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THE RESERVE FUND
RESERVE TAX-EXEMPT TRUST
RESERVE NEW YORK TAX-EXEMPT TRUST
RESERVE INSTITUTIONAL TRUST
RESERVE MANAGEMENT COMPANY, INC.
RESERVE MANAGEMENT CORPORATION
RESRV PARTNERS, INC.
CODE OF ETHICS & CONDUCT
I. INTRODUCTION
This Code of Ethics and Conduct (the "Code") has been adopted by The
Reserve Fund, The Reserve Tax-Exempt Trust, The Reserve New York Tax-Exempt
Trust, The Reserve Institutional Trust, Reserve Management Company, Inc.,
Reserve Management Corporation and Resrv Partners, Inc. (collectively,
"Reserve"), in accordance with the federal securities laws, including the
Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940,
as amended, and the Securities Exchange Act of 1934, as amended. The purpose of
the Code is to establish guidelines and procedures to identify and prevent
persons who may have knowledge of Reserve's investments and investment
intentions from breaching their fiduciary duties and to deal with other
situations that may pose a conflict of interest or a potential conflict of
interest.
Carefully read the guidelines and procedures of this Code. WHEN YOU
BELIEVE THAT YOU SUFFICIENTLY UNDERSTAND THEM, PLEASE SIGN, DATE, AND RETURN THE
ATTACHED CERTIFICATE OF COMPLIANCE AND PERSONAL HOLDINGS IN SECURITIES TO THE
COMPLIANCE DIRECTOR (AS DEFINED BELOW). Please keep a copy of the Code for your
reference.
Additionally, federal securities laws require money managers and others
to adopt policies and procedures to identify and prevent the misuse of material,
non-public information. Therefore, Reserve has developed and adopted an Insider
Trading Policy that applies to all employees, affiliates and subsidiaries.
Carefully read the guidelines within the Insider Trading Policy attached to this
Code as Appendix I. WHEN YOU BELIEVE THAT YOU SUFFICIENTLY UNDERSTAND ITS TERMS
AND CONDITIONS, PLEASE SIGN, DATE AND RETURN THE ATTACHED ACKNOWLEDGMENT OF
RECEIPT.
II. DEFINITIONS
As used in the Code, the following terms have the following meanings:
ACCESS PERSON: means any employee of Reserve. This term also includes
person who has knowledge of material facts pertaining to
transactions of Advisory Clients. Generally, the term does
not include an Independent Director unless he or she has
knowledge of material facts regarding Advisory Client
transactions.
ADVISORY CLIENT: means any person or entity to which Reserve provides
investment a advisory services. This term includes any
registered or unregistered investment company for which
Reserve serves as an adviser or sub-adviser and any
separate account clients; PROVIDED, HOWEVER, that the term
does not include The Reserve Private Equity Series or any
other clients that are sub-advised by an entity other than
Reserve.
BENEFICIAL
OWNERSHIP: means any interest in a Security for which an Access Person
or any member of his or her immediate family (anyone
residing in the same household or to whom the Access Person
provides significant financial support) can directly or
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indirectly receive a monetary benefit. This term also
includes the right to buy or sell a Security, to direct the
purchase or sale of a Security, or to vote or direct the
voting of a Security. Please see Appendix II for examples
of Beneficial Ownership.
COMPLIANCE
DIRECTOR: means the person appointed by Reserve as such and indicated
in Appendix III, as updated from time to time. The
Compliance Director may delegate any or all of his or her
responsibilities under the Code, as specified in Appendix
III, as updated. In instances when the Code is applied to
the Compliance Director, any other principal of Reserve may
act as the Compliance Director.
CONTROL: of a company means the power to exercise a controlling
influence over the management or policies of the company
(unless such power is solely the result of an official
position with the company). Any person who owns (directly
or through one or more controlled companies), more than 25%
of the voting securities of a company shall be presumed to
control such company.
INDEPENDENT
DIRECTOR: means any person who serves on the Board of Directors of
any of the Reserve Funds who is not an "interested person"
as that term is defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended AND who does not
have advance knowledge of purchases or sales of Securities
on behalf of any Advisory Client. Special procedures apply
to Independent Directors as set forth in Article VII.B.
PERSONAL SECURITIES
TRANSACTION: means any transaction in which an Access Person or his or
her immediate family (as described above and in Appendix
II) acquires or disposes of a Security in which any such
person has or gains a direct or indirect Beneficial
Ownership interest.
SECURITY: INCLUDES all debt and equity financial instruments
including:
- common and preferred stock;
- investment and non-investment grade debt securities;
- investments convertible into or exchangeable for
stock or debt securities;
- any derivative instrument relating to any of the
above securities, including options, warrants and
futures;
- any interest in a partnership investment in any of
the foregoing; and
- shares of closed-end investment companies;
DOES NOT INCLUDE the following, so that transactions in the
following are not covered by the Code:
- debt securities issued by the U.S. government or its
agencies or instrumentalities;
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- bankers' acceptances;
- bank certificates of deposit;
- commercial paper;
- municipal bonds;
- stock indices; and
- shares of registered open-end investment companies
(mutual funds).
SECURITY HELD OR
TO BE ACQUIRED: by an Advisory Client means any Security which, within the
most recent three (3) days:
- is being or has been purchased or sold by Reserve
for an Advisory Client; or
- is being considered or has been considered for
purchase or sale by Reserve for an Advisory Client.
SECURITY BEING
CONSIDERED FOR
PURCHASE OR SALE: means a Security during the time period when an order is on
Reserve's trading desk with respect to that Security until
the time when all orders with respect to that Security are
either completed or canceled. This time period includes
those instances in which an order to purchase or sell the
Security has been made and communicated a broker.
