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POLICY STATEMENT ON INSIDER TRADING
First Pacific Advisors, Inc. ("FPA") forbids any officer, director or
employee from trading, either personally or on behalf of others, (such as,
mutual funds and private accounts managed by FPA), on material nonpublic
information or communicating material nonpublic information to others in
violation of the law. This conduct is frequently referred to as "insider
trading." FPA's policy applies to every officer, director and employee and
extends to activities within and outside their duties at FPA. Every officer,
director and employee must read and retain this policy statement. Any questions
regarding FPA's policy and procedures should be referred to J. Richard Atwood.
The term "insider trading" is not defined in the federal securities
laws, but generally is used to refer to the use of material nonpublic
information to trade in securities (whether or not one is an "insider") or to
communications of material nonpublic information to others.
While the law concerning insider trading is not static, it is
generally understood that the law prohibits:
--- trading by an insider, while in possession of material
nonpublic information, or
--- trading by a non-insider, while in possession of material
nonpublic information, where the information either was
disclosed to the non-insider in violation of an insider's
duty to keep it confidential or was misappropriated, or
--- communicating material nonpublic information to others.
The elements of insider trading and the penalties for such unlawful
conduct are discussed below.
1. Who is an Insider?
The concept of "insider" is broad. It includes officers, directors and
employees of a company. In addition, a person can be a "temporary
insider" if he or she enters into a special confidential relationship
in the conduct of a company's affairs and as a result is given access
to information solely for the company's purposes. A temporary insider
can include, among others, a company's attorneys, accountants,
consultants, bank lending officers, and the employees of such
organizations. In addition, FPA may become a temporary insider of a
company it advises or for which it performs other services. According
to the Supreme Court, the company must expect the outsider to keep the
disclosed nonpublic information confidential and the relationship must
at least imply such a duty before the outsider will be considered an
insider.
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2. What is Material Information?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally is defined
as 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 substantial effect on the price of a company's securities.
Information that officers, directors and employees should consider
material includes, but is not limited to: dividend changes, earnings
estimates, changes in previously released earnings estimates,
significant merger or acquisition proposals or agreements, major
litigation, liquidation problems, and extraordinary management
developments.
Material information does not have to relate to a company's business.
For example, in CARPENTER V. U.S., 108 U.S. 316 (1987), the Supreme
Court considered as material certain information about the contents of
a forthcoming newspaper column that was expected to affect the market
price of a security. In that case, a WALL STREET JOURNAL reporter was
found criminally liable for disclosing to others the dates that
reports on various companies would appear in the Journal and whether
those reports would be favorable or not.
3. What is Nonpublic Information?
Information is nonpublic until it has been effectively communicated
to the market place. One must be able to point to some fact to show
that the information is generally public. For example, information
found in a report filed with the SEC, or appearing in Dow Jones,
REUTERS ECONOMIC SERVICES, THE WALL STREET JOURNAL or other
publications of general circulation would be considered public.
4. Bases for Liability
a. Fiduciary Duty Theory
In 1980, the Supreme Court found that there is no general duty to
disclose before trading on material nonpublic information, but
that such a duty arises only where there is a fiduciary
relationship. That is, there must be a relationship between the
parties to the transaction such that one party has a right to
expect that the other party will disclose any material nonpublic
information or refrain from trading. CHIARELLA V. U.S., 445 U.S.
22 (1980).
In DIRKS V. SEC, 463 U.S. 646 (1983), the Supreme Court stated
alternate theories under which non-insiders can acquire the
fiduciary duties of insiders: they can enter into a confidential
relationship with the company through which they gain information
(e.g., attorneys, accountants), or they can acquire a fiduciary
duty to the company's shareholders as "tippees" if they are aware
or should have
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been aware that they have been given confidential information by
an insider who has violated his fiduciary duty to the company's
shareholders.
However, in the "tippee" situation, a breach of duty occurs only
if the insider personally benefits, directly or indirectly, from
the disclosure. The benefit does not have to be pecuniary, but
can be a gift, a reputational benefit that will translate into
future earnings, or even evidence of a relationship that suggests
a quid pro quo.
b. Misappropriation Theory
Another basis for insider trading liability is the
"misappropriation" theory, where liability is established when
trading occurs on material nonpublic information that was stolen
or misappropriated from any other person. In U.S. V. CARPENTER,
SUPRA, the Court found, in 1987, a columnist defrauded THE WALL
STREET JOURNAL when he stole information from the JOURNAL and
used it for trading in the securities markets. It should be noted
that the misappropriation theory can be used to reach a variety
of individuals not previously thought to be encompassed under the
fiduciary duty theory.
