L. ROY PAPP & ASSOCIATES
PAPP STOCK FUND, INC.
PAPP AMERICA-ABROAD FUND, INC.
PAPP AMERICA-PACIFIC RIM FUND, INC.
PAPP FOCUS FUND, INC.
PAPP SMALL & MID-CAP GROWTH FUND, INC.
CODE OF ETHICS
Adopted December 21, 1994
Amended June 28, 2000
The purpose of this Code of Ethics ("Code") is to establish standards
and procedures to be followed by the Access Persons (as defined in Rule 17j-1
under the Investment Company Act of 1940 (the "Investment Company Act") except
that for purposes of this Code Access Persons shall not include the unaffiliated
directors of the Funds) of L. Roy Papp & Associates (the "Adviser") and by the
unaffiliated directors of each of Papp Stock Fund, Inc., Papp America-Abroad
Fund, Inc., Papp America-Pacific Rim Fund, Inc., Papp Focus Fund, Inc., and Papp
Small & Mid-Cap Growth Fund, Inc. (collectively, the "Funds") to avoid any
conflict of interest, or the appearance of any conflict of interest, between the
interests of the Funds, their shareholders and other investment advisory clients
of the Adviser (the "Clients"), and the interests of the Adviser and its Access
Persons.
This Code of Ethics has been adopted by the Boards of Directors of the
Funds and by the Adviser to address these concerns and to meet the legal
requirements imposed by the Investment Company Act and the rules thereunder.
GENERAL PRINCIPLES
I. Prohibitions
The Investment Company Act and rules thereunder make it illegal for any
person covered by the Code, directly or indirectly, in connection with the
purchase or sale of a security held or to be acquired by the Funds to:
(a) employ any device, scheme or artifice to defraud the Funds;
(b) make any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in
light of the circumstances under which they are made, not
misleading or in any way mislead the Funds regarding a material
fact;
(c) engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon the Funds; or
(d) engage in any manipulative practice with respect to the Funds.
II. Personal Securities Transactions
A purpose of this Code is to regulate the personal securities
transactions by Access Persons of the Adviser and unaffiliated directors of the
Funds as part of an effort to detect and prevent conduct that might violate the
general prohibitions outlined above. A personal securities transaction is a
transaction in a security in which a person subject to this Code has a
beneficial interest. Security is interpreted very broadly for this purpose, and
includes any right to acquire any security, for example, an option or warrant.
One has a beneficial interest in a security in which one has, directly
or indirectly, the opportunity to share in any profits derived from action in
the security, or in which one has an indirect interest, including securities or
in which he or his spouse, minor children, or other dependents living in his
household, have an interest or which are held by a partnership of which he is a
general partner. Technically, the rules under section 16 of the Securities
Exchange Act of 1934 will be applied to determine if one has a beneficial
interest in a security (even if the security would not be within the scope of
section 16). Examples of beneficial interest are attached as Appendix A.
In any situation where the potential for conflict exists, transactions
for Clients and the Funds must take precedence over any personal transaction.
The people subject to this Code owe a duty to Clients and the Funds to conduct
their personal securities transactions in a manner that does not interfere with
Clients' and the Funds' portfolio transactions or otherwise take inappropriate
advantage of their relationship to Clients and the Funds. Situations not
specifically governed by this Code of Ethics will be resolved in light of this
general principle.
This Code of Ethics applies to all Access Persons of the Adviser (a
listing of current Access Persons is attached hereto as Appendix B) and the
unaffiliated directors of the Funds. However, a number of the restrictions
contained in the Code do not apply to the unaffiliated directors of the Funds in
their capacity as such.
III. Restrictions on Personal Securities Transactions
The following restrictions apply to all Access Persons of the Adviser
and the unaffiliated directors of the Funds. No Access Person of the Adviser or
unaffiliated director of a Fund shall:
(a) Knowingly sell to or purchase from a Fund any security or
other property, except for securities issued by that Fund.
(b) Knowingly sell to or purchase from a Client any security.
(c) Purchase or sell for his or her personal account and benefit
or for the account and benefit of any member of his or her
immediate family, any security which the person knows or has
reason to believe is being purchased or sold or considered for
purchase or sale by a Fund or Client of the Adviser, until all
Funds' or Clients' transactions have been completed or
consideration of such transactions has been abandoned.