III. GENERAL PRINCIPLES
This Code applies to all Access Persons. The Code acknowledges the
general principles that Access Persons:
- owe a fiduciary obligation to all Advisory Clients;
- have the duty at all times to place the interests of all Advisory
Clients first and foremost;
- must conduct their Personal Securities Transactions in a manner
that avoids conflicts of interest or abuses of their position of
trust and responsibility; and
- should not take improper advantage of their positions in relation
to Advisory Clients.
The Code makes it unlawful for Access Persons, when conducting Personal
Securities Transactions, to engage in activities that are dishonest,
manipulative, or that involve false or misleading statements. No Access Person
shall use any information concerning the investments or investment intentions of
any Advisory Client for personal gain or in a manner harmful to the interests of
any Advisory Client.
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In this regard, no Access Person shall, directly or indirectly in
connection with the purchase or sale of a Security held or to be acquired by any
Advisory Client:
- employ any device, scheme or artifice to defraud any Advisory
Client;
- make any untrue statement of a material fact or omit to state a
material fact that, in light of the circumstances, could be
construed as misleading;
- engage in any act, practice, or course of business that operates
or would operate as fraud or deceit upon any Advisory Client; or
- engage in any manipulative practice with respect to any Advisory
Client.
This Code requires Access Persons, among other things, to pre-clear their
Personal Securities Transactions as described in Section VI, report their
Personal Securities Transactions as described in Section VIII, and certify their
compliance with the Code as described in Section VIII.
IV. PROHIBITED TRANSACTIONS
A. 3-DAY BLACKOUT PERIOD
No Access Person may effect a Personal Securities Transaction in a
Security if:
- Reserve has engaged in a transaction in the same or an equivalent
Security for an Advisory Client within the last three (3) calendar
days; or
- Reserve engages in a transaction in the same Security for an
Advisory Client within the next three (3) calendar days.
In the event an Access Person effects a prohibited Personal Securities
Transaction within either three (3) days before or after an Advisory Client
transaction in the same or equivalent Security, the Access Person will be
required to close out his or her position in the Security and to disgorge any
profit from the transaction to a predetermined charity selected by the
Compliance Director. However, please note that if an Access Person obtained
pre-clearance for a transaction and a subsequent Advisory Client transaction in
the same Security occurs within three (3) days of the Access Person's
transaction, Reserve's Compliance Director may determine to review the
application of the disgorgement policy upon a demonstration of hardship or
extraordinary circumstances.
B. INITIAL PUBLIC OFFERINGS
No Access Person may engage in a Personal Securities Transaction in any
Security in an initial public offering. Exceptions to this prohibition are
permissible only with the prior written approval of the Reserve's Compliance
Director or, in the Compliance Director's absence, the President of the Funds.
C. PRIVATE PLACEMENTS
An Access Person may not engage in a Personal Securities Transaction in
any Security in a private placement without the prior written approval of the
Compliance Director or, in the Compliance Director's absence, the President of
the Funds. In considering such approval, the Compliance Director shall take into
account, among other factors, whether the investment opportunity should be
reserved for an Advisory Client, and whether the opportunity is being offered to
the Access Person by virtue of his or her position.
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An Access Person who has been approved to engage in a Personal Securities
Transaction in a private placement must disclose that investment if he or she
plays a part directly or indirectly in subsequent investment considerations of
the Security for an Advisory Client. In such circumstances, Reserve's decision
to purchase or sell Securities of the issuer shall be subject to an independent
review by an Access Person with no personal interest in the issuer.
D. BAN ON SHORT-TERM TRADING PROFITS
No Access Person may engage in a Personal Securities Transaction
involving the purchase and sale, or sale and purchase, of the same (or
equivalent) Securities within a period of 30 calendar days. Any profits realized
or losses avoided on such short-term trades shall be disgorged to a
predetermined charity selected by the Compliance Director or, in the Compliance
Director's absence, the President of the Funds.
E. FRONT-RUNNING
No Access Person may engage in front-running an order or recommendation,
even if the Access Person is not handling the order or the recommendation (and
even if the order or recommendation is for someone other than the Access
Person). Front-running consists of executing a transaction based on the
knowledge of the forthcoming transaction or recommendation in the same or an
underlying Security, or other related securities, within three (3) calendar days
preceding a transaction by Reserve.
F. INSIDE INFORMATION
No Access Person may use material, non-public information about any
issuer of Securities, whether or not such Securities are held in the portfolios
of Advisory Clients or suitable for inclusion in such portfolios, for personal
gain or on behalf of an Advisory Client. Any Access Person who believes he or
she is in possession of such information must contact Reserve's Compliance
Director immediately to discuss the information and the circumstances
surrounding its receipt. This prohibition does not prevent an Access Person from
contacting officers and employees of issuers or other investment professionals
in seeking information about issuers that is publicly available. (Refer to
Reserve's Insider Trading Policy attached as Appendix I for more information.)
When effecting any other Personal Securities Transaction, an Access
Person must:
- obtain advance written clearance of such Transaction in accordance
with Section VI of this Code; AND
- report to Reserve's Compliance Director the information described
in Section VIII of this Code.
G. GIFTS
No Access Person may seek any gift, favor, gratuity, or preferential
treatment from any person or entity that:
- does business with or on behalf of Reserve;
- is or may appear to be connected with any present or future
business dealings between Reserve and that person or organization;
OR
- may create or appear to create a conflict of interest.
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Access Persons may not accept gifts, favors or gratuities from any other
person valued at more than $100.
