Registration No. 33-78256
Investment Company Act
File No. 811-8492
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. 2 /X/
Post-Effective Amendment No. / /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
Amendment No. 2 /X/
(Check appropriate box or boxes.)
THE PRINCIPLED EQUITY MARKET FUND
(Formerly called the "Principled Equity Index Fund")
(Exact name of registrant as specified in charter)
Langley Place, 10 Langley Road
Newton Center, Massachusetts 02159
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617)964-7600
DAVID W. C. PUTNAM, Secretary
The Principled Equity Market Fund
Langley Place, 10 Langley Road
Newton Center, Massachusetts 02159
(Name and Address of Agent for Service)
Copies of all correspondence to:
JOHN HAND, ESQ.
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Registrant intends to continuously offer its shares monthly
for a period in excess of 30 days pursuant to Rule 415.
Approximate date of Proposed Public Offering:
As soon as practicable after the effective
date of this Registration Statement
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
Title of Proposed Proposed
Securities Maximum Maximum Amount of
Being Amount Being Offering Price Aggregate Registration
Registered Registered Per Unit Offering Price Fee
<S> <C> <C> <C> <C>
Shares of
Beneficial
Interest 800,000 $10.00* $8,000,000 $2,758.64
*Initial; net
asset value
thereafter.
</TABLE>
<PAGE>
Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to Section 8(a), may determine.
<PAGE>
THE PRINCIPLED EQUITY MARKET FUND
Cross Reference Sheet
Pursuant to Rule 481(a)
Under the Securities Act of 1933
Part A
Registration
Item No. Statement Caption Caption in Prospectus
(1) Outside Front Cover Cover Page
(2) Inside Front and Outside Cover Page
Back Cover Page
(3) Fee Table and Synopsis Prospectus Summary
(4) Financial Highlights Inapplicable
(5) Plan of Distribution Cover Page; Prospectus
Summary; Purchase of Shares
(6) Selling Shareholders Inapplicable
(7) Use of Proceeds Prospectus Summary;
Use of Proceeds; Investment
Objective and Policies
(8) General Description of Cover Page; Prospectus
the Registrant Summary; Investment
Objective and Policies;
Investment Restrictions;
The Fund and Its Shares
(9) Management Prospectus Summary;
Management; Custodian,
Transfer Agent and Dividend
Disbursing Agent; The Fund
and its Shares
(10) Capital Stock, Long-Term Cover Page; Prospectus
Debt, and Other Summary; Distributions and
Securities Taxes; Share Repurchases
and Tender Offers; Net
Asset Value; The Fund and
Its Shares
(11) Defaults and Arrears on Inapplicable
Senior Securities
(12) Legal Proceedings Inapplicable
(13) Table of Contents of the Table of Contents of the
Statement of Additional Statement of Additional
Information Information
<PAGE>
Part B
Registration
Item No. Statement Caption Caption in Statement of
Additional Information
(14) Cover Page Cover Page
(15) Table of Contents Cover Page -
Table of Contents
(16) General Information and Inapplicable
History
(17) Investment Objective and Cover Page (Prospectus);
Policies Prospectus Summary;
Investment Objective and
Policies (Prospectus);
Investment Policies and
Techniques
(18) Management Trustees and Officers
(19) Control Persons and Principal Shareholder
Principal Holder of (Prospectus); Trustees and
Securities Officers
(20) Investment Advisory and Management; The
Other Services Administrator (Prospectus);
Custodian, Transfer Agent,
and Dividend Disbursing
Agent (Prospectus);
Purchase of Shares
(Prospectus); Auditors
(Prospectus)
(21) Brokerage Allocation and Portfolio Transactions
Other Practices
(22) Tax Status Taxation
(23) Financial Statements Financial Statements
Part C
The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
<PAGE>
(Cover Page)
Part A
PROSPECTUS 800,000 Shares _________ __, 1996
of Beneficial Interest
of
THE PRINCIPLED EQUITY MARKET FUND
Langley Place, 10 Langley Road
Newton Center, MA 02159
(617) 964-7600
The Principled Equity Market Fund (the "Fund") is a closed-end,
diversified management investment company recently organized as a Massachusetts
business trust.
