EX-99.B(p)ascode
CODE OF ETHICS
Waddell & Reed Financial, Inc.
Waddell & Reed, Inc.
Waddell & Reed Investment Management Company
Austin, Calvert & Flavin, Inc.
Fiduciary Trust Company of New Hampshire
Waddell & Reed Advisors Funds
W & R Funds, Inc.
W&R Target Funds, Inc.
As Revised: November 15, 2000
1. Preface
Rule 17j-1 of the Investment Company Act of 1940 (the "Act") requires
registered investment companies and their investment advisers and
principal underwriters to adopt codes of ethics and certain other
requirements to prevent fraudulent, deceptive and manipulative
practices. Each investment company in Waddell & Reed Advisors Funds, W
& R Funds, Inc. and W&R Target Funds, Inc. (each a "Fund," and
collectively the "Funds") is registered as an open-end management
investment company under the Act. Waddell & Reed, Inc. ("W&R") is the
principal underwriter of each of the Funds. Waddell & Reed Investment
Management Company ("WRIMCO") is the investment adviser of the Funds
and may also serve as investment adviser to institutional clients
other than the Funds. Austin, Calvert & Flavin, Inc. ("ACF") is a
subsidiary of WRIMCO and serves as investment adviser to individuals
and institutional clients other than the Funds. Fiduciary Trust
Company of New Hampshire ("FTC"), is a trust company and a subsidiary
of W&R; Waddell & Reed Financial, Inc. ("WDR") is the public holding
company. Except as otherwise specified herein, this Code applies to
all employees, officers and directors of W&R, WRIMCO, ACF and the
Funds, (collectively, the "Companies").
This Code of Ethics (the "Code") is based on the principle that the
officers, directors and employees of the Companies have a fiduciary
duty to place the interests of their respective advisory clients
first, to conduct all personal securities transactions consistently
with this Code and in such a manner as to avoid any actual or
potential conflict of interest or any abuse of their position of trust
and responsibility, and to conduct their personal securities
transactions in a manner which does not interfere with the portfolio
transactions of any advisory client or otherwise take unfair advantage
of their relationship to any advisory client. Persons covered by this
Code must adhere to this general principle as well as comply with the
specific provisions of this Code. Technical compliance with this Code
will not insulate from scrutiny trades which indicate an abuse of an
individual's fiduciary duties to any advisory client.
This Code has been approved, and any material change to it must be
approved, by each Fund's board of directors, including a majority of
the Fund's Disinterested directors.
2. Definitions
"Access Person" means (i) any employee, director, officer or general
partner of a Fund, W&R, WRIMCO or ACF, (ii) any director or officer of
FTC or WDR or any employee of any company in a control relationship to
the Companies who, in the ordinary course of his or her business,
makes, participates in or obtains information regarding the purchase
or sale of securities for an advisory client or whose principal
function or duties relate to the making of any recommendation to an
advisory client regarding the purchase or sale of securities and (iii)
any natural person in a control relationship to the Companies who
obtains information concerning recommendations made to an advisory
client with regard to the purchase or sale of a security. A natural
person in a control relationship or an employee of a company in a
control relationship does not become an "Access Person" simply by
virtue of the following: normally assisting in the preparation of
public reports, but not receiving information about current
recommendations or trading; or a single instance of obtaining
knowledge of current recommendations or trading activity, or
infrequently and inadvertently obtaining such knowledge. The Legal
Department, in cooperation with department heads, is responsible for
determining who are Access Persons.
"Advisory Client" means any client (including both investment
companies and managed accounts) for which WRIMCO or ACF serves as an
investment adviser, renders investment advice or makes investment
decisions.
A security is "being considered for purchase or sale" when the order
to purchase or sell such security has been given to the trading room,
or prior thereto when, in the opinion of the portfolio manager or
division head, a decision, whether or not conditional, has been made
(even though not yet implemented) to make the purchase or sale, or
when the decision-making process has reached a point where such a
decision is imminent.