5. Penalties for Insider Trading
Penalties for trading on or communicating material nonpublic
information are severe, both for individuals involved in such
unlawful conduct and their employers. A person can be subject to
some or all of the penalties below even if he or she does not
personally benefit from the violation. Penalties include:
-civil injunctions
-treble damages
-disgorgement of profits
-jail sentences
-fines for the person who committed the violation of up to
three times the profit gained or loss avoided, whether or
not the person actually benefitted, and
-fines for the employer or other controlling person of up to
the greater of $1,000,000 or three times the amount of the
profit gained or loss avoided.
In addition, any violation of this policy statement can be expected to result in
serious sanctions by FPA, including dismissal of the persons involved.
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PROCEDURES TO IMPLEMENT THE FIRST PACIFIC ADVISORS, INC.
POLICY AGAINST INSIDER TRADING
The following procedures have been established to aid the officers,
directors and employees of First Pacific Advisors, Inc. ("FPA") in avoiding
insider trading, and to aid FPA in preventing, detecting and imposing sanctions
against insider trading. Every officer, director and employee of FPA must follow
these procedures or risk serious sanctions, including dismissal, substantial
personal liability and criminal penalties.
1. Identifying Inside Information
Before trading for yourself or others, including investment
companies or private accounts managed by FPA, in the securities
of a company about which you may have potential inside
information, ask yourself the following questions:
a. Is the information material? Is this information that an
investor would consider important in making his or her
investment decisions? Is this information that would
substantially affect the market price of the securities if
generally disclosed?
b. Is the information nonpublic? To whom has this information
been provided? Has the information been effectively
communicated to the marketplace by being published in
REUTERS, THE WALL STREET JOURNAL or other publications of
general circulation?
If, after consideration of the above, you believe that the information
is material and nonpublic, or if you have questions as to whether the
information is material and nonpublic, you should take the following steps.
a. Report the matter immediately to J. Richard Atwood, or in
his absence, Christopher H. Thomas or Colleen Robertson.
b. Do not purchase or sell the securities on behalf of yourself
or others, including investment companies or private
accounts managed by FPA.
c. Do not communicate the information inside or outside FPA,
other than to J. Richard Atwood, or in his absence,
Christopher H. Thomas or Colleen Robertson.
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d. After J. Richard Atwood, or in his absence, Christopher H.
Thomas or Colleen Robertson, has reviewed the issue, you
will be instructed to continue the prohibitions against
trading and communication, or you will be allowed to trade
and communicate the information.
2. Personal Securities Trading
All personal securities transactions must be cleared prior to
execution. Refer to the procedures set forth in the FPA Policy
Regarding Personal Securities Transactions.
3. Restricting Access to Material Nonpublic Information
Information in your possession that you identify as material and
nonpublic may not be communicated to anyone, including persons
within FPA, except as provided in paragraph 1 above. In addition,
care should be taken so that such information is secure. For
example, files containing material nonpublic information should
be sealed; access to computer files containing material nonpublic
information should be restricted.
4. Resolving Issues Concerning Insider Trading
If, after consideration of the items set forth in paragraph 1,
doubt remains as to whether information is material or nonpublic,
or if there is any unresolved question as to the applicability or
interpretation of the foregoing procedures, or as to the
propriety of any action, it must be discussed with J. Richard
Atwood, or in his absence, Christopher H. Thomas or Colleen
Robertson, before trading or communicating the information to
anyone.
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POLICY REGARDING
PERSONAL SECURITIES TRANSACTIONS
OF ALL OFFICERS AND EMPLOYEES OF
FIRST PACIFIC ADVISORS, INC.
One of the most sensitive and difficult areas in our day-to-day
business activities concern the personal securities transactions of our officers
and employees. In spite of these difficulties, I know all of us recognize that
clear company policies are necessary in order to minimize any possible conflict
of interest between our personal investment transactions and transactions in the
portfolios we manage. Further, current SEC regulations require each company in
this industry to have definitive policies in this area. In any event, we believe
it is appropriate for us to reassert and reinforce our own code of ethics.
Although we continue to encourage the purchase of shares of FPA
Capital Fund, Inc., FPA New Income, Inc., FPA Paramount Fund, Inc., FPA
Perennial Fund, Inc., Source Capital, Inc., FPA Crescent Portfolio or United
Asset Management Corporation, we feel that permitting only those investments is
too limiting, particularly for those who enjoy the daily challenge of money
management. We wish to be as flexible as possible in our internal procedures and
at the same time protect First Pacific Advisors, Inc. ("FPA") and all accounts
managed or advised by FPA (hereinafter referred to as "Accounts") from any
adverse actions or criticisms regarding employee transactions.
