MARATHON ASSET MANAGEMENT LIMITED
CODE OF ETHICS
INTRODUCTION
Set forth below is the Code of Ethics ("Code") of Marathon Asset Management
Limited ("Marathon"). The Code applies to every person "associated" with
Marathon ("Associated Person"), which means every officer, director and employee
of Marathon, as well as any person directly or indirectly controlling or
controlled by Marathon. The Code governs conflicts of interest in personal
securities transactions that typically arise when an Associated Person invests
in securities that are held or are to be acquired by the funds or other accounts
for which Marathon acts as the investment adviser ("managed accounts").
The effective date of this Code is December 22, 1999.
Every Associated Person must read, acknowledge receipt and understanding of, and
retain this Code. Any questions regarding the Code should be referred to the
Compliance Officer.
PROHIBITED CONDUCT
CONFLICTS OF INTEREST
All Associated Persons are prohibited from engaging in, or recommending, any
securities transaction which places or appears to place their own interests
above that of any managed account. Similarly, all Associated Persons are
prohibited from recommending securities transactions by any managed account
without disclosing his or her interest, if any, in such securities or the issuer
thereof, including without limitation:
a) any direct or indirect beneficial ownership of any securities
of such issuer;
b) any contemplated transaction by such person in such
securities;
c) any position with such issuer or its affiliates; and
d) any present or proposed business relationship between such
issuer or its affiliates and such person or any party in which
such person has a significant interest.
Contd.....
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CONFIDENTIALITY
All Associated Persons are prohibited from divulging the current portfolio
positions, and current and anticipated portfolio transactions, programs and
studies of Marathon or any managed account to anyone unless it is properly
within his or her duties to do so.
INDUCEMENTS
Subject to certain common-sense limits and exceptions, no Associated Person may
accept gifts or benefits in any form from third parties.
For the purposes of this provision, the following gifts or benefits from third
parties will not be considered to be in violation of this requirement:
(i) an occasional meal;
(ii) an occasional ticket to a sporting event, the theatre or comparable
entertainment;
(iii) a holiday gift (food, wine etc.) with an estimated value of no more
than(pound)50.
The Compliance Officer must be notified immediately should any Associated Person
receive or be offered any gift or benefit.
INSIDER DEALING
All Associated Persons are prohibited from engaging in any securities
transaction, for their own benefit or the benefit of others, including managed
accounts, while in possession of "unpublished, price-sensitive" information
concerning such securities.
"Price-Sensitive" information means information for which there is a substantial
likelihood that a reasonable investor would consider it important in making his
or her investment decisions, or information that is reasonably certain to have a
material effect on the price of a company's securities.
Information that should be considered Price-Sensitive includes, but is not
limited to, dividend changes, earnings estimates, changes in previously released
earnings estimates, significant expansion or curtailment of operations, a
significant increase or decline in orders, significant new products or
discoveries, extraordinary borrowing, purchase or sale of substantial assets,
significant merger or acquisition proposals or agreements, major litigation,
liquidity problems, and extraordinary management developments.
Contd.....
Price-Sensitive information does not have to relate to a company's business. For
example, information about the contents of a forthcoming newspaper or magazine
article that is expected to affect the price of a security should be considered
material. Similarly, information
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concerning significant transactions which Marathon intends to execute on behalf
of managed accounts could be Price-Sensitive information and is prohibited from
being communicated.
Information is "Unpublished" 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 appearing in The Financial Times,
The Wall Street Journal or other publications of general circulation would be
considered public as would information released to a recognised Stock Exchange
or announced by a company at a presentation.
All Associated Persons are prohibited from communicating unpublished,
price-sensitive information concerning any security to others unless it is
properly within his or her duties to do so. In addition, care should be taken so
that such information is secure. For example files containing unpublished,
price-sensitive information should be sealed and access to computer files
containing such information should be restricted.
Any violation of this Code can be expected to result in serious sanctions by
Marathon, including dismissal of the persons involved, as well as possible
prosecution by the relevant authorities.
APPOINTMENT TO OTHER BOARDS
No Associated Person shall serve on the board of directors of any company
without prior authorisation of the Board of Directors of Marathon. Any such
authorisation shall be based upon a determination that the appointment would be
consistent with the interests of Marathon.
PROCEDURES FOR CLEARANCE OF PERSONAL SECURITIES TRANSACTIONS
The following procedures have been established to aid Associated Persons in
avoiding conflicts of interest and insider dealing, and to aid Marathon in
preventing, detecting and imposing sanctions against such conduct. These
procedures apply to all transactions over which an Associated Person has
discretion, including but not limited to, transactions by self-managed PEPs,
ISAs, pension plans and trusts. The requirements in respect of obtaining consent
apply equally to Connected Persons. A full definition of Connected Persons is
included within Marathon's Compliance Manual but would typically include
spouses, partners and minor children.
The concept of Associated Persons and their Connected Parties is consistent with
the idea of Access persons under US regulation. Marathon is a small company and
information about investment strategy and forthcoming trades is quickly
disseminated. As such, with the exception of non-executive directors, all
Marathon personnel and their Connected Parties are considered to be Access
persons. Non-executives who do not participate in the day to day operation or
management of the business are considered to be Associated Persons, but not
Access persons.
Every Associated Person must follow these procedures or risk serious sanctions,
including dismissal, substantial personal liability and criminal penalties. If
you have any questions about these procedures you should consult the Compliance
Officer. Interpretative issues which arise
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under these procedures shall be decided by, and are subject to the discretion
of, the Compliance Officer.
1. Employees or their connected persons wishing to deal for their own
account must FIRST obtain the written consent of a Director or the
Compliance Officer. In the first instance the individual should seek
the consent of the investment director responsible for that particular
geographical area. A Consent Form has been specifically devised for the
purpose and should be used for all trades (see Exhibit D). The
Compliance Officer will keep a record of all consents granted. The
consent will be valid for one day. Thereafter, the employee must seek a
further consent.
Non-executive directors (provided that they have no direct involvement
in the day to day running of the business) have a general consent to
effect personal transactions and pre-clearance is not required.
If Clients are dealing in a given Security on the requested day no
dealings will be allowed in that Security until the Client's
transactions are completed.
To prevent frontrunning, consent will not be given for purchases if it
is known, or may reasonably be expected, that clients will purchase the
same stock within the next seven days. In the event that clients do
purchase the same stock within seven days (ie, through previously
unforeseeable circumstances), the purchaser shall be prohibited from
selling that security for a period of six months from the date of the
trade. Any profits realised from a sale of such security within the
prescribed six months shall be subject to disgorgement.
Consent will not be given for sales where there have been purchases of
the same stock for clients in the preceding seven days. Should such a
sale take place, the seller shall disgorge any profits realised between
the date of his sale and the date of the purchase by our clients.
Consent will not be given for sales if it is known, or may reasonably
be expected, that there will be sales of the same stock for any clients
within the next seven days. Again any profits realised on transactions
in breach of this rule will be subject to disgorgement.
All disgorged profits will be surrendered to Marathon and paid over to
one or more charities chosen by the Board of Directors.
2. The Compliance Officer must be notified of all transactions effected by
Access persons as soon as practically possible.
3. Copies of contract notes for all personal deals by Access persons must
be lodged with the Compliance Officer.
4. A minimum holding period of sixty days is required for personal
investments, other than short dated instruments (e.g. options,
futures). Any proposed sale within this time frame will only be allowed
in exceptional circumstances and will require written consent from
<PAGE>
a Director or the Compliance Officer. Any profit realised on short term
trades made without consent shall be subject to disgorgement.
EXEMPTED TRANSACTIONS
The requirement to obtain prior clearance for personal securities transactions
shall not apply to:
1. Purchases or sales effected in any account over which the Associated Person
has no direct or indirect influence or control;
2. Purchases or sales which are non-volitional on the part of the Associated
Person;
3. Purchases which are part of an automatic dividend reinvestment plan;
4. 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 that such rights
were acquired from such issuer, and sales of such rights, so acquired.
REPORTING PROCEDURES
1. Every Associated Person shall disclose all of their personal securities
holdings upon commencement of employment and thereafter on an annual basis
as of December 31st. The disclosure will be limited to the names of all
securities held. The report shall be made on the form attached as Exhibit
A.
2. Every Associated Person shall certify upon commencement of employment and
thereafter on an annual basis as of December 31st that:
(i) they have read and understood the code and recognise that they are
subject thereto;
(ii) they have complied with the requirements of the code; and
(iii) they have reported all personal securities transactions required
to be reported pursuant to the requirements of the Code.
The annual report shall be made on the form attached as Exhibit B.
3. Every Associated Person shall submit a report no later than ten days (or as
soon as possible in the event of their absence) after the end of each
calendar quarter, of all the securities transactions they have effected in
that quarter. The report shall contain the following information:
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(i) the date of the transaction and the name of the shares transacted;
(ii) the nature of the transaction (ie. purchase or sale); and
(iii) the total value of the transaction.
The report shall be made on the form attached as Exhibit C.
4. These reporting requirements will not apply to non-executive directors of
the company. Non-executive directors are required to provide a list, on an
annual basis, of personal transactions undertaken. This list must include
the name of the security, the date, and the nature of the transaction (buy
or sell). The list should be accompanied by an appropriate declaration of
completeness.
