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FPA CAPITAL FUND, INC.
CODE OF ETHICS
Pursuant to the requirements of Rule 17j-1 under the Investment
Company Act of 1940, FPA Capital Fund, Inc. adopts the following Code of Ethics
for its officers, directors and advisory employees. This Code of Ethics is
designed to prevent designated persons with access to information relating to
Fund portfolio transactions from engaging in inappropriate personal securities
transactions and to require reports from such persons of certain purchases and
sales of securities.
A. DEFINITIONS
1. ACCESS PERSON. The term "access person" means any director,
officer (other than disinterested directors), or advisory employee (as
hereinafter defined) of FPA Capital Fund, Inc. (the "Fund").
2. ADVISORY EMPLOYEE. The term "advisory employee" means any
employee of the Fund who, in connection with his regular functions or duties,
makes, participates in, or obtains information regarding the purchase or sale of
a security by the Fund, or whose functions relate to the making of any
recommendations with respect to such purchases or sales. In the event that any
individual or company should be in a control relationship to the Fund, the term
"advisory employee" would include such an individual or any employee of such a
company to the same extent as an employee of the Fund.
3. BENEFICIAL ACCOUNT. The term "beneficial account" includes all
accounts in the name of or for the benefit of an officer or advisory employee,
his/her spouse, dependent children or any person living with him/her or to whom
he/she contributes economic support, as well as any other account with respect
to which an officer or advisory employee exercises investment discretion or
provides investment advice.
4. BENEFICIAL OWNERSHIP. "Beneficial ownership" shall be
interpreted in the same manner as it would be in determining whether an employee
is subject to the provisions of Section 16 of the Securities Exchange Act of
1934 and the rules and regulations thereunder. "Beneficial ownership" includes
accounts of a spouse, minor children and relatives resident in an access
person's home, as well as accounts of another person if by reason of any
contract, understanding, relationship, agreement or other arrangement the access
person obtains therefrom benefits substantially equivalent to those of
ownership. A copy of a Release issued by the Securities and Exchange Commission
on the meaning of the term "beneficial ownership" is available upon request, and
should be studied carefully by any access person concerned with this definition
before preparing any report required hereunder.
5. CONSIDERED FOR PURCHASE OR SALE. A security is "being considered
for purchase or sale" when a recommendation to purchase or sell such security
has been made and communicated by any advisory employee of the Fund or by any
employee of the Investment Adviser in the course of his duties and, with respect
to the person making the recommendation, when such person seriously considers
making such a recommendation.
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6. CONTROL. The term "control" shall have the same meaning as that
set forth in Section 2(a)(9) of the Investment Company Act of 1940.
7. DISINTERESTED DIRECTOR. The term "disinterested director"
shall mean a director of the Fund who is not an "interested person" of the Fund
within the meaning of Section 2(a)(19) of the Investment Company Act of 1940.
8. SECURITY. The term "security" shall have the same meaning as set
forth in Section 2(a)(36) of the Investment Company Act of 1940, except that it
shall not include securities issued by the Government of the United States,
bankers' acceptances, bank certificates of deposit, commercial paper or shares
of registered open-end investment companies. Any prohibition or reporting
obligation relating to a security shall apply equally to any option, warrant or
right to purchase or sell such security and to any security convertible into or
exchangeable for such security.
B. STANDARDS OF CONDUCT
No access person or disinterested director in connection with the
purchase or sale, directly or indirectly, by such person of a security held or
to be acquired by the Fund shall:
1. Employ any device, scheme or artifice to defraud the Fund;
2. Make to the Fund any untrue statement of a material fact or
omit to state to the Fund a material fact necessary in order to
make the statements made, in light of the circumstances under
which they are made, not misleading;
3. Engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon the Fund; or
4. Engage in any manipulative practice with respect to the Fund.
C. PROHIBITED PURCHASES AND SALES
No access person or disinterested director shall purchase or sell,
directly or indirectly, any security in which he has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership and which to
his actual knowledge at the time of such purchase or sale is being purchased or
sold by the Fund or is being considered for purchase or sale. This prohibition
shall continue until the time that the Fund completes the purchase or sale or
determines not to make the purchase or sale.