"Beneficial Ownership" shall be interpreted in the same manner as it
would be under Rule 16a-1(a)(2) under the Securities Exchange Act of
1934 in determining whether a person is the beneficial owner of a
security for purposes of Section 16 of the Securities Exchange Act of
1934. (See Appendix A for a more complete description.)
"Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Act.
"De Minimis Transaction" means a transaction in an equity security (or
an equivalent security) which is equal to or less than 300 shares, or
is a fixed-income security (or an equivalent security) which is equal
to or less than $15,000 principal amount. Purchases and sales, as the
case may be, in the same security or an equivalent security within 30
days will be aggregated for purposes of determining if the transaction
meets the definition of a De Minimis Transaction.
"Disinterested Director" means a director who is not an "interested
person" within the meaning of Section 2(a)(19) of the Act.
"Equivalent Security" means any security issued by the same entity as
the issuer of a subject security, including options, rights, warrants,
preferred stock, restricted stock, phantom stock, bonds and other
obligations of that company, or security convertible into another
security.
"Immediate Family" of an individual means any of the following persons
who reside in the same household as the individual:
child grandparent son-in-law
stepchild spouse daughter-in-law
grandchild sibling brother-in-law
parent mother-in-law sister-in-law
stepparent father-in-law
Immediate Family includes adoptive relationships and any other
relationship (whether or not recognized by law) which the Legal
Department determines could lead to possible conflicts of interest,
diversions of corporate opportunity, or appearances of impropriety
which this Code is intended to prevent.
"Investment Personnel" means those employees who provide information
and advice to a portfolio manager or who help execute the portfolio
manager's decisions.
"Large Cap Transaction" means a purchase or sale of securities issued
by (or equivalent securities with respect to) companies with market
capitalization of at least $2.5 billion.
"Non-Affiliated Director" is a Director that is not an affiliated
person of W&R.
"Portfolio Manager" means those employees entrusted with the direct
responsibility and authority to make investment decisions affecting an
Advisory Client.
"Purchase or sale of a security" includes, without limitation, the
writing, purchase or exercise of an option to purchase or sell a
security, conversions of convertible securities and short sales.
"Security" shall have the meaning set forth in Section 2(a)(36) of the
Act, except that it shall not include shares of registered open-end
investment companies, securities issued by the Government of the
United States, short-term debt securities which are "government
securities" within the meaning of Section 2(a)(16) of the Act,
bankers' acceptances, bank certificates of deposit, commercial paper,
high quality short-term debt instruments, including repurchase
agreements, and such other money market instruments as are designated
by the boards of directors of the Companies.
Security does not include futures contracts or options on futures
contracts (provided these instruments are not used to indirectly
acquire an interest which would be prohibited under this Code), but
the purchase and sale of such instruments are nevertheless subject to
the reporting requirements of this Code.
"Security held or to be acquired" by an Advisory Client means (a) any
security which, within the most recent 15 days, (i) is or has been
held by an Advisory Client or (ii) is being or has been considered for
purchase by an Advisory Client, and (b) any option to purchase or
sell, and any security convertible into or exchangeable into, a
security described in the preceding clause (a).
3. Pre-Clearance Requirements
Except as otherwise specified in this Code, all Access Persons, except
a Non-Affiliated Director or a member of his or her Immediate Family,
shall clear in advance through the Legal Department any purchase or
sale, direct or indirect, of any Security in which such Access Person
has, or by reason of such transaction acquires, any direct or indirect
Beneficial Ownership; provided, however, that an Access Person shall
not be required to clear transactions effected for securities held in
any account over which such Access Person does not have any direct or
indirect influence or control.
For accounts affiliated with Waddell & Reed, Inc. or any of its
affiliates or related companies ("affiliated accounts"), WRIMCO must
clear in advance purchases of equity securities in initial public
offerings only.