We believe the following policy affords the combination of maximum
flexibility for our people as well as maximum protection of the interest of all
Accounts. This policy remains in effect unless specifically amended:
1. No member of our organization may purchase or sell, directly or
indirectly, for his or her own account or any account involving family
(including husband, wife, minor children or other dependent relative),
or any account or trust in which he or she or said family may have a
beneficial interest in:
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PERSONAL SECURITIES TRANSACTION Page 2
A. Any securities that the Accounts are buying or selling until such
buying or selling is completed or canceled, or
B. Any securities which are under active consideration for purchase
or sale, whether through written or oral investment
recommendations.
2. This policy must be understood to prohibit not only transactions in
any common stock that the Accounts might be buying or selling, but
also prohibit participation in any security related to such common
stock (such as warrants, convertible bonds, puts or calls) until such
Accounts' transactions are concluded.
3. Short sales are permitted but are not encouraged. Moreover, any person
selling short should remember that if the Accounts were subsequently
to buy the securities of the company sold short, the employee must
wait until the Accounts' transactions are completed before covering
the short position.
4. Members of our organization may not purchase any common stock until
after the completion of its initial registered public offering; under
no circumstances can we personally buy shares included in any such
offering. We do not want to be accused of using our position as a
securities institution in order to enhance our own personal
portfolios.
5. Members of our organization may not purchase a security in a "private
placement" or unregistered offering without obtaining prior written
approval from two members of a Committee comprised of J. Richard
Atwood, Christopher H. Thomas, and Colleen Robertson.
6. Securities transactions by portfolio management and trading personnel
ordinarily should be for long-term investment rather than short-term
trading. Any general practice of purchasing securities for quick
day-to-day or month-to-month profits violates the Statement of Policy.
7. All members of our organization shall refrain from short-term trading,
which includes the purchase and sale, or sale and purchase, of a
security held by any Account within any 60-day period. Nevertheless,
in order to avoid inequitable application of this rule, a security may
be sold within 60 days after purchase, PROVIDED, that the sale is
precleared
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PERSONAL SECURITIES TRANSACTION Page 3
with at least two members of a Committee comprised of J. Richard
Atwood, Christopher H. Thomas, and Colleen Robertson, any pre-tax
profit realized on such sale is forfeited to a charitable
organization.
8. No member of our organization shall purchase or sell any security
which to his knowledge has been purchased or sold for any Account
during seven calendar days prior to his purchase or sale, or which is
being actively considered for purchase or sale for any Account. In
addition, no member of our organization shall purchase or sell any
security that is subsequently within seven calendar days, purchased or
sold by any Account.
9. The prohibitions of Paragraph 8 shall not apply to (i) purchases or
sales by a member of our organization which receive the prior approval
of at least two members of a Committee comprised of J. Richard Atwood,
Christopher H. Thomas, and Colleen Robertson because the transaction
appears to present no reasonable likelihood of harm to the Accounts;
or to (ii) purchases or sales by a member of our organization (within
7 calendar days prior to a purchase or sale by an Account) if the
transaction by the Account receives the prior approval of at least two
members of a Committee comprised of J. Richard Atwood, Christopher H.
Thomas, and Colleen Robertson because the transaction appears to
present no reasonable likelihood of harm to the Account and because,
to the knowledge of the member of our organization at the time the
transaction was effected, the security was not being considered for
purchase or sale by the Account.
10. No member of our organization shall receive any gift or other thing of
more than de minimis value ($250) from any person or entity that does
business with or on behalf of FPA.
11. No member of our organization shall serve on the boards of directors
of publicly traded companies, absent prior authorization from at least
two members of a Committee comprised of J. Richard Atwood, Christopher
H. Thomas, and Colleen Robertson that the board service would be
consistent with the interests of all Accounts.
12. ALL PERSONAL TRANSACTIONS MUST BE CLEARED PRIOR TO EXECUTION.
Authorization will be in effect for one trading day only. Prior verbal
approval may be obtained from the Trading Department which will
consult the appropriate investment officer. Written documentation
should be submitted within ten days of trade date by completing a
Personal Securities Transaction form and having it approved by (i) the
Trading Department AND (ii) either J. Richard Atwood, or Christopher
H. Thomas.
After approval the form is then forwarded to Sherry Sasaki, Secretary
of FPA, for retention in a confidential employee's securities
transaction file, together with a copy of the executing broker's form
of confirmation for the transaction.