<PAGE>
EXHIBIT A
MARATHON ASSET MANAGEMENT LTD
Statement of Personal Securities Holdings as at 31 March 2000
I certify that at the above date I held shares in the following companies:
Date: Name:
------------------------------------- ---------------------
Signature:
--------------------
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MARATHON ASSET MANAGEMENT LTD
ACKNOWLEDGEMENT OF CODE OF ETHICS
I acknowledge that:
(i) I have read and understood the Code of Ethics (dated 22 December 1999)
and recognise that I am subject thereto;
(ii) I have complied with the requirements of the Code;
(iii) I have reported all personal securities transactions required to be
reported pursuant to the requirements of the Code of Ethics; and
(iv) I have reported all gifts and benefits offered to me or received by me
from third parties to the Compliance Officer.
Employee Name:
Employee Signature:
Date:
<PAGE>
MARATHON ASSET MANAGEMENT LIMITED Exhibit C
Securities Transaction Report for the quarter ended: 31 March 2000
To the Compliance Officer, Marathon Asset Management Limited
During the quarter referred to above, I effected the following securities
transactions:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
--------------------------------------------------- ---------------- ------------------------ ---------------
SECURITY DATE OF (pound) AMOUNT OF NATURE OF
TRANSACTION TRANSACTION TRANSACTION
--------------------------------------------------- ---------------- ------------------------ ---------------
--------------------------------------------------- ---------------- ------------------------ ---------------
--------------------------------------------------- ---------------- ------------------------ ---------------
--------------------------------------------------- ---------------- ------------------------ ---------------
--------------------------------------------------- ---------------- ------------------------ ---------------
--------------------------------------------------- ---------------- ------------------------ ---------------
--------------------------------------------------- ---------------- ------------------------ ---------------
--------------------------------------------------- ---------------- ------------------------ ---------------
</TABLE>
I confirm that this constitutes the complete list of transactions with respect
to which I had direct control or influence.
Date: Name:
----------------------------------- -------------------------------
Signature:
--------------------------
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================================================================================
STRATEGIC INVESTMENT PARTNERS, INC.
STRATEGIC INVESTMENT MANAGEMENT
STRATEGIC INVESTMENT MANAGEMENT INTL.
EMERGING MARKETS INVESTORS CORPORATION
EMERGING MARKETS MANAGEMENT, L.L.C.
Amended as of December 2, 1999
================================================================================
JOINT CODE OF ETHICS
Strategic Investment Partners, Inc. ("SIP"), Strategic Investment
Management ("SIM"), Strategic Investment Management International ("SIMI"),
Emerging Markets Investors Corporation ("EMI") and Emerging Markets Management,
L.L.C. ("EMM") (collectively, the "Companies") are committed to providing
investment advice with the utmost professional integrity. In addition, as
investment advisers, the Companies (as composed of their respective employees)
legally are considered fiduciaries of their clients' accounts. This means that
all employees of the Companies owe their clients undivided loyalty and must
conduct their personal affairs in such a manner as to avoid: (1) serving their
own personal interests ahead of the clients' interests; (2) taking advantage of
their respective positions; and (3) engaging in any activity that conflicts with
the interest of any client.
Because the Companies are affiliated with each other and share certain
personnel and resources, the Boards of Directors of the Companies have adopted
this Joint Code of Ethics which is designed primarily to help avoid any
potential conflicts that may arise when employees of the Companies trade for
their personal securities accounts. The Code sets forth guidelines and
restrictions for personal securities trading, including an absolute prohibition
against trading on the basis of "inside" (i.e., material, non-public)
information.
Adherence to this Code of Ethics is a condition of your employment. Please
direct any questions to the General Counsel, Lourdes M. Lopez-Isa or, in her
absence, to another member of the Compliance Committee (defined herein).
<PAGE>
I. DEFINITIONS
"EMPLOYEE" as used in this Code, includes any director of any of the
Companies who is involved in the day-to-day management of any of the Companies,
or any officer, senior adviser or other employee (including interns and other
temporary employees) of one or more of the Companies. This Code recognizes,
however, that different Employees have different responsibilities, different
levels of control over investment decision-making for Client accounts, and
different levels of access to information about investment decision-making and
implementation. In general, those with greater control and greater access face
greater potentials for conflicts of interest in their personal investment
activities and have more direct duties to Clients. For these purposes, the
definition of "Employee" is further divided into Investment Personnel and
Management Personnel.
"INVESTMENT PERSONNEL" includes any director of any of the Companies
who is involved in the day-to-day management of any of the Companies, all
portfolio managers, all other Employees such as analysts, who provide
information and advice to one or more portfolio managers, all those who execute
the portfolio managers' decisions (i.e., traders and settlement personnel), and
certain additional Employees who have regular access to such information. For
your convenience, a list of Employees who are considered Investment Personnel is
attached as Exhibit A to this Code; however, the mere fact that an Employee's
name is not on this list will not excuse that Employee from compliance with the
provisions of this Code that apply to Investment Personnel if he or she falls
within the above definition.
"MANAGEMENT PERSONNEL" includes any Employee who is in a position to
control investment decisions on behalf of a Client and certain supervisory
employees. For your convenience, a list of Employees who are considered
Management Personnel is attached as Exhibit B to this Code; however, the mere
fact that an Employee's name is not on this list will not excuse that Employee
from compliance with the provisions of this Code that apply to Management
Personnel if he or she falls within the above definition.
"CLIENT" means any managed account for which any of the Companies
serves as investment adviser. Because of the affiliation between the Companies,
a Client of any one of the Companies shall be considered a Client of all of the
Companies for purposes of this Code.
"COVERED ACCOUNT" means: (1) any Securities account registered to an
Employee or a Relative; (2) any account or Securities transaction in which an
Employee or Relative has any direct or indirect "Beneficial Ownership" interest;
(3) any account of an Investment Club in which the Employee or Relative
participates; and (4) and any account for which the Employee or Relative has the
ability to make investment decisions, regardless of whether the Employee or
Relative has a Beneficial Ownership interest in that account. "Covered Account"
may include, for example, an Employee's or Relative's personal account; any
joint or tenant-in-common account in which an Employee or Relative is a
participant; any account for which an Employee or Relative acts as trustee,
executor or custodian; or any account of any entity controlled directly or
indirectly by an Employee or Relative. However, Covered Account does not include
a Securities account over which the Employee or Relative has no direct influence
or control.
"RELATIVE" means any relative of an Employee living in the Employee's
household.
"BENEFICIAL OWNERSHIP" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions of Section
16 of the Securities Exchange Act of 1934 and the rules and regulations
thereunder, except that the determination of
2
<PAGE>
direct or indirect Beneficial Ownership shall apply to all Securities which an
Employee or Relative has or acquires through decisions within his or her
control. In general, a person is considered to have "Beneficial Ownership" of a
Security - regardless of who is the registered owner -- if the person enjoys
economic benefits which are substantially equivalent to ownership through
decisions within his or her direct or indirect control. This would include, for
example:
1. Securities which a person holds for his or her own benefit either in
bearer form, registered in his or her own name or otherwise regardless of
whether the Securities are owned individually or jointly;
2. Securities held in the name of his or her spouse and minor children;
3. Securities held by a trustee, executor or administrator or by
custodians, brokers or relatives;
4. Securities owned by a partnership of which the person is a general
partner;
5. Securities held by a corporation which can be regarded as a personal
holding company of a person; and
6. Securities recently purchased by a person and awaiting transfer into his
or her name.
"INVESTMENT CLUB" shall mean a group of people who pool their assets in
order to make joint investment decisions (except that Investment Club does not
include professionally-managed investment companies). The requirements of this
Code of Ethics shall apply to the entire pooled vehicle - not just to the
Employee's share of the pooled vehicle. Thus, for example, an Employee who
participates in an Investment Club is required to preclear and report the trades
of the entire pooled vehicle.
"SECURITY" shall mean any: note; stock; treasury stock; bond;
debenture; evidence of indebtedness; certificate of interest or participation in
any profit-sharing agreement; transferable share; investment contract;
certificate of deposit for a security; depository receipt; put, call, straddle,
option, future or privilege on any security or on any group or index of
securities (including any interest therein or based on the value thereof); put,
call, straddle, option or privilege entered into on a securities exchange
relating to foreign currency; or, in general, any interest or instrument
commonly known as a "security," or any certificate of interest or participation
in, temporary or interim certificate for, receipt for, guarantee of, or warrant
or right to subscribe to or purchase, any of the foregoing. "Security" includes
any interest in any vehicle managed by the Companies or an affiliate. "Security"
shall not include: bankers' acceptances; U.S. bank certificates of deposit;
commercial paper; securities issued by the Government of the United States; and
shares of U.S. registered open-end investment companies (except for shares of
country funds or funds for which the Companies or any of their affiliates act as
adviser or subadviser).
"EMERGING MARKETS SECURITY" includes any Security of an issuer in Asia
(except for Japan), Latin America (including Central and South America and the
Caribbean), Europe (except for Austria, Belgium, Denmark, Finland, France,
Germany, Ireland, Italy, Liechtenstein, Luxembourg, Monaco, the Netherlands,
Norway, Spain, Sweden, Switzerland and the United Kingdom), the Middle East or
Africa, or any other Security that would be eligible for purchase or sale on
behalf of a Client of EMI or EMM.
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A Security is "BEING CONSIDERED FOR PURCHASE OR SALE" when a
recommendation to purchase or sell a Security has been made and communicated
and, with respect to the person making the recommendation, when such person
seriously considers making such a recommendation.
