliance. Each investment person and access person is
required to certify annually that (i) he or she has read and understands
the Code, (ii) recognizes that he or she is subject to the Code, and (iii)
he or she has disclosed or reported all Personal Securities Transactions
required to be disclosed or reported under the Code. Artisan Partners'
Compliance Officer shall annually distribute a copy of the Code and request
certification by all covered persons and shall be responsible for ensuring
that all personnel comply with the certification requirement.
Each investment person and access person who has not engaged in any
Personal Securities Transaction during the preceding year for which a
report was required to be filed pursuant to the Code shall include a
certification to that effect in his or her annual certification.
K. Report to Artisan Funds' Board. The officers of Artisan Funds shall prepare
an annual report to the board of Artisan Funds that:
1. summarizes existing procedures concerning personal investing and any
changes in those procedures during the past year;
2. describes issues that arose during the previous year under the Code or
procedures concerning personal investing, including but not limited to
information about material violations of the Code and sanctions
imposed;
3. certifies to the board that Artisan Funds has adopted procedures
reasonably necessary to prevent its investment persons and access
persons from violating the Code; and
4. identifies any recommended changes in existing restrictions or
procedures based upon experience under the Code, evolving industry
practices, or developments in applicable laws or regulations.
L. Reporting to Artisan Partners' Management. The Compliance Officer shall
report the following to the management of Artisan Partners:
1. Special Reports. The Compliance Officer shall report the existence of
a potential violation of this Code to management of Artisan Partners
promptly providing full details, which may include (1) the name of
particular securities involved, if any; (2) the date(s) the Compliance
Officer learned of the potential violation and began investigating;
(3) the accounts and individuals involved; (4) actions taken as a
result of the investigation, if any; and (5) recommendations for
further action.
2. Regular Reports. On an as-needed or periodic basis, the Compliance
Officer shall report to the management of Artisan Partners as it may
request, which may include some or all of the following:
i. a summary of existing procedures of the Code;
ii. a summary of changes in procedures made in the last year;
<PAGE>
iii. full details of any investigation since the last report (either
internal or by a regulatory agency) of any suspected insider
trading, the results of the investigation and a description of
any changes in procedures prompted by an such investigation;
iv. an evaluation of the current procedures and a description of
anticipated changes in procedures; and
v. a description of Artisan Partners' continuing educational program
regarding insider trading, including the dates of such programs
since the last report to management.
V. EXEMPT TRANSACTIONS
The provisions of this Code are intended to restrict the personal investment
activities of persons subject to the Code only to the extent necessary to
accomplish the purposes of the Code. Therefore, the preclearance, blackout and
reporting provisions of this Code shall not apply to the following Personal
Securities Transactions:
A. Purchases or sales effected in any account over which the persons subject
to this Code have no direct or indirect influence or control;
B. Purchases or sales of:
1. securities that are direct obligations of the U.S. government (that
is, U.S. treasury bills, notes and bonds);
2. shares of open-end investment companies (mutual funds), including but
not limited to shares of any Artisan Funds portfolio; and
3. bank certificates of deposit, banker's acceptances, repurchase
agreements or commercial paper.
C. Purchases that are part of an automatic dividend reinvestment plan;
D. Purchases effected upon the exercise of rights issued by an issuer pro rata
to all holders of a class of securities to the extent such rights were
acquired from such issuer, and sales of such rights so acquired; and
E. Purchases or sales that receive the prior approval of the Compliance
Officer or Mr. Ziegler because they are not inconsistent with this Code or
the provisions of Rule 17j-l(a) under the Investment Company Act of 1940. A
copy of Rule 17j-1 is attached as Appendix B.
VI. ENFORCEMENT OF THE CODE AND CONSEQUENCES FOR FAILURE TO COMPLY
The Compliance Officer shall be responsible for promptly investigating all
reports of possible violations of the provisions of this Code.
<PAGE>
Compliance with this Code of Ethics is a condition of employment by Artisan
Partners and retention of positions with Artisan Funds. Taking into
consideration all relevant circumstances, Artisan Partners will determine what
action is appropriate for any breach of the provisions of the Code. Possible
actions include letters of sanction, suspension or termination of employment, or
removal from office.
