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Exhibit 99.CODE ETH
Exhibit (a)(1)
CODE OF ETHICS
PROSPECT STREET(R) FUNDS
HIGHLAND FUNDS
CODE OF ETHICS FOR PRINCIPAL EXECUTIVE
AND SENIOR FINANCIAL OFFICERS
I. COVERED OFFICERS/PURPOSE OF THE CODE
This code of ethics (this "Code") for the Funds applies to each Fund's
Principal Executive Officer and Principal Financial Officer (the "Covered
Officers") for the purpose of promoting:
- honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional
relationships;
- full, fair, accurate, timely and understandable disclosure in reports
and documents that the Fund files with, or submits to, the Securities
and Exchange Commission (the "SEC") and in other public communications
made by the Fund;
- compliance with applicable laws and governmental rules and regulations;
- the prompt internal reporting of violations of the Code to an
appropriate person or persons identified in the Code; and
- accountability for adherence to the Code.
Each Covered Officer should adhere to a high standard of business ethics
and should be sensitive to situations that may give rise to actual as well as
apparent conflicts of interest.
II. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS
OF INTEREST
OVERVIEW. A "conflict of interest" occurs when a Covered Officer's
private interest interferes with the interests of, or his service to, the Fund.
For example, a conflict of interest would arise if a Covered Officer, or a
member of his family, receives improper personal benefits as a result of his
position with the Fund.
Certain conflicts of interest arise out of the relationships between
Covered Officers and the Fund and already are subject to conflict of interest
provisions in the Investment Company Act of 1940, as amended (the "Investment
Company Act"), and the Investment Advisers Act of 1940, as amended (the
"Investment Advisers Act"). For example, Covered Officers may not individually
engage in certain transactions (such as the purchase or sale of securities or
other property) with the Fund because of their status as "affiliated persons" of
the Fund. The compliance programs and procedures of the Fund and the Fund's
investment adviser (the "Adviser") are designed to prevent, or identify and
correct, violations of these provisions. The Code does not, and is not intended
to, repeat or replace these programs and procedures, and the circumstances they
cover fall outside of the parameters of this Code.
Although typically not presenting an opportunity for improper personal
benefit, conflicts arise from, or as a result of, the contractual relationship
between the Fund and the Adviser of which the Covered Officers are also officers
or employees. As a result, this Code recognizes that the Covered Officers, in
the ordinary course of their duties (whether formally for the Fund or for the
Adviser, or for both), will be involved in establishing policies and
implementing decisions that will have different effects on the Adviser
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and the Fund. The participation of the Covered Officers in such activities is
inherent in the contractual relationship between the Fund and the Adviser and is
consistent with the performance by the Covered Officers of their duties as
officers of the Fund and, if addressed in conformity with the provisions of the
Investment Company Act and the Investment Advisers Act, will be deemed to have
been handled ethically. In addition, it is recognized by the Funds' Boards of
Directors (the "Boards") that the Covered Officers may also be officers or
employees of one or more other investment companies covered by this or other
codes of ethics.
Other conflicts of interest are covered by the Code, even if such
conflicts of interest are not subject to provisions in the Investment Company
Act and the Investment Advisers Act. The following list provides examples of
conflicts of interest under the Code, but Covered Officers should keep in mind
that these examples are not exhaustive. The overarching principle of the Code is
that the personal interest of a Covered Officer should not be placed improperly
before the interest of the Fund.
Each Covered Officer must:
- not use his personal influence or personal relationships improperly to
influence investment decisions or financial reporting by the Fund
whereby the Covered Officer would benefit personally to the detriment of
the Fund;
- not cause the Fund to take action, or fail to take action, for the
individual personal benefit of the Covered Officer rather than the
benefit of the Fund;
- report at least annually any affiliations or other relationships related
to conflicts of interest indicated in the Fund's Directors and Officers
Questionnaire; and
- disclose any material ownership interest in, or any consulting or
employment relationship with, any of the Fund's service providers, other
than the Adviser or any affiliated person thereof.
III. DISCLOSURE AND COMPLIANCE
- Each Covered Officer should familiarize himself with the disclosure
requirements generally applicable to the Fund;
- each Covered Officer should not knowingly misrepresent, or cause others
to misrepresent, facts about the Fund to others, whether within or
outside the Fund, including to the Fund's Board members and auditors,
and to governmental regulators and self-regulatory organizations;
- each Covered Officer should, to the extent appropriate within his area
of responsibility, consult with other officers and employees of the Fund
and the Adviser and take other appropriate steps with the goal of
promoting full, fair, accurate, timely and understandable disclosure in
the reports and documents the Fund files with, or submits to, the SEC
and in other public communications made by the Fund; and
- it is the responsibility of each Covered Officer to promote compliance
with the standards and restrictions imposed by laws, rules and
regulations applicable to the Funds.
IV. REPORTING AND ACCOUNTABILITY
Each Covered Officer must:
- upon adoption of the Code (or thereafter, as applicable, upon becoming a
Covered Officer), affirm in writing to the Board that he has received,
read, and understands the Code;
- annually thereafter affirm to the Board that he has complied with the
requirements of the Code;
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- not retaliate against any other Covered Officer or any employee of the
Funds or their affiliated persons for reports of potential violations
that are made in good faith; and
- notify the Fund's Qualified Legal Compliance Committee (the "Committee")
promptly if he knows of any violation of this Code. Failure to do so is
itself a violation of this Code.
The Fund will follow these procedures in investigating and enforcing
this Code:
- the Committee will take all appropriate action to investigate any
potential violations reported to it;
- if, after such investigation, the Committee believes that no violation
has occurred, the Committee is not required to take any further action;
- any matter that the Committee believes is a violation will be reported
to the Board;
- if the Board concurs that a violation has occurred, it will consider
appropriate action, which may include: review of, and appropriate
modifications to, applicable policies and procedures; notification to
appropriate personnel of the Adviser or its board; or a recommendation
to dismiss the Covered Officer;
- the Committee will be responsible for granting waivers, as appropriate;
and
- any changes to or waivers of this Code will, to the extent required, be
disclosed as provided by SEC rules.
V. OTHER POLICIES AND PROCEDURES
This Code shall be the sole code of ethics adopted by the Fund for
purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and
forms applicable to registered investment companies thereunder. Insofar as other
policies and procedures of the Fund, the Adviser or other service providers
govern or purport to govern the behavior or activities of the Covered Officers
who are subject to this Code, they are superseded by this Code to the extent
that they overlap or conflict with the provisions of this Code. The Fund's and
the Adviser's codes of ethics under Rule 17j-1 under the Investment Company Act
and the Adviser's additional policies and procedures are separate requirements
applying to the Covered Officers and others, and are not part of this Code.
VI. AMENDMENTS
Any amendments to this Code must be approved or ratified by a majority
vote of the Fund's Board, including a majority of independent Board members.
VII. CONFIDENTIALITY
All reports and records prepared or maintained pursuant to this Code
will be considered confidential and shall be maintained and protected
accordingly. Except as otherwise required by law or this Code, such matters
shall not be disclosed to anyone other than the appropriate Fund and its Board
and the Adviser and each of their respective counsel.
VIII. INTERNAL USE
The Code is intended solely for the internal use by the Funds and does
not constitute an admission, by or on behalf of any Fund, as to any fact,
circumstance, or legal conclusion.
As Revised: September 30, 2004
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