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This Section shall not restrict purchases or sales for the accounts of
the Adviser's Clients provided that the Funds and the Clients are treated fairly
and equitably in connection with those purchases and sales. A Client who pays a
fee for the Adviser's services shall be treated in the same manner as all other
Clients, even if the Client is related to a partner or employee of the Adviser
or is an entity in which a partner or employee of the Adviser has an equity
interest. At the date of adoption of this Code, such Clients include Marco
Investment Company and Hillcrest Enterprises, both limited partnerships, in
which Bruce C. Williams, a person subject to the Code, has an equity interest,
Morris Carll, who is a relative of Rosellen C. Papp, a person subject to the
Code, and Amy S. Clague, an unaffiliated director of each of the Funds.
The following restrictions apply only to the Access Persons of the
Adviser and do not apply to the unaffiliated directors of the Funds:
(d) Purchases of any security in an initial public offering are
prohibited. This is a flat prohibition and no exceptions will be
permitted unless, in the case of a limited partnership, such
purchase is made without the knowledge or participation of the
Access Person.
(e) No security shall be acquired in a private placement without the
express written prior approval of Robert L. Mueller (hereafter,
the "Compliance Officer") or L. Roy Papp (hereafter, "LRP"). In
deciding whether that approval should be granted, the Compliance
Officer or LRP will consider whether the investment opportunity
should be reserved for Clients and/or the Funds and their
shareholders, and whether the opportunity has been offered
because of the person's relationship with Clients or the Funds.
An Access Person of the Adviser who has been authorized to
acquire a security in a private placement must disclose that
investment if he or she later participates in consideration of an
investment in that security by the Funds or Clients. Any
investment decision relating to that security must be made by
other personnel.
(f) No Access Person of the Adviser may purchase or sell any
derivative security, other than those specifically exempted under
Section V of this Code.
(g) Short-term trading in securities on the Adviser's active eligible
list by Access Persons of the Adviser is discouraged. Any profits
realized from the purchase and sale, or sale and purchase, of the
same or equivalent securities within 60 calendar days must be
disgorged even if the person is unaware of the violation. Any
profit so realized will be required to be donated to a charitable
organization selected by the Access Person and approved by the
Compliance Officer or LRP. This restriction does not apply to any
short-term trading in listed index options or futures contracts,
or to any transaction (including exercise of an option within 60
days of its acquisition) which has received the prior approval of
the Compliance Officer or LRP.
3
(h) No Access Person of the Adviser may accept any gift or other
thing of more than de minimis value from any person or other
entity that does business with or on behalf of the Adviser or the
Funds, or seeks to do business with or on behalf of the Adviser
or the Funds. However, it is not the intent of this Code to
prohibit the everyday courtesies of business life.
(i) No Access Person of the Adviser may serve as a member of the
board of directors or as a trustee of a publicly held company
without the prior written approval of the Compliance Officer or
LRP, based on a determination that the board service would not be
inconsistent with the interests of Clients and the Funds and the
Funds' shareholders. If an Access Person of the Adviser is
serving as a board member or trustee of a publicly held company,
that person shall not participate in making investment decisions
relating to the securities of the company on whose board he or
she sits.
IV. Compliance Procedures
A. Access Persons of the Adviser
1. All Access Persons of the Adviser shall identify to the
Compliance Officer any brokerage or other accounts in which they have a
beneficial interest. All personal securities transactions by Access Persons of
the Adviser must be conducted through those brokerage accounts that have been
identified to the Compliance Officer. Each such brokerage account must be set up
to deliver duplicate copies of all confirmations and statements to the
Compliance Officer. No exceptions to this policy will be made.
2. All personal securities transactions by Access Persons of
the Adviser, except transactions deemed exempt (as described in Section V
entitled "Exempt Transactions") must be cleared in advance with the Compliance
Officer or LRP. Personal securities transactions by the Compliance Officer must
be precleared in advance by LRP and personal securities transactions by LRP must
be cleared in advance by the Compliance Officer. If the proposed trade is not
executed within two business days after preclearance, the preclearance will
expire and the request must be made again.
3. No personal securities transaction by an Access Person of
the Adviser will be precleared if it is known by the Access Person or the person
asked to preclear the transaction that the Funds or any Client has a conflicting
order pending or is actively considering a purchase or sale of the same
security. A conflicting order is any order for the same security which has not
been fully executed. A purchase or sale of a security is being "actively
considered" if a recommendation to purchase or sell has been made for the Funds
or any Client and is pending, or, with respect to the person making the
recommendation, that person is seriously considering making the recommendation.