Reports filed pursuant to the Code will be maintained in confidence but will be
reviewed by Artisan Partners or Artisan Funds to verify compliance with the
Code. Additional information may be required to clarify the nature of particular
transactions.
VII. RETENTION OF RECORDS
Artisan Partners' Compliance Officer shall maintain the records listed below for
a period of five years at Artisan Partners' principal place of business in an
easily accessible place:
A. a list of all persons subject to the Code during the period;
B. receipts signed by all persons subject to the Code acknowledging receipt of
copies of the Code and acknowledging that they are subject to it;
C. a copy of each code of ethics that has been in effect at any time during
the period;
D. a copy of each report filed pursuant to the Code and a record of any known
violation and action taken as a result thereof during the period; and
E. records evidencing prior approval of, and the rationale supporting, an
acquisition by an investment person or access person of securities in a
private placement.
Adopted: March 27, 1995
Revised: July 18, 1996
August 6, 1998
April 28, 1999
January 27, 2000
<PAGE>
Appendix A
Examples of Beneficial Interest
For purposes of the Code, you will be deemed to have a beneficial interest in a
security if you have the opportunity, directly or indirectly, to profit or share
in any profit derived from a transaction in the security. Examples of beneficial
ownership under this definition include:
* securities you own, no matter how they are registered, and including
securities held for you by others (for example, by a custodian or broker,
or by a relative, executor or administrator) or that you have pledged to
another (as security for a loan, for example);
* securities held by a trust of which you are a beneficiary (except that, if
your interest is a remainder interest and you do not have or participate in
investment control of trust assets, you will not be deemed to have a
beneficial interest in securities held by the trust);
* securities held by you as trustee or co-trustee, where either you or any
member of your immediate family (i.e., spouse, children or descendants,
stepchildren, parents and their ancestors, and stepparents, in each case
treating a legal adoption as blood relationship) has a beneficial interest
(using these rules) in the trust.
* securities held by a trust of which you are the settlor, if you have the
power to revoke the trust without obtaining the consent of all the
beneficiaries and have or participate in investment control;
* securities held by any partnership in which you are a general partner, to
the extent of your interest in partnership capital or profits;
* securities held by a personal holding company controlled by you alone or
jointly with others;
* securities held by (i) your spouse, unless legally separated, or you and
your spouse jointly, or (ii) your minor children or any immediate family
member of you or your spouse (including an adult relative), directly or
through a trust, who is sharing your home, even if the securities were not
received from you and the income from the securities is not actually used
for the maintenance of your household; or
* securities you have the right to acquire (for example, through the exercise
of a derivative security), even if the right is not presently exercisable,
or securities as to which, through any other type of arrangement, you
obtain benefits substantially equivalent to those of ownership.
You will not be deemed to have beneficial ownership of securities in the
following situations:
* securities held by a limited partnership in which you do not have a
controlling interest and do not have or share investment control over the
partnership's portfolio,, and
* securities held by a foundation of which you are a trustee and donor,
provided that the beneficiaries are exclusively charitable and you have no
right to revoke the gift.
These examples are not exclusive. There are other circumstances in which you way
be deemed to have a beneficial interest in a security. Any questions about
whether you have a beneficial interest should be directed to the Compliance
Officer or Mr. Ziegler.
<PAGE>
Appendix B
ss.270.17j-1 Personal investment activities of investment company personnel
(a) Definitions. For purposes of this section.,
(1) Access Person means:
(i) Any director, officer, general partner or Advisory Person of a
Fund or of a Fund's investment adviser.
(A) If an investment adviser is primarily engaged in a business
or businesses other than advising Funds or other advisory
clients, the term Access Person means any director, officer,
general partner or Advisory Person of the investment advise
who, with respect to any Fund, makes any recommendation,
participates in the determination of which recommendation
will be made, or whose principal function or duties relate
to the determination of which recommendation will be made,
or who, in connection with his or her duties, obtains any
information concerning recommendations on Covered Securities
being made by the investment adviser to any Fund.
(B) An investment adviser is "primarily engaged in a business or
businesses other than advising Funds or other advisory
clients" if, for each of its most recent three fiscal years
or for the period of time since its organization, whichever
is less, the investment adviser derived, on an
unconsolidated basis, more than 50 percent of its total
sales and revenues and more than 50 percent of its income
(or loss), before income taxes and extraordinary items, from
the other business or businesses.