The investment objective of the Fund is long-term capital appreciation.
The Fund invests principally in equity securities which its management believes
will contribute to the achievement of this objective and which do not possess
characteristics (i.e., products, services, geographical areas of operation or
other similar non-financial aspects) which management believes are unacceptable
to substantial constituencies of investors concerned with the ethical and/or
social justice characteristics of their investments (hereinafter sometimes
called "concerned investors"). Such securities, and/or their characteristics,
are herein sometimes referred to as being "Acceptable". A list of security
characteristics which the Fund believes are of interest to concerned investors
as of the date of this Prospectus is included in Appendix I. For the information
of investors the Fund will from time to time compare its investments results to
those of the Standard and Poor's Corporation 500 Stock Index and other major
market indices which the Fund considers appropriate.
Proceeds to Registrant
Price to Sales Load or Other Persons1
Public
Per share $10.00 None $10.00
------ ---------- ----------
Total $8,000,000 None $8,000.000
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1 It is estimated that the registration fees, federal taxes, state taxes and
fees, trustees, and transfer agents' fees, costs of printing and engraving and
legal and accounting fees to be borne by the Fund will amount to
$__________________, subject to future contingencies.
<PAGE>
(Cover Page)
The initial offering price per share of beneficial interest of the
Fund's shares ("Shares") is $10.00. The Shares will continue to be offered
thereafter on a monthly basis at net asset value. There is no minimum purchase
in this offering.
As a closed-end investment company the Fund does not maintain a
continuous offer to repurchase or redeem its outstanding Shares. The Fund may
offer to repurchase outstanding Shares at the option of the Trustees from time
to time (but no more frequently than quarterly).
The Shares are not expected to have a public market. Accordingly, the
shares of the Fund will be illiquid and Shareholders may experience difficulty
in selling their shares otherwise than pursuant to any such repurchase offers.
There can be no assurance that any such repurchase offers will be made.
This Prospectus is intended to set forth concisely the information
about the Fund that a prospective investor ought to know before investing.
Investors are encouraged to read this Prospectus and retain it for future
reference. Additional information is contained in a Statement of Additional
Information which has been filed with the Securities and Exchange Commission. It
is available upon request and without charge by calling or writing the Fund. The
Statement of Additional Information bears the same date as this Prospectus and
is incorporated by reference in this Prospectus. The table of contents of the
Statement of Additional Information appears at the end of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[Subject to Completion. Information contained herein is subject to
completion or amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer to
sell or the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.]
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<PAGE>
Table of Contents
Prospectus Summary
Summary of Fund Expenses
Use of Proceeds
Investment Objectives and Policies
Other Investment Policies
Investment Restrictions
Management
Distributions and Taxes
Share Repurchases and Tender Offers
Principal Shareholder
Purchase of Shares
Net Asset Value
The Fund and Its Shares
Custodian, Transfer Agent and Dividend
Disbursing Agent
Reports to Shareholders
Legal Counsel
Auditors
Additional Information
Appendix A-Description of
Ratings and Corporate Obligations
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<PAGE>
PROSPECTUS SUMMARY
This summary does not purport to be complete and is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus and the related Statement of Additional Information which is
incorporated herein by reference, and in the Registration Statement, of which
this Prospectus and said Statement of Additional Information are parts, and
amendments thereto, all filed with the Securities and Exchange Commission. Terms
not defined in this summary are defined elsewhere herein and in the appendices.
Summary of Fund Expenses
An investor should consider the expense information in the table below
along with other important information in this Prospectus and the Fund's
investment objective.
A. Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)....................... None
B. Annual Fund Operating Expenses (as a
percentage of average net assets)1,2
Management Fees (including investment advisory
fees) (after waivers and reimbursements) 2. . . . 15%
Administration Fees (after waivers and
reimbursements)3. . . . . . . . . . . . . . . . . None
Other Expenses ....................................