Under most circumstances, a personal securities transaction by
an Access Person of the Adviser will not be approved until the first business
day after completion of any transactions for the Funds or an investment counsel
account of the Adviser.
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4. Each Access Person of the Adviser shall disclose his or her
personal securities holdings no later than ten days after the commencement of
employment with the Adviser and annually thereafter as of December 31 of each
year. Annual reports shall be delivered to the Compliance Officer no later than
January 30 of the following year. The initial holdings and annual holdings
reports shall contain the following information:
o title, interest rate and maturity date (if applicable),
number of shares and the principal amount of each security
held beneficially;
o the name of any broker, dealer or bank with or through which
the Access Person maintains an account; and
o the date the report is submitted.
5. All Access Persons of the Adviser shall report all personal
securities transactions during a month to the Compliance Officer no later than
ten days after the end of the month, unless the Compliance Officer already has
received copies of the broker's confirmation setting forth the personal
securities transaction and all of the other information required below. Reports
or confirmations relating to the personal securities transactions of the
Compliance Officer shall be delivered to LRP. Monthly transactions reports, or
confirmations in lieu of the monthly reports, shall contain the following
information:
For each transaction:
o the date of the transaction;
o title, interest rate and maturity date (if applicable),
number of shares and the principal amount of each security
involved;
o the nature of the transaction (i.e., purchase, sale, gift,
or other type of acquisition or disposition);
o the price at which the transaction was effected;
o the name of the broker, dealer or bank with or through which
the transaction was effected; and
o the date the report is submitted.
In addition, for each account established during the month in which
securities are held for the benefit of an unaffiliated director of the Fund or
an Access Person of the Adviser, the monthly report shall include:
o the name of the broker, dealer or bank with whom the account
was established;
o the date the account was established; and
o the date the report is submitted.
6. Any personal securities transaction by an Access Person of
the Adviser which for any reason does not appear in the brokerage records
described above shall be reported in a monthly transaction report as required by
Paragraph 5 above.
5
7. The Compliance Officer shall monitor the trading patterns
of all Access Persons of the Adviser. LRP will monitor the trading of the
Compliance Officer.
B. Unaffiliated Directors of the Funds
1. Each unaffiliated director of the Funds shall report to the
Compliance Officer, within ten days after the end of the calendar quarter in
which a reportable transaction occurs, any personal securities transaction where
the unaffiliated director, at the time of the transaction, knew, or in the
ordinary course of fulfilling his or her duties as an unaffiliated director,
should have known, that on the day of the transaction, or within 15 days before
or after that day, a purchase or sale of that security was made by or considered
for a Fund.
2. Reports of personal securities transactions may be in any
form (including copies of confirmations or monthly statements) but shall
include the following information:
o the date of the transaction;
o title, interest rate and maturity date (if applicable),
number of shares and the principal amount of each security
involved;
o the nature of the transaction (i.e., purchase, sale, gift,
or other type of acquisition or disposition);
o the price at which the transaction was effected;
o the name of the broker, dealer or bank with or through which
the transaction was effected;
o the name of the reporting person; and
o the date the report is submitted.
3. The Compliance Officer shall monitor the trading patterns
of all unaffiliated directors of the Funds.
C. Annual Certification by Each Access Person of the Adviser and
Unaffiliated Director of the Funds
1. Each Access Person of the Adviser and each unaffiliated
director of the Funds is required to certify annually that he or she has read
and understands the Code and recognizes that he or she is subject to the Code.
Each Access Person of the Adviser is also required to certify annually that he
or she has disclosed or reported all personal securities transactions required
to be disclosed or reported under the Code. To accomplish this, the Compliance
Officer shall annually distribute a copy of the Code and request certification
by all Access Persons and unaffiliated directors. The Compliance Officer shall
be responsible for ensuring that all Access Persons and unaffiliated directors
comply with the certification requirement.
2. Each Access Person of the Adviser who has not engaged in
any personal securities transaction during the preceding year for which a report
was required
6
to be filed pursuant to the Code shall include a certification to that effect in
his or her annual certification.