(ii) Any director, officer or general partner of a principal
underwriter who, in the ordinary course of business, makes,
participates in or obtains information regarding, the purchase or
sale of Covered Securities by the Fund for which the principal
underwriter acts, or whose functions or duties in the ordinary
course of business relate to the making of any recommendation to
the Fund regarding the purchase or sale of Covered Securities.
(2) Advisory Person of a Fund or of a Fund's investment adviser means.
(i) Any employee of the Fund or investment adviser (or of any company
in a control relationship to the Fund or investment adviser) who,
in connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding the purchase or
sale of Covered Securities by a fund, or whose functions relate
to the making of any recommendations with respect to the
purchases or sales; and
(ii) Any natural person in a control relationship to the Fund or
investment adviser who obtains information concerning
recommendations made to the Fund with regard to the purchase or
sale of Covered Securities by the Fund.
<PAGE>
(3) Control has the same meaning as in section 2(a)(9) of the Act [15
U.S.C. 80a-2(a)(9)].
(4) Covered Security means security as defined in section 2(a)(36) of the
Act [15-U.S.C. 80a-2(a)(36)], except that it does not include:
(i) Direct obligations of the Government of the United States;
(ii) Bankers' acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements; and
(iii) Shares issued by open-end Funds,
(5) Fund means an investment company registered under the Investment
Company Act.
(6) An Initial Public Offering means an offering of securities registered
under the Securities Act of 1933 [15 U.S.C. 77a), the issuer of which,
immediately before the registration, was not subject to the reporting
requirements of sections 13 or I 5(d) of the Securities Exchange Act
of 1934 [15 U.S.C. 78m or 78o(d)].
(7) Investment Personnel of a Fund or of a Fund's investment adviser
means:
(i) Any employee of the fund or investment adviser (or of any company
in a control relationship to the Fund or investment adviser) who,
in connection with his or her regular functions or duties, makes
or participates in making recommendations regarding the purchase
or sale of securities by the Fund.
(ii) Any natural person who controls the Fund or investment adviser
and who obtains information concerning recommendations made to
the Fund regarding the purchase or sale of securities by the
Fund.
(8) A Limited Offering means an offering that is exempt from registration
under the Securities Act of 1933 pursuant to section 4(2) or section
4(6) [15 U.S.C. 77d(2) or 77d(6)] or pursuant to rule 504, rule 505,
or rule 506 (17 CFR 230.504, 230.505, or 230.506] under the Securities
Act of 1933.
(9) Purchase or sale of a Covered Security includes, among other things,
the writing of an option to purchase or sell a Covered Security.
(10) Security Held or to be Acquired by a Fund means:
(i) Any Covered Security which, within the most recent 15 days-.
(A) Is or has been held by the Fund; or
(B) Is being or has been considered by the Fund or its
investment adviser for purchase by the Fund; and
(ii) Any option to purchase or sell, and any security convertible into
or exchangeable for, a Covered Security described in paragraph
(a)(10)(i) of this section.
<PAGE>
(b) Unlawful actions. It is unlawful for any affiliated person of or principal
underwriter for a Fund, or any affiliated person of an investment adviser
of or principal underwriter for a Fund, in connection with the purchase or
sale, directly or indirectly, by the person of a Security Held or to be
Acquired by the Fund.
(1) To employ any device, scheme or artifice to defraud the Fund;
(2) To make any untrue statement of a material fact to the Fund or omit to
state a material fact necessary in order to make the statements made
to the Fund, in light of the circumstances under which they are made,
not misleading;
(3) To engage in any act, practice or course of business that operates or
would operate as a fraud or deceit on the Fund; or
(4) To engage in any manipulative practice with respect to the Fund.
(c) Code of Ethics.
(1) Adoption and Approval of Code of Ethics.
