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Exhibit (r)
CODE OF ETHICS
MERRILL LYNCH INVESTMENT MANAGERS (MLIM)
REGISTERED INVESTMENT COMPANIES
AND THEIR INVESTMENT ADVISERS
AND PRINCIPAL UNDERWRITER
SECTION 1 - BACKGROUND
This Code of Ethics is adopted under Rule 17j-1 under the Investment
Company Act of 1940 ("1940 Act") and Rule 204-2(a) under the Investment Advisers
Act of 1940 and has been approved by the Boards of Directors of each of the MLIM
funds.(1) Except where noted, the Code applies to all MLIM employees.
Section 17(j) under the Investment Company Act of 1940 makes it unlawful
for persons affiliated with investment companies, their principal underwriters
or their investment advisers to engage in fraudulent personal securities
transactions. Rule 17j-1 requires each Fund, investment adviser and principal
underwriter to adopt a Code of Ethics that contains provisions reasonably
necessary to prevent an employee from engaging in conduct prohibited by the
principles of the Rule. The Rule also requires that reasonable diligence be used
and procedures be instituted which are reasonably necessary to prevent
violations of the Code of Ethics.
On August 23, 1999, the SEC adopted amendments to Rule 17j-1 which require
greater board oversight of personal trading practices, more complete reporting
of employee securities trading and preclearance of employee purchases of initial
public offerings and private placements. The amendments require, among other
things, that MLIM provide its fund boards annually a written report that (i)
describes issues that arose during the previous year under the Code, including
information about material code violations and sanctions imposed and (ii)
certifies to the board that MLIM has adopted procedures reasonably necessary to
prevent access persons from violating the Code.
SECTION 2 - STATEMENT OF GENERAL FIDUCIARY PRINCIPLES
The Code of Ethics is based on the fundamental principle that MLIM and its
employees must put client interests first. As an investment adviser, MLIM has
fiduciary responsibilities to its clients, including the registered investment
companies
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(1) As applicable herein, MLIM includes all AMG investment advisory affiliates
and the affiliated principal underwriter of investment companies registered
under the 1940 Act.
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(the "Funds") for which it serves as investment adviser. Among MLIM's fiduciary
responsibilities is the responsibility to ensure that its employees conduct
their personal securities transactions in a manner which does not interfere or
appear to interfere with any Fund transactions or otherwise take unfair
advantage of their relationship to the Funds. All MLIM employees must adhere to
this fundamental principle as well as comply with the specific provisions set
forth herein. It bears emphasis that technical compliance with these provisions
will not insulate from scrutiny transactions which show a pattern of compromise
or abuse of an employee's fiduciary responsibilities to the Funds. Accordingly,
all MLIM employees must seek to avoid any actual or potential conflicts between
their personal interest and the interest of the Funds. In sum, all MLIM
employees shall place the interest of the Funds before personal interests.
SECTION 3 - INSIDER TRADING POLICY
All MLIM employees are subject to MLIM's Insider Trading Policy, which is
considered an integral part of this Code of Ethics. MLIM's Insider Trading
Policy, which is set forth in the MLIM Code of Conduct, prohibits MLIM employees
from buying or selling any security while in the possession of material
nonpublic information about the issuer of the security. The policy also
prohibits MLIM employees from communicating to third parties any material
nonpublic information about any security or issuer of securities. Additionally,
no MLIM employee may use inside information about MLIM activities or the
activities of any Merrill Lynch & Co., Inc. entity to benefit the Funds or to
gain personal benefit. Any violation of MLIM's Insider Trading Policy may result
in sanctions, which could include termination of employment with MLIM. (See
Section 10 -- Sanctions).
SECTION 4 - RESTRICTIONS RELATING TO SECURITIES TRANSACTIONS
A. GENERAL TRADING RESTRICTIONS FOR ALL EMPLOYEES
The following restrictions apply to all MLIM employees:
1. ACCOUNTS. No employee, other than those employed by Mercury Asset
Management International Ltd. ("MAMI"), may engage in personal securities
transactions other than through an account maintained with Merrill Lynch,
Pierce, Fenner & Smith Incorporated or another Merrill Lynch broker/dealer
entity ("Merrill Lynch") unless written permission is obtained from the
Compliance Director. Similarly, no MAMI employee may engage in personal
securities transactions other than through an account maintained with
Merrill Lynch or The Bank of New York Europe Limited ("BNYE") unless
written permission is obtained from the Compliance Director.