D. The officers of the Funds shall prepare an annual report to
the Boards of Directors of the Funds that:
1. summarizes existing procedures concerning personal investing
and any changes in those procedures during the past year;
2. describes issues that arose during the previous year under
the Code or procedures concerning personal investing,
including but not limited to information about material
violations of the Code and sanctions imposed;
3. certifies to the Board that the Adviser and the Funds have
adopted procedures reasonably necessary to prevent their
Access Persons and unaffiliated directors from violating the
Code; and
4. identifies any recommended changes in existing restrictions
or procedures based upon experience under the Code, evolving
industry practices, or developments in applicable laws or
regulations.
V. Exempt Transactions
The provisions of this Code are intended to restrict the personal
investment activities of persons subject to the Code only to the extent
necessary to accomplish the purposes of the Code. Therefore, the provisions of
the Code, to the extent indicated below, shall not apply to the following
transactions:
A. Exempt from all provisions of the Code:
1. Purchases or sales effected in any account over which the
persons subject to this Code have no direct or indirect
influence or control.
2. Purchases or sales of U.S. Government securities; shares of
open-end investment companies, including but not limited to
shares of the Funds; and bank certificates of deposit or
commercial paper.
3. Purchases or sales which are non-volitional on the part of
either the person subject to this Code or the Funds.
4. Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of securities to
the extent such rights were acquired from such issuer.
7
B. Exempt from all provisions of the Code except Paragraphs 1, 4,
5 and 6 of Section IV.A. and Paragraphs 1 and 2 of Sections
IV.B. of the Code:
1. Purchases and sales of municipal bonds and securities not
actively followed by the Adviser, that is, securities not on
the Adviser's active eligible list.
2. Purchases which are part of an automatic dividend
reinvestment plan.
3. Purchases or sales which receive the prior written approval
of the Compliance Officer or LRP because they are not
inconsistent with this Code or the provisions of Rule 17j-1
under the Investment Company Act. A copy of Rule 17j-1 is
attached as Appendix C.
4. Purchase of a call option on a security (provided, however,
that the exercise of a call option shall not be exempt from
the provisions of this Code and shall require pre-clearance
pursuant to Paragraph 2 of Section IV.A.).
5. Purchase of a put option on a security that is not on the
Adviser's active eligible list.
VI. Failure To Comply
Compliance with this Code is a condition of employment by the Adviser
and retention of positions with the Funds. Taking into consideration all
relevant circumstances, LRP will determine what action is appropriate for any
breach of the provisions of the Code, except by an unaffiliated board member.
Possible actions include letters of sanction, suspension, or termination of
employment or removal from office. The Boards of Directors of the Funds shall
determine what action is appropriate for any breach of the provisions of the
Code by an unaffiliated director, which may include removal from the Board.
Reports filed pursuant to the Code will be maintained in confidence but
will be reviewed by the Compliance Officer and LRP to verify compliance with the
Code. Additional information may be required to clarify the nature of particular
transactions.
Retention of Records
The Secretary of the Funds shall maintain the records listed below for
a period of five years at the Funds' principal place of business in an easily
accessible place:
A. a list of persons subject to the Code during the period;
B. receipts signed by all persons subject to the Code
acknowledging receipt of copies of the Code and that they
are subject to it;
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C. a copy of each Code of Ethics that has been in effect at any
time during the period;
D. a copy of each report filed pursuant to the Code and a record
of any known violations and actions taken as a result thereof
during the period; and
E. records evidencing prior approval of, and the rationale
supporting, an acquisition by an Access Person of securities
in a private placement.
* * * *
9
ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS
I affirm that I have read and understand the Code of Ethics ("Code"). I
acknowledge that I am subject to the Code and will comply with the Code in all
respects.
- - -------------------------------- ----------------
Signature Date
ANNUAL AFFIRMATION OF COMPLIANCE
FOR ACCESS PERSONS OF
L. ROY PAPP & ASSOCIATES
I affirm that:
1. I have again read and, during the past year to the best of my
knowledge, have complied with the Code of Ethics ("Code").
2. I have provided to the Compliance Officer the names and addresses
of each investment account that I have with any firm, including, but
not limited to, broker-dealers, banks and others. (List of known
accounts attached.)
3. I have provided to the Compliance Officer of the firm copies of
account statements showing each and every transaction in any security
in which I have a beneficial interest, as defined in the Code during
the most recently- ended calendar year.
or
During the most recent calendar year there were no transactions
in any security in which I had a beneficial interest required to be
reported pursuant to the Code.