(i) Every Fund (other than a money market fund or a Fund that does
not invest in Covered Securities) and each investment adviser of
and principal underwriter for the Fund must adopt a written code
of ethics containing provisions reasonably necessary to prevent
its Access Persons from engaging in any conduct prohibited by
paragraph (b) of this section,
(ii) The board of directors of a Fund, including a majority of
directors who are not interested persons, must approve the code
of ethics of the Fund, the code of ethics of each investment
adviser and principal underwriter of the Fund, and any material
changes to these codes. The board must base its approval of a
code and any material changes to the code on a determination that
the code contains provisions reasonably necessary to prevent
Access Persons from engaging in any conduct prohibited by
paragraph (b) of this section. Before approving a code of a Fund,
investment adviser or principal underwriter or any amendment to
the code, the board of directors must receive a certification
from the Fund, investment adviser or principal underwriter that
it has adopted procedures reasonably necessary to prevent Access
Persons from violating the investment adviser's or principal
underwriter's code of ethics. The Fund's board must approve the
code of an investment adviser or principal underwriter before
initially retaining the services of the investment adviser or
principal underwriter. The Fund's board must approve a material
change to a code no later than six months after adoption of the
material change.
(iii)If a Fund is a unit investment trust, the Fund's principal
underwriter or depositor must approve the Funds code of ethics,
as required by paragraph (c)(1)(ii) of this section. If the Fund
has more than one principal underwriter or depositor, the
principal underwriters and depositors may designate, in writing,
which principal underwriter or depositor must conduct the
approval required by paragraph (c)(1)(ii) of this section, if
they obtain written consent from the designated principal
underwriter or depositor.
<PAGE>
(2) Administration of Code of Ethics.
(i) The Fund, investment adviser and principal underwriter must use
reasonable diligence and institute procedures reasonably
necessary to prevent violations of its code of ethics.
(ii) No less frequently than annually, every Fund (other than a unit
investment trust) and its investment advisers and principal
underwriters must furnish to the Fund's board of directors, and
the board of directors must consider, a written report that:
(A) Describes any issues arising under the code of ethics or
procedures since the last report to the board of directors,
including, but not limited to, information about material
violations of the code or procedures and sanctions imposed
in response to the material violations; and
(B) Certifies that the Fund, investment adviser or principal
underwriter, as applicable, has adopted procedures
reasonably necessary to prevent Access Persons from
violating the code.
(3) Exception for Principal Underwriters. The requirements of paragraphs
(c)(1) and (c)(2) of this section do not apply to any principal
underwriter unless:
(i) The principal underwriter is an affiliated person of the Fund or
of the Fund'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 Fund or of the Fund's investment adviser.
(d) Reporting Requirements of Access Persons
(1) Reports Required. Unless excepted by paragraph (d)(2) of this section,
every Access Person of a Fund (other than a money market fund or a
Fund that does not invest in Covered Securities) and every Access
Person of an investment adviser of or principal underwriter for the
Fund, must report to that fund, investment adviser or principal
underwriter:
(i) Initial Holdings Reports. No later than 10 days after the person
becomes an Access Person, the following information:
(A) The title, number of shares and principal amount of each
Covered Security in which the Access Person had any direct
or indirect beneficial ownership when the person became an
Access Person;
(B) The name of any broker, dealer or bank with whom the Access
Person maintained an account in which any securities were
held for the direct or indirect benefit of the Access Person
as of the date the person became an Access Person; and
(C) The date that the report is submitted by the Access Person.
<PAGE>
(ii) Quarterly Transaction Reports. No later than 10 days after the
end of a calendar quarter, the following information:
(A) With respect to any transaction during the quarter in a
Covered Security in which the Access Person had any direct
or indirect beneficial ownership-
(1) The date of the transaction, the title, the interest
rate and maturity date (if applicable), the number of
shares and the principal amount of each Covered
Security involved;
(2) The nature of the transaction other type of acquisition
or disposition);
(3) The price of the Covered Security at which the
transaction was effected;
(4) The name of the broker, dealer or bank with or through
which the transaction was effected; and
(5) The date that the report is submitted by the Access
Person.
(B) With respect to any account established by the Access Person
in which any securities were held during the quarter for the
direct or indirect benefit of the Access Person:
(1) The name of the broker, dealer or bank with whom the
Access Person established the account;
(2) The date the account was established; and
(3) The date that the report is submitted by the Access
Person.
