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Exhibit p(4)
CODE OF ETHICS
ARROYO SECO, INC.
PACIFIC AMERICAN INCOME SHARES
WESTERN ASSET MANAGEMENT COMPANY
LM INSTITUTIONAL FUND ADVISORS I
A. STATEMENT OF GENERAL PRINCIPLES
1. All Access Persons that are affiliated with Western Asset are fiduciaries
to the Accounts and Funds managed by the Companies. All such Access
Persons are also fiduciaries to Fund shareholders. Accordingly, Access
Persons shall place the interests of the Accounts and Funds first.
2. Access Persons must scrupulously avoid serving their personal interests
ahead of the interests of the Accounts and Funds. Each Access Person
shall handle his or her activities and personal securities transactions
in such a manner as to avoid any actual or potential conflict of interest
or any abuse of his or her position of trust and responsibility. No
Access Person shall take inappropriate advantage of his or her position.
3. All Access Persons shall act in accordance with both the letter and the
spirit of this Code. Technical compliance with the Code's procedures will
not automatically insulate from scrutiny activity that may indicate an
abuse of fiduciary duties.
4. It will be considered a violation of this Code to do indirectly that
which is prohibited directly. For example, it will be considered a
violation of this Code to do indirectly through options, futures or other
derivatives that which is prohibited directly through transactions in
securities themselves.
5. This Code is to be interpreted consistent with the Securities and
Exchange Commission's rules governing codes of ethics.
6. Directors of the Funds (who are not employees of Western Asset) will only
be subject to the Reporting requirements outlined in Section E.5., but
will not be subject to the Pre-Clearance requirements of Section B, the
Prohibited Transaction requirements of Section C or the provisions of
Section F.
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7. Notwithstanding any other provision of this Code to the contrary, Access
Persons of the Companies who are also employed principally by affiliates
of Western Asset Management Company and Arroyo Seco, Inc. and who are
subject to the Legg Mason, Inc. Code of Ethics or the Western Asset
Management Company Limited Code (the "Affiliate Codes") shall not be
subject to this Code (other than as provided in the following sentence),
but rather shall be subject to the provisions of the Affiliate Code. The
Affiliate Codes are hereby incorporated by reference into, and made a
part of, this Code.
B. PRE-CLEARANCE
1. Except for the transactions set forth in Section D below, any Securities
Transaction which an Access Person has a direct or indirect Beneficial
Interest must be pre-cleared with a Pre-Clearance Officer.
2. PRE-CLEARANCE PROCEDURES - Prior to entering an order for a Securities
Transaction that requires pre-clearance, the Access Person must complete,
in writing, a Trade Authorization Request form and submit the completed
form to a Pre-Clearance Officer. Proposed Securities Transactions of a
Pre-Clearance Officer that require pre-clearance must be submitted to
another Pre-Clearance Officer. In the event an Access Person is unable to
complete a Trade Authorization Request form, the Access Person requesting
Pre-Clearance may designate someone else to complete the Form on his or
her behalf in order to obtain proper authorization.
3. LENGTH OF TRADE AUTHORIZATION APPROVAL - The authorization provided by
the Pre-Clearance Officer is effective until the earlier of (1) its
revocation, (2) the close of business on the trading day after the
authorization is granted, or (3) 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 a Securities Transaction is placed but has not
been executed before the authorization expires (e.g. a limit order), no
new authorization is necessary unless the person placing the order amends
it in any way.
C. PROHIBITED TRANSACTIONS
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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;
c. OTHERS - Any other transaction deemed by the Pre-Clearance 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
D, the following Securities Transactions are prohibited and will not be
authorized by the Pre-Clearance Officer absent exceptional circumstances.
The prohibitions apply only to the categories of Access Persons
specified.
a. INITIAL PUBLIC OFFERINGS (INVESTMENT PERSONS ONLY) - Investment
Persons shall not acquire any Securities in an Initial Public
Offering.
b. LIMITED OFFERINGS (INVESTMENT PERSONS ONLY) - Investment Persons
shall not acquire any Securities in a Limited Offering without
written prior approval from the Code of Ethics Committee. This prior
approval shall take into account among other factors, whether the
investment opportunity should be reserved for the Funds or Accounts,
and whether the opportunity is being offered to the Investment
Person by virtue of his or relationship with the Companies. An
Investment Person who has been authorized to acquire securities in a
limited offering shall disclose that investment when he or she plays
a part in any subsequent consideration by the Fund, Accounts or the
Companies of an investment in the issuer. In such circumstances, the
decision to purchase Securities of the issuer shall be subject to an
independent review by persons with no personal interest in the
issuer.