Total Annual Fund Operating Expenses 1,2,3 .........
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(1) The percentages assume average annual net assets of $7,000,000.
(2) Reflects first year waiver by the Manager of its .10% portion of this fee
(see "Management" herein).
(3) Reflects first year waiver by the Administrator of its $12,000 fee for
administration, transfer agency services and dividend disbursing services.
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<PAGE>
C. Example 1 Year 3 years
You would pay the
following expenses
on a $1,000 invest-
ment, assuming a 5%
annual return $______ $______
The purpose of the above table is to assist you in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly.
A. Shareholder Transaction Expenses are charges, if any, that you would pay
when you buy or sell Shares of the Fund.
B. Annual Fund Operating Expenses are anticipated since the Fund has no
historical expenses. A management fee is paid by the Fund to F. L. Putnam
Investment Management Company (the "Manager") for managing its investments
and business affairs, and from that fee an advisory fee is paid by the
Manager to PanAgora Asset Management, Inc. ("PanAgora" or the
"Sub-Adviser") for managing the Fund's investments in equity securities
identified by the Manager as Acceptable securities. The Fund incurs other
expenses for maintaining shareholder records, furnishing shareholder
statements and reports and for other services. Management fees and other
expenses are reflected in the Fund's share price or dividends and are not
charged directly to individual shareholder accounts. See "Management".
C. Example of Expenses The hypothetical example illustrates the expenses
associated with a $1,000 investment in the Fund over periods of one, three,
five and ten years, based on the expenses in the table above and an assumed
annual rate of return of 5%. The return of 5% and expenses should not be
considered indications of actual or expected Fund performance or expenses,
both of which may vary.
The Offering
The Fund is offering 800,000 Shares pursuant to this Prospectus at an
initial public offering price of $10.00 per share and at net asset value from
time to time thereafter on a monthly basis. There is no minimum purchase in this
offering. Shares may be purchased directly from the Fund.
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<PAGE>
Investment Objective and Policies
The Fund's investment objective of long-term capital appreciation is
summarized on the cover page of this Prospectus and this and the Fund's
investment policies are discussed herein under "Investment Objective and
Policies":
The Manager, the Sub-Adviser and the Administrator
The Manager identifies Acceptable securities. The Sub- Adviser selects
which Acceptable securities identified by the Manager the Fund should invest in.
The Sub-Adviser is staffed by personnel with extensive investment advisory
experience. In addition to identifying Acceptable securities, the Manager serves
as investment and business manager of the Fund. The Manager and its principal
officers have provided investment advisory services to individual, corporate and
other institutional clients for many years, including investment companies, and
the Manager has numerous clients concerned with the ethical, social justice, and
environmental aspects of their investments. The Manager will be entitled to
retain a monthly fee at the rate of .10% per annum of the Fund's average monthly
net assets from its total fee of .25% of such net assets, after paying a fee at
the rate of .15% per annum of such net assets to the Sub-Adviser. The Manager
will waive its portion of the fee for at least the first year following
inception of the Fund's operations. See "Management" herein.
The Administrator, which is also the Transfer Agent and Dividend
Disbursing Agent, will receive currently a total fee of $12,000 per year for
performing these services, including computing the Fund's net asset value as
required. It has agreed to waive such fee for at least the first year following
inception of the Fund's operations.
Distributions and Taxes
The Fund intends to pay quarterly dividends on the Shares out of net
investment income and short-term capital gains. Declaration of dividends to
shareholders is expected to commence approximately 180 days from the date of
this Prospectus. Distributions of "net capital gains", if any, will generally be
made annually and will be taxable as long-term capital gains to the extent that
they are designated by the Fund as capital gains dividends. See "Distributions
and Taxes" within.