4. I have provided to the Compliance Officer a report of my personal
securities holdings as of the end of the most recent calendar year,
including the title, number of shares and principal amount of each
security in which I have any direct or indirect beneficial ownership.
- - -------------------------------- ----------------
Signature Date
Appendix A
EXAMPLES OF BENEFICIAL OWNERSHIP
For purposes of the Code, you will be deemed to have a beneficial interest
in a security if you have the opportunity, directly or indirectly, to profit or
share in any profit derived from a transaction in the security. Examples of
beneficial ownership under this definition include:
o securities you own, no matter how they are registered, and including
securities held for you by others (for example, by a custodian or broker,
or by a relative, executor or administrator) or that you have pledged to
another (as security for a loan, for example);
o securities held by a trust of which you are a beneficiary (except that, if
you do not have or participate in investment control of trust assets, you
will not be deemed to have a beneficial interest in securities held by the
trust);
o securities held by you as trustee or co-trustee, where either you or any
member of your immediate family (i.e., spouse, children or descendants,
stepchildren, parents and their ancestors, and stepparents, in each case
treating a legal adoption as blood relationship) has a beneficial interest
(using these rules) in the trust.
o securities held by a trust of which you are the settlor, if you have the
power to revoke the trust without obtaining the consent of all the
beneficiaries and have or participate in investment control;
o securities held by any partnership in which you are a general partner, to
the extent of your interest in partnership capital or profits;
o securities held by a personal holding company controlled by you alone or
jointly with others;
o securities held by (i) your spouse, unless legally separated, or you and
your spouse jointly, or (ii) your minor children or any immediate family
member of you or your spouse (including an adult relative), directly or
through a trust, who is sharing your home, even if the securities were not
received from you and the income from the securities is not actually used
for the maintenance of your household; or
o securities you have the right to acquire, unless you have waived that
right, (for example, through the exercise of a derivative security), even
if the right is not presently exercisable, or securities as to which,
through any other type of arrangement, you obtain benefits substantially
equivalent to those of ownership.
A-1
You will NOT be deemed to have beneficial ownership of securities in the
following situations:
o securities held by a limited partnership in which you do not have a
controlling interest and do not have or share investment control over the
partnership's portfolio; and
o securities held by a foundation of which you are a trustee and donor,
provided that the beneficiaries are exclusively charitable and you have no
right to revoke the gift.
THESE EXAMPLES ARE NOT EXCLUSIVE. THERE ARE OTHER CIRCUMSTANCES IN WHICH YOU MAY
BE DEEMED TO HAVE A BENEFICIAL INTEREST IN A SECURITY. ANY QUESTIONS ABOUT
WHETHER YOU HAVE A BENEFICIAL INTEREST SHOULD BE DIRECTED TO THE COMPLIANCE
OFFICER.
A-2
Appendix B
ACCESS PERSONS OF THE ADVISER
Appendix C
SS. 270.17J-1 PERSONAL INVESTMENT ACTIVITIES OF INVESTMENT COMPANY PERSONNEL.
(a) Definitions. For purposes of this section:
(1) Access Person means:
(i) Any director, officer, general partner or Advisory Person of a
Fund or of a Fund's investment adviser.
(A) If an investment adviser is primarily engaged in a business
or businesses other than advising Funds or other advisory
clients, the term Access Person means any director, officer,
general partner or Advisory Person of the investment adviser
who, with respect to any Fund, makes any recommendation,
participates in the determination of which recommendation
will be made, or whose principal function or duties relate
to the determination of which recommendation will be made,
or who, in connection with his or her duties, obtains any
information concerning recommendations on Covered Securities
being made by the investment adviser to any Fund.
(B) An investment adviser is "primarily engaged in a business or
businesses other than advising Funds or other advisory
clients" if, for each of its most recent three fiscal years
or for the period of time since its organization, whichever
is less, the investment adviser derived, on an
unconsolidated basis, more than 50 percent of its total
sales and revenues and more than 50 percent of its income
(or loss), before income taxes and extraordinary items, from
the other business or businesses.
(ii) Any director, officer or general partner of a principal
underwriter who, in the ordinary course of business, makes,
participates in or obtains information regarding, the purchase or
sale of Covered Securities by the Fund for which the principal
underwriter acts, or whose functions or duties in the ordinary
course of business relate to the making of any recommendation to
the Fund regarding the purchase or sale of Covered Securities.