Except as otherwise provided in Section 5, the Legal Department will
not grant clearance for any purchase by an Access Person if the
Security is currently being considered for purchase or being purchased
by any Advisory Client or for sale by an Access Person if currently
being considered for sale or being sold by any Advisory Client. If the
Security proposed to be purchased or sold by the Access Person is an
option, clearance will not be granted if the securities subject to the
option are being considered for purchase or sale as indicated above.
If the Security proposed to be purchased or sold is a convertible
security, clearance will not be granted if either that security or the
securities into which it is convertible are being considered for
purchase or sale as indicated above. The Legal Department will not
grant clearance for any purchase by an affiliated account of any
security in an initial public offering if an Advisory Client is
considering the purchase or has submitted an indication of interest in
purchasing shares in such initial public offering. For all other
purchases and sales of securities for affiliated accounts, no
clearance is necessary, but such transactions are subject to WRIMCO's
Procedures for Aggregation of Orders for Advisory Clients, as amended
from time to time.
The Legal Department may refuse to preclear a transaction if it deems
the transaction to involve a conflict of interest, possible diversion
of corporate opportunity, or an appearance of impropriety.
Clearance is effective, unless earlier revoked, until the earlier of
(1) the close of business on the fifth trading day, beginning on and
including the day on which such clearance was granted, or (2) such
time as the Access Person learns that the information provided to the
Legal Department in such Access Person's request for clearance is not
accurate. If an Access Person places an order for a transaction within
the five trading days but such order is not executed within the five
trading days (e.g., a limit order), clearance need not be reobtained
unless the person who placed the original order amends such order in
any way. Clearance may be revoked at any time and is deemed revoked
if, subsequent to receipt of clearance, the Access Person has
knowledge that a Security to which the clearance relates is being
considered for purchase or sale by an Advisory Client
4. Exempted Transactions
The pre-clearance requirements in Section 3 and the prohibited actions
and transactions in Section 5 of this Code shall not apply to:
(a) Purchases or sales which are non-volitional on the part of either
the Access Person or the Advisory Client. This exemption includes
accounts managed by WRIMCO, on a discretionary basis, that are
deemed to be beneficially owned by an Access Person.
(b) Purchases which are part of an automatic dividend reinvestment
plan.
(c) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to
the extent such rights were acquired from such issuer, and sales
of such rights so acquired.
(d) Transactions in securities of WDR; however, individuals subject
to the Insider Trading Policy remain subject to such policy. (See
Appendix B).
(e) Purchases or sales by a Non-Affiliated Director or a member of
his or her Immediate Family.
5. Prohibited Actions and Transactions
Clearance will not be granted under Section 3 with respect to the
following prohibited actions and transactions. Engaging in any such
actions or transactions by Access Persons will result in sanctions,
including, but not limited to, the sanctions expressly provided for in
this Section.
(a) Except with respect to Large Cap Transactions, Investment
Personnel and Portfolio Managers shall not acquire any security
for any account in which such Investment Personnel or Portfolio
Manager has a beneficial interest, excluding the Funds, in an
initial public offering of that security.
(b) Except with respect to Large Cap Transactions, Access Persons
shall not execute a securities transaction on a day during which
an Advisory Client has a pending buy or sell order in that same
security or an equivalent security until that order is executed
or withdrawn. An Access Person shall disgorge any profits
realized on trades within such period.
(c) Except for De Minimis Transactions and Large Cap Transactions, a
Portfolio Manager shall not buy or sell a Security within seven
(7) trading days before or after an Advisory Client that the
Portfolio Manager manages trades in that Security or an
equivalent security. A Portfolio Manager shall disgorge any
profits realized on such trades within such period.
(d) Except for De Minimis Transactions and Large Cap Transactions,
Investment Personnel and Portfolio Managers shall not profit in
the purchase or sale, or sale and purchase, of the same (or
equivalent) securities within sixty (60) calendar days. The Legal
Department will review all such short-term trading by Investment
Personnel and Portfolio Managers and may, in its sole discretion,
allow exceptions when it has determined that an exception would
be equitable and that no abuse is involved. Investment Personnel
and Portfolio Managers profiting from a transaction shall
disgorge any profits realized on such transaction. This section
shall not apply to options on securities used for hedging
purposes for securities held longer than sixty (60) days.