(iii) Annual Holdings Report. Annually, the following information
(which information must be current as of a date no more than 30
days before the report is submitted):
(A) The title, number of shares and principal amount of each
Covered Security in which the Access Person had any direct
or indirect beneficial ownership;
(B) The name of any broker, dealer or bank with whom the Access
Person maintains an account in which any securities are held
for- the direct or indirect benefit of the Access Person;
and
(C) The date that the report is submitted by the Access Person.
(2) Exceptions from Reporting Requirements.
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(i) A person need not make a report under paragraph (d)(1) of this
section with respect to transactions effected for, and Covered
Securities held in, any account over which the person has no
direct or indirect influence or control.
(ii) A director of a Fund who is not an "interested person" of the
Fund within the meaning of section 2(a)(19) of the Act [15 U.S.C.
80a-2(a)(19)], and who would be required to make a report solely
by reunion of being a Fund director, need not make:
(A) An initial holdings report under paragraph (d)(1)(i) of this
section and an annual holdings report under paragraph
(d)(1)(iii) of this section; and
(B) A quarterly transaction report under paragraph (d)(1)(ii) of
this section, unless the director knew or, in the ordinary
course of fulfilling his or her official duties as a Fund
director, should have known that during the 15-day period
immediately before or after the director's transaction in a
Covered Security, the Fund purchased or sold the Covered
Security, or the Fund or its investment adviser considered
purchasing or selling the Covered Security.
(iii)An Access Person to a Fund's principal underwriter need not make
a report to the principal underwriter under paragraph (d)(1) of
this section if:
(A) The principal underwriter is not an affiliated person of the
Fund (unless the Fund is a unit investment trust) or any
investment adviser of the Fund; and
(B) The principal underwriter has no officer, director or
general partner who serves as an officer, director or
general partner of the Fund or of any investment adviser of
the Fund.
(iv) An Access Person to an investment adviser need not make a
quarterly transaction report to the investment adviser under
paragraph (d)(1)(ii) of this section if all the information in
the report would duplicate information required to be under
ss.ss. 275.204-2(a)(12) or 275.204-2(a)(I 3) of this chapter.
(v) An Access Person need not make a quarterly transaction report
under paragraph (d)(1)(ii) of this section if the report would
duplicate information contained in broker trade confirmations or
account statements received by the Fund, investment adviser or
principal underwriter with respect to the Access Person in the
time period required by paragraph (d)(1)(ii), if all of the
inflation required by that paragraph is contained in the broker
trade confirmations or account statements, or in the records of
the Fund, investment adviser or principal underwriter.
(3) Review of Reports. Each Fund, investment adviser and principal
underwriter to which reports are required to be made by paragraph
(d)(1) of this section must institute procedures by which appropriate
management or compliance personnel review these reports.
<PAGE>
(4) Notification of Reporting Obligation. Each Fund, investment adviser
and principal underwriter to which reports are required to be made by
paragraph (d)(1) of this section must identify all Access Persons who
are required to make these reports and must inform those Access
Persons of their reporting obligation.
(5) Beneficial Ownership. For purposes of this section, beneficial
ownership is interpreted in the same manner as it would be under ss.
240.16a- I (a)(2) of this chapter in determining whether a person is
the beneficial owner of a security for purposes of section 16 of the
Securities Exchange Act of 1934 [15 U.S.C. 78p] and the rules and
regulations thereunder. Any report required by paragraph (d) of this
section may contain a statement that the report will not be construed
as an admission that the person making the report has any direct or
indirect beneficial ownership in the Covered Security to which the
report relates.
(e) Pre-approval of Investments in IPOs and Limited Offerings. Investment
Personnel of a Fund or its investment adviser must obtain approval from the
Fund or the Fund's investment adviser before directly or indirectly
acquiring beneficial ownership in any securities in an Initial Public
Offering or in a Limited Offering.
(f) Recordkeeping Requirements.