"PURCHASE OR SALE OF A SECURITY" includes among other things, the
writing of an option to purchase or sell, or the transfer or assignment of a
Security.
The following persons comprise the "COMPLIANCE COMMITTEE" for purposes
of this Code: Hilda Ochoa, Mary Choksi, George Alvarez-Correa, Carol
Grefenstette, Felicia Morrow and Lourdes Lopez-Isa.
II. GUIDELINES FOR PERSONAL INVESTING
A. RULES APPLICABLE TO ALL EMPLOYEES
1. SECURITIES BEING CONSIDERED FOR PURCHASE OR SALE BY A CLIENT
An Employee may not purchase or sell, directly or indirectly for a
Covered Account, any Security that, at the time of such purchase or sale, is
being considered for purchase or sale for a Client account.
This prohibition is intended to prevent Employees from
engaging in or appearing to engage in "frontrunning" or "scalping": the
buying or selling of Securities in a Covered Account, prior to a
Client, in order to benefit from any price movement that may be caused
by Client transactions. (If an Employee unknowingly purchases or sells
a Security for a Covered Account at the same time that the Security is
being considered for purchase or sale for a Client account, it shall
not constitute a violation of this Code; however, the Employee may be
required to disgorge any profits from such purchase or sale.)
Where trades in a Client account are effected by a subadviser, this
prohibition shall apply only if the Employee has actual knowledge that the
Security is being considered for purchase or sale for a Client account by such
subadviser.
This exception takes into account that many Employees do not
know or have access to information regarding the Securities being
considered for purchase or sale by a subadviser. This exception also
recognizes that it would be impractical (if not impossible) for the
Companies to maintain accurate and current lists of any Securities
being considered for purchase for any Client account by all of the
subadvisers to Client accounts.
2. BLACKOUT PERIODS FOR TRADING IN THE SAME SECURITY AS A CLIENT
AND BAN ON SHORT -TERM TRADING
Management Personnel may not buy or sell a Security for a Covered
Account within (7) calendar days before or after any Client account which that
Management Personnel manages trades in that Security.
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Where trades in a Client account are effected by a subadviser,
this prohibition shall apply only if the Employee has actual knowledge
that the Security is being considered for purchase or sale for a Client
account by such subadviser.
In addition, Investment Personnel may not profit from the purchase and
sale, or sale and purchase, of the same (or equivalent) Security within 60
calendar days.
The blackout period after a Client account trades is designed
to allow dissipation of the market effect of the Client's trade before
the Employee trades. The blackout period before a Client account trades
and the ban on short-term trading profits are aimed at preventing the
appearance that an Employee purchased or sold a Security for a Covered
Account with the knowledge that the Security was being considered for
purchase or sale for a Client account and to discourage active trading
which may not inure to the benefit of Clients.
3. PROHIBITION AGAINST TRADING IN EMERGING MARKETS SECURITIES
An Employee may not purchase or sell any Emerging Markets
Security for a Covered Account; except that an Employee may, subject to all of
the requirements of this Code of Ethics, purchase or sell Emerging Markets
Securities that are (1) private equities (i.e., Securities that are not offered
to the public and that are purchased or sold in a privately negotiated,
off-exchange transactions) or (2) shares of an open-end or closed-end investment
company that has a global or regional emerging markets investment mandate (but
not a country fund).
This prohibition recognizes the greater likelihood of a
potential conflict of interest given the fact that Emerging Markets
Securities tend to be more illiquid than the Securities of established
markets. Because the vast majority of Securities purchased or acquired
on behalf of Client accounts are Emerging Markets Securities, the
prohibition on Employee transactions in Emerging Market Securities
significantly reduces the potential for conflicts of interest and the
possible appearance of impropriety in connection with Employees'
personal Securities transactions.
4. RESTRICTION ON PURCHASES DURING IPOS
Investment Personnel may not purchase Securities in an initial public
offering ("IPO").
The purchase of an IPO by Investment Personnel poses at least
two potential conflicts of interest: First, the opportunity to invest
in an IPO often is highly sought after and available only to a limited
number of investors. Consequently, an opportunity to participate in a
"hot issue" or other attractive IPO is not likely to be viewed as a
random event. It also may create the impression that future investment
decisions for Clients were pursued as a form of "compensation" for the
opportunity to participate in the IPO instead of because they were in
the best interests of Clients. Second, any short-term profits earned by
Investment Personnel in an IPO may create at least the appearance that
an investment opportunity that should have been available to clients
was diverted to the personal benefit of Investment Personnel.
Restricting the purchase of a Security in an IPO will help reduce these
potential conflicts.
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5. PRIOR APPROVAL OF PERSONAL SECURITIES TRANSACTIONS
Each Employee is required to obtain written approval from Michael
Duffy, or in his absence, from a member of the Compliance Committee, before
directly or indirectly buying or selling any Security for a Covered Account.
This procedure is intended to help prevent an inadvertent
violation of the prohibition against trading in Securities being
considered for purchase or sale by a Client account, the blackout
period, the ban on insider trading and other provisions of this Code.
To request approval for a transaction, an Employee must submit a Trade
Authorization Request, attached to this Code as Exhibit C to Michael Duffy or,
in his absence, to a member of the Compliance Committee. As part of this
approval process, the Employee shall provide notification of any personal
conflict of interest relationship that may involve Clients and/or the Companies,
such as the existence of any economic relationship between his or her
transactions and a Security held or to be acquired by the Companies on behalf of
any Client.
Unless the Security is being considered for purchase or sale
by a Client account, the Security is subject to a blackout period, the
Companies may have inside information regarding the Security, or the
proposed transaction potentially conflicts with another provision of
this Code, the request ordinarily will be approved promptly.
The prior review of acquisitions of a Security in a private placement
will take into account, among other factors: (1) whether the investment
opportunity should be reserved for a Client account; and (2) whether the
investment opportunity is being offered to an Employee by virtue of his or her
position with one or more of the Companies.
Members of the financial press have suggested that emerging
companies offer investment personnel the opportunity to participate in
private placements in order to get those investment personnel to invest
client assets in the company when it later undertakes an IPO. This
produces a direct conflict since the client's investment may result in
an increase in the value of the company's securities and, thus, an
increase in the value of the employee's personal holdings. The
Companies recognize that some private placements will not raise such
conflicts, however, and that a complete prohibition could restrict
legitimate investment opportunities.
Further, any Employee who has acquired beneficial ownership of an
issuer through a private placement must disclose that interest to the General
Counsel prior to participating in any decision to recommend or to cause any
Client to invest in any Securities of that same issuer.
This obligation is not extinguished by any subsequent sale of
the Securities acquired by the Employee in the private placement or by
the fact that the Securities are subsequently registered under the
Securities Act of 1933. Once this disclosure is made, a review of the
investment decision on behalf of the Client will be undertaken by
Employees with no interest in that particular issuer.
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B. EXEMPT TRANSACTIONS
The following transactions are specifically exempted from the
requirements set forth in Section II.A.2 through Section II.A.5 :
1. purchases and sales of up to $25,000 of Securities listed on a
United States securities exchange (excluding Emerging Markets
Securities and shares of funds for which the Companies serve as
adviser or subadviser) within any six month period; provided,
however, that:
o the six-month period is a "rolling period," (i.e., the
limit is applicable between any two dates which are six
months apart);
o transactions in options, other than options on
commodities, will be included for purposes of calculating
whether the $25,000 limit has been exceeded. Such
transactions will be measured by the value of the Securities
underlying the options; and
o Employees comply with the prohibitions on Insider Trading
and the reporting requirements imposed by this Code; **
2. purchases or sales of exchange traded Securities (excluding
Emerging Markets Securities and shares of funds for which the
Companies serve as adviser or subadviser) of companies having a
market capitalization in excess of $500 million;**
3. purchases or sales of U.S. exchange-traded futures contracts
and options on futures contracts (including, but not limited to
S&P 500 futures, currency futures and other types of futures
regulated by the U.S. Commodity Futures Trading Commission, but
excluding futures and options on stocks); **
The following transactions are specifically exempted from the requirements set
forth in Section II.A.1 through II.A.5:
4. purchases, sales, transfers or assignments that are
non-volitional on the part of either the Employee, Relative or
the Company;
5. purchases which are part of an automatic dividend reinvestment
plan;
6. 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; or
7. purchases or sales of Securities issued by any U.S. State or
municipality or any multinational organization (such as the World
Bank) and OECD government bonds (excluding Emerging Markets
Securities).
** Note: The exemptions set forth in paragraphs 1, 2, and 3 immediately above
shall not apply to Employees who are Vanguard Access Persons. A list of
Employees who are considered Vanguard Access Persons is set forth in Exhibit B
to this Code.
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III. OTHER REQUIREMENTS AND RESTRICTIONS
A. INSIDER TRADING PROHIBITION
Employees are strictly prohibited from trading either for a Covered
Account or the account of any other person (including a Client) on the basis of
material, non-public information, or communicating material, non-public
information to others in violation of the law.
In the course of their duties for the Companies, Employees may
acquire "material, non-public information," also referred to as "inside
information," regarding a company or its securities. Material,
non-public information is any information that may influence an
investment decision relating to a security, or that may affect an
analysis of the value of a security, and that is not generally
available to the public. Trading on the basis of material, non-public
information - regardless of whether it is for a Client or for a Covered
Account -- is a violation of the federal securities laws, punishable by
imprisonment and severe fines.