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c. ONE-DAY BLACKOUT PERIOD - No Access Person shall execute a
Securities Transaction in a Security on any day during which an
Account or Fund has placed or executed a purchase or sell order on
the same Security.
d. SEVEN-DAY BLACKOUT PERIOD (PORTFOLIO MANAGERS ONLY) - Portfolio
Managers may not purchase or sell Securities for their own account
within seven calendar days of a purchase or sale of the same
Securities (or Equivalent Securities) by an Account or Fund managed
by that Portfolio Manager.
e. 60-DAY BLACKOUT PERIOD (INVESTMENT PERSONS ONLY) - Investment
Persons may not (for their own beneficial interest) purchase a
Security within 60 days of the sale of the same Security; nor may an
Investment Person sell a Security within 60 days of a purchase of
the same Security if, in either case, at any time during the 60 days
the Security was held by an Account or Fund managed by the
Companies.
D. EXEMPTIONS
1. EXEMPTION FROM PRE-CLEARANCE AND TREATMENT AS A PROHIBITED TRANSACTION -
The following Securities Transactions are exempt from the pre-clearance
requirements of Section B and the prohibited transaction restrictions of
Section C.
a. MUTUAL FUNDS - Any purchase or sale of a Security issued by any
registered open-end investment company;
b. NO KNOWLEDGE - Securities Transactions where the Access Person has
no knowledge of the transaction before it is completed (for example
a transaction effected 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. CERTAIN CORPORATE ACTIONS - Any acquisition of Securities, through
stock dividends, dividend reinvestments, stock splits, reverse stock
splits, mergers, consolidations, spin-offs, exercise of rights or
other similar corporate reorganizations or distributions generally
applicable to all holders of the same class of Securities;
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d. OPTIONS-RELATED ACTIVITY - Any acquisition or disposition of a
Security in connection with an option-related Securities Transaction
that has been previously approved. For example, if an Access Person
receives approval to write a covered call, and the call is later
exercised, the provisions of Section B and C are not applicable to
the sale of the underlying Security.
e. 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.
f. MISCELLANEOUS - Any transaction in the following:
- Bankers Acceptances,
- Bank Certificates of Deposit,
- Commercial Paper,
- Repurchase Agreements,
- Securities that are direct obligations of the U.S. Government,
- Other securities as may from time to time be designated in
writing by the Code of Ethics Committee on the grounds that the
risk of abuse is minimal or non-existent.
The Securities listed above are not exempt from the reporting
requirements set forth in Section E.
2. EXEMPTION FROM TREATMENT AS A PROHIBITED TRANSACTION - The following
Securities Transactions are exempt from the prohibited transaction
restrictions of Section C.
a. OPTIONS ON BROAD-BASED INDICES - The prohibitions in Section C are
not applicable to any Securities Transaction involving options on
certain broad-based indices designated by the Code of Ethics
Committee. The broad-based indices designated 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.
b. SOVEREIGN DEBT OF NON-U.S. GOVERNMENTS - The prohibitions in Section
C are not applicable to any Securities Transactions involving
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Sovereign debt of Non-U.S. governments with an issue size greater
than $1 billion and issued in either the home currency or U.S.
dollars.
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E. REPORTING
1. INITIAL REPORTS - All Access Persons (except Disinterested Fund
Directors), within ten (10) days of being designated an Access Person,
must disclose all Covered Securities in which they have a direct or
indirect Beneficial Interest. Such report must include the title, number
of shares and principal amount of each Covered Security. Access Persons
must also report all brokerage accounts in which they have a direct or
indirect Beneficial Interest. Initial reports must be signed and dated by
the Access Person.