(2) Advisory Person of a Fund or of a Fund's investment adviser means:
(i) Any employee of the Fund or investment adviser (or of any company
in a control relationship to the Fund or investment adviser) who,
in connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding the purchase or
sale of Covered Securities by a Fund, or whose functions relate
to the making of any recommendations with respect to the
purchases or sales; and
(ii) Any natural person in a control relationship to the Fund or
investment adviser who obtains information concerning
recommendations made to the Fund with regard to the purchase or
sale of Covered Securities by the Fund.
(3) Control has the same meaning as in section 2(a)(9) of the Act [15
U.S.C. 80a-2(a)(9)].
(4) Covered Security means a security as defined in section 2(a)(36) of
the Act [15 U.S.C. 80a-2(a)(36)], except that it does not include:
(i) Direct obligations of the Government of the United States;
(ii) Bankers' acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements; and
(iii) Shares issued by open-end Funds.
(5) Fund means an investment company registered under the Investment
Company Act.
(6) An Initial Public Offering means an offering of securities registered
under the Securities Act of 1933 [15 U.S.C. 77a], the issuer of which,
immediately before the registration, was not subject to the reporting
requirements of sections 13 or 15(d) of the Securities Exchange Act of
1934 [15 U.S.C. 78m or 78o(d)].
(7) Investment Personnel of a Fund or of a Fund's investment adviser
means:
(i) Any employee of the Fund or investment adviser (or of any company
in a control relationship to the Fund or investment adviser) who,
in connection with his or her regular functions or duties, makes
or participates in making recommendations regarding the purchase
or sale of securities by the Fund.
(ii) Any natural person who controls the Fund or investment adviser
and who obtains information concerning recommendations made to
the Fund regarding the purchase or sale of securities by the
Fund.
(8) A Limited Offering means an offering that is exempt from registration
under the Securities Act of 1933 pursuant to section 4(2) or section
4(6) [15 U.S.C. 77d(2) or 77d(6)] or pursuant to rule 504, rule 505,
or rule 506 [17 CFR 230.504, 230.505, or 230.506] under the Securities
Act of 1933.
(9) Purchase or sale of a Covered Security includes, among other things,
the writing of an option to purchase or sell a Covered Security.
(10) Security Held or to be Acquired by a Fund means:
(i) Any Covered Security which, within the most recent 15 days:
(A) Is or has been held by the Fund; or
(B) Is being or has been considered by the Fund or its
investment adviser for purchase by the Fund; and
(ii) Any option to purchase or sell, and any security convertible into
or exchangeable for, a Covered Security described in paragraph
(a)(10)(i) of this section.
(b) Unlawful Actions. It is unlawful for any affiliated person of or principal
underwriter for a Fund, or any affiliated person of an investment adviser
of or principal underwriter for a Fund, in connection with the purchase or
sale, directly or indirectly, by the person of a Security Held or to be
Acquired by the Fund:
(1) To employ any device, scheme or artifice to defraud the Fund;
(2) To make any untrue statement of a material fact to the Fund or omit to
state a material fact necessary in order to make the statements made
to the Fund, in light of the circumstances under which they are made,
not misleading;
(3) To engage in any act, practice or course of business that operates or
would operate as a fraud or deceit on the Fund; or
(4) To engage in any manipulative practice with respect to the Fund.
(c) Code of Ethics.
(1) Adoption and Approval of Code of Ethics.
(i) Every Fund (other than a money market fund or a Fund that does
not invest in Covered Securities) and each investment adviser of
and principal underwriter for the Fund, must adopt a written code
of ethics containing provisions reasonably necessary to prevent
its Access Persons from engaging in any conduct prohibited by
paragraph (b) of this section.
(ii) The board of directors of a Fund, including a majority of
directors who are not interested persons, must approve the code
of ethics of the Fund, the code of ethics of each investment
adviser and principal underwriter of the Fund, and any material
changes to these codes. The board must base its approval of a
code and any material changes to the code on a determination that
the code contains provisions reasonably necessary to prevent
Access Persons from engaging in any conduct prohibited by
paragraph (b) of this section. Before approving a code of a Fund,
investment adviser or principal underwriter or any amendment to
the code, the board of directors must receive a certification
from the Fund, investment adviser or principal underwriter that
it has adopted procedures reasonably necessary to prevent Access
Persons from violating the investment adviser's or principal
underwriter's code of ethics. The Fund's board must approve the
code of an investment adviser or principal underwriter before
initially retaining the services of the investment adviser or
principal underwriter. The Fund's board must approve a material
change to a code no later than six months after adoption of the
material change.