The Boards of the Companies have adopted an "Insider Trading
Policy" that describes more fully what constitutes "insider trading"
and the legal penalties for engaging in it. That policy is attached to
this Code as Exhibit D. Employees should refer to the Insider Trading
Policy (as well as this Code) whenever any question arises regarding
what to do if an Employee believes he or she may have material,
non-public information.
B. DIRECTOR OR OFFICER AFFILIATION
The Companies may not invest, on behalf of a Client, in a Security of
an issuer if any director of the Companies involved in the day-to-day management
of the Companies has any current affiliation with such issuer (i.e., control or
ownership interest greater than 5%) unless:
1. the investment committee has had no prior non-public
communications with the affiliated director or officer concerning
either the issuer or the purchase of the Security; and
2. following the purchase of any such Security, the affiliated
director or officer shall not participate in any discussions, or
have any other communications, with the investment committee or
non-affiliated directors concerning the issuer or the purchase,
sale or holding of any of its Securities;
AND
3. the affiliation is disclosed in the relevant Company's Form
ADV and a blanket consent to purchase and sell such Security is
obtained from the Client.
This prohibition is not intended to apply to investments in vehicles managed or
sponsored by the Companies or any of their affiliates.
8
<PAGE>
C. GIFTS
Employees may not seek or accept anything of value, either directly or
indirectly, from broker-dealers or other persons providing services to a Client
and/or the Companies.
For the purposes of this provision, the following benefits,
favors or gifts from broker-dealers or other persons providing services to a
Client and/or the Employee or Companies will not be considered to be in
violation of this Code:
o an occasional meal;
o an occasional ticket to a sporting event, the theater or
comparable entertainment, for which the Companies or the Employee
will reimburse the host;
o a holiday gift of fruit or other foods, provided, however, that
such gift is made available to all members of the recipient's
department; or
o any situation in which the cost of returning an occasional gift
would exceed its value or where the occasional benefit, favor or
gift is of insignificant value (i.e., less than $100).
D. CONFIDENTIALITY OF CLIENT INFORMATION
An Employee may not disclose to any person (including another Employee)
the Securities activities engaged in or contemplated for any Client account,
except to the extent that such disclosure is necessary to, and within the scope
of, the performance of such Employee's duties.
Each Employee is expected to sign a confidentiality agreement
with the Companies and renew the agreement annually thereafter. This
prohibition is designed to help prevent the disclosure of "inside
information" to persons outside the Companies and to minimize the
opportunity for actual or apparent violations of this Code by
Employees.
E. SERVICE AS DIRECTOR
An Employee may not serve on the Board of Directors of any publicly
traded company without prior authorization of the General Counsel.
Any such authorization will be based on a determination that
the Board service would not be inconsistent with the interests of the
Companies and their Clients.
IV. EXCEPTIONS
There may be some circumstances where exceptions to these restrictions
will be allowed upon request by an Employee. Any such requests will be fully
documented and reviewed on a case-by-case basis by the Compliance Committee.
Such request will be granted only upon a determination by the Compliance
Committee that the proposed purchase or sale of a Security does not create any
actual or apparent conflicts with the interest of any Client.
9
<PAGE>
V. EMPLOYEE REPORTING AND CONFIDENTIALITY OF RECORDS
A. CONFIDENTIALITY OF RECORDS
All statements of holdings, duplicate trade confirmations, duplicate
account statements, and reports required by this Code (as described below) will
be held in the strictest confidence by Carol Grefenstette and the General
Counsel or her designee, except that Carol Grefenstette or the General Counsel
may provide access to any of those materials to the other members of the
Compliance Committee and/or the Companies Boards of Directors in order to
resolve questions regarding compliance with this Code. Carol Grefenstette or the
General Counsel also may provide regulatory authorities access to those
materials where required to do so under applicable laws, regulations, or orders
of such authorities.
B. DISCLOSURE OF PERSONAL HOLDINGS
Within 10 days of commencement of employment and annually thereafter by
January 10 of each year, all Employees must submit to the General Counsel (or,
in the case of the Directors, to Carol Grefenstette) information on all
Securities in Covered Accounts using the Disclosure of Personal Holdings Form
attached as Exhibit E.
C. ANNUAL CERTIFICATION
Each Employee also shall certify annually that:
o he or she has read and understands the Code of Ethics and
recognizes that he or she is subject thereto;
o he or she has complied with the requirements of the Code of
Ethics; and
o he or she has reported all personal Securities transactions
required to be reported under this Code.
The Annual Certification shall be made on the form attached as
Exhibit F.
D. DUPLICATE COPIES OF BROKER CONFIRMATIONS
Each Employee must instruct each broker, bank, or other financial
institution in which the Employee has a Covered Account to send to the General
Counsel or her designee duplicate copies of confirmations of all transactions in
such Covered Account(s).
The transactions reported on the broker confirmations will be
reviewed and compared against approved Trade Authorization Requests,
and are intended to allow the Companies to ensure the effectiveness of
their compliance efforts. In the event that an Employee participates in
a direct purchase or dividend reinvestment program designed to
facilitate investment in Securities of one or more companies and the
bank or other institution that administers the program does not provide
transaction-specific confirmations, the Employee must submit to the
General Counsel a copy of each account statement received from such
bank or other institution within 10 days of receipt.
10
<PAGE>
E. QUARTERLY REPORTS
Each Employee must submit quarterly information on any transactions for
a Covered Account using the Quarterly Report of Securities Transactions Form
attached as Exhibit G.
Employees are required to report all transactions in a Covered
Account, including purchases or sales of shares of any mutual funds for
which the Company or any its affiliates is adviser or subadviser. 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. (The definition of Beneficial Ownership in
this Code does not necessarily apply for purposes of other securities
laws or for purposes of estate or income tax reporting or liability.)
These disclosures will help ensure that confirmations for all
transactions are being sent to the General Counsel or her designee.
They also will capture certain investments (e.g., private placements)
that are not reflected in traditional broker-dealer accounts.
VI. COMPLIANCE PROCEDURES AND SANCTIONS
The General Counsel and the other members of the Compliance Committee
will oversee compliance with this Code.
A. PREVENTION OF VIOLATIONS
To prevent violations of this Code and of the Insider Trading Policy:
Michael Duffy or, in his absence, a member of the Compliance
Committee, will accept and review Trade Authorization Requests and
either grant or deny such requests promptly.
The General Counsel or her designee will:
o Answer questions regarding this Code and the Insider Trading
Policy;
o Review all trading activity reports filed by each Employee and
coordinate the review with Michael Duffy and the members of the
Compliance Committee as may be appropriate;
o Promptly, upon learning of a significant violation of this Code
or of the Insider Trading Policy, prepare a written report to the
other members of the Compliance Committee providing full details
and recommendations for further action.
The Compliance Committee will:
o Resolve issues of whether information received by an Employee
is material and non-public;
11
<PAGE>
o Review on a regular basis and update as necessary this Code and
the Insider Trading Policy; and
o Upon a determination that an Employee has violated this Code or
the Insider Trading Policy, determine appropriate sanctions and
take any action necessary to prevent further violations.
B. SANCTIONS
Upon discovering a violation of this Code, the Compliance Committee may
impose such sanctions as it deems appropriate, including, but not limited to:
requiring the Employee to disgorge any profits realized as a result of the
violation; prohibiting the Employee from selling any Security the purchase of
which constituted a violation of this Code for a period of six (6) months after
such purchase; placing a letter of censure in the Employee's personnel file; or
suspension or termination of the Employee. Any profits required to be disgorged
shall be paid over to the affected Client(s) or to a charitable organization of
the Companies' choosing.
C. REVIEW BY THE BOARDS OF DIRECTORS
The General Counsel shall prepare an annual report relating to this
Code of Ethics to the Companies' Boards of Directors. Such annual report shall:
o Summarize existing procedures concerning personal investing and
any changes in the procedures made during the past year.
o Identify any violations requiring significant remedial action
during the past year; and
o Identify any recommended changes in the existing restrictions
or procedures based upon the Company's experience under its Code
of Ethics, evolving industry practices or developments in
applicable laws or regulations.
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<PAGE>
ACKNOWLEDGEMENT
I hereby acknowledge receipt of the Companies' Code of Ethics and
Insider Trading Policy and I certify that I have read and agree to abide by
these documents. I also confirm that I have instructed all brokerage houses
where I maintain a Covered Account to supply duplicate copies of my confirmation
statements to the General Counsel or her designee. I hereby certify that I have
never been found civilly liable for or criminally guilty of insider trading and
that no legal proceedings alleging that I have violated the law on insider
trading are now pending or, to my knowledge, threatened by any person or
authority.
Date: _______________ Name: _________________________________
Signature: ____________________________
13
<PAGE>
EXHIBIT A
LIST OF "INVESTMENT PERSONNEL"
The following Employees are considered Investment Personnel for purposes of the
Companies' Code of Ethics:
NOTE: "Investment Personnel" also includes any intern or other temporary
employee hired by one or more of the Companies.