2. MONTHLY REPORTS - All employees of the Companies shall submit to the
Compliance Department, within 10 days after month end, a report of all
Securities Transactions during the previous month. The report shall state
the title and number of shares, the principal amount of the security
involved, the interest rate and maturity date if applicable, the date and
nature of the transaction, the price at which the transaction was
effected and the name of the broker, dealer or bank with or through whom
the transaction was effected. The report shall also include the date it
was submitted by the employee. Access Persons who have reported
Securities Transactions through duplicate copies of broker confirmations
and statements are not required to file a monthly report. In addition,
all employees of the Companies shall submit a report of any Securities
account established during the month for the direct or indirect benefit
of the employee. The report shall include the name of the broker, dealer
or bank with whom the employee established the account, the date the
account was established and the date the report was submitted to the
Compliance Department.
3. ANNUAL REPORTS - All Access Persons shall provide annually a list of all
Covered Securities in which they have a direct or indirect Beneficial
Interest. The list shall include the title, number of shares and
principal amount of each Covered Security. In addition, each Access
Person must report to the Compliance Department the account number,
account name and brokerage firm of each Securities account in which the
Access Person has a direct or indirect Beneficial Interest. The
information in the annual report must be current as of a date no more
than 30 days before the report is submitted and the annual report must
include the date it was submitted to the Compliance Department. Annually
all Access Persons shall certify that they have complied with the
requirements of this Code and that they have disclosed or reported all
Securities Transactions required to be disclosed or reported pursuant to
the requirements of this Code.
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4. CONFIRMATIONS AND STATEMENTS - All Access Persons must arrange for the
Compliance Department to receive directly from any broker, dealer or bank
duplicate copies of confirmations for Securities Transactions and
periodic statements for each brokerage account in which the Access Person
has a direct or indirect Beneficial Interest. The foregoing does not
apply to transactions and holdings in registered open-end investment
companies.
5. DIRECTORS REPORTS (for Directors of Pacific American Income Shares and LM
Institutional Fund Advisors I):
a. DISINTERESTED DIRECTORS - Access Persons who are Disinterested
Directors are not required to make a report regarding Securities
Transactions except where such director knew or, in the ordinary
course of fulfilling his or her official duties as a director of
Pacific American Income Shares or LM Institutional Fund Advisors I,
should have known that during the 15-day period immediately
preceding or after the date of the transaction in a Security by the
director, such Security is or was purchased or sold by the relevant
Fund or such purchase or sale is or was considered by the relevant
Fund or its Advisers.
b. INTERESTED DIRECTORS - Access Persons who are Interested Directors
are required to make the following reports:
i. Initial Reports (See Paragraph E.1.)
ii. Quarterly Reports: No later than 10 days after the end of each
calendar quarter the following information must be reported:
- TRANSACTION REPORT for Covered Securities including: Date
of each transaction, full security description (including
interest rate and maturity), number of shares and principal
amount, nature of transaction, price at which transaction
effected, broker, dealer or bank through which transaction
affected and date report is submitted.
- ACCOUNT REPORT including: Any new account established by
the Director in which any Securities were held during the
quarter for the direct or indirect benefit of the Director.
Such report to also include the name of the broker, dealer
or bank with whom the Director established the account, the
date the account was established and the date the report is
submitted.
iii. Annual Reports (See Paragraph E.3.)
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F. FIDUCIARY DUTIES
1. CONFIDENTIALITY - Access Persons are prohibited from revealing
information relating to the investment intentions, activities or
portfolios of the Accounts or Funds, except to persons whose
responsibilities require knowledge of the information.
2. GIFTS: On occasion, because of their position with Western Asset, Access
Persons may be offered, or may receive without notice, gifts from
clients, vendors or other persons not affiliated with the firm.
Acceptance of extraordinary or extravagant gifts is not permissible. Any
such gifts must be declined or returned in order to protect the
reputation of the firm. Gifts of nominal value (i.e., gifts whose
reasonable value is no more than $100 per year), and customary business
meals, entertainment (e.g. sporting events), and promotional items (e.g.
pens, mugs, T-shirts) may be accepted. If an Access Person receives any
gift that might be prohibited under this Code, the Access Person must
immediately inform the Compliance Department. An Access Person may not
personally give any gift with a value in excess of $100 per year to
persons associated with securities or financial organizations, including
clients of the firm.
