CHARLES SCHWAB & CO., INC.
CODE OF ETHICS ADOPTED PURSUANT TO SECTION 17J-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
JULY 2000
Rule 17j-1 (the "Rule") of the Investment Company Act of 1940 (the "1940
Act") requires that every registered investment company, and each
investment adviser to and principal underwriter for such investment
company, adopt a written code of ethics containing provisions reasonably
necessary to prevent its "Access Persons" from engaging in any act,
practice or course of business prohibited by section 17(j) of the 1940 Act
and Rule 17j-1 adopted thereunder. The Rule further requires that each
investment company and its adviser(s) and underwriter(s) use reasonable
diligence, and institute procedures reasonably necessary, to prevent
violations of such code. The Insider Trading and Securities Fraud
Enforcement Act of 1988 ("ITSFEA"), requires every investment adviser and
registered broker-dealer to develop, implement and enforce policies and
procedures to prevent the misuse of material nonpublic information.
The following policies constitute the Code of Ethics for Charles Schwab &
Co., Inc. ("Schwab"), a registered broker-dealer, only in its role as the
principal underwriter of any investment company (including Business
Development Companies but not including the SchwabFunds) subject to the
Rule. The policies and procedures established by this Code of Ethics are
applicable to any director or officer of Schwab who makes, participates in
or obtains information regarding the purchase or sale of "Covered
Securities" by any such investment company.(1) These policies supplement the
provisions of other published Charles Schwab & Co., Inc. policies as they
may be amended from time to time.
I. POLICY STATEMENT
Rule 17j-1 under the 1940 Act makes it unlawful for any Affiliated Person
of, or principal underwriter for, an investment company or Affiliated
Person of an investment company's investment adviser(s) and principal
underwriter, in connection with the direct or indirect purchase or sale by
such person of any Covered Security that is "held or to be acquired" by any
investment company:
o To employ any device, scheme or artifice to defraud the investment
company;
o To make to the investment company any untrue statement of a material
fact or omit to state to any 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;
o To engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon the investment company; and
o To engage in any manipulative practice with respect to the investment
company.
It is the policy of the Schwab that no director or officer of Schwab who is
Access Person of an investment company will make, participate in, or engage
in any act, practice or course of conduct that would violate the provisions
set forth above or which would, in any way, conflict with the interests of
the investment company or its shareholders. This obligation encompasses:
- the duty at all times to place the interests of shareholders first;
- the duty to ensure that all personal securities transactions be
conducted consistent with the Code of Ethics and in such a manner
as to avoid any actual or potential conflict of interest or any
abuse of an individual's position of trust and responsibility; and
- the fundamental standard that Access Persons not take
inappropriate advantage of their positions.
II. DEFINITIONS
The definitions used in this Code of Ethics include the following.
ACCESS PERSON. An "Access Person" of Schwab is any director, officer or
employee of Schwab who, in the ordinary course of business, makes,
participates in or obtains information regarding the purchase or sale of
securities for an investment company (other than the SchwabFunds) or whose
functions or duties as part of his or her business relate to the making of
any recommendation to an investment company regarding the purchase or sale
of securities. An "Access Person" is also any natural person who "controls"
an investment company, but only if such person obtains information
concerning recommendations made to the investment company with regard to
the purchase or sale of Covered Securities by the investment company.
AFFILIATED PERSON. An "Affiliated Person" of an investment company or
Schwab is defined in Section 2(a)(3) of the 1940 Act.
BENEFICIAL OWNERSHIP. A person should consider himself or herself
"beneficial owner" of any security in which he or she has a direct or
indirect pecuniary interest. In addition, he or she has "beneficial
ownership" of securities held by his or her spouse, minor children, a
relative who shares his or her home, or other persons if by reason of any
contract, understanding, relationship, agreement or other arrangement, he
or she obtains from such securities benefits substantially equivalent to
those of ownership. He or she should also consider himself or herself the
beneficial owner of securities if he or she can vest or revest title in
himself or herself now or in the future.