Discretion should be used in accepting invitations for dinners,
entertainment, golf outings, sporting events, theater or the like. In accepting
such invitations, Reserve requires that the person offering the invitation be in
attendance in order to accept the invitation. No Access Person should offer any
gifts, favors or gratuities that could be viewed as influencing decision-making
or otherwise could be considered as creating a conflict of interest on the part
of the recipient.
H. SERVICE AS A DIRECTOR
No Access Person may serve on the board of directors of any PUBLICLY
TRADED company. In addition, any Access Person that wishes to serve on the board
of directors of a PRIVATELY HELD company must first obtain prior written
approval from the Compliance Director or, in the Compliance Director's absence,
the President of the Funds.
V. EXEMPTIONS
Notwithstanding the foregoing, the Code contains an exception to the
3-day blackout period for certain DE MINIMIS Personal Securities Transactions.
Under this DE MINIMIS exception, an Access Person may engage in a Personal
Securities Transaction regardless of the fact that Reserve may be active in a
Security so long as the following conditions are met:
EQUITY SECURITIES
- purchase or sale of 1,000 shares or fewer (over a rolling 30 day period)
by the Access Person or members of their immediate family; AND
- the issuer's market capitalization is greater than $1 billion.
DEBT SECURITIES
- purchase or sale of 100 units ($100,000 principal amount) or fewer (over
a rolling 30 day period) by the Access Person or members of their
immediate family; AND
- the issuer's market capitalization is greater than $1 billion.
DE MINIMIS Personal Securities Transactions must be reported pursuant to Section
VIII.
VI. PRE-CLEARANCE PROCEDURES
A. PROCEDURES FOR PRE-CLEARANCE
1. APPROVAL REQUIREMENTS
An Access Person must obtain written pre-clearance from Reserve's
Compliance Director or, in the Compliance Director's absence, the President of
the Funds for all Personal Securities Transactions (except DE MINIMIS
Transactions).
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2. TIME OF CLEARANCE
Pre-clearance must be obtained prior to the proposed Personal
Securities Transaction and is valid for only 24 hours after approved.
3. FORM
Pre-clearance must be obtained in writing by completing and
signing a Personal Request and Trading Authorization Form (including the details
of the proposed Personal Securities Transaction). An example of such Form is
attached.
4. FILING
Reserve's Compliance Director will retain a copy of all completed
Personal Request and Trading Authorization Forms.
B. FACTORS CONSIDERED IN CLEARANCE OF PERSONAL SECURITIES
TRANSACTIONS
Generally, the factors described below will be considered in determining
whether or not to clear a proposed Personal Securities Transaction. However, if
warranted by the nature of the Personal Securities Transaction, Reserve's
Compliance Director or, in the Compliance Director's absence, the President of
the Funds has the authority to clear a Personal Securities Transaction on any
other basis.
- whether any Advisory Client has a pending "buy" or "sell" order in
that security or has completed a purchase or sale of that security
that day;
- whether the amount or nature of the Personal Securities
Transaction or person making it is likely to affect the price of
or market for the Security;
- whether the Personal Securities Transaction would create the
appearance of impropriety, whether or not an actual conflict
exists;
- whether the Security proposed to be purchased or sold is one that
would qualify for purchase or sale by any Advisory Client;
- whether the Personal Securities Transaction is non-voluntary on
the part of the individual, such as the receipt of a stock
dividend; and
- whether the Security is currently being considered for purchase or
sale by Reserve, or has been so considered in the past three (3)
days.
VII. EXEMPT SECURITIES TRANSACTIONS -- SPECIFIED
A. GENERAL
In addition to the exemptions in Section V, the Prohibited Transactions
in Section IV, the Pre-Clearance Requirements in Section VI, and the Reporting
Requirements in Section VIII of this Code do not apply to:
- transactions in an account over which an Access Person has no
direct or indirect influence or control; or in any account held by
an Access Person which is managed
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on a discretionary basis by a person other than the Access Person
and, with respect to which the Access Person does not, in fact,
influence or control the transactions;
- transactions which are non-voluntary on the part of the Access
Person;
- purchases which are part of an automatic dividend reinvestment
plan;
- purchases as a result of the exercise by an Access Person of
rights issued pro rata to all holders of a class of Securities, to
the extent that such rights were acquired from the issuer, and the
sale of such rights; and
- other similar circumstances as determined by the Compliance
Director.
B. SPECIAL PROCEDURES FOR INDEPENDENT DIRECTORS
An Independent Director is not subject to the procedures set forth
in the Code UNLESS THAT INDEPENDENT DIRECTOR KNEW, OR IN THE ORDINARY COURSE OF
THE FULFILLMENT OF HIS OR HER OFFICIAL DUTIES, SHOULD HAVE KNOWN THAT DURING THE
15-DAY PERIOD IMMEDIATELY PRECEDING OR AFTER THE DATE OF A TRANSACTION IN A
SECURITY BY THE INDEPENDENT DIRECTOR THAT SUCH SECURITY WAS RECOMMENDED,
PURCHASED OR SOLD BY RESERVE ON BEHALF OF AN ADVISORY CLIENT OR THAT THE
RECOMMENDATION, PURCHASE OR SALE OF THAT SECURITY WAS CONSIDERED BY RESERVE. An
Independent Director is not required to report to Reserve his or her Personal
Securities Transactions on a quarterly basis, nor is he or she required to
report to Reserve personal holdings on an annual basis.