(e) Except with respect to Large Cap Transactions, Investment
Personnel and Portfolio Managers shall not acquire a security in
a private placement, absent prior authorization from the Legal
Department. The Legal Department will not grant clearance for the
acquisition of a security in a private placement if it is
determined that the investment opportunity should be reserved for
an Advisory Client or that the opportunity to acquire the
security is being offered to the individual requesting clearance
by virtue of such individual's position with the Companies. An
individual who has been granted clearance to acquire securities
in a private placement shall disclose such investment when
participating in an Advisory Client's subsequent consideration of
an investment in the issuer. A subsequent decision by an Advisory
Client to purchase such a security shall be subject to
independent review by Investment Personnel with no personal
interest in the issuer.
(f) An Access Person shall not execute a securities transaction while
in possession of material non-public information regarding the
security or its issuer.
(g) An Access Person shall not execute a securities transaction which
is intended to result in market manipulation, including but not
limited to, a transaction intended to raise, lower, or maintain
the price of any security or to create a false appearance(s) of
active trading.
(h) Except with respect to Large Cap Transactions, an Access Person
shall not execute a securities transaction involving the purchase
or sale of a security at a time when such Access Person intends,
or knows of another's intention, to purchase or sell that
security (or an equivalent security) on behalf of an Advisory
Client. This prohibition would apply whether the transaction is
in the same (e.g., two purchases) or the opposite (a purchase and
sale) direction as the transaction of the Advisory Client.
(i) An Access Person shall not cause or attempt to cause any Advisory
Client to purchase, sell, or hold any security in a manner
calculated to create any personal benefit to such Access Person
or his or her Immediate Family. If an Access Person or his or her
Immediate Family stands to materially benefit from an investment
decision for an Advisory Client that the Access Person is
recommending or in which the Access Person is participating, the
Access Person shall disclose to the persons with authority to
make investment decisions for the Advisory Client, any beneficial
interest that the Access Person or his or her Immediate Family
has in such security or an equivalent security, or in the issuer
thereof, where the decision could create a material benefit to
the Access Person or his or her Immediate Family or result in the
appearance of impropriety.
(j) Investment Personnel and Portfolio Managers shall not accept from
any person or entity that does or proposes to do business with or
on behalf of an Advisory Client a gift or other thing of more
than de minimis value or any other form of advantage. The
solicitation or giving of such gifts by Investment Personnel and
Portfolio Managers is also prohibited. For purposes of this
subparagraph, "de minimis" means $75 or less if received in the
ordinary course of business.
(k) Investment Personnel and Portfolio Managers shall not serve on
the board of directors of publicly traded companies, absent prior
authorization from the Legal Department. The Legal Department
will grant authorization only if it is determined that the board
service would be consistent with the interests of any Advisory
Client. In the event board service is authorized, such
individuals serving as directors shall be isolated from those
making investment decisions through procedures designed to
safeguard against potential conflicts of interest, such as a
Chinese Wall policy or investment restrictions.
6. Reporting by Access Persons
(a) Each Access Person, except a Non-Affiliated Director or a member
of his or her Immediate Family, shall require a broker-dealer or
bank effecting a transaction in any security in which such Access
Person has, or by reason of such transaction acquires, any direct
or indirect Beneficial Ownership in the security to timely send
duplicate copies of each confirmation for each securities
transaction and periodic account statement for each brokerage
account in which such Access Person has a beneficial interest to
Waddell & Reed, Inc., Attention: Legal Department.