2. ACCOUNTS INCLUDE FAMILY MEMBERS AND OTHER ACCOUNTS. Accounts of employees
include the accounts of their spouses, dependent relatives, trustee and
custodial accounts or any other account in which the employee has a
financial
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interest or over which the employee has investment discretion (other than
MLIM-managed Funds).
3. PRECLEARANCE. All employees must obtain approval from the Compliance
Director or preclearance delegatee prior to entering any securities
transaction (with the exception of exempted securities as listed in
Section 5) in all accounts. Approval of a transaction, once given, is
effective only for the business day on which approval was requested or
until the employee discovers that the information provided at the time the
transaction was approved is no longer accurate. If an employee decides not
to execute the transaction on the day preclearance approval is given, or
the entire trade is not executed, the employee must request preclearance
again at such time as the employee decides to execute the trade.
Employees may preclear trades only in cases where they have a present
intention to transact in the security for which preclearance is sought. It
is MLIM's view that it is not appropriate for an employee to obtain a
general or open-ended preclearance to cover the eventuality that he or she
may buy or sell a security at some point on a particular day depending
upon market developments. This requirement would not prohibit a price
limit order, provided that the employee shall have a present intention to
effect a transaction at such price. Consistent with the foregoing, an
employee may not simultaneously request preclearance to buy and sell the
same security.
4. RESTRICTIONS ON PURCHASES. No employee may purchase any security which at
the time is being purchased, or to the employee's knowledge is being
considered for purchase, by any Fund managed by MLIM. This restriction,
however, does not apply to personal trades of employees which coincide
with trades by any MLIM index fund.
5. RESTRICTIONS ON SALES. No employee may sell any security which at the time
is actually being sold, or to the employee's knowledge is being considered
for sale, by any Fund managed by MLIM. This restriction, however, does not
apply to personal trades of employees which coincide with trades by any
MLIM index fund.
6. RESTRICTIONS ON RELATED SECURITIES. The restrictions and procedures
applicable to the transactions in securities by employees set forth in
this Code of Ethics shall similarly apply to securities that are issued by
the same issuer and whose value or return is related, in whole or in part,
to the value or return of the security purchased or sold or being
contemplated for purchase or sale during the relevant period by the Fund.
For example, options or warrants to purchase common stock, and convertible
debt and convertible preferred stock of a particular issuer would be
considered related to the underlying common stock of that issuer for
purposes of this policy. In sum, the related security would be
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treated as if it were the underlying security for the purpose of the
pre-clearance procedures described herein.
7. PRIVATE PLACEMENTS. Employee purchases and sales of "private placement"
securities (including all private equity partnerships, hedge funds,
limited partnership or venture capital funds) must be precleared directly
with the Compliance Director or designee. No employee may engage in any
such transaction unless the Compliance Director or his designee and the
employee's senior manager have each previously determined in writing that
the contemplated investment does not involve any potential for conflict
with the investment activities of the Funds.
If, after receiving the required approval, an employee has any material
role in the subsequent consideration by any Fund of an investment in the
same or affiliated issuer, the employee must disclose his or her interest
in the private placement investment to the Compliance Director and the
employee's department head. The decision to purchase securities of the
issuer by a Fund must be independently reviewed and authorized by the
employee's department head.
8. INITIAL PUBLIC OFFERINGS. As set forth in Paragraph A.3. of this Section
4, the purchase by an employee of securities offered in an initial public
offering must be precleared. As a matter of policy, employees will not be
allowed to participate in so-called "hot" offerings as such term may be
defined by Merrill Lynch or appropriate regulators (e.g., offerings that
are oversubscribed or for which the demand is such that there is the
possibility of oversubscription).
B. ADDITIONAL TRADING RESTRICTIONS FOR INVESTMENT PERSONNEL
The following additional restrictions apply to investment personnel.
Investment personnel are persons who, in connection with their regular functions
or duties, make or participate in making recommendations regarding the purchase
or sale of securities by a Fund). The Compliance Department will retain a
current a list of investment personnel.
1. NOTIFICATION. An investment person must notify the Compliance Department
or preclearance designee of any intended transactions in a security for
his or her own personal account or related accounts which is owned or
contemplated for purchase or sale by a Fund for which the employee has
investment authority.