14
<PAGE>
May 11, 2000
EXHIBIT B
LIST OF "MANAGEMENT PERSONNEL"
The following Employees are considered Management Personnel for purposes of the
Companies' Code of Ethics:
LIST OF "VANGUARD ACCESS PERSONS"
<PAGE>
EXHIBIT C
TRADE AUTHORIZATION REQUEST
Name: _______________________
Date: ________________________
TRANSACTION INFORMATION
o Please check one: Purchase ______ Sale _______
o Company Name: __________________________
o Security:_________________________________
o Amount: _____________ Approximate Price Per Share: __________
o Recommended by (if applicable): _____________________________
ACCOUNT INFORMATION
o Please check one: Cash _______ Margin ________
o Account Name: _____________________________
o Account Number: ____________________________
EMPLOYEE REPRESENTATION AND SIGNATURE
To the best of my knowledge, the above-described transaction is
consistent with the Companies' Code of Ethics and Insider Trading Policy.
------------------------------------------- ---------------
Employee Signature Date
AUTHORIZED BY:
Name: ____________________________________ Date: ___________
Signature: _________________________________
This authorization is valid until the close of the business day following the
date of approval.
16
<PAGE>
EXHIBIT D
INSIDER TRADING POLICY
I. GENERAL PRINCIPLES
It is the policy of the Companies that no Employee may: (i) trade for
any account (including, but not limited to, a Covered Account or the account of
any Client) on the basis of material non-public information, or (ii) communicate
material non-public information to others in violation of the law - conduct that
is commonly called "insider trading." This policy extends to activities both
within and outside of an Employee's respective duties with the Companies. Each
Employee must read this policy statement and acknowledge his or her
understanding of it. Terms used in this policy but not defined will have the
same meanings given them in the Companies' Joint Code of Ethics.
The elements of insider trading and the penalties for it are discussed
below. If, after reviewing this policy statement, you have any questions, you
should consult the General Counsel or, in her absence, the Compliance Officer.
II. DEFINITION OF MATERIAL NON-PUBLIC INFORMATION
Only information that is both "material" and "non-public" falls within
the prohibition against insider trading.
A. Meaning of "Material"
Information is "material" if it is likely to be viewed by a reasonable
investor as important in making a decision to buy, hold, or sell a security or
if its disclosure is likely to have an effect on the value of a security.
Information may be material even if it relates to speculative or contingent
events. Information that is material to a decision to trade a security also is
likely to be material to a decision to trade related derivatives.
B. Meaning of "Non-Public"
Information should be considered "non-public" when it has not been
disseminated publicly by means such as a press release carried over a major news
service, an article in a major news publication, materials communicated to
potential investors or customers, materials available from public disclosure
services, or a public filing made with a regulatory agency.
C. Examples
Material, non-public information can come from Employees as well as
from persons outside the Companies. Examples of information that, depending on
the circumstances, may be material and non-public include, without limitation:
o undisclosed financial information (e.g., company earnings
information or estimates, fund performance, a change in dividend
policy, liquidity problems or changed projections, significant
litigation or developments for which reserves might be taken);
17
<PAGE>
o undisclosed operating developments (e.g., new products or
natural resource discoveries, changes in business operations or
extraordinary management developments, large increases or
decreases in orders, or potential governmental or regulatory
developments);
o proposed business activities (e.g., mergers, acquisitions,
sales or divestitures of substantial assets, restructuring, other
market-sensitive transactions involving a fund or company, major
investments, refinancing or extraordinary borrowings or, in
certain circumstances, the mere retention of an investment bank);
o a forthcoming change in rating by a well-known research
analyst;
o undisclosed events or problems that could affect the NAV or
performance of a fund; and
o even a pending order or decision to purchase or sell securities
by a fund or Client.
Material, non-public information may include "tips" received directly or
indirectly from corporate insiders whether or not in the context of a Client
relationship.
However, information disclosed by an issuer to an Employee because a
Client is a major shareholder or because an Analyst or Portfolio Manager has
asked for it generally will not be considered material non-public information
unless there is any reason to believe that the information: (i) would not be
furnished to other shareholders, analysts or other portfolio managers who asked
for it; (ii) was otherwise disclosed improperly or without the authorization of
the issuer; or (iii) was provided with the expectation that it would be
maintained in confidence. Observations or judgments about a company made by a
portfolio manager or analyst based on a company visit generally will not be
considered material non-public information unless such observations or judgments
are based on information of the kind outlined in (i), (ii) or (iii) above.
D. Special Considerations for Emerging Markets Information
The Companies are aware that, unlike in the U.S. and other developed
markets where most material information regarding a company is routinely
disseminated to the public, the bulk of material information regarding companies
in many emerging markets may not be disseminated regularly to the public. In
many cases, such information is not disseminated to the public either because it
is not local practice (or companies are not legally required) to make routine
company information widely available and/or there are few or no vehicles or
channels (e.g., financial publications such as The Wall Street Journal)
available to disseminate such information. The Companies take the position that
the mere fact that material information about an emerging markets company is not
regularly disseminated to the public does not necessarily mean that Employees
are prohibited from trading on such information for Client accounts. However,
Employees are required to take the following steps to determine whether it is
appropriate to trade on the basis of such information:
18
<PAGE>
o An Employee with material information regarding an emerging
markets company should make a reasonable effort to determine
whether such information has been disseminated to the public. If
the information has been made available in at least one
publication of general circulation or another widely available
document, the Employee generally may trade on the basis of such
information without further analysis.
o If the Employee determines that such information has not been
disseminated widely, the Employee should determine why such
information has not been publicly disseminated. If the
information has not been disseminated or made available to the
general public solely because it is not required by law or by
local practice or because there are few means of distributing
such information widely, the Employee generally made trade on
such information provided that the information: (i) would be
furnished to other shareholders, analysts or portfolio managers
who asked for it; (ii) was not disclosed improperly or without
the authorization of the issuer; and (iii) was not provided with
the expectation that it would be maintained in confidence. If the
information has not been disseminated to the public for reasons
other than the ones set forth above, or if the information does
not meet the requirements of (i) , (ii) and (iii), the Employee
may not trade on the basis of such information.
o If the Employee has any doubts about why the information was
not disseminated publicly or about whether the information meets
the requirements of (i), (ii) and (iii) above, the Employee
should consult with the General Counsel or, in her absence, with
theCompliance Officer before trading on the basis of such
information or communicating such information to another Employee
or person outside the Companies (please refer to the procedures
in Section IV below).
III. PENALTIES FOR INSIDER TRADING
The legal penalties for trading on or communicating material non-public
information are severe. An Employee (and in some cases the Companies) can be
subject to some or all of the penalties below, even if the Employee or the
Companies do not benefit from the violation. Penalties include:
o civil injunctions;
o damages in a civil suit as much as three times the amount of
actual damages suffered by other buyers or sellers;
o disgorgement of profits;
o jail sentences;
o fines for the person who committed the violation of up to three
times the profit gained or loss avoided; and/or
19
<PAGE>
o prohibition from employment in the securities industry.
In addition, any violation of this Policy can be expected to result in
serious disciplinary measures by the Companies, including termination of
employment.
IV. PROCEDURES TO IMPLEMENT THE INSIDER TRADING POLICY
The following procedures are intended to help Employees avoid insider
trading and to aid the Companies in preventing, detecting and punishing insider
trading. Every Employee of the Companies must follow these procedures or risk
the penalties described in Section III above. If you have any questions about
these procedures, you should consult the General Counsel or, in her absence,
theCompliance Officer.
A. IDENTIFYING INSIDER INFORMATION
Any time you think that you may have inside information about a
company, before you can place any trade in that company's securities, either for
a Covered Account or for others (including a Client) and before you advise
anyone to trade in that company's securities, ask yourself the following
questions:
o Is the information material? Is this information that an
investor would consider important in making his or her investment
decisions? Is it information that would substantially affect the
market price of the securities if it were generally disclosed?
o Is the information nonpublic? To whom has this information been
provided? Has it been effectively communicated to the marketplace
by appearing in publications of general circulation? (For
emerging markets information only: If applicable, why hasn't this
information been disseminated widely?)
If after asking these questions (and considering the explanations of
material non-public information in Part II of this Policy), you believe that the
information is material and non-public, or if you have questions as to whether
the information is material and non-public, you should take the following steps:
o Report the matter immediately to the General Counsel or, in her
absence, to the Compliance Officer.
o Do not purchase or sell the securities on behalf of a Covered
Account or others (including a Client).
o Do not communicate the information inside or outside the
Companies, other than to the General Counsel or, in her absence,
to the Compliance Officer.
o After the General Counsel, or, in her absence, the Compliance
Officer has reviewed the issue, you will be instructed to
continue the prohibition against trading and communication, or
you will be allowed to trade and communicate the information.
20
<PAGE>
B. PREVENTION OF INSIDER TRADING
To prevent insider trading the Compliance Committee will:
o Resolve issues of whether information received by an Employee
is material and non-public;
o Review on a regular basis and update as necessary this Policy;
o When it has been determined that an Employee has material
non-public information:
o Implement measures to prevent the dissemination of such
information; and
o If necessary, restrict Employees from trading in the relevant
security.
C. DETECTION OF INSIDER TRADING
To detect insider trading, the General Counsel or her designee will, on
a quarterly basis:
o Review all Quarterly Reports of Securities Transactions filed
by each Employee within a reasonable period of time after
submission;
o If necessary, coordinate the review of such reports with other
members of the Compliance Committee; and
o Be available to answer questions regarding or arising under
this Policy.