CONTROL. "Control" has the same meaning as in Section (2)(a)(9) of the 1940
Act.
COVERED SECURITY. A "Covered Security" is 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 security, fractional undivided interest in oil, gas, or other
mineral rights, any put, call, straddle, option or privilege on any
security. A Covered Security is also any group or index of securities, 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.
Notwithstanding the above definition, Covered Securities include only those
securities which an investment company would be permitted to acquire under
its investment objectives and policies set forth in its then current
prospectuses filed under the Securities Act of 1933 (the "1933 Act"), and
does not include securities issued or guaranteed by the United States
Government, its agencies or instrumentalities, bankers' acceptances, bank
certificates of deposit, commercial paper, repurchase agreements, other
money market instruments and shares of registered open-end investment
companies.
HELD OR TO BE ACQUIRED. A security is "held or to be acquired" if within
the most recent 15 days it is or has been held by an investment company, or
is being or has been considered by an investment company or its advisor for
purchase by such investment company. A purchase or sale includes the
writing of an option to purchase or sell.
INITIAL PUBLIC OFFERING. "Initial Public Offering" is an offering of
securities registered under the 1933 Act 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.
INVESTMENT PERSONNEL. "Investment Personnel" are Access Persons who, in
connection with their regular functions or duties, make or participate in
making recommendations regarding the purchase or sale of securities by an
investment company. The term also includes all persons who control Schwab
AND obtain information concerning recommendations made to an investment
company regarding the purchase or sale of securities by such investment
company.
NON-INTERESTED TRUSTEE OR NON-INTERESTED DIRECTOR. A "Non-Interested
Trustee" or "Non-interested Director" is any Trustee of or Director of an
investment company who is not an interested person as defined in section
2(a)(19) of the 1940 Act.
PRIVATE PLACEMENT. A "Private Placement" is an offering that is exempt from
registration under the 1933 Act pursuant to Section 4(2) or Section 4(6) or
pursuant to Rule 504, Rule 505 or Rule 506 adopted thereunder.
COMMUNICATIONS
Access Persons may not tip or otherwise disclose to others (except to
others who have a need to know such information in the ordinary course of
their business) any information regarding the investment activities of an
investment company, including any transaction or recommendation made by the
advisor or sub-advisor to an investment company. All such communications
must be reported immediately to the Schwab Compliance Department.
III. LIMITS ON ACCEPTING OR RECEIVING GIFTS
Access Persons may not accept or receive any gift of more than de minimis
value from any person or entity in connection with an investment company's
entry into a contract, development of an economic relationship, or other
course of dealing by or on behalf of such investment company.
IV. TRADING RESTRICTIONS
The policies and procedures regarding trading restrictions are as follows:
OFFICERS, DIRECTORS, TRUSTEES AND EMPLOYEES TRADING RESTRICTIONS. Any
employee, officer or director with material nonpublic information about a
Covered Security is prohibited from all personal trading in any security
about which he or she has such information.
PRIOR APPROVAL OF TRADES. At all times, each personal transaction in a
Covered Security by Investment Personnel involving more than 5,000 shares
of any issuer's equity securities, rights, warrants or units or $100,000.00
face value of bonds or debentures of any one issuer must receive prior
approval by Schwab's SVP of Global Compliance or his or her designee. Prior
approval of a personal transaction may only be relied upon for 5 business
days from the date approval is received. Because of the specific policies
in place to monitor and control employee trading of stock of The Charles
Schwab Corporation ("SCH"), prior approval of personal transactions do not
apply to SCH stock and SCH options. All other trading restrictions
applicable to Covered Securities still apply to SCH stock and SCH options.
All Access Persons other than Investment Personnel may trade in Covered
Securities without prior approval, provided that such persons have no
actual knowledge of an investment company's activities with respect to the
subject security, and have no material, nonpublic information about the
issuer of the subject security.