VIII. REPORTING
A. REPORTING REQUIREMENTS
1. ACCESS PERSONS
Except as set forth below, each Access Person must make a written report
(sample attached) to Reserve's Compliance Director within ten (10) days after
the end of each quarter month of all non-exempt Personal Securities Transactions
occurring during the quarter.
2. FORM OF REPORT
The reports must contain the following information with respect to each
reportable Personal Securities Transaction:
- Date and nature of the Personal Securities Transaction (purchase,
sale or any other type of acquisition or disposition);
- Title, number of shares or principal amount of each Security and
the price at which the Personal Securities Transaction was
effected; and
- Name of the broker, dealer or bank with or through whom the
Personal Securities Transaction was effected.
Such reports may contain a statement that the report is not to be construed as
an admission that the person filing the report has or had any direct or indirect
Beneficial Interest in any Security described in the report.
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B. DISCLOSURE BY NEW ACCESS PERSONS OF PERSONAL SECURITIES HOLDINGS
Each new Access Person must disclose within 10 days he or she becomes an
Access Person, any Security in which he or she or any member of his or her
immediate family has a Beneficial Ownership interest. Thereafter, the Access
Person will file the Annual Disclosure discussed below.
C. ANNUAL DISCLOSURE
Each Access Person annually must update his or her list of Securities in
which the Access Person or any member of his or her immediate family has a
Beneficial Ownership interest.
D. ANNUAL CERTIFICATION
All Access Persons must certify annually that they understand the Code,
have had an opportunity to ask questions about the Code, and will comply with
all applicable aspects of the Code.
E. RESPONSIBILITY TO REPORT
Each Access Person required to make a report is responsible for taking
the initiative to file reports as required under the Code. Any effort by the
Compliance Director to facilitate the reporting process does not change or alter
that responsibility.
F. WHERE TO FILE REPORT
All reports must be filed with Compliance Director.
G. BROKERAGE STATEMENTS / CONFIRMS
All Access Persons must have copies of all monthly statements and
confirmations relating to transactions in Securities in all accounts in which
the Access Person or any member of his or her immediate family has a Beneficial
Ownership interest sent directly to the Compliance Director. This requirement
does not apply to accounts that are part of a investment program that provides
Reserve electronic confirmations and statements (e.g., Charles Schwab).
The duplicate copies of all monthly statements and confirmations referred
to above should be addressed to:
Office of the Director of Compliance and Legal Affairs
The Reserve Funds
1250 Broadway - 32nd Floor
New York, NY 10001-3701
IX. CONFIDENTIALITY OF ADVISER TRANSACTIONS
Information relating to any Advisory Client's portfolio or activities is
strictly confidential and should not be discussed with anyone outside Reserve.
In addition, from the time that an Access Person anticipates making a
recommendation to purchase or sell a security, through the time that all
transactions based on that recommendation have been completed or abandoned, the
subject and content of the recommendation may be considered "inside
information." Accordingly, Access Persons must maintain the utmost
confidentiality with respect to their recommendations during this period and may
not discuss a contemplated recommendation with anyone outside of Reserve. Please
refer to Appendix I for Reserve's Insider Trading Policy.
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Any written or oral disclosure of information concerning Reserve,
Reserve's clients, or particular purchase or sale transactions for Advisory
Client accounts should be made only by persons who are specifically authorized
to release that information after consultation with the Compliance Director. The
confidentiality of Reserve transactions is not intended to inhibit exchanges of
information among Access Persons, brokers with which Reserve trades, or outside
analysts.
X. SANCTIONS
A violation of this Code is subject to the imposition of such sanctions
by Reserve as may be deemed appropriate under the circumstances to achieve the
purposes of the Code. Sanctions for violations of the Code will be determined by
the Compliance Director, in consultation with Reserve's principals and outside
counsel. Such sanctions may include written warning, suspension or termination
of employment, a letter of censure and/or restitution of an amount equal to the
difference between the price paid or received by the offending person in the
Personal Securities Transaction in question.
XI. AMENDMENTS AND MODIFICATIONS
This Code may be amended or modified as deemed necessary by the officers
of Reserve, with the advice of outside counsel. This Code is effective as of
June 23, 2000.
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THE RESERVE FUND
RESERVE TAX-EXEMPT TRUST
RESERVE NEW YORK TAX-EXEMPT TRUST
RESERVE INSTITUTIONAL TRUST
RESERVE MANAGEMENT COMPANY, INC.
RESERVE MANAGEMENT CORPORATION
RESRV PARTNERS, INC.
CERTIFICATE OF COMPLIANCE
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Name (please print)
This is to certify that the attached Code of Ethics and Conduct ("Code")
was distributed to me on ____________, 200_. I have read and understand the
Code. I certify that I have complied with these policies and procedures during
the course of my employment by Reserve, and that I will continue to adhere to
the Code during the course of my employment or office in the future. Moreover, I
agree to promptly report to the Compliance Director any violation or possible
violation of this Code of which I became aware.
I understand that violation of the Code will be grounds for disciplinary
action or dismissal and may also be a violation of federal and/or state
securities laws.
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Signature
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Date
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APPENDIX I
POLICIES AND PROCEDURES
CONCERNING THE MISUSE OF MATERIAL
NON-PUBLIC INFORMATION
("POLICIES AND PROCEDURES")
Every employee ("Employee") of The Reserve Fund, The Reserve Tax-Exempt
Trust, The Reserve New York Tax-Exempt Trust, The Reserve Institutional Trust,
Reserve Management Company, Inc., Reserve Management Corporation and Resrv
Partners, Inc. (collectively, "Reserve") must read and retain a copy of these
Policies and Procedures. Any questions regarding the Policies and Procedures
described herein should be referred to Reserve's Compliance Director.