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D. SPECIFIC RULES
The following rules apply to officers and advisory employees:
1. No officer or advisory employee shall purchase a security in a
"private placement" or unregistered offering without obtaining prior
written approval from the Chairman of the Board of Directors (the
"Chairman") of the Fund or from such person or persons as he may
designate to act on his behalf.
2. No officer or advisory employee shall purchase or sell securities for
the Fund while in possession of, or on the basis of, material
nonpublic information.
3. All officers, advisory employees and beneficial accounts shall refrain
form short-term trading, which includes the purchase and sale, or sale
and purchase, of a security held by the Fund within any 60-day period.
Nevertheless, in order to avoid inequitable application of this rule,
an officer, advisory employee or beneficial account may sell a
security within 60 days after purchase, PROVIDED, that the sale is
precleared with the Chairman of the Fund and the officer, advisory
employee or beneficial account forfeits any profit realized on such
sale to a charitable organization (qualified under Section 501(c)(3)
of the Internal Revenue Code) of his/her choice.
4. No officer, advisory employee or beneficial account shall purchase a
security in an initial public offering.
5. No officer or advisory employee shall purchase or sell for his account
or for any beneficial account any security which to his knowledge has
been purchased or sold for the Fund during seven calendar days prior
to his purchase or sale, or which is being considered for purchase or
sale for the Fund. No officer or advisory employee shall purchase or
sell for his account or for any beneficial account any security that
is subsequently, within seven calendar days, purchased or sold by the
Fund.
6. The prohibitions of Paragraph 5 of Section D shall not apply to (i)
purchases or sales by an officer or advisory person which receive the
prior approval of at least two members of the Audit Committee of the
Board of Directors of the Fund because the transaction appears to
present no reasonable likelihood of harm to the Fund; or to (ii)
purchases or sales by an officer or advisory person (within 7 calendar
days prior to a purchase or sale by the Fund) if the transaction by
the Fund receives the prior approval of at least two members of the
Audit Committee of the Board of Directors of the Fund because the
transaction appears to present no reasonable likelihood of harm to the
Fund and because, to the knowledge of the officer or advisory person
at the time the transaction was effected, the security was not being
considered for purchase or sale by the Fund.
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E. PRIOR CLEARANCE OF TRANSACTIONS
No officer or advisory employee of the Fund shall effect a purchase or
sale, directly or indirectly, of any security in which he has, or by reason of
such transaction acquires, any direct or beneficial ownership, without obtaining
prior verbal approval from the Trading Department, which will consult with the
appropriate investment officer. Written documentation should be submitted within
ten (10) days of trade date with the approvals of both the Trading Department
and the appropriate investment officer. Any director of the Fund may at his
option request such prior approval for any proposed purchase or sale.
F. EXEMPT PURCHASES AND SALES
The prohibition of Sections C, D and E shall not apply to:
1. Purchases or sales effected in any account over which the access
person has no direct or indirect influence or control.
2. Purchases or sales of securities which are not eligible for
purchase or sale by the Fund.
3. Purchases or sales which are non-volitional on the part of either
the access person or the Fund.
4. Purchases which are part of an automatic dividend reinvestment
plan.
5. Purchases effected upon the exercise of rights issued by the
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.
6. Purchases or sales which receive the prior approval of the
Chairman of the Fund on the basis that (a) the transaction is not
potentially harmful to the Fund because it would be very unlikely
to affect a highly institutional market and (b) the decision to
purchase or sell the security is not the result of information
obtained in the course of the access person's relationship with
the Fund or the Adviser.
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G. REPORTING
1. ACCESS PERSONS (OTHER THAN DISINTERESTED DIRECTORS). Every access
person (except disinterested directors of the Fund) shall report quarterly to
the Treasurer of the Fund the information described in Section G(3) below with
respect to transactions in any security in which such access person has, or by
reason of such transaction acquires, any direct or indirect beneficial ownership
in the security; provided, however, that no access person shall be required to
make a report with respect to purchases and sales specified in Section F(1).