(1) Each Fund, investment adviser and principal underwriter that is
required to adopt a code of ethics or to which reports are required to
be made by Access Persons must, at its principal place of business,
maintain records in the manner and to the extent set out in this
paragraph (f), and must make these records available to the Commission
or any representative of the Commission at any time and from time to
time for reasonable periodic, special or other examination:
(A) A copy of each code of ethics for the organization that is in
effect or at any time within the past five years was in effect,
must be maintained in an easily accessible place;
(B) A record of any violation of the code of ethics, and of any
action taken as a result of the violation, must be maintained in
an easily accessible place for at least five years after the end
of the fiscal year in which the violation occurs;
(C) A copy of each report made by an Access Person as required by
this section, including any information provided in lieu of the
reports under paragraph (d)(2)(v) of this section, must be
maintained for at least five years after the end of the fiscal
year in which the report is made or the information is provided,
the first two years in an easily accessible place;
(D) A record of all persons, currently or within the past five years,
who are or were required to make reports under paragraph (d) of
this section, or who are or were responsible for reviewing these
reports, must be maintained in an easily accessible place; and
(E) A copy of each report required by paragraph (c)(2)(ii) of this
section must be maintained for at least five years after the end
of the fiscal year in which it is made, the first two years in an
easily accessible place.
<PAGE>
(2) A Fund or investment adviser must maintain a record of any decision,
and the reasons supporting the decision, to approve the acquisition by
investment personnel of securities under paragraph (e), for at least
five years after the end of the fiscal year in which the approval is
granted.
<PAGE>
ATTACHMENT A
ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS
Code of Ethics. Artisan Funds, Inc, ("Artisan Funds"), Artisan Partners Limited
Partnership ("Artisan Partners") and Artisan Distributors ("Artisan
Distributors") and have adopted a written Code of Ethics and Policy and
Procedures to Prevent Misuse of Inside Information (the "Code") to avoid
potential conflicts of interest by Artisan Partners and Artisan Distributors
personnel and to govern the use and handling of material non-public information.
A copy of the Code is attached to this acknowledgement. As a condition of your
continued employment with Artisan Partners or Artisan Distributors, and the
retention of your position, if any, as an officer of Artisan Funds, you are
required to read, understand and abide by the Code.
Compliance Program. The Code requires that all personnel furnish to Artisan
Partners' Compliance Officer the names and addresses of any firm with which you
have any investment account. You are also required to furnish to Artisan
Partners' Compliance Officer copies of your monthly or quarterly account
statements, or other documents, showing all purchases or sales of securities in
any such account, or which are effected by you or for your benefit, or the
benefit of any member of your household. Additionally, you are required to
furnish a report of your personal securities holdings within ten days of
commencement of your employment with Artisan Partners and annually thereafter.
These requirements apply to any investment account, such as an account at a
brokerage house, trust account at a bank, custodial account or similar types of
accounts.
Artisan Partners' compliance program also requires that you report any contact
with any securities issuer, government or its personnel, or others, that, in the
usual course of business, might involve material non-public financial
information, Only investment personnel are permitted to make such contacts. The
Code requires that you bring to the attention of the Compliance Officer any
information you receive from any source which might be material non-public
information.
Any questions concerning the Code should be directed to Artisan Partners'
Compliance Officer.
I affirm that I have read and understand the Code of Ethics and Policy and
Procedures to Prevent Misuse of Inside Information ("Code"). I agree to the
terms and conditions set forth in the Code.
- -------------------------------- ----------------------
Signature Date
<PAGE>
ATTACHMENT B
ANNUAL AFFIRMATION OF COMPLIANCE
I affirm that:
1. I have again read and, during the past year to the best of my knowledge,
have complied with the Code of Ethics and Policy and Procedures to Prevent
Misuse of Inside Information ("Code").
2. I have provided to Artisan Partners' Compliance Officer the names and
addresses of each investment account that I have with any firm, including,
but not limited to, broker-dealers, banks and others.
(List of known accounts attached.)
3. I have provided to Artisan Partners' Compliance Officer copies of account
statements or other reports showing each and every transaction in any
security in which I have a beneficial interest, as defined in the Code,
during the most recently ended calendar year
or
During the most recent calendar year them were no transactions in any
security in which I had a beneficial interest required to be reported
pursuant to the Code.
4. I have provided to the Compliance Officer a report of my personal
securities holdings as of the end of the most recent calendar year,
including all required information for each security in which I have any
direct or indirect beneficial ownership.