SECTION I. POLICY STATEMENT ON INSIDER TRADING ("POLICY STATEMENT")
Reserve's Policy Statement applies to every Employee and extends to
activities both within and outside the scope of their duties at Reserve. Reserve
forbids any Employee from engaging in any activities that would be considered to
be "insider trading."
The term "insider trading" is not defined in the federal securities laws,
but generally is understood to prohibit the following activities:
1. trading by an insider, while in possession of material non-public
information;
2. trading by a non-insider, while in possession of material
non-public 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;
3. recommending the purchase or sale of securities while in
possession of material non-public information; or
4. communicating material non-public information to others (I.E.,
"tipping").
The elements of insider trading and the penalties for such unlawful
conduct are discussed below. If, after reviewing this Policy Statement, you have
any questions you should consult our Compliance Director.
A. WHO IS AN INSIDER?
The concept of "insider" is broad and it includes officers, partners 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 these organizations. In addition, Reserve and its Employees may
become temporary insiders of a company that Reserve advises or for which Reserve
performs other services. According to the U.S. Supreme Court, before an outsider
will be considered a temporary insider for these purposes, the company must
expect the outsider to keep the disclosed non-public information confidential
and the relationship must, at least, imply such a duty.
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B. WHAT IS MATERIAL INFORMATION?
Trading, tipping, or recommending securities transactions while in
possession of inside information is not an actionable activity UNLESS the
information is "material." Generally, information is considered material if: (i)
there is a substantial likelihood that a reasonable investor would consider it
important in making his or her investment decisions or (ii) it 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,
the following: dividend changes, earnings estimates, changes in previously
released earnings estimates, a joint venture, the borrowing of significant
funds, a major labor dispute, merger or acquisition proposals or agreements,
major litigation, liquidation problems, and extraordinary management
developments. For information to be considered material it need not be so
important that it would have changed an investor's decision to purchase or sell
particular securities; rather it is enough that it is the type of information on
which reasonable investors rely in making purchase or sale decisions. The
materiality of information relating to the possible occurrence of any future
event would depend on the likelihood that the event will occur and its
significance if it did occur.
Material information does not have to relate to a company's business. For
example, in U.S. V. CARPENTER, 791 F.2d 1024 (2d Cir. 1986), AFF'D, 484 U.S. 19
(1987), (affirmed without opinion by an evenly divided court with respect to the
charge of insider trading based on the "misappropriation" theory), the 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 JOURNAL and whether those reports would be favorable or not.
C. WHAT IS NON-PUBLIC INFORMATION?
All information is considered non-public until it has been effectively
communicated to the marketplace. 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 Securities and Exchange Commission, or appearing in DOW
JONES, REUTERS ECONOMIC SERVICES, THE WALL STREET JOURNAL or other publications
of general circulation would be considered public. Information in bulletins and
research reports disseminated by brokerage firms are also generally considered
to be public information.
D. BASES FOR LIABILITY
In order to be found liable for insider trading, one must either (i) have
a fiduciary relationship with the other party to the transaction and have
breached the fiduciary duty owed to that other party, or (ii) have
misappropriated material non-public information from another person.
1. FIDUCIARY DUTY THEORY
Insider trading liability may be imposed on the theory that the insider
breached a fiduciary duty to a company. In 1980, the U.S. Supreme Court held
that there is no general duty to disclose before trading on material non-public
information, and that such a duty arises only where there is a fiduciary
relationship. That is, there must be an existing relationship between the
parties to the transaction such that one party has a right to expect that the
other party would either (a) disclose any material non-public information, if
appropriate or permitted to do so, or (b) refrain from trading on such material
non-public information. CHIARELLA V. U.S., 445 U.S. 222 (1980).
In DIRKS V. SEC, 463 U.S. 646 (1983), the U.S. Supreme Court stated
alternative theories under which non-insiders can acquire the fiduciary duties
of insiders: (a) they can enter into a confidential
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relationship with the company through which they gain the information (E.G.,
attorneys, accountants, etc.), or (b) they can acquire a fiduciary duty to the
company's shareholders as "tippees" if they were aware, or should have been
aware, that they had been given confidential information by an insider that
violated his or her fiduciary duty to the company's shareholders by providing
such information to an outsider.
However, in the "tippee" situation, a breach of duty occurs ONLY where
the insider personally benefits, directly or indirectly, from the disclosure.
Such benefit does not have to be pecuniary, and can be a gift, a reputational
benefit that will translate into future earnings, or even evidence of a
relationship that suggests a QUID PRO QUO.
2. MISAPPROPRIATION THEORY
Another basis for insider trading liability is the "misappropriation"
theory. Under the misappropriation theory, liability is established when trading
occurs as a result of, or based upon, material non-public information that was
stolen or misappropriated from any other person. In U.S. V. CARPENTER, SUPRA,
the court held that a columnist for THE WALL STREET JOURNAL had defrauded the
JOURNAL when he obtained information that was to appear in the JOURNAL and used
such information for trading in the securities markets. The court held that the
columnist's misappropriation of information from his employer was sufficient to
give rise to a duty to disclose such information or abstain from trading
thereon, even though the columnist owed no direct fiduciary duty to the issuers
of the securities described in the column or to purchasers or sellers of such
securities in the marketplace. Similarly, if information is given to an analyst
on a confidential basis and the analyst uses that information for trading
purposes, liability could arise under the misappropriation theory.