2. DISINTERESTED DIRECTORS. A disinterested director of the Fund
shall report such a transaction in a security if such director, at the time of
the transaction, knew or, in the ordinary course of fulfilling his official
duties as a director of the Fund, should have known that, during the 15-day
period immediately preceding or after the date of the transaction by the
director, such security is or was purchased or sold by the Fund or is or was
considered for purchase or sale.
3. FORM OF QUARTERLY REPORT. Every quarterly report shall be made
not later than ten (10) days after the end of the calendar quarter in which the
transaction to which the report relates was effected, and shall contain the
following information:
(A) The date of the transaction, the title, interest date and
maturity date (where applicable), the number of shares and
the principal amount of the security involved;
(B) the nature of the transaction, I.E., purchase, sale or any
other type of acquisition or disposition;
(C) the price at which the transaction was effected;
(D) the name of the broker, dealer or bank with or through whom
the transaction was effected; and
(E) the date the report is submitted.
In addition, with respect to any account established by the
reporting person in which any securities were held during the quarter for the
direct or indirect benefit of the reporting person, the report must specify
(1) the name of the broker, dealer or bank with whom the reporting person
established the account; (2) the date the account was established; and (3) the
date the report is submitted.
4. INITIAL HOLDING REPORT Every access person (except
disinterested directors of the Fund) is required to submit an intial holdings
report listing all securities in which the person has a beneficial interst
within ten days of becoming an access person.
5. ANNUAL HOLDING REPORT Every access person (except
disinterested directors of the Fund) is required to file an annual holdings
report which provides a listing of all securities in which the person has a
beneficial interest as of June 30 of the preceding year.
6. FORM OF INITIAL HOLDING REPORT AND ANNUAL HOLDING REPORT
Every initial holding report shall be made no later than ten (10) days after
the person becomes an access person and every annual holdings report shall be
made not later than July 30 of each year. These reports shall contain the
following information:
(a) The title, number of shares and principal amount of each
security in which the access person had any direct or
indirect beneficial ownership;
(b) The name of any broker, dealer or bank with whom the
access person maintains an account in which any securities
are held for the direct or indirect benefit of the access
person; and
(c) The date that the report is submitted.
7. DISCLAIMER OF BENEFICIAL OWNERSHIP. Any report shall not be
construed as an admission by the person making such report that he has any
direct or indirect beneficial ownership in the security to which the report
relates.
8. NOTIFICATION OF REPORTING OBLIGATION. These reports are designed
to comply with the requirements of the Securities and Exchange Commission under
the Investment Company Act of 1940. All access persons having a duty to file
reports hereunder shall be informed of such duty by the Secretary of the Fund.
Once informed of a duty to file quarterly and annual reports, an access person
has a continuing obligation to file such reports, in a timely manner, until such
time as he is notified otherwise. Information supplied on the reports is
available for inspection by the Securities and Exchange Commission at any time
during the five-year period following the end of the fiscal year in which the
report is made.
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6. REPORTS TO AUDIT COMMITTEE. The Treasurer of the Fund shall
furnish quarterly to the Audit Committee of the Board of Directors of the Fund a
report regarding the administration hereof and summarizing any reports filed
hereunder. The report shall identify any transactions by an access person in a
security owned by the Fund at the time of the transaction or purchased or sold
by the Fund within 30 days prior to or after the transaction. The Audit
Committee shall inquire into any apparent violations of this Code of Ethics.
H. REPORTS TO BOARD OF DIRECTORS AND SANCTIONS
If the Audit Committee determines that any changes to this Code of
Ethics are advisable, it shall make an appropriate recommendation to the Board
of Directors. The Audit Committee also shall report any apparent material
violations of this Code of Ethics to the Board of Directors. Upon finding of a
violation of this Code of Ethics, the Board of Directors may impose such
sanctions as it deems appropriate, which may include censure, suspension or
termination of status of the violator.
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