(b) Each Access Person, except a Non-Affiliated Director or a member
of his or her Immediate Family, shall report to the Legal
Department no later than 10 days after the end of each calendar
quarter the information described below with respect to
transactions during the quarter in any security in which such
Access Person has, or by reason of such transaction acquired, any
direct or indirect Beneficial Ownership in the security and with
respect to any account established by the Access Person in which
securities were held during the quarter for the direct or
indirect benefit of the Access Person; provided, however, that an
Access Person shall not be required to make a report with respect
to transactions effected for or securities held in any account
over which such Access Person does not have any direct or
indirect influence or control:
(i) The date of the transaction, the name, the interest rate and
maturity date (if applicable), the number of shares and the
principal amount of the security;
(ii) The nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(iii)The price at which the transaction was effected;
(iv) The name of the broker, dealer or bank with or through whom
the transaction was effected and, with respect to an account
described above in this paragraph, with whom the Access
Person established the account;
(v) The date the account was established; and
(vi) The date the report is submitted.
(c) Upon commencement of employment, or, if later, at the time he or
she becomes an Access Person each such Access Person, except a
Non-Affiliated Director or a member of his or her Immediate
Family, shall provide the Legal Department with a report that
discloses:
(i) The name, number of shares and principal amount of each
security in which the Access Person had any direct or
indirect Beneficial Ownership when he or she became an
Access Person;
(ii) The name of any broker, dealer or bank with which the Access
Person maintained an account in which securities were held
for the direct or indirect benefit of the Access Person as
of the date he or she became an Access Person; and
(iii) The date of the report.
Annually thereafter, each Access Person, except a Non-Affiliated
Director or a member of his or her Immediate Family, shall
provide the Legal Department with a report that discloses the
following information (current as of a date no more than 30 days
before the report is submitted):
(i) The name, number of shares and principal amount of each
security in which the Access Person had any direct or
indirect Beneficial Ownership;
(ii) The name of any broker, dealer or bank with which the Access
Person maintains an account in which securities were held
for the direct or indirect benefit of the Access Person; and
(iii) The date the report is submitted.
However, an Access Person shall not be required to make a report
with respect to securities held in any account over which such
Access Person does not have any direct or indirect influence or
control.
In addition, each Access Person, except a Non-Affiliated Director
or a member of his or her Immediate Family, shall annually
certify in writing that all transactions in any security in which
such Access Person has, or by reason of such transaction has
acquired, any direct or indirect Beneficial Ownership have been
reported to the Legal Department. If an Access Person had no
transactions during the year, such Access Person shall so advise
the Legal Department.
(d) A Non-Affiliated Director or a member of his or her Immediate
Family need only report a transaction in a security if such
director, at the time of that transaction, knew or, in the
ordinary course of fulfilling his or her official duties as a
director, should have known that, during the 15-day period
immediately preceding the date of the transaction by the
director, such security was purchased or sold by an Advisory
Client or was being considered for purchase or sale by an
Advisory Client.
(e) In connection with a report, recommendation or decision of an
Access Person to purchase or sell a security, the Companies may,
in their discretion, require such Access Person to disclose his
or her direct or indirect Beneficial Ownership of such security.
Any such report may contain a statement that the report shall not
be construed as an admission by the person making such report
that he or she has any direct or indirect Beneficial Ownership in
the security to which the report relates.
(f) The Legal Department shall identify all Access Persons who are
required to make reports under this section and shall notify
those persons of their reporting obligations hereunder. The Legal
Department shall review, or determine other appropriate personnel
to review, the reports submitted under this section.
7. Reports to Board
At least annually, each Fund, WRIMCO and W&R shall provide the Fund's
board of directors, and the board of directors shall consider, a
written report that:
(a) Describes any issues arising under this Code or the related
procedures instituted to prevent violation of this Code since the
last report to the board of directors, including, but not limited
to, information about material violations of this Code or such
procedures and sanctions imposed in response to such violations;
and
(b) Certifies that the Fund, WRIMCO and W&R, as applicable, have
adopted procedures reasonably necessary to prevent Access Persons
from violating this Code.
In addition to the written report otherwise required by this
section, all material violations of this Code and any sanctions
imposed with respect thereto shall be periodically reported to the
board of directors of the Fund with respect to whose securities the
violation occurred.