E. PENALTIES FOR INSIDER TRADING
Penalties for trading on or communicating material non-public 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 did not personally benefit from the violation. Penalties include:
1. civil injunctions;
2. criminal penalties for individuals of up to $1,000,000 and for
"non-natural persons" of up to $2.5 million dollars plus, for
individuals, a maximum jail term of from five to ten years;
3. private rights of actions for disgorgement of profits;
4. 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
5. civil penalties for the employer or other controlling person of up
to the greater of $1,000,000 per violation or three times the
amount of the profit gained or loss avoided as a result of each
violation.
6. a permanent bar, pursuant to the SEC's administrative
jurisdiction, from association with any broker, dealer, investment
company, investment adviser, or municipal securities dealer.
In addition, any violation of this Policy Statement can be expected to
result in serious sanctions by Reserve, including dismissal of the persons
involved.
14
<PAGE>
SECTION II. PROCEDURES TO IMPLEMENT RESERVE'S POLICY STATEMENT
The following procedures have been established to aid Reserve's Employees
in avoiding insider trading, and to aid Reserve in preventing, detecting and
imposing sanctions against insider trading. Every Employee of Reserve must
follow these procedures or risk serious sanctions, as described above. If you
have any questions about these procedures you should consult our Compliance
Director.
A. IDENTIFYING INSIDER INFORMATION
Before trading for yourself or others, including for any client accounts
managed by Reserve, in the securities of a company about which you may have
potential insider information, or revealing such information to others or making
a recommendation based on such information, you should ask yourself the
following questions.
1. Is the information material? Is this information that an investor
would consider important in making a investment decision? Is this
information that would substantially affect the market price of
the securities if generally disclosed?
2. 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 THE WALL STREET JOURNAL or other
publications of general circulation, or has it otherwise been made
available to the public?
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
may be material and non-public, you should take the following steps.
1. Report the matter immediately to our Compliance Director. In
consulting with our Compliance Director, you should disclose all
information that you believe may bear on the issue of whether the
information you have is material and non-public.
2. Refrain from purchasing or selling securities with respect to such
information on behalf of yourself or others, including for client
accounts managed by Reserve.
3. Refrain from communicating the information inside or outside
Reserve, other than to our Compliance Director.
After our Compliance Director has reviewed the issue, you will be
instructed to continue the prohibitions against trading, tipping, or
communication, or you will be allowed to trade and communicate the information.
In appropriate circumstances, our Compliance Director will consult with counsel
as to the appropriate course to follow.
B. PERSONAL SECURITIES TRADING
All Employees of Reserve must adhere to Reserve's Code of Ethics and
Conduct ("Code") with respect to securities transactions effected for their own
account, accounts over which they have a direct or indirect beneficial interest,
and accounts over which they exercise any direct or indirect influence. Please
refer to Reserve's Code as necessary. In accordance with the Code, Employees are
required to obtain prior written approval by Reserve's Confidential Director of
all personal securities transactions (unless otherwise exempted) and to submit
to the Compliance Director Quarterly Securities Transaction Reports ("Quarterly
Reports") concerning their securities transactions as required by the Code.
15
<PAGE>
C. RESTRICTING ACCESS TO MATERIAL NON-PUBLIC INFORMATION
Information in your possession that you identify, or which has been
identified to you as material and non-public, must not be communicated to
anyone, except as provided in paragraph II.A., above. In addition, you should
make certain that such information is secure. For example, files containing
material non-public information should be sealed and inaccessible and access to
computer files containing material non-public information should be restricted
by means of a password or other similar restriction.
D. RESOLVING ISSUES CONCERNING INSIDER TRADING
If, after consideration of the items set forth in paragraph II.A. above,
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, or as to the propriety of any action, please discuss such
matters with our Compliance Director before trading on or communicating the
information in question to anyone.
E. SUPERVISORY PROCEDURES
Reserve's Compliance Director is critical to the implementation and
maintenance of these Policy and Procedures against insider trading. The
supervisory procedures set forth below are designed (i) to prevent insider
trading and (ii) to detect insider trading.
1. PREVENTION OF INSIDER TRADING
In addition to the prior approval and monthly reporting procedures
specified in the Reserve's Code concerning personal securities transactions, the
following measures have been implemented to prevent insider trading by Reserve's
Employees.
a. Each of Reserve's Employees will be provided with a copy of
these Policies and Procedures regarding insider trading.
b. Reserve's Compliance Director will answer questions
regarding Reserve's Policy and Procedures;
c. Reserve's Compliance Director will resolve issues of
whether information received by an Employee of Reserve is
material and non-public;
d. Reserve's Compliance Director will review on a regular
basis, and update as necessary, Reserve's Policy and
Procedures;
e. Whenever it has been determined that an Employee of Reserve
has material non-public information, the Compliance
Director will implement measures to prevent dissemination
of such information.
f. Upon the request of any Employee, the Compliance Director
will promptly review and either approve or disapprove a
request for clearance to trade in specified securities.
16
<PAGE>
2. DETECTION OF INSIDER TRADING
To detect insider trading, the Compliance Director will:
a. review the personal securities transaction reports filed by
each Employee, including subsequent quarterly review of all
personal securities transactions;
b. review the trading activity of client accounts managed by
Reserve;
c. review the trading activity of the Reserve's own accounts,
if any; and
d. coordinate the review of such reports with other
appropriate Employees of Reserve when the Compliance
Director has reason to believe that inside information has
been provided to certain Employees.
3. SPECIAL REPORTS TO MANAGEMENT
Promptly upon learning of a potential violation of Reserve's Policies and
Procedures, the Compliance Director will prepare a confidential written report
to management providing full details and recommendations for further action.