These trading restrictions apply to all transactions in Covered Securities
in accounts over which Access Persons of the investment company or Schwab
exercise control, accounts for their family members or accounts in which
they have a beneficial interest, but do not apply to dividend reinvestment
programs, odd-lot transactions or investment decisions made by an unrelated
third party who does not have access to the information in possession of
such Access Person. All trading activity by Access Persons is subject to
reporting and surveillance as set forth in the surveillance and reporting
sections of these procedures.
PRIOR APPROVAL OF INITIAL PUBLIC OFFERINGS ("IPOS") AND PRIVATE PLACEMENTS.
Each transaction involving an IPO or a private placement by Investment
Personnel must receive prior approval by Schwab's SVP of Global Compliance
or his or her designee.
V. REPORTING
The policies and procedures regarding reporting requirements that are
applicable to the Access Persons of an investment company and Schwab
include the following.
REPORTS TO THE BOARD OF TRUSTEES/BOARD OF DIRECTORS. The SVP of Global
Compliance of Schwab or his designee shall (i) furnish annually to the
Board of Trustees or Directors of an investment company a written report of
any issues arising under the Code of Ethics, including any material
violations and any sanctions imposed in response to these violations and
(ii) certify annually to the Board of Trustees or Directors of an
investment company that each has adopted procedures reasonably necessary to
prevent its Access Persons from violating the provisions of its Code of
Ethics. The SVP of Global Compliance of Schwab (or his or her designee)
will report to the Board(s) of Directors/Trustees on an annual basis in
accordance with subparts (i) and (ii), above.
The SVP of Global Compliance of Schwab or his designee may submit a copy of
its code of ethics for the Board's approval, together with the reports
required by subparts (i) and (ii), above.
ACCESS PERSON REPORTING. The investment company's Advisor's Chief
Compliance Officer shall notify Schwab of any Persons at Schwab who become
Access Persons. The Schwab product manager or sales manager of each Fund
for which Schwab acts as underwriter (other than the SchwabFunds) shall be
responsible for identifying all Schwab departments involved in the
underwriting of such investment company. The manager of any such department
of Schwab involved in the underwriting or support of an investment company
by Schwab is responsible for promptly identifying and reporting to the
Schwab Compliance Department all persons considered to be Access Persons.
Each Schwab manager will compile a written list of such persons, and
promptly notify the Schwab Compliance Department of all changes in the
persons designated as Access Persons. The Schwab Compliance Department will
notify Access Persons of their obligation to report trading activity, and
provide them with a copy of this Code. The Schwab Compliance Department
will also prepare the quarterly transaction report for each Access Person
and present such reports to Access Persons for review and execution. Access
Persons shall return the executed quarterly transaction report to the
appropriate review officer(s) ("Review Officer") appointed by the SVP of
Global Compliance of Schwab, or his designees..
Each Access Person covered by this Code must make an initial holdings
report, no later than ten days after he or she becomes an Access Person and
annual holdings reports which shall disclose (a) the title, number of
shares and principal amount of each Covered Security, with the exception of
SCH stock and SCH options held in their Schwab accounts, in which such
Access Person had any direct or indirect beneficial ownership; and (b) the
name of any broker, dealer or bank with whom the Access Person maintained
an account in which securities were held for the direct or indirect
beneficial interest of the Access Person. The annual disclosure of holdings
shall be made and calculated as of each calendar year end.
Access Persons covered by this Code shall report on a quarterly calendar
basis all transactions in which they acquire any direct or indirect
beneficial ownership in Covered Securities, except for indirect or direct
beneficial ownership in SCH stock or SCH options. These transaction reports
must be made no later than ten days after the end of each calendar quarter
and include trading activity at Schwab and any other broker-dealer.
VI. SURVEILLANCE
The policies and procedures regarding surveillance that are applicable to
officers, directors, Trustees and employees of the Schwab include the
following.