2. BLACKOUT PERIODS. An investment person may not buy or sell a security
within 7 CALENDAR DAYS either before or after a purchase or sale of the
same or related security by a Fund or portfolio management group for which
the investment person has investment authority. For example, if a Fund
trades a security on day 0, day 8 is the first day the manager, analyst or
portfolio management group
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member of that Fund may trade the security for his or her own account. An
investment person's personal trade, however, shall have no affect on the
Fund's ability to trade. For example, if within the seven-day period
following his or her personal trade, an investment person believes that it
is in the best interests of the Fund for which he or she has investment
authority to purchase or sell the same security on behalf of the Fund, the
trade should be done for the Fund, and an explanation of the circumstances
must be provided to the Compliance Department.
3. ESTABLISHING POSITIONS COUNTER TO FUND POSITIONS. No investment person may
establish a long position in his or her personal account in a security if
the Fund for which he or she has investment authority maintains a position
that would benefit from a decrease in the value of such security. For
example, the investment person would be prohibited from establishing a
long position if (1) the Fund holds a put option on such security (aside
from a put purchased for hedging purposes where the fund holdings the
underlying security); (2) the Fund has written a call option on such
security; or (3) the Fund has sold such security short, other than
"against-the-box."
No investment person may purchase a put option or write a call option
where a Fund for which such person has investment authority holds a long
position in the underlying security.
No investment person may short sell any security where a Fund for which
such person has investment authority holds a long position in the same
security or where such Fund otherwise maintains a position in respect of
which the Fund would benefit from an increase in the value of the
security.
4. PURCHASING AN INVESTMENT FOR A FUND THAT IS A PERSONAL HOLDING. An
investment person may not purchase an investment for a Fund that is also a
personal holding of the investment person or any other account covered by
this Code of Ethics, or the value of which is materially linked to a
personal holding, unless the investment person has obtained prior approval
from his or her senior manager.
5. INDEX FUNDS. The restrictions of this Section 4.B. do not apply to
purchases and sales of securities by investment personnel which coincide
with trades by any MLIM index fund.
6. PROHIBITION ON SHORT-TERM PROFITS. Investment personnel are prohibited
from profiting on any sale and subsequent purchase, or any purchase and
subsequent sale of the same (or equivalent) securities occurring within 60
calendars days ("short-term profit"). This holding period also applies to
all permitted options transactions; therefore, for example, an investment
person may not purchase or write an option if the option will expire in
less than 60 days (unless such a
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person is buying or writing an option on a security that he or she has
held more than 60 days). In determining short-term profits, all
transactions within a 60-day period in all accounts related to the
investment person will be taken into consideration in determining
short-term profits, regardless of his or her intentions to do otherwise
(e.g., tax or other trading strategies). Should an investment person fail
to preclear a trade that results in a short-term profit, the trade would
be subject to reversal with all costs and expenses related to the trade
borne by the investment person, and he or she would be required to
disgorge the profit. Transactions not required to be precleared under
Section 5 will not be subject to this prohibition.
C. TRADING RESTRICTIONS FOR DISINTERESTED DIRECTORS OF THE MLIM FUNDS
The following restrictions apply only to disinterested directors of the
MLIM Funds (i.e., any director who is not an "interested person" of a MLIM fund
within the meaning of Section 2(a)(10) of the 1940 Act):
1. RESTRICTIONS ON PURCHASES. No disinterested director may purchase any
security which, to the director's knowledge at the time, is being
purchased or is being considered for purchase by any Fund managed by MLIM.
2. RESTRICTIONS ON SALES. No disinterested director may sell any security
which, to the director's knowledge at the time, is being sold or is being
considered for sale by any Fund managed by MLIM.
3. RESTRICTIONS ON TRADES IN SECURITIES RELATED IN VALUE. The restrictions
applicable to the transactions in securities by disinterested directors
shall similarly apply to securities that are issued by the same issuer and
whose value or return is related, in whole or in part, to the value or
return of the security purchased or sold by the Fund (see Section 4.A.6.).
SECTION 5 - EXEMPTED TRANSACTIONS/SECURITIES
MLIM has determined that the following securities transactions do not
present the opportunity for improper trading activities that Rule 17j-1 is
designed to prevent; therefore, the restrictions set forth in Section 4 of this
Code (including preclearance, prohibition on short-term profits and blackout
periods) shall not apply.
A. Purchases or sales in an account over which the employee has no direct or
indirect influence or control (e.g., an account managed on a fully
discretionary basis by an investment adviser or trustee).
B. Purchases or sales of direct obligations of the U.S. Government.
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C. Purchases or sales of open-end investment companies (including money market
funds), variable annuities and unit investment trusts. (However, unit
investment trusts traded on a stock exchange (e.g., MITS, DIAMONDS, NASDAQ
100, etc.) must be precleared.)