8. Confidentiality of Transactions and Information
Every Access Person shall treat as confidential information the fact
that a security is being considered for purchase or sale by an
Advisory Client, the contents of any research report, recommendation
or decision, whether at the preliminary or final level, and the
holdings of an Advisory Client and shall not disclose any such
confidential information without prior consent from the Legal
Department. Notwithstanding the foregoing, with respect to a Fund, the
holdings of the Fund shall not be considered confidential after such
holdings by the Fund have been disclosed in a public report to
shareholders or to the Securities and Exchange Commission.
Access Persons shall not disclose any such confidential information to
any person except those employees and directors who need such
information to carry out the duties of their position with the
Companies.
9. Sanctions
Upon discovering a violation of this Code, the Companies may impose
such sanctions as it deems appropriate, including, without limitation,
a letter of censure or suspension or termination of the employment of
the violator.
10. Certification of Compliance
Each Access Person, except a Non-Affiliated Director and members of
his or her Immediate Family, shall annually certify that he or she has
read and understands this Code and recognizes that he or she is
subject hereto.
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19
Appendix A to the Code of Ethics
"Beneficial Ownership"
For purposes of this Code, "Beneficial Ownership" is interpreted in
the same manner as it would be under Rule 16a-1(a)(2) of the
Securities Exchange Act of 1934 in determining whether a person is the
beneficial owner of a security for purposes of Section 16 of the
Securities Exchange Act of 1934. In general, a "beneficial owner" of a
security is any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise, has
or shares any direct or indirect pecuniary interest in the security.
The Companies will interpret Beneficial Ownership in a broad sense.
The existence of Beneficial Ownership is clear in certain situations,
such as: securities held in street name by brokers for an Access
Person's account, bearer securities held by an Access Person,
securities held by custodians, pledged securities, and securities held
by relatives or others for an Access Person. An Access Person is also
considered the beneficial owner of securities held by certain family
members. The SEC has indicated that an individual is considered the
beneficial owner of securities owned by such individual's Immediate
Family. The relative's ownership of the securities may be direct
(i.e., in the name of the relative) or indirect.
An Access Person is deemed to have Beneficial Ownership of securities
owned by a trust of which the Access Person is the settlor, trustee or
beneficiary, securities owned by an estate of which the Access Person
is the executor or administrator, legatee or beneficiary, securities
owned by a partnership of which the Access Person is a partner, and
securities of a corporation of which the Access Person is a director,
officer or shareholder.
An Access Person must comply with the provisions of this Code with
respect to all securities in which such Access Person has a Beneficial
Ownership. If an Access Person is in doubt as to whether she or he
has a Beneficial Ownership interest in a security, the Access Person
should report the ownership interest to the Legal Department. An
Access Person may disclaim Beneficial Ownership as to any security on
required reports.
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APPENDIX B
POLICY STATEMENT ON INSIDER TRADING
November 15, 2000
I. Prohibition on Insider Trading
All employees, officers, directors and other persons associated
with the Companies as a term of their employment or association are
forbidden to misuse in violation of Federal securities laws or other
applicable laws material nonpublic information.
This prohibition covers transactions for one's own benefit and
also for the benefit of or on behalf of others, including the
investment companies in the Waddell & Reed Advisors Group of
Mutual Funds, W&R Funds, Inc. and W&R Target Funds, Inc. (the
"Funds") or other investment Advisory Clients. The prohibition
also covers the unlawful dissemination of such information to
others. Such conduct is frequently referred to as "insider
trading". The policy of the Companies applies to every officer,
director, employee and associated person of the Companies and
extends to activities within and outside their duties at the
Companies. The prohibition is in addition to the other policies
and requirements under the Companies' Code of Ethics and other
policies issued from time to time. It applies to transactions in
any securities, including publicly traded securities of
affiliated companies (e.g., Waddell & Reed Financial, Inc. [1])
[1] Reporting transactions in affiliated corporation securities is in
addition to and does not replace the obligation of certain senior
officers to file reports with the Securities and Exchange Commission.