-------------------------------- ----------------------
Signature Date
CODE OF ETHICS
This Code of Ethics (the "Code") has been adopted by Investment Company
Administration L.L.C ("ICALLC") and First Fund Distributors, Inc. ("FFD") in
accordance with Rule 17j-1 under the Investment Company Act of 1940 (the "1940
Act").
I. LEGAL REQUIREMENT
Rule 17j-1 makes it unlawful for certain persons, in connection with the
purchase or sale by such person of a security held or to be acquired by a Fund:
(1) To employ any device, scheme, or artifice to defraud the Fund;
(2) To make to the Fund any untrue statement of a material fact or omit to
state to the Fund a material fact necessary in order to make the statements
made, in light of the circumstances under which they are made, not misleading;
(3) To engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon the Fund; or
(4) To engage in any manipulative practice with respect to the Fund.
II. DEFINITIONS
(a) "Fund" means any investment company registered under the 1940 Act, or
any series or class of shares of such an investment company, which has a
contractual relationship with ICALLC or FFD.
(b) "Access person" means any employee of ICALLC or FFD who, in connection
with his regular functions or duties, obtains information that a security is
held or to be acquired by a Fund.
(c) A security is "held or to be acquired" if within the most recent 15
days it (i) is or has been held by a Fund, or (ii) is being or has been
considered by the Fund or its investment adviser for purchase by a Fund. A
purchase or sale includes the writing of an option to purchase or sell.
(d) A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and communicated.
(e) "Beneficial ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions of Section
16 of the Securities Exchange Act of 1934 and the rules and regulations
thereunder, except that the determination of direct or indirect beneficial
ownership shall apply to all securities which an access person has or acquires.
(f) "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the 1940 Act.
(g) "Security" shall have the meaning set forth in Section 2(a)(36) of the
1940 Act, except that it shall not include securities issued by the Government
of the United States, bankers' acceptances, bank certificates of deposit,
commercial paper and shares of registered open-end investment companies.
III. EXEMPTED TRANSACTIONS
The prohibitions of Section IV of this Code shall not apply to:
(a) Purchases or sales effected in any account over which the access person
has no direct or indirect influence or control.
(b) Purchases or sales of securities which are not eligible for purchase or
sale by a Fund.
(c) Purchases or sales which are non-volitional on the part of either the
access person or the Fund.
(d) Purchases which are part of an automatic dividend reinvestment plan.
<PAGE>
(e) Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such rights were
acquired from such issuer, and sales of such rights so acquired.
IV. PROHIBITED PURCHASES AND SALES
(a) No access person shall knowingly purchase or sell, directly or
indirectly, any security held or to be acquired by a Fund until the first
business day after such Fund completes all of its intended trades in such
security.
(b) In order to avoid making a prohibited purchase or sale of a security,
no access person shall purchase or sell any security, except as indicated below,
without obtaining advance written clearance of such transaction from a person
designated by ICALLC and FFD to grant such advance clearance.
(c) Advance clearance is not required for the purchase or sale of 500
shares or less (during a rolling 30 day period) of an equity security which (i)
is listed on the New York Stock Exchange or the NASDAQ National Market System;
or (ii) has a market capitalization of $1 billion or more at the time of
purchase or sale.
(d) No access person may purchase a security in an initial public offering
without the prior written approval of the President or the Compliance Officer of
FFD.
(e) No access person shall engage in any act, practice or course of conduct
that would violate the provisions of Rule 17j-1 as set forth in Section I above.
V. REPORTING
Every access person shall report to the Compliance Officer of ICALLC or FFD
the information described in this below with respect to transactions in any
security in which such access person has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership in the security; provided,
however, that an access person shall not be required to make a report with
respect to transactions effected for any account over which such person does not
have any direct or indirect influence.
Every report shall be made not later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:
(i) The date of the transaction, the title and the number of shares,
and the principal amount of each security involved;
(ii) The nature of the transaction (i.e., purchase, sale, or any other
type of acquisition or disposition);
(iii) The price at which the transaction was effected; and
(iv) The name of the broker, dealer, or bank with or through whom the
transaction was effected.
VI. SANCTIONS
Upon discovering a violation of this Code, ICAC or FFD may impose such
sanctions as it deems appropriate, including, inter alia, a letter of censure,
suspension, or termination of the employment of the violator, and/or a
disgorging of any profits made by the violator.