3. SERVICE AS A DIRECTOR: No Investment Person may serve on the board of
directors of any publicly traded company without prior written
authorization from the Code of Ethics Committee. If the Committee
authorizes board service, it shall do so subject to appropriate
safeguards, including in most cases "Chinese Walls" or other procedures
to isolate the Investment Person from the making of investment decisions
related to the company on whose board the Investment Person serves.
3. REMEDIES AND SANCTIONS: If the Code of Ethics Committee determines that
an employee of the Companies or an Access Person has committed a
violation of the Code, the Committee may impose sanctions and take other
actions as it deems appropriate.
G. DEFINITIONS
1. "ACCESS PERSONS" means (a) all officers of the Companies, all directors
of Arroyo Seco, Inc. and Western Asset Management Company, and all
directors of Pacific American Income Shares and LM InstitutionalFund
Advisors I who are not interested persons of such company as that term is
defined in the Investment company Act of 1940; (b) all employees of the
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Companies who, in connection with their regular functions or duties,
make, participate in, or obtain information, regarding the purchase or
sale of a Security by an Account or Fund or whose functions relate to the
making of any recommendations with respect to the purchases or sales; (c)
any natural person in a control relationship to the Companies who obtains
information concerning recommendations made to an Account or Fund with
regard to the purchase or sale of a security and (d) such other persons
as the Compliance Department shall designate.
2. "ACCOUNT" means any portfolio managed by Western Asset Management
Company.
3. "BENEFICIAL INTEREST" shall have the meaning given to it for purposes of
Rule 17j-1 and shall include 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:
a. any Security owned individually by the Access Person;
b. 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
c. any Security in which a member of the Access Person's Immediate
Family has a Beneficial Interest if 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). 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 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
(Certification of No Beneficial Interest) in connection with such
requests
4. "COMPANIES" means Arroyo Seco Inc., Pacific American Income Shares,
Western Asset Management Company and LM Institutional Fund Advisors I.
5. "COVERED SECURITY" means any security defined below except covered
security does not include direct obligations of the U.S. Government,
bankers acceptances, bank certificates of deposit, commercial paper and
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high quality short-term debt instruments including repurchase agreements
and shares issued by open-end Funds.
6. "EQUIVALENT SECURITY" means any Security issued by the same entity as the
issuer of a subject Security that may be convertible into that Security.
(e.g. options, rights, stock appreciation rights, warrants, preferred
stock, restricted stock, phantom stock, convertible bonds)
7. "FUND" means any investment company registered under the Investment
Company Act of 1940 managed by Western Asset Management Company.
8. "IMMEDIATE FAMILY" of an Access Person means any of the following persons
who reside in the same household as the Access Person:
<TABLE>
<S> <C> <C>
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
</TABLE>
9. "INITIAL PUBLIC OFFERING" means an offering of securities registered
under the Securities Act of 1933, the issuer of which immediately before
registration was not subject to the reporting requirements of sections 13
or 15(d) of the Securities Exchange act of 1934.
10. "DIRECTOR" means a director of Pacific American Income Shares or LM
Institutional Fund Advisors I.
11. "INVESTMENT PERSON" means any employee of the Companies who, in
connection with his or her regular functions or duties, makes or
participates in making recommendations regarding the purchase or sale of
Securities for an Account or Fund.
12. "LIMITED OFFERING" means an offering that is exempt from registration
under the securities Act of 1933 pursuant to section 4(2) or 4(6) or
77d(6) or pursuant to rule 504, rule 505, or rule 506 under the
Securities Act of 1933.
13. "PORTFOLIO MANAGER" means a person who has or shares principal day-to-day
responsibility for managing an Account or Fund.
14. "PRE-CLEARANCE OFFICER" means the persons designated as Pre-Clearance
Officers by the Code of Ethics Committee.
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15. "SECURITY" means any security (as that term is defined under the
Investment Company Act of 1940) and any financial instrument related to a
security, including options on securities, futures contracts, options on
futures contracts and any other derivative.
16. "SECURITIES TRANSACTION" means a purchase or sale of Securities in which
an Access Person or a member of his or her Immediate Family has or
acquires a Beneficial Interest, including the writing of an option to
purchase or sell the Security.
17. "WESTERN ASSET CODE OF ETHICS COMMITTEE" ("CODE OF ETHICS COMMITTEE")
Members of the Western Asset Code of Ethics Committee shall be designated
by the Western Asset Executive Committee.
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