EMPLOYEE SURVEILLANCE AND REVIEW. Schwab will appoint Review Officer(s) to
conduct employee surveillance and review. The Review Officer will, on a
quarterly basis, compare all reported personal transactions in Covered
Securities with each investment company's completed portfolio transactions
and, if applicable, a list of Covered Securities being considered for
purchase or sale by the advisor of any investment company to determine
whether a violation may have occurred. Before determining that a person has
violated the Code of Ethics, the Review Officer must give the person an
opportunity to supply explanatory material.
If the Review Officer determines that a violation has or may have occurred,
the Review Officer must submit the determination, together with the
confidential quarterly report and any explanatory material provided by the
person, to the SVP of Global Compliance of Schwab (or his or her designee),
who will determine whether the person violated the Code of Ethics.
No person is required to participate in a determination of whether he or
she has committed a violation or discuss the imposition of any sanction
against himself or herself.
If the SVP of Global Compliance of Schwab (or his or her designee) finds
that the person violated the Code of Ethics, he or she will work with the
individual's manager to impose upon the person sanctions that he or she
deems appropriate and will report the violation and the sanction imposed to
the affected investment company's Board of Directors or Trustees at the
next regularly scheduled board meeting, unless, in the sole discretion of
the SVP of Global Compliance of Schwab (or his or her designee),
circumstances warrant an earlier report.
The Review Officer will report his or her own transactions to an Alternate
Review Officer on a quarterly basis. The Alternative Review Officer on a
quarterly basis shall fulfill the duties of the Review Officer with respect
to the latter's transactions in Covered Securities.
VII. RECORDS
All records associated with this Code of Ethics, including but not limited
to; (i) lists of persons who are, or within past five years have been
designated as Access Persons; (ii) quarterly transaction and annual
holdings reports by such persons; (iii) surveillance documentation,
including any Code violation and any sanctions resulting from the
violation; and (iv) communications and all versions of the Code of Ethics,
shall be maintained by the Schwab Compliance Department in an easily
accessible place for at least five years. In addition, any record of any
decision, and the reasons supporting the decision, to approve the
acquisition by Investment Personnel of securities acquired in an IPO or a
private placement, shall be maintained by the Schwab Compliance Department
for at least five years after the end of the fiscal year in which the
approval is granted.
EXHIBIT A
REVIEW AND SURVEILLANCE PROCEDURES
FOR COMPLIANCE WITH RULE 17J-1
UNDER THE 1940 ACT
I. NOTIFICATION OF QUARTERLY REPORTING REQUIREMENTS
A. At the end of each calendar quarter, the Review Officer
will send a Quarterly Personal Securities Transaction
Report (the form of which is attached as Exhibit B), to
each person who is an Access Person of (i) an investment
company and (ii) Schwab.
B. The Review Officer will promptly record the return of
each Quarterly Personal Securities Transaction Report.
C. Seven days after the end of the calendar quarter, the
Review Officer will send a reminder notice to any Access
Person who has not returned his or her Quarterly Personal
Securities Transaction Report.
D. Eleven days after the end of the calendar quarter, the
Review Officer will send a "Notice of Failure" to any
Access Person who has not returned his or her Quarterly
Personal Securities Transaction Report. The Notice of
Failure will notify the Access Person that he or she is
in violation of Rule 17j-1 under the 1940 Act and the
Code of Ethics and may be subject to sanctions under the
Code of Ethics.
E. The Review Officer shall report the name of any Access
Person who has failed to provide a Quarterly Personal
Securities Transaction Report to the SVP for Global
Compliance of Schwab for further evaluation and
imposition of sanctions, if applicable.
II. REVIEW OF QUARTERLY REPORTS
A. Access Persons.
1. The Review Officer shall review each Quarterly Personal
Securities Transaction Report received against the master
list of Covered Securities purchased or sold, or
considered for purchase or sale, by the investment
company for the same period as the transactions reported
by the Access Person.
2. For any transaction by an Access Person in the same
security as that purchased or sold by an investment
company, the Review Officer will first determine whether
the transaction was within 15 days (before or after) the
transaction conducted by the investment company. If it
falls within the 15 day period, the Review Officer will
review the transaction in light of the following
considerations:
o the size of the transaction;
o whether the transaction was in the same
"direction" as the investment company's;
o the timing of the transaction; and
o the purchase or sale price of the Covered
Security.