In addition, upon learning of a significant violation of this Policy,
the General Counsel will prepare a report to the Compliance Committee providing
full details and recommendations for further action.
D. RECORDKEEPING
The General Counsel will maintain the following materials:
o A copy of this Policy; and
oA record of any violation of this Policy for the most recent five (5)
years and a record of actions taken in response.
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EXHIBIT E
DISCLOSURE OF PERSONAL HOLDINGS
This form is to be submitted by all Employees within 10 days of
commencement of employment and annually thereafter (within 10 days of the end of
the year) .
I hereby certify that the following is a complete list of the
Securities in which I have a direct or indirect beneficial ownership:
<TABLE>
<CAPTION>
---------------------------------------------- ----------------- ----------------- --------------- -------------------
<S> <C> <C> <C> <C>
Security Date Cost No. of Shares Brokerage Account
(Full Name) Acquired*
---------------------------------------------- ----------------- ----------------- --------------- -------------------
---------------------------------------------- ----------------- ----------------- --------------- -------------------
---------------------------------------------- ----------------- ----------------- --------------- -------------------
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</TABLE>
* If a Security was acquired after January 1, 1995, you must list the month, day
and year it was acquired; otherwise, you may indicate simply that the Security
was acquired "pre-1995."
Date: _______________ Name: _________________________________
Signature: ____________________________
22
<PAGE>
EXHIBIT F
ANNUAL CERTIFICATION
I hereby certify that I have read and complied with the Companies' Code
of Ethics and Insider Trading Policy for the year ending December 31, ______ (or
for such time as I have been employed by the Companies, if less than one year).
I also confirm that, during this period, I instructed all brokerage houses where
I maintained any Covered Account to supply duplicate copies of my confirmation
statements to the Companies, Attn: General Counsel; and that I reported all
personal Securities transactions required to be reported under the Companies'
Code of Ethics.
Date: _______________ Name: _________________________________
Signature: ____________________________
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<PAGE>
EXHIBIT G
QUARTERLY REPORT OF SECURITIES TRANSACTIONS
The following is a record of all Securities transactions during the
quarter ended ___________ in any Covered Account. (This form is to be submitted
to the General Counsel or her designee by all Employees no later than 10 days
after the end of every calendar quarter.)
<TABLE>
<CAPTION>
--------------------- --------------- ------------ ------------- -------------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
NAME/ NUMBER OF DATE OF PRICE AT IS THE MARKET PURCHASE BROKER-DEALER
DESCRIPTION OF SHARES OR TRANS- WHICH CAPITALIZATION OF OR SALE OR BANK
SECURITY PRINCIPAL ACTION EFFECTED COMPANY ON DATE OF
AMOUNT PURCHASE/SALE
OVER OR UNDER $500
MILLION)?
--------------------- --------------- ------------ ------------- -------------------- ------------- -----------------
--------------------- --------------- ------------ ------------- -------------------- ------------- -----------------
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</TABLE>
I hereby certify that I did not purchase any Emerging Markets Security (other
than as permitted by Section II.A.3 of the Code of Ethics) and that I did not
purchase any Security in an initial public offering during the quarter covered
by this report.
Date: _______________ Name: _________________________________
Signature: ____________________________
<PAGE>
PRIMECAP
Management Company
COMPLIANCE AND EMPLOYEE MANUAL
I) EMPLOYMENT MATTERS
Personnel Policies and Procedures............................p.3
Harassment and Safety........................................p.3
Employee Reports.............................................p.3
Personal Information.........................................p.3
Contact with Regulators and Media............................p.3
Privacy......................................................p.3
Contingency Planning.........................................p.4
II) TRADING REGULATIONS
Personal Stock Trading.......................................p.5
Soft Dollar..................................................p.5
Best Execution...............................................p.5
Diversification..............................................p.5
Technology/Accounting........................................p.5
III) REPORTING REQUIREMENTS
Regulatory Issues............................................p.6
Proxy Voting.................................................p.6
Vanguard Reports.............................................pp.6-7
CODE OF ETHICS...............................................pp. 8-10
SEXUAL HARASSMENT POLICY.....................................p.14
SAFETY POLICIES..............................................pp.15-16
PREVENTION OF USE OF
NON-PUBLIC INFORMATION.......................................p.17
PROXY VOTING POLICIES........................................p.18
March 28, 2000
<PAGE>
INTRODUCTION
This manual is designed to present PRIMECAP's policies related to employment
issues, trading regulations, and other reporting requirements. All PRIMECAP
employees are urged to become familiar with all aspects of this manual. Any
questions on any matter included in this manual (as well as those that are not)
should be directed to PRIMECAP's compliance officer, Jack Liebau.
* * *
<PAGE>
I) EMPLOYMENT MATTERS
PERSONNEL POLICIES AND PROCEDURES
PRIMECAP has adopted the following procedures for the hiring of prospective
employees:
1. Applicants for employment will be required to complete an application
form, which elicits relevant background information;
2. Background checks will be performed on all applicants
This policy ensures that ineligible persons are not hired (Section 203e of the
Advisers Act regulates the type of person that may be employed by a registered
investment adviser).
HARASSMENT AND SAFETY
PRIMECAP has a zero-tolerance policy regarding sexual harassment (our policy is
on p.14). Harassment or derision of any nature is not tolerable, nor is any
behavior that could be regarded as reflecting racial, religious, age, or gender
bias. PRIMECAP will investigate thoroughly any charges of discrimination or
harassment. Any employee found to have engaged in such behavior shall be subject
to disciplinary action, which could include termination of employment. Any
employee who believes that he is subject to any sort of harassment should report
this immediately to a Director or Compliance Officer.
PRIMECAP's safety policy is also attached (p.15).
EMPLOYEE REPORTS AND CERTIFICATION
Upon commencement of employment, each employee must sign a copy of "Prevention
of Use of Nonpublic Information" (p.17). Additionally, every employee must
annually sign a statement that he understands and will abide by PRIMECAP's Code
of Ethics (a copy of such certification is on p.13).
PERSONAL INFORMATION
Information relating to an employee's medical, financial, employment, legal, or
any other personal affairs is strictly confidential. Without that person's
consent or operation of law, such information may not be disclosed to anyone,
inside or outside of PRIMECAP.
Access to materials regarding employee's trading will be restricted to the
Corporate Secretary and Compliance Officer. Such materials will be treated
confidentially and provided only to those third parties (such as the SEC or
other regulatory agencies) which have the legal authority to examine them.
CONTACT WITH REGULATORS AND MEDIA
All contact or inquiries by any law enforcement agency or regulator should be
reported to the Compliance Officer. All requests for such information should be
responded to by the Compliance Office or his designee.
PRIMECAP's policy forbids employees from communicating with members of the media
for attribution. Any exceptions to this policy must be first cleared by the
Board of Directors.
PRIVACY AND CONFIDENTIALITY
All information (including, but not limited to, investment actions, cash flows,
etc.) pertaining to clients (including Vanguard/PRIMECAP and Capital Opportunity
Funds) should be considered strictly private and confidential. No PRIMECAP
employee may share any such client information with any outsider. Any employee
found to have engaged in such behavior shall be subject to disciplinary action.
<PAGE>
CONTINGENCY PLANNING
PRIMECAP has taken the following measures to ensure operational viability in the
event of an unforeseen disaster that damages or destroys our offices:
1. Trading and portfolio positions data are stored on a central computer
server that automatically rolls over to a redundant server in the case of a
computer crash. Additionally, all data are backed up daily by a PRIMECAP
employee, who takes home a tape every day.
2. All important records and documents are stored nightly on the premises
in a fireproof safe.
3. We have secured two alternative sites in which PRIMECAP could operate
indefinitely should our current facilities be destroyed. The first
alternative site in which PRIMECAP could operate indefinitely is Howard
Schow's Santa Barbara home (4217 Del Mar Ave, Carpenteria, CA 93013;
805-566-1096); the second alternative site is Mitch Milias' Laguna Beach
home (1011 Emerald Bay, Laguna Beach, CA 92651; 949-497-3603). Computers
already maintained at these sites will enable PRIMECAP's portfolio managers
and traders to monitor activity in the stock market.
4. Each portfolio manager shall keep a copy of all clients' portfolios with
him when away from the office. To confirm our data, custodian banks for
each client will be contacted to verify portfolio positions.
5. In case of emergency, Lynne Opdyke is the initial contact. She will
attempt to communicate with all employees as to which alternate site will
be used.
Lynne Opdyke....................626-441-4411
Howard Schow....................626-795-2232
Mitch Milias....................626-441-3421
Theo Kolokotrones...............818-790-0241
Joel Fried......................818-952-0207
Jack Liebau.....................626-449-4900
Ralph Raulli....................626-449-8755
David Van Slooten...............818-952-3615
Al Mordecai.....................626-792-9055
Tom Bernard.....................323-682-1746
Rod Brower......................626-441-6362
Geoff Nordloh...................310-471-4203
Rachel Aguilera.................909-593-3772
Christina Alba..................626-966-5688
Amy Chan........................818-547-5936
Yolanda Garcia..................626-799-9492
Diana Trejo.....................626-345-0340
Joan Yoshioka...................626-432-4570
PRIMECAP has always maintained that the assets of our business walk in and out
of the front door each day. Although destruction of our offices would certainly
be frightening and a serious inconvenience, we strongly believe that our ability
to serve our clients would only be hampered should we suffer the loss of key
employees.