(iii) If a Fund is a unit investment trust, the Fund's principal
underwriter or depositor must approve the Fund's code of ethics,
as required by paragraph (c)(1)(ii) of this section. If the Fund
has more than one principal underwriter or depositor, the
principal underwriters and depositors may designate, in writing,
which principal underwriter or depositor must conduct the
approval required by paragraph (c)(1)(ii) of this section, if
they obtain written consent from the designated principal
underwriter or depositor.
(2) Administration of Code of Ethics.
(i) The Fund, investment adviser and principal underwriter must use
reasonable diligence and institute procedures reasonably
necessary to prevent violations of its code of ethics.
(ii) No less frequently than annually, every Fund (other than a unit
investment trust) and its investment advisers and principal
underwriters must furnish to the Fund's board of directors, and
the board of directors must consider, a written report that:
(A) Describes any issues arising under the code of ethics or
procedures since the last report to the board of directors,
including, but not limited to, information about material
violations of the code or procedures and sanctions imposed
in response to the material violations; and
(B) Certifies that the Fund, investment adviser or principal
underwriter, as applicable, has adopted procedures
reasonably necessary to prevent Access Persons from
violating the code.
(3) Exception for Principal Underwriters. The requirements of paragraphs
(c)(1) and (c)(2) of this section do not apply to any principal
underwriter unless:
(i) The principal underwriter is an affiliated person of the Fund or
of the Fund's investment adviser; or
(ii) An officer, director or general partner of the principal
underwriter serves as an officer, director or general partner of
the Fund or of the Fund's investment adviser.
(d) Reporting Requirements of Access Persons.
(1) Reports Required. Unless excepted by paragraph (d)(2) of this section,
every Access Person of a Fund (other than a money market fund or a
Fund that does not invest in Covered Securities) and every Access
Person of an investment adviser of or principal underwriter for the
Fund, must report to that Fund, investment adviser or principal
underwriter:
(i) Initial Holdings Reports. No later than 10 days after the person
becomes an Access Person, the following information:
(A) The title, number of shares and principal amount of each
Covered Security in which the Access Person had any direct
or indirect beneficial ownership when the person became an
Access Person;
(B) The name of any broker, dealer or bank with whom the Access
Person maintained an account in which any securities were
held for the direct or indirect benefit of the Access Person
as of the date the person became an Access Person; and
(C) The date that the report is submitted by the Access Person.
(ii) Quarterly Transaction Reports. No later than 10 days after the
end of a calendar quarter, the following information:
(A) With respect to any transaction during the quarter in a
Covered Security in which the Access Person had any direct
or indirect beneficial ownership:
(1) The date of the transaction, the title, the interest
rate and maturity date (if applicable), the number of
shares and the principal amount of each Covered
Security involved;
(2) The nature of the transaction (i.e., purchase, sale or
any other type of acquisition or disposition);
(3) The price of the Covered Security at which the
transaction was effected;
(4) The name of the broker, dealer or bank with or through
which the transaction was effected; and
(5) The date that the report is submitted by the Access
Person.
(B) With respect to any account established by the Access Person
in which any securities were held during the quarter for the
direct or indirect benefit of the Access Person:
(1) The name of the broker, dealer or bank with whom the
Access Person established the account;
(2) The date the account was established; and
(3) The date that the report is submitted by the Access
Person.
(iii) Annual Holdings Reports. Annually, the following information
(which information must be current as of a date no more than 30
days before the report is submitted):
(A) The title, number of shares and principal amount of each
Covered 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 by the Access Person.
(2) Exceptions from Reporting Requirements.
(i) A person need not make a report under paragraph (d)(1) of this
section with respect to transactions effected for, and Covered
Securities held in, any account over which the person has no
direct or indirect influence or control.
(ii) A director of a Fund who is not an "interested person" of the
Fund within the meaning of section 2(a)(19) of the Act [15 U.S.C.