This Policy Statement is intended to inform personnel of the
issues so as to enable them to avoid taking action that may be
unlawful or to seek clearance and guidance from the Legal
Department when in doubt. It is not the purpose of this Policy
Statement to give precise and definitive rules which will relate
to every situation, but rather to furnish enough information so
that subject persons may avoid unintentional violations and seek
guidance when necessary.
All employees, officers and directors of the Companies will be
furnished with or have access to a copy of this Policy Statement.
Any questions regarding the policies or procedures described
herein should be referred to the Legal Department. To the extent
that inquiry of employees reveals that this Policy Statement is
not self-explanatory or is likely to be substantively
misunderstood, appropriate personnel will conduct individual or
group meetings from time to time to assure that policies and
procedures described herein are understood.
The term "insider trading" is not defined in the Federal
securities laws, but generally is used to refer to the use of
material nonpublic information to trade in securities (whether or
not one is an "insider") or to communications of material
nonpublic information to others. In addition, there is no
definitive and precise law as to what constitutes material
nonpublic information or its unlawful use. The law in these areas
has been developed through court decisions primarily interpreting
basic anti-fraud provisions of the Federal securities laws. There
is no statutory definition, only statutory sanctions and
procedural requirements.
While the law concerning insider trading is not static, it is
generally understood that the law is as follows:
(a) It is unlawful for any person, directly or indirectly, to
purchase, sell or cause the purchase or sale of any
security, either personally or on behalf of or for the
benefit of others, while aware of material, nonpublic
information relating thereto, if such person knows or
recklessly disregards that such information has been
obtained wrongfully, or that such purchase or sale would
constitute a wrongful use of such information. The law
relates to trading by an insider while aware of material,
nonpublic information or trading by a non-insider while
aware of material, nonpublic information, where the
information either was disclosed to the non-insider in
violation of an insider's duty to keep it confidential or
was misappropriated.
(b) It is unlawful for any person involved in any transaction
which would violate the foregoing to communicate material,
nonpublic information to others (or initiate a chain of
communication to others) who purchase or sell the subject
security if such sale or purchase is reasonably foreseeable.
The major 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 the
Legal Department.
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1. Who is an Insider? The concept of "insider" is broad. It
includes officers, directors and employees of the company in
possession of nonpublic information. In addition, a person
can be a "temporary insider" if he or she enters into a
special confidential relationship in the conduct of the
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 certain
of the employees of such organizations. In addition, the
Companies may become a temporary insider of a company it
advises or for which it performs services.
2. What is Material Information? Trading on inside information
is not a basis for liability unless the information is
material. "Material information" includes information that a
reasonable investor would be likely to consider important in
making an investment decision, information that is
reasonably certain to have a substantial effect on the price
of a company's securities if publicly known, or information
which would significantly alter the total mix of information
available to shareholders of a company. Information that one
may consider material includes information regarding
dividends, earnings, estimates of earnings, changes in
previously released earnings estimates, merger or
acquisition proposals or agreements, major litigation,
liquidation problems, new products or discoveries and
extraordinary management developments. Material information
is not just information that emanates from the issuer of the
security, but includes market information such as the intent
of someone to commence a tender offer for the securities, a
favorable or critical article in an important financial
publication or information relating to a Fund's buying
program.
3. What is Nonpublic Information? Information is nonpublic
until it has been effectively communicated to the
marketplace and is available to investors generally. One
must be able to point to some fact to show that the
information is generally public. For example, information
found in a report filed with the SEC, or appearing in The
Wall Street Journal or other publications of general
circulation would be considered public.