4. ANNUAL REPORTS TO MANAGEMENT
On an annual basis, the Compliance Director will prepare a written report
to the management of Reserve setting forth:
a. a summary of existing procedures to prevent and detect
insider trading;
b. full details of any investigation, either internal or by a
regulatory agency, of any suspected insider trading and the
results of such investigation;
c. an evaluation of the current procedures and any
recommendations for improvement; and
d. a description of Reserve's continuing educational program
regarding insider trading, including the dates of any
seminars since the last report to management.
In response to such report, management will determine whether any changes
to the Policies and Procedures may might be appropriate.
F. ACKNOWLEDGMENT (ATTACHED FOR YOUR SIGNATURE)
I have read and understand the foregoing procedures and will comply in
all respects with such procedures.
17
<PAGE>
INSIDER TRADING POLICY
ANNUAL CERTIFICATE OF COMPLIANCE
-------------------------
Name (please print)
This is to certify that the I have read and sufficiently understand the policies
and procedures of Reserve's Insider Trading Policy (the "Policy") distributed to
me on __________, 200_. I certify that I have complied with these policies and
procedures during the course of my employment with Reserve and that I will
continue to adhere to the Policy during the course of my employment in the
future. Moreover, I agree to promptly report to the Compliance Director any
violation or possible violation of the Policy of which I became aware.
I understand that violation of the Policy will be grounds for disciplinary
action or dismissal and may also be a violation of federal and/or state
securities laws.
-------------------------------------
Signature
-------------------------------------
Date
<PAGE>
APPENDIX II
EXAMPLES OF BENEFICIAL OWNERSHIP
1. Securities held by an Access Person for their own benefit, whether such
securities are in bearer form, registered in their own name, or otherwise;
2. Securities held by others for the Access Person's benefit (regardless of
whether or how such securities are registered), such as, for example, securities
held for the Access Person by custodians, brokers, relatives, executors or
administrators;
3. Securities held by a pledgee for an Access Person's account;
4. Securities held by a trust in which an Access Person has an income or
remainder interest unless the Access Person's only interest is to receive
principal (a) if some other remainderman dies before distribution or (b) if some
other person can direct by will a distribution of trust property or income to
the Access Person;
5. Securities held by an Access Person as trustee or co-trustee, where
whether the Access Person or any member of their immediate family (i.e. spouse,
children or their descendants, stepchildren, parents and their ancestors, and
stepparents, in each case treating a legal adoption as blood relationship) has
an income or remainder interest in the trust;
6. Securities held by a trust of which the Access Person is the settlor, if
the Access Person has the power to revoke the trust without obtaining the
consent of all the beneficiaries;
7. Securities held by a general or limited partnership in which the Access
Person is either the general partner of such partnership or the controlling
partner of such entity. For these purposes, an Access Person will be considered
to be a controlling partner of a partnership if such Access Person owns more
than 25% of the partnership's general or limited partnership interests;
8. Securities held by a personal holding company controlled by the Access
Person alone or jointly with others;
9. Securities held in the name of the Access Person's spouse unless legally
separated;
10. Securities held in the name of minor children of the Access Person or in
the name of any relative of the Access Person or of their spouse (including an
adult child) who is presently sharing the Access Person's home. This applies
even if the Securities were not received from the Access Person and the
dividends are not actually used for the maintenance of the Access Person's home;
11. Securities held in the name of any person other than the Access Person
and those listed in (9) and (10), above, if by reason of any contract,
understanding, relationship, agreement, or other arrangement the Access Person
obtains benefits substantially equivalent to those of ownership;
12. Securities held in the name of any person other than the Access Person,
even though the Access Person does not obtain benefits substantially equivalent
to those of ownership (as described in (11), above), if the Access Person can
vest or re-vest title in himself.
19
<PAGE>
APPENDIX III
COMPLIANCE DIRECTOR
As of October 1, 1999, the following person is designated as Reserve's
Compliance Director:
MaryKathleen F. Gaza
The Compliance Director may delegate his or her functions as he or she sees fit.
The Compliance Director may consult with outside counsel as appropriate.
Personal Securities Transactions of the Compliance Director may be pre-cleared
pursuant to the procedure in Section VI of the Code by any principal of Reserve.
<PAGE>
QUARTERLY SECURITIES TRANSACTIONS REPORT
QUARTER ENDED _______________, 2000
NAME:______________________________
Under the Code of Ethics (the "Code"), Access Persons (as defined by the
Code) must report all Personal Securities Transactions regardless of the size of
the transaction, with the exception of securities issued by the U.S. government
its agencies or instrumentalities, money market instruments, shares in open-end
investment companies.
SUCH REPORTS ARE DUE BY THE TENTH DAY OF THE MONTH FOLLOWING THE CLOSE OF
THE QUARTER REGARDLESS OF WHETHER YOU HAVE HAD ANY PERSONAL SECURITIES
TRANSACTIONS AND ARE TO BE DIRECTED TO THE COMPLIANCE DIRECTOR.
With respect to Personal Securities Transactions, each report must cover
ALL ACCOUNTS in which you have a DIRECT OR INDIRECT beneficial ownership
interest, (unless you have no influence or control over such accounts) and all
non-client accounts which you manage or with respect to which you give
investment or voting advice.
Did you have any reportable Personal Securities Transactions during the
above quarter?
Yes No
---- ----
If yes, please describe all reportable securities transactions on the
reverse side providing the following information: 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; the nature of
the transaction (I.E., purchase, sale or any other type of acquisition or
disposition); the price of the covered security at which the transaction was
effected; and the name of the broker, dealer or bank with or through which the
transaction was effected. Copies of confirmation statements and account
statements may be attached to a signed report.(1)
Did you open any brokerage accounts during the above quarter?