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PERSONAL SECURITIES TRANSACTION Page 4
13. Under no circumstances should anyone disclose the activities engaged
in or contemplated for the various portfolios under our management.
ADDITIONAL REPORTING REQUIREMENTS
1.) All members of our organization will be required to prepare a
memorandum to the file explaining all trades within 30 days before or
after a trade on behalf of an Account. This memorandum should be
forwarded to Sherry Sasaki.
2.) All members of our organization shall direct their broker to supply a
duplicate copy of confirmations of all personal securities
transactions to:
Ms. Sherry Sasaki
First Pacific Advisors, Inc.
11400 W. Olympic Boulevard
Suite 1200
Los Angeles, CA 90064
This requirement shall not apply to securities issued by the
Government of the United States or state/local municipalities,
bankers' acceptances, bank certificates of deposit, commercial paper,
and shares of registered open-end investment companies.
3.) All members of our organization shall disclose all personal securities
holdings (excluding securities issued by the Government of the United
States or state/local municipalities, bankers' acceptances, bank
certificates of deposit, commercial paper, and shares of registered
open-end investment companies) upon commencement of employment and
thereafter annually as of June 30.
4.) All members of our organization shall disclose any broker dealer, bank
or other account used or maintained for security transactions upon
commencement of employment and thereafter annually as of June 30.
5.) Annually, members of our organization will be required to certify that
they have read and understand the code of ethics and that they
recognize that they are subject thereto. In addition, all officers and
employees will certify annually that they have complied with the
requirements of the code of ethics and that they have disclosed or
reported all personal securities transactions required to be disclosed
or reported pursuant to the requirements of the code.
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The above rules are applicable to all officers and employees of FPA.
Independent directors of FPA Capital Fund, Inc., FPA New Income, Inc., FPA
Paramount Fund, Inc., FPA Perennial Fund, Inc., FPA Crescent Portfolio and
Source Capital, Inc. are not required to complete forms.
We recognize that the effectiveness of this Statement of Policy
primarily depends upon the judgment and integrity of the members of our
organization rather than upon any set written rules and procedures. Further, we
realize that we cannot hope to anticipate herein every circumstance which could
give rise to a possible conflict of interest. However, we believe that the above
guidelines and rules will provide a frame of reference which will be useful to
members of our organization in formulating and carrying out their own personal
investment policies.
J. Richard Atwood
Attachment
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SUPERVISORY PROCEDURES TO PREVENT INSIDER TRADING
The roles of J. Richard Atwood and Sherry Sasaki are critical to the
implementation and maintenance of FPA's policy and procedures against insider
trading. Supervisory Procedures can be divided into two classifications
- prevention of insider trading and detection of insider trading.
1. Prevention of Insider Trading
To prevent insider trading, Sherry Sasaki should:
a. provide and review with each new officer, director or
employee the Policy Statement on Insider Trading and the
related Procedures to Implement the FPA Policy Against
Insider Trading,
b. answer questions regarding FPA's policy and procedures,
c. review on an annual basis and update as necessary FPA's
Policy and Procedures, and
d. provide all officers, directors and employees annually with
a copy of the updated Statement of Policy and the related
Procedures.
To prevent insider trading, J. Richard Atwood should:
a. resolve issues of whether information received by an
officer, director or employee of FPA is material and
nonpublic, and document the resolution in writing,
b. when it has been determined that an officer, director or
employee of FPA has material nonpublic information,
i. implement measures to prevent dissemination of such
information, and
ii. if necessary, restrict officers, directors and
employees from trading the securities.
2. Detection of Insider Trading
To detect insider trading, J. Richard Atwood should:
a. review quarterly the securities transaction reports filed
pursuant to the codes of ethics of the investment companies
managed by FPA or, in the case of employees not covered by
the investment company codes of ethics, the trading activity
reports required by the FPA code of ethics,
b. coordinate the review of such reports with other appropriate
officers, directors or employees of FPA, and
c. review the trading activity of the investment companies and
private accounts managed by FPA.
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3. Special Reports
Upon learning of a potential violation of FPA's Policy and Procedures
to Detect and Prevent Insider Trading, J. Richard Atwood should prepare a
written report to FPA's Board of Directors and, if applicable, the Boards of
Directors of the investment companies providing full details and recommendations
for further action and should consult with FPA's outside legal counsel and, if
applicable, outside counsel for the investment companies under FPA's management.