4. When is a Person Aware of Information? A person is "aware"
of material nonpublic information if he or she has knowledge
or is conscious or cognizant of such information. Once a
person is aware of material, nonpublic information, he or
she may not buy or sell the subject security, even though
the person is prompted by entirely different reasons to make
the transaction, if such person knows or recklessly
disregards that such information was wrongfully obtained or
will be wrongfully used. Advisory personnel's normal
analytical conclusions, no matter how thorough and
convincing, can temporarily be of no use if the analyst has
material nonpublic information, which he or she knows or
recklessly disregards is information which was wrongfully
obtained or would be wrongfully used.
5. When Is Information Wrongfully Obtained or Wrongfully Used?
Wrongfully obtained connotes the idea of gaining the
information from some unlawful activity such as theft,
bribery or industrial espionage. It is not necessary that
the subject person gained the information through his or her
own actions. Wrongfully obtained includes information gained
from another person with knowledge that the information was
so obtained or with reckless disregard that the information
was so obtained. Wrongful use of information concerns
circumstances where the person gained the information
properly, often to be used properly, but instead used it in
violation of some express or implied duty of
confidentiality. An example would be the personal use of
information concerning Funds' trades. The employee may need
to know a Fund's pending transaction and may even have
directed it, but it would be unlawful to use this
information in his or her own transaction or to reveal it to
someone he or she believes may personally use it. Similarly,
it would be unlawful for a person to use information
obtained from a family member if the person has agreed to
keep the information confidential or knows (or reasonably
should know) that the family member expected the information
to be kept confidential.
6. When Is Communicating Information (Tipping) Unlawful? It is
unlawful for a person who, although not trading himself or
herself, communicates material nonpublic information to
those who make an unlawful transaction if the transaction is
reasonably foreseeable. The reason for tipping the
information is not relevant. The tipper's motivation is not
of concern, but it is relevant whether the tipper knew the
information was unlawfully obtained or was being unlawfully
used. For example, if an employee tips a friend about a
large pending trade of a Fund, why he or she did so is not
relevant, but it is relevant that he or she had a duty not
to communicate such information. It is unlawful for a tippee
to trade while aware of material nonpublic information if he
or she knew or recklessly ignored that the information was
wrongfully obtained or wrongfully communicated to him or her
directly or through a chain of communicators.
II. Penalties for Insider Trading
Penalties for unlawful trading or communication of material
nonpublic information are severe, both for individuals involved
in such unlawful conduct and their employers. A person can be
subject to some or all the penalties below even if he or she does
not personally benefit from the violation. Penalties include
civil injunctions, treble damages, disgorgement of profits, jail
sentences, fines for the person who committed the violation and
fines for the employer or other controlling person. In addition,
any violation of this Policy Statement can be expected to result
in serious sanctions by any or all of the Companies, including,
but not limited to, dismissal of the persons involved.
III. Monitoring of Insider Trading
The following are some of the procedures which have been
established to aid the officers, directors and employees of the
Companies in avoiding insider trading, and to aid the Companies
in preventing, detecting and imposing sanctions against insider
trading. Every officer, director and employee of the Companies
must follow these procedures or risk serious sanctions, including
dismissal, substantial liability and criminal penalties. If you
have any questions about these procedures, you should consult the
Legal Department.
A. Identifying Inside Information
Before trading for yourself or others in the securities of a
company about which you may have potential inside
information, ask yourself the following questions:
(1) Is the information material? Is this information that
an investor would consider important in making his or
her investment decisions? Is this information that
would substantially affect the market price of
securities if generally disclosed?
(2) Is the information nonpublic? To whom has this
information been provided? Has the information been
effectively communicated to the marketplace by being
published in a publication of general circulation?
(3) Do you know or have any reason to believe the
information was wrongfully obtained or may be
wrongfully used?
If after consideration of the above, you believe that the
information is material and nonpublic and may have been
wrongfully obtained or may be wrongfully used, or if you
have questions as to whether the information is material or
nonpublic or may have been wrongfully obtained or may be
wrongfully used, you should take the following steps:
(1) Report the matter immediately to the Legal Department.
(2) Do not purchase or sell the securities on behalf of
yourself or others.