D. Purchases or sales of bank certificates, bankers acceptances, commercial
paper and other high quality short-term debt instruments, including
repurchase agreements.
E. Purchases or sales of Merrill common stock (and securities related in value
to Merrill Lynch common stock). Also exempt is employer stock purchased and
sold through employer-sponsored benefit plans in which the spouse of a MLIM
employee may participate (e.g., employee stock purchase plans or 401(k)
plans) and sales of employer stock (or the exercise of stock options) that
is received as compensation by a MLIM employee's spouse.
F. Purchases or sales which are non-volitional on the part of the employee
(e.g., an in-the-money option that is automatically exercised by a broker; a
security that is called away as a result of an exercise of an option; or a
security that is sold by a broker, without employee consultation, to meet a
margin call not met by the employee).
G. Purchases which are made by reinvesting cash dividends pursuant to an
automatic dividend reinvestment plan.
H. 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.
I. Purchases or sales of commodities, futures (including currency futures and
futures on broad-based indices), options on futures and options on
broad-based indices. Currently, "broad-based indices" include only the S&P
100, S&P 500, FTSE 100 and Nikkei 225. Also exempted are exchange-traded
securities which are representative of, or related closed in value to, these
broad-based indices.
J. The receipt of a bona fide gift of securities. (Donations of securities,
however, require preclearance.)
Exempted transactions/securities may not be executed/held in brokerage
accounts maintained outside of Merrill Lynch.
THE REPORTING REQUIREMENTS LISTED IN SECTION 6 OF THIS CODE, HOWEVER,
SHALL APPLY TO THE SECURITIES AND TRANSACTION TYPES SET FORTH IN PARAGRAPHS F-J
OF THIS SECTION.
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SECTION 6 - REPORTING BY EMPLOYEES
The requirements of this Section 6 apply to all MLIM employees. The
requirements will also apply to all transactions in the accounts of spouses,
dependent relatives and members of the same household, trustee and custodial
accounts or any other account in which the employee has a financial interest or
over which the employee has investment discretion. The requirements do not apply
to securities acquired for accounts over which the employee has no direct or
indirect control or influence. All employees whose accounts are maintained at
Merrill Lynch or BNYE are deemed to have automatically complied with the
requirements of this Section 6 B. and C. as to reporting executed transactions
and personal holdings. Transactions and holdings in such accounts are
automatically reported to the Compliance Department through automated systems.
Employees who have approved accounts outside of Merrill Lynch or BNYE are
deemed to have complied with the requirements of this Section 6 B. and C.
provided that the Compliance Department receives duplicate statements and
confirmations directly from their brokers.
Employees who effect reportable transactions outside of a brokerage
account (e.g., optional purchases or sales through an automatic investment
program directly with an issuer) will be deemed to have complied with this
requirement by preclearing transactions with the Compliance Department and by
reporting their holdings annually on the "Personal Securities Holdings" form, as
required by the Compliance Department.
A. INITIAL HOLDINGS REPORT. Each new MLIM employee will be given a copy of
this Code of Ethics upon commencement of employment. All new employees
must disclose their personal securities holdings to the Compliance
Department within 10 days of commencement of employment with MLIM.
(Similarly, securities holdings of all new related accounts must be
reported to the Compliance Department within 10 days of the date that
such account becomes related to the employee.) With respect to exempt
securities referred to in Section 5 which do not require
preclearance/reporting, employees must nonetheless initially report those
exempt securities defined in Section 5.F.-J. (This reporting requirement
does not apply to holdings that are the result of transactions in exempt
securities as defined in Section 5.A.-E.) Initial holdings reports must
identify the title, number of shares, and principal amount with respect
to each security holding. Within 10 days of commencement of employment,
each employee shall file an Acknowledgement stating that he or she has
read and understands the provisions of the Code.
B. RECORDS OF SECURITIES TRANSACTIONS. All employees must preclear each
securities transaction (with the exception of exempt transactions in Section
5) with the Compliance Department or preclearance designee. At the time of
preclearance, the employee must provide a complete description of the
security and the nature of the
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transaction. As indicated above, employees whose accounts are maintained at
Merrill Lynch or BNYE or who provide monthly statements directly from their
brokers/dealers are deemed to have automatically complied with the
requirement to report executed transactions.