80a-2(a)(19)], and who would be required to make a report solely
by reason of being a Fund director, need not make:
(A) An initial holdings report under paragraph (d)(1)(i) of this
section and an annual holdings report under paragraph
(d)(1)(iii) of this section; and
(B) A quarterly transaction report under paragraph (d)(1)(ii) of
this section, unless the director knew or, in the ordinary
course of fulfilling his or her official duties as a Fund
director, should have known that during the 15-day period
immediately before or after the director's transaction in a
Covered Security, the Fund purchased or sold the Covered
Security, or the Fund or its investment adviser considered
purchasing or selling the Covered Security.
(iii) An Access Person to a Fund's principal underwriter need not make
a report to the principal underwriter under paragraph (d)(1) of
this section if:
(A) The principal underwriter is not an affiliated person of the
Fund (unless the Fund is a unit investment trust) or any
investment adviser of the Fund; and
(B) The principal underwriter has no officer, director or
general partner who serves as an officer, director or
general partner of the Fund or of any investment adviser of
the Fund.
(iv) An Access Person to an investment adviser need not make a
quarterly transaction report to the investment adviser under
paragraph (d)(1)(ii) of this section if all the information in
the report would duplicate information required to be recorded
under ss.ss. 275.204-2(a)(12) or 275.204-2(a)(13) of this
chapter.
(v) An Access Person need not make a quarterly transaction report
under paragraph (d)(1)(ii) of this section if the report would
duplicate information contained in broker trade confirmations or
account statements received by the Fund, investment adviser or
principal underwriter with respect to the Access Person in the
time period required by paragraph (d)(1)(ii), if all of the
information required by that paragraph is contained in the broker
trade confirmations or account statements, or in the records of
the Fund, investment adviser or principal underwriter.
(3) Review of Reports. Each Fund, investment adviser and principal
underwriter to which reports are required to be made by paragraph
(d)(1) of this section must institute procedures by which appropriate
management or compliance personnel review these reports.
(4) Notification of Reporting Obligation. Each Fund, investment adviser
and principal underwriter to which reports are required to be made by
paragraph (d)(1) of this section must identify all Access Persons who
are required to make these reports and must inform those Access
Persons of their reporting obligation.
(5) Beneficial Ownership. For purposes of this section, beneficial
ownership is interpreted in the same manner as it would be under ss.
240.16a-1(a)(2) of this chapter in determining whether a person is the
beneficial owner of a security for purposes of section 16 of the
Securities Exchange Act of 1934 [15 U.S.C. 78p] and the rules and
regulations thereunder. Any report required by paragraph (d) of this
section may contain a statement that the report will not be construed
as an admission that the person making the report has any direct or
indirect beneficial ownership in the Covered Security to which the
report relates.
(e) Pre-approval of Investments in IPOs and Limited Offerings. Investment
Personnel of a Fund or its investment adviser must obtain approval from the
Fund or the Fund's investment adviser before directly or indirectly
acquiring beneficial ownership in any securities in an Initial Public
Offering or in a Limited Offering.
(f) Recordkeeping Requirements.
(1) Each Fund, investment adviser and principal underwriter that is
required to adopt a code of ethics or to which reports are required to
be made by Access Persons must, at its principal place of business,
maintain records in the manner and to the extent set out in this
paragraph (f), and must make these records available to the Commission
or any representative of the Commission at any
time and from time to time for reasonable periodic, special or other
examination:
(A) A copy of each code of ethics for the organization that is in
effect, or at any time within the past five years was in effect,
must be maintained in an easily accessible place;
(B) A record of any violation of the code of ethics, and of any
action taken as a result of the violation, must be maintained in
an easily accessible place for at least five years after the end
of the fiscal year in which the violation occurs;
(C) A copy of each report made by an Access Person as required by
this section, including any information provided in lieu of the
reports under paragraph (d)(2)(v) of this section, must be
maintained for at least five years after the end of the fiscal
year in which the report is made or the information is provided,
the first two years in an easily accessible place;
(D) A record of all persons, currently or within the past five years,
who are or were required to make reports under paragraph (d) of
this section, or who are or were responsible for reviewing these
reports, must be maintained in an easily accessible place; and
(E) A copy of each report required by paragraph (c)(2)(ii) of this
section must be maintained for at least five years after the end
of the fiscal year in which it is made, the first two years in an
easily accessible place.
(2) A Fund or investment adviser must maintain a record of any decision,
and the reasons supporting the decision, to approve the acquisition by
investment personnel of securities under paragraph (e), for at least
five years after the end of the fiscal year in which the approval is
granted.