Yes No
---- ----
If yes, please disclose all new brokerage accounts in your name, any
spouse's account, any children's account or any other account over which the
employee has control that were opened during the quarter. - If none, write NONE.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
DATE THE ACCOUNT NAME OF THE BROKER, ACCOUNT NAME ACCOUNT NUMBER
WAS ESTABLISHED DEALER OR BANK
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
</TABLE>
To the best of my knowledge and belief, the answers set out in this Report are
true and correct.
------------------------------------
Signature and Date
---------------------
(1) Access Persons who have reportable transactions must attach a copy of
their account statements to this report and may not rely on the
Compliance Department to provide such copies.
<PAGE>
ANNUAL PERSONAL HOLDINGS IN SECURITIES
IN ACCORDANCE with Section VIII of Reserve's Code of Ethics and Conduct
(the "Code"), please provide a list of all Securities (except securities issued
by the U.S. government its agencies or instrumentalities, money market
instruments, shares in open-end investment companies), in which you have a
beneficial interest, including those in accounts of your immediate family and
all Securities in non-client accounts for which you make investment decisions.
(The term "Security" is defined in the Code.)
1. List all Securities which are:
a. personally owned; or
b. in which a beneficial interest is held by you, your spouse, minor
child, or any other member of your immediate household;
c. any trust or estate of which you or your spouse is a trustee or
other fiduciary or beneficiary or of which your minor child is a
beneficiary; or
d. any person for whom you direct or effect transactions under a
power of attorney or otherwise.
- If none, write NONE.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
NAME OF SECURITY Type HOLD- HOLD- RELATIONSHIP(4) Disclaimer
(include the title, the interest Security(2) INGS INGS of Beneficial
rate and maturity date Number Principal Interest(5)
(if applicable)) Shares Amount
($)(3)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: CONTINUE LISTING AS NECESSARY ON ADDITIONAL SHEETS. (YOU MAY ATTACH A COPY
OF A BROKER STATEMENT LISTING THE INFORMATION - IF SO, INDICATE AS "SEE
ATTACHED.")
-------------------------
(2) Insert the following symbol as pertinent to indicate the type of security
held: C-common stock, P-preferred stock, O-option, W-warrant and D-debt
security.
(3) To be completed only for debt securities.
(4) Insert "a", "b", "c" or "d" as explained above, to describe your interest
in these securities.
(5) Mark "x" to indicate that the reporting or recording of this securities
holding shall not be construed as an admission that you have any direct
or indirect beneficial interest in these securities.
<PAGE>
2. Have you, during the past 12 months, or for new employees since you
entered Reserve's employment, requested prior clearance of and filed quarterly
reports for all Personal Securities Transactions as required by the Code?
Yes No
---- ----
If "No", has the Transaction been discussed with the Compliance Director?
Yes No
---- ----
If not, please advise the Compliance Director in writing separately of any
Personal Securities Transactions not pre-so cleared or reported.
3. Have you filed quarterly reports for all reportable Personal Securities
Transactions as required by the Code?
Yes No
---- ----
If "No", has the Transaction been discussed with the Compliance Director?
Yes No
---- ----
In addition, Reserve requires all employees to disclose all brokerage accounts
in their name, any spouse's account, any children's account or any other account
over which the employee has control.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Name of Broker Account Name on Account
Number
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
</TABLE>
I CERTIFY THAT THE STATEMENTS MADE BY ME ON THIS FORM ARE TRUE, COMPLETE AND
CORRECT TO THE BEST OF MY KNOWLEDGE AND BELIEF AND ARE MADE IN GOOD FAITH.
------------------------- ----------------------------
Date Signature
Received in Compliance ______________________
<PAGE>
PERSONAL TRADING REQUEST AND AUTHORIZATION FORM
This authorization is approved for this transaction only and is effective for
24-hours, including the date of this approval, unless notified otherwise by the
Designated Officer. A record of this transaction will be kept by the Compliance
Director in confidential files.
Employee Name ___________________
Person On Whose Behalf Trade is Being Done (if different) ______________________
Broker _________________ Brokerage Account Number ___________
Security ____________________ Ticker Symbol ________________
COMPANY NAME, TYPE OF SECURITY
Number of Shares or Units ______ Price per Share or Unit _______
Approximate Total Price ________ Buy or Sell ________
I HEREBY CERTIFY THAT ALL OF THE FOLLOWING INFORMATION IS TRUE AND COMPLETE:
To my knowledge, neither I nor anyone at Reserve possess material, non-public
information about the issuer.
To the best of my knowledge, the requested transaction is consistent with the
letter and spirit of the Code.
To the best of my knowledge, Reserve has not purchased or sold the securities on
behalf of an Advisory Client within the past 3 days.
To the best of my knowledge, Reserve is not considering purchasing or selling
the securities on behalf of an Advisory Client.
To the best of my knowledge, the security is not appropriate at this time for
any Reserve Advisory Client.
In the case of a sale, I have not acquired the securities within the last 30
days.
--------------------------------------- ----------------
SIGNATURE DATE
<TABLE>
<CAPTION>
<S><C>
-----------------------------------------------------------------------------------------------------------------------
FOR COMPLIANCE USE
Date _______________ Information from trading desk: (a) Source ______________ (b) Other activity within past 3
days? ___________ (c) Orders on Desk?________________
Remarks:
______________________________________________________________________________________________________________________
___________________________________________________
APPROVED: Y ____ N ______ Approval sent to employee on (date) ________________________
Compliance Director Approval: OK'd by _____________________ Date: _____________
Signature ______________________________
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