<PAGE>
II)......TRADING REGULATIONS
PERSONAL STOCK TRADING
Rules for personal trading are covered in "code of ethics for employees" (see
pp.8-10). As outlined in this code of ethics, each employee must file quarterly
reports of all securities transactions (even if none is made during that
period). Also, before buying or selling a security, an employee must receive
prior approval from the Corporate Secretary and sign a "statement of fact" (a
copy of which appears on p.11).
Any violations of PRIMECAP's policy on personal trading must be reported
immediately. A file will be maintained on all such violations.
"SOFT DOLLAR" BROKERAGE
As a matter of policy, PRIMECAP maintains that its clients' brokerage should
exclusively benefit the client. Upon receiving specific instructions from
clients to direct commissions, PRIMECAP complies with such requests. At no time
does PRIMECAP engage in any "soft dollar" brokerage.
BEST EXECUTION
Upon receipt of orders, PRIMECAP's Trading Department seeks to identify natural
buyers or sellers who are "in line" with current prices. Initially, price and
potential transaction size are the only factors in broker selection. In concert
with this process, matching and crossing systems are also employed when deemed
favorable. In the event no natural "cross" can be effected, consideration is
then given to brokers who have provided research supplemental to PRIMECAP's
internal research.
Commissions are used to provide our clients with "best execution" in trading,
wherever the most favorable price is apparent and achievable. Emphasis is placed
on brokers who provide value-added research.
ALLOCATION OF ORDERS
Block trades are executed on a pro-rata basis where each client receives the
same price and commission rate. If, however, not enough shares are traded to
make such an allocation practicable, a random allocation is utilized to
determine the share amounts to be allocated to client accounts.
ERISA laws prohibit "crossing trades" whenever a client may request a cash
withdrawal, PRIMECAP may not transfer securities from that client's account into
another client's even when executed at arms length through a broker.
DIVERSIFICATION RULES
For all mutual funds managed by PRIMECAP, two diversification rules exist. No
fund can be in violation of either rule, which are mandated by the SEC and IRS,
respectively. The first rule dictates that no more than 25% of a fund's assets
can be held in a) those securities where the cost basis exceeds 5% of a fund's
assets at the time of purchase AND b) those securities where the individual fund
owns in excess of 10% of any class of outstanding stock. The second
diversification rule adds a fund's cash to the above result. No more than 50% of
a fund's assets can be held in any combination of such assets and cash.
TECHNOLOGY/ACCOUNTING
PRIMECAP Management Company serves as an investment advisor to its clients. At
no time does it have access to any of its clients' assets, which are typically
held by banks or trust accounts. All trading for each account is reconciled
daily, and cash positions are reconciled weekly. Relevant data on trading and
portfolio positions are stored on a central computer server that automatically
rolls over to a redundant server in the case of a computer crash. Additionally,
all data are backed up daily by a PRIMECAP employee, who takes home a tape every
day. In addition, each month PRIMECAP's back office reconciles actual share
positions (which may have changed due to stock splits, etc.)
<PAGE>
III) REPORTING REQUIREMENTS
REGULATORY ISSUES
As required by Rule 201-1 of the Investment Advisers Act, PRIMECAP shall keep
current a Form ADV, which includes a listing of all employees responsible for
making investment decisions. PRIMECAP will also document advice and direction
given by regulators. The Compliance Officer will be responsible for ensuring
that any such recommendations are pursued and implemented. The Compliance
Officer, or his designee, shall also be responsible for monitoring PRIMECAP's
stock ownership. Whenever PRIMECAP's position in a single security exceeds 5% of
any class of outstanding stock, the firm must file with the SEC. This compliance
monitoring is done continuously. In filing 13Ds with the SEC, stock ownership
held by a Vanguard mutual fund is designated by PRIMECAP as having sole
investment authority and no voting power.
PROXY VOTING
PRIMECAP has voting power for shares held by its clients (with the exception of
Vanguard's funds, which have sole voting power). Jack Liebau serves as the proxy
coordinator. It is his responsibility that each proxy is voted in accordance
with PRIMECAP's proxy-voting policies (p.18). A record is maintained for each
company's proxy that is voted, for which accounts, and on which day. Clients can
request copies of proxy-voting reports at any time.
VANGUARD REPORTS
For each mutual fund that PRIMECAP manages, Vanguard requires a number of
reports to be delivered to them. Each report is to be sent to Vanguard's Fund
Accounting Department by the 15th of the month following the reporting period.
Monthly Reports
Each month, PRIMECAP must send certification to Vanguard as to whether any fund
purchased, sold, or held Rule 144A securities. There are additional reporting
requirements if any fund holds a Rule 144A security.
Quarterly Reports
Each quarter, the following reports are due:
1) a listing of securities purchased in reliance on Rule 10f-3
(underwriting involving affiliates)
2) A report of all transactions effected between PRIMECAP Management
Company and any fund, and of all "crossing transactions" between a Vanguard
fund and any other PRIMECAP-managed account
3) A report of all transactions executed in reliance on the fund's Rule
17e-1 Procedures (agency transactions between Funds and Affiliates).
4) Any court documents pertaining to a Vanguard fund.
Annual reports
Each year, the following reports are due:
1) A report concerning the purchase, sale or holding of Rule 144A
securities.
2) A written certification that PRIMECAP has filed a Form 13-F.
3) Reports concerning Section 28(e), selection of Broker-Dealers.
4) A listing of securities purchased in reliance on Rule 10f-3.
5) A written documentation that PRIMECAP follows Rule 17a-7 (interfund
trades).
6) A written certification that no transaction occurred between PRIMECAP
Management Company and a Vanguard Fund, as per Rule 17e-1. 7) A copy of
PRIMECAP's Code of Ethics, along with details of any personal trading
violations.
8) A written statement noting that PRIMECAP's Code of Ethics complies with
Rule 17g-1, and that PRIMECAP has reported all code of ethics violations
and any sanctions imposed during the year.
9) A written statement noting that no consideration was given in allocating
trade orders to broker-dealers for their sale of fund shares during the
year, as per Rule 31a-1 (b)(9).
10) A copy of PRIMECAP's brokerage allocation policy and procedures, along
with a list of the persons responsible for allocation portfolio trades and
compensation among broker-dealers.
11) Any court document pertaining to a Vanguard Fund.
12) A copy of PRIMECAP's compliance manual.
13) A copy of PRIMECAP's Form ADV filed with the SEC.
<PAGE>
CODE OF ETHICS FOR EMPLOYEES OF
PRIMECAP MANAGEMENT COMPANY
The following code of ethics shall apply to all employees of PRIMECAP
Management Company. This Code of Ethics is based on the principle that all
PRIMECAP employees owe a fiduciary duty to the firm's clients to conduct their
affairs, including their personal securities transactions, in such a manner as
to avoid: (i) serving their own personal interests ahead of clients; (ii) taking
advantage of their position; and (iii) any actual or potential conflicts of
interest.
I. CODE OF CONDUCT FOR SECURITIES TRADING AND RELATIONS WITH
BROKERS/DEALERS
1. It is basic policy that no PRIMECAP employee shall be permitted to
profit from the firm's securities activities. Accordingly, no employee
shall purchase or sell, directly or indirectly, any security in which
he or she has, or by reason such transactions acquires, any direct or
indirect beneficial ownership, (including, but not limited to,
securities held by an employee's spouse or minor children or any trust
in which an employee serves as trustee, custodian, or beneficiary) and
which to his or her actual knowledge at the time of such purchase or
sale:
(ii) is being considered for purchase or sale by any client accounts;
or
(iii) is being purchased or sold by a client account.
2. No employee shall disclose to anyone outside the firm the
securities activities engaged in or contemplated for the various
portfolios of the firm.
3. No employee shall seek or accept anything of value, either directly
or indirectly, form broker-dealers or other persons providing services
to the firm because of such person's association with the firm.
For the purposes of this provision, the following gifts from
broker-dealers or other persons providing services to the firm will
not be considered to be in violation of this section:
(i) an occasional meal;
(ii) an occasional ticket to a sporting event, the theater, or
comparable entertainment;
(iii) a holiday gift of fruit or other goods provided however, that
such a gift is made available to all PRIMECAP employees.
4. No employee shall acquire any securities in an initial public
offering.
5. No employee shall purchase or sell a security within at least seven
calendar days before and after any client account trades in that
security. Any profits improperly realized on trades within the
proscribed periods will be subject to disgorgement.
6. No employee shall purchase any securities in a private placement,
without prior approval of the Investment Committee.
7. No employee shall profit in the purchase and sale, or sale and
purchase, of the same or equivalent securities within 60 calendar
days. Any profits realized on such short-term trades shall be subject
to disgorgement.
<PAGE>
8. No employee shall serve on the board of directors of any publicly
traded company without prior authorization of the Investment
Committee.
II. PRIOR APPROVAL REQUIRED BEFORE MAKING ANY SECURITIES TRANSACTIONS
1. All employees shall receive prior approval from the Secretary of
the Investment Committee (Lynne Opdyke) before purchasing or selling
securities.
2. If the stock is not on the Action List, the Secretary will give you
an approval, recording this in her records. Your quarterly report of
personal security transactions will be checked against her records.
3. If the stock is on the Action List, the Secretary will check with
all of the portfolio managers in order to determine if you can obtain
approval.