C. ANNUAL HOLDINGS REPORT. All employees must submit an annual holdings report
reflecting holdings as of a date no more than 30 days before the report is
submitted. As indicated above, employees whose accounts are maintained at
Merrill Lynch or BNYE or who provide monthly statements directly from their
brokers/dealers are deemed to have automatically complied with this
requirement.
With respect to exempt securities referred to in Section 5 which do not
require preclearance/reporting, employees must nonetheless annually report
the holdings of those exempt securities that are defined in Section 5.F.-J.
(This reporting requirement, however, does not apply to exempt securities as
defined in Section 5.A.-E.)
D. ANNUAL CERTIFICATION OF COMPLIANCE. All MLIM employees must certify annually
to the Compliance Department that (1) they have read and understand and
agree to abide by this Code of Ethics; (2) they have complied with all
requirements of the Code of Ethics, except as otherwise notified by the
Compliance Department that they have not complied with certain of such
requirements; and (3) they have reported all transactions required to be
reported under the Code of Ethics.
E. REVIEW OF TRANSACTIONS AND HOLDINGS REPORTS. All transactions reports and
holdings reports will be reviewed by department heads (or their designees)
or compliance personnel according to procedures established by the
Compliance Department.
SECTION 7 - REPORTING BY DISINTERESTED DIRECTORS OF MLIM FUNDS
A disinterested director of a Fund need only report a transaction in a
security if the director, at the time of that transaction, knew or, in the
ordinary course of fulfilling the official duties of a director of such Fund,
should have known that, during the 15-day period immediately preceding the date
of the transaction by the director, the security was purchased or sold by any
Fund or was being considered for purchase or sale by any Fund for which he or
she is a director. In reporting such transactions, disinterested directors must
provide: the date of the transaction, a complete description of the security,
number of shares, principal amount, nature of the transaction, price,
commission, and name of broker/dealer through which the transaction was
effected.
As indicated in Section 6.D. for MLIM employees, disinterested directors
are similarly required to certify annually to the Compliance Department that (1)
they have read and understand and agree to abide by this Code of Ethics; (2)
they have complied with all requirements of the Code of Ethics, except as
otherwise reported to the
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Compliance Department that they have not complied with certain of such
requirements; and (3) they have reported all transactions required to be
reported under the Code of Ethics.
SECTION 8 - APPROVAL AND REVIEW BY BOARDS OF DIRECTORS
The Board of Directors of each MLIM Fund, including a majority of
directors who are disinterested directors, must approve this Code of Ethics.
Additionally, any material changes to this Code must be approved by the Board of
Directors within six months after adoption of any material change. The Board of
Directors must base its approval of the Code and any material changes to the
Code on a determination that the Code contains provisions reasonably necessary
to prevent employees from engaging in any conduct prohibited by Rule 17j-1.
Prior to approving the Code or any material change to the Code, the Board of
Directors must receive a certification from the Fund, the Investment Adviser or
Principal Underwriter that it has adopted procedures reasonably necessary to
prevent employees from violating the Code of Ethics.
SECTION 9 - REVIEW OF MLIM ANNUAL REPORT
At least annually, the Fund, the Investment Adviser and the Principal
Underwriter must furnish to the Fund's Board of Directors, and the Board of
Directors must consider, a written report that (1) describes any issues arising
under this 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 of Ethics or procedures and sanctions imposed in response to the
material violations and (2) certifies that the Fund, Investment Adviser and
Principal Underwriter have adopted procedures reasonably necessary to prevent
employees from violating this Code of Ethics.
SECTION 10 - SANCTIONS
Potential violations of the Code of Ethics must be brought to the
attention of the Compliance Director or his designee, are investigated and, if
appropriate, sanctions are imposed. Upon completion of the investigation, if
necessary, the matter may also be reviewed by the Code of Ethics Review
Committee which will determine whether any further sanctions should be imposed.
Sanctions may include, but are not limited to, a letter of caution or warning,
reversal of a trade, disgorgement of a profit or absorption of costs associated
with a trade, supervisor approval to trade for a prescribed period, fine or
other monetary penalty, suspension of personal trading privileges, suspension of
employment (with or without compensation), and termination of employment.
SECTION 11 - EXCEPTIONS
An exception to any of the policies, restrictions or requirements set
forth herein may be granted only upon a showing by the employee to the Code of
Ethics Review Committee that such employee would suffer extreme financial
hardship should an
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exception not be granted. Should the subject of the exception request involve a
transaction in a security, a change in the employee's investment objectives, tax
strategies, or special new investment opportunities would not constitute
acceptable reasons for a waiver.
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