3. For any trade that is identified by the Review Officer as
having occurred on the same day as an investment company
at a more favorable price to the Access Person, the
Review Officer shall send an inquiry letter to the Access
Person and will conduct further investigation of the
transaction.
4. If the Review Officer after further review determines
that a transaction appears to involve a conflict of
interest and/or a violation of the Code, he or she will
report this to the SVP for Global Compliance for further
action.
III. PERIODIC REVIEW
A. The Review Officer shall conduct periodic reviews of
reports submitted by Access Persons that disclose more
than 5 trades in Covered Securities per calendar quarter.
The Review Officer may review specific transactions or a
group of transactions for any pattern of activity. The
following patterns, if ascertained, will require further
inquiry:
o Trading only or primarily in securities that one or
more investment companies actively trade in;
o Transactions that match up closely in time with
investment company transactions and diverge from the
person's otherwise-normal trading profile in terms of
the size of transaction or type of security; and
o Transactions involving the purchase or sale of
Covered Securities that yielded significant profits
(or losses avoided), which match up closely in time
with the investment company's transactions.
IV. VERIFICATION OF BROKERAGE STATEMENTS
A. The Review Officer may request that an Access Person
provide a duplicate statement of any account with a
broker, dealer or bank where an Access Person holds
securities, in order to verify the accuracy of reports
made by the Access Person.
B. Any request for statement of securities accounts shall be
complied with no later than 10 days after the request has
been made. If the request has not been complied with, it
will be considered a violation of the Code of Ethics.
V. ANNUAL CERTIFICATION
On an annual basis, each Access Person must certify that he or she
(i) is aware that he or she is subject to the requirements of Rule
17j-1 and the Code of Ethics and understands his or her
obligations under the Rule and Code of Ethics; and (ii) he or she
has fully complied with the requirements of the Code of Ethics.
EXHIBIT B
QUARTERLY PERSONAL SECURITIES TRANSACTIONS REPORT
Name of Reporting Person:
Calendar Quarter Ended:
<TABLE>
<CAPTION>
------------ --------------- ------------ -------------------- -------------- -------- -----------------------------
Name of Date of Title of No. of Shares/ Type of Name of Broker, Dealer or
Issuer* Transaction Security Principal Amount Transaction Price Bank Effecting Transaction
<S> <C> <C> <C> <C> <C> <C>
------------ --------------- ------------ -------------------- -------------- -------- -----------------------------
------------ --------------- ------------ -------------------- -------------- -------- -----------------------------
------------ --------------- ------------ -------------------- -------------- -------- -----------------------------
------------ --------------- ------------ -------------------- -------------- -------- -----------------------------
------------ --------------- ------------ -------------------- -------------- -------- -----------------------------
------------ --------------- ------------ -------------------- -------------- -------- -----------------------------
------------ --------------- ------------ -------------------- -------------- -------- -----------------------------
------------ --------------- ------------ -------------------- -------------- -------- -----------------------------
------------ --------------- ------------ -------------------- -------------- -------- -----------------------------
------------ --------------- ------------ -------------------- -------------- -------- -----------------------------
*You are not required to report your personal transactions in stock of The
Charles Schwab Corporation ("SCH") or SCH options.
</TABLE>
If you had no reportable transactions during the quarter, please check
here.
If you established an account within the last quarter, please provide the
following information:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Name of Broker, Dealer Date Account was Interest Rate Maturity Date Date Report Submitted
or Bank Established (if applicable) (if applicable) by Access Person
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
</TABLE>
If you did not establish a securities account within the last quarter,
please check here.
If you to disclaim beneficial ownership of one or more Securities reported
above, please describe below and indicate which Securities are at issue.
Signature Date
--------
1 (Each investment company, its advisors, sub-advisors, transfer agents,
and other covered service providers shall comply with their own codes of
ethics approved by the appropriate Board of Trustees.)