4. Clearance is good for five trading days (including the day of your
check) unless the clearance is revoked prior to the end of the five
days. If you have not executed your transaction within this period,
you must recheck.
5. A "security" means any type of investment (excluding mutual funds,
commodities and direct obligations of the U.S.) normally handled by
stockbrokers. All options and fixed income securities are subject to
this policy, but special provisions apply in those cases (see below).
6. A "security" does not include money market instruments with
maturities of one year of less and debt instruments rated "A" or
higher by Moody's Investor Service, Inc. or Standard & Poor's
Corporation. However, such debt instruments (other than U.S.
Government obligations, bankers acceptances, CD's and commercial
paper) are subject to the firm's quarterly reporting requirements.
7. Options are governed by the same procedures outlined above,
including the requirement to check in advance of purchase. (Be sure to
mention your interest is in an option.) Options may not be purchased
whose underlying security is on the Action List. If, after the option
is purchased, the stock underlying the option has been presented as a
candidate for purchase (or if you have reason to believe it may be so
presented) by a client account, then you must close out your option
immediately.
8. Employees should inform their securities broker that they are
employed by an investment advisor. The broker is subject to certain
rules designed to prevent favoritism toward such accounts.
III. REPORTING REQUIREMENTS
1. All employees shall disclose to the Secretary all personal
securities holding upon commencement of employment and thereafter on
an annual basis as of December 31. Such annual report shall include a
listing of owned securities and either market value or number of
shares owned for each security.
2. All employees shall direct their brokers to supply to the
Secretary, on a timely basis, duplicate copies of the confirmation of
all personal securities transactions.
3. All employees shall certify annually that:
(i) they have read and understand the Code of Ethics and recognize
that they are subject thereto; (ii) they have complied with the
requirements of the Code of Ethics; and (iii) they have reported all
personal securities transactions required to be reported pursuant to
the requirement of the Code of Ethics.
4. All employees shall make quarterly reports to the Secretary, which
shall be made no later than 10 days after the end of each calendar
quarter (including those periods on which no securities transactions
were effected). A report shall be made on the form attached hereto as
Exhibit A, containing the following information:
(i) the date of transaction, the title and the number of shares, and
the principal amount of each security involved; (ii) the nature of the
transactions (i.e., purchase, sale, or any other type of acquisition);
(iii) the price at which the transaction was effected; and, (iv) the
name of the broker, dealer or bank with or through whom the
transaction was effected.
5. The Secretary shall notify each employee that he or she is subject
to these reporting requirements, and shall deliver a copy of this Code
of Ethics to each such person upon request.
6. If an employee has any economic interest in a security held by a
client account (or considered for acquisition), he shall so notify the
Investment Committee.
<PAGE>
STATEMENT OF FACT
o I am not purchasing an Initial Public Offering.
o I am not making a private-placement purchase, unless I receive prior
approval.
o I am not effecting a transaction which would result in a trading profit
(of the same or equivalent security) with a holding period of 60 days or
less.
o I am not purchasing or selling a security within at least 7 days before
and after any client account trades in that security.
o I have received prior approval from the secretary to make this trade.
Approval (which is revocable at any time) is good for only five trading
days, and is granted if the stock is not on PRIMECAP's Action List. If the
stock is on the Action List, I hereby confirm that prior approval has also
been received from all portfolio managers.
-------------------------- ---------------------
Signature Date
PERSONAL Date______________
TRANSACTIONS Time______________
By________________
Shares/
$ Face Approx.
Amount Security Market Account Broker
------ -------- ------ ------- ------
<PAGE>
Exhibit A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Broker, Dealer, Bank
Date # Shares Price Buy Sell Other Security through whom effected
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</TABLE>
Prepared for the period: October 1, 1994 through December 31, 1994.
Since the law requires that these reports be filed, please complete the above.
You may exclude transactions in accounts over which you had no direct or
indirect control or influence, transactions involving direct obligations of the
United States, or shares of PRIMECAP. Report all other transactions, including
transactions in mutual funds.
If you had no security transactions during this period, enter "NONE" under the
"Security" column.
-------------------- ---------------------------------
Date Signature
---------------------------------
Please print or type name
<PAGE>
PRIMECAP
MANAGEMENT COMPANY
225 SOUTH LAKE AVENUE
PASADENA, CALIFORNIA 91101
TO: All Employees
FR: Directors of PRIMECAP Management Company
RE: CODE OF ETHICS
I hereby certify that I have read and understand the firm's Code of
Ethics. I acknowledge that I am subject to this Code and its appropriate
reporting requirements.
------------------------------------
Employee's Signature
------------------------------------
Date
<PAGE>
PRIMECAP
MANAGEMENT COMPANY
225 SOUTH LAKE AVENUE
PASADENA, CALIFORNIA 91101
TO: Employees of PRIMECAP Management Company
FR: Managing Directors
RE: Sexual Harassment Policy
Date: October 28, 1991
Sexual harassment will not be tolerated at PRIMECAP Management Company.
If any person believes harassment has occurred -- to them or anyone else - at
any time, please do not hesitate to contact a Managing Director or Lynne Opdyke,
our Corporate Secretary. Confidentiality is assured.
Thank you.
<PAGE>
PRIMECAP
MANAGEMENT COMPANY
225 SOUTH LAKE AVENUE
PASADENA, CALIFORNIA 91101
TO: All Employees of PRIMECAP Management Company
RE: Safety
In conjunction with California Senate Bill 198, which becomes effective July 1,
1991, PRIMECAP Management Company has named F. Jack Liebau, Jr. Director of
Safety with the authority to coordinate all related safety projects and
training. An "Injury and Illness Prevention program Policy Statement" is
attached. This statement, along with an anonymous suggestion folder, will be
housed permanently in the office of Lynne Opdyke, Corporate Secretary. Please
contact Mr. Liebau, directly or anonymously, to report any unsafe of unhealthful
conditions.
Your cooperation with Mr. Liebau to provide a safe work place is expected and
appreciated.
Mitchell J. Milias
President
<PAGE>
INJURY AND ILLNESS PREVENTION PROGRAM POLICY STATEMENT
It is the policy of PRIMECAP Management Company to provide our employees with
safe equipment, quality materials, established work procedures and rules to
create a safe place of employment. Every employee is expected to use our
equipment and materials in a safe and acceptable manner, follow established
procedures, and use common sense rules of safety.
Our objective is to complete all work without injury and losses to personnel or
equipment, to eliminate or minimize all job hazards. Employees, supervisors, and
management are expected to cooperate to achieve these objectives. Any violation
of these rules of procedures or unsafe activity will initiate disciplinary
action.
An employee should report any unsafe conditions noted so that they can be
corrected as soon as possible. An employee will not be discriminated against for
bringing to our attention any unsafe conditions or participating in our safety
activities.
June 24, 1991
<PAGE>
PREVENTION OF USE OF NONPUBLIC INFORMATION
Section 204A of the Investment Advisers Act of 1940 requires us to establish,
maintain, and enforce the written policy shown below. While the policy uses the
term "financial analyst", for our purposes it will include all employees of
PRIMECAP Management Company.
Prevention of Use of Nonpublic Information1(1)
The financial analyst shall comply with all laws and regulations
relating to the use and communication of material nonpublic
information. The financial analyst's duty is generally defined as to
not trade while in possession of, nor communicate, material nonpublic
information in breach of a duty, or if the information in breach of a
duty, or if the information is misappropriated.
Duties under the Standard include the following: (1) If the analyst
acquires such information as a result of a special or confidential
relationship with the issuer or others, he shall not communicate the
information (other than within the relationship), or take investment
action on the basis of such information, if it violates that
relationship, (2) If the analyst is not in a special or confidential
relationship with the issuer or others, he shall not communicate or
act on material nonpublic information if he knows or should have
known, that such information (a) was disclosed to him, or would
result, in a breach of duty, or (b) was misappropriated.
If such a breach of duty exists, the analyst shall make reasonable
efforts to achieve public dissemination of such information.
I have read and understand the contents of the Prevention of Use of Nonpublic
Information Policy. As a condition of employment, I accept this policy and agree
to follow the procedures outlined.
--------------- -----------------------------
Date Signature
(To be signed and returned to the Corporate Secretary)
----------------
1 As excerpted from the Association for Investment Management and Research.
<PAGE>
PROXY VOTING POLICIES
As agents for the plan participant and their beneficiaries, it is our fiduciary
responsibility to review every major proposal individually and vote each proxy
in the best interest of the plans we represent. Unless our clients give us
specific voting instruction on some or all proxy issues, our decisions are
guided by our fundamental belief that shareholders are the owners of the
companies and management serves at the prerogative of the shareholders.
Consequently, we generally do not support management proposals, which reduce
their accountability to shareholders. We tend to vote against supermajority
proposals, "golden parachutes", and anti-takeover initiatives because we believe
that they decrease the shareholder's authority to the benefit of management and
may eventually reduce the value of the companies.
We also closely evaluate companies' proposed stock-option plans. We tend to vote
against those proposals, which, in our opinion, are excessively generous to plan
participants and therefore are dilutive to outside shareholders. We also pay
special attention to those company stock plans that have a history of either
excessive stock issuance or repricing of option grants.
With regard to social issues, we believe that our fiduciary responsibilities
dictate that we support those policies that are to the companies' economic
interests. Therefore, we do not support those social issues that adversely
affect the economic well being of the companies.
December, 1999