Share Repurchases and Tender Offers
It is expected that there will be no market for the Shares and,
accordingly, the Shares will be illiquid. From time to time, but no more
frequently than quarterly, the Board of Trustees may consider making a tender
offer for the Shares. In deciding whether to repurchase or to tender for Shares,
the Board will consider both whether a tender or repurchase is in the best
interests of the Fund and its shareholders and also the effect of certain tax
considerations, including maintenance of the Fund's tax status as a regulated
investment company. See "Share Repurchases and Tender Offers" within.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Fund from the sale of the Shares offered hereby
(estimated to be $___________), will be invested in accordance with the Fund's
investment objective and policies during a period estimated not to exceed 90
days from the completion of the initial offering. Pending such investment, the
proceeds will be invested in short-term interest-bearing securities.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term capital appreciation.
The Fund invests principally in equity securities which its management believes
will contribute to the achievement of this objective and which do not possess
characteristics (i.e., products, services, geographical areas of operation or
other similar non-financial aspects) which management believes are unacceptable
to substantial constituencies of investors concerned with the ethical and/or
social justice characteristics of their investments (hereinafter sometimes
called "concerned investors"). Such securities, and/or their characteristics,
are herein sometimes referred to as being "Acceptable". A list of security
characteristics which the Fund believes are of interest to concerned investors
as of the date of this Prospectus is included in Annex. For the information of
investors the Fund will from time to time compare its investment results to
those of the Standard and Poor's Corporation 500 Stock Index and other major
market indices which the Fund considers appropriate.
The Fund's investment objective may be changed by the Trustees without
shareholder approval upon 30 days notice.
While it is not possible to determine in advance all of such
characteristics and/or issuers which are not Acceptable to the Fund, some of the
characteristics of issuers whose securities reasonably can be expected to be
excluded are issuers who directly derive substantial revenues from or who have
substantial assets which involve):
Nuclear, chemical, and biological weapons; Toxic waste
emission; Discriminatory employment practices; and Operations
which support oppressive governments.
In seeking to achieve its investment objective, the Fund purchases
Acceptable equity securities, identified as such by the Manager, that will, in
the Sub-Adviser's opinion, contribute to this goal. The Fund will hold both
dividend paying and non- dividend paying common stocks. The Fund will also
attempt to keep transaction costs low and maintain its portfolio turnover rate
to not more than 50% per year. If the Fund replaced all of its securities, other
than government securities, in one year, it would have a 100% annual turnover
rate.
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<PAGE>
Changes may be made in the Fund's holdings due to changes in the equity
markets in which the Fund invests or in the activities of issuers whose
securities are held as Acceptable securities or in the desirability of
individual securities as Fund investments from a financial standpoint. Brokerage
and other transaction costs will reduce the Fund's return.
Each investment for the Fund is chosen on the basis of its ability to
comply with the Fund's investment objective, policies and restrictions. In
selecting investments for the Fund, all investments are first evaluated for
investment potential and then screened for their compliance with the Fund's
Acceptable securities criteria. Such criteria screening will limit the
availability of investment opportunities for the Fund as compared to funds
having no such criteria. Acceptable investment criteria are not expressions of
fundamental policies and may be changed without shareholder approval.
Investment selection on the basis of Acceptable criteria of the sort
utilized by the Fund is a relatively new practice and sources for this type of
information are not well established. The Manager will depend principally upon
its experience in identifying and monitoring companies which meet the Acceptable
investment criteria of the Fund.
While the Manager has primary responsibility for the selection of
securities to meet the Fund's particular investment criteria for Acceptable
securities, it will rely upon the Board of Trustees for direction where
questions arise in connection with the implementation of any of these criteria
which require the Trustees' direction.
If, after an initial purchase by the Fund of a company's securities, it
is determined that such company's activities change or the Fund adopts new
Acceptable investment criteria with the result that the activities of such
company contravene the Fund's criteria, then the securities of such company will
be eliminated from the Fund's portfolio within a reasonable time. This
requirement may cause the Fund to dispose of the securities at a time when it
may be economically disadvantageous to do so.
To provide for any share repurchases authorized by the Trustees, the
Fund may make short-term investments, of up to a total of 20% of its assets
taken immediately after any such investments, such as obligations of the U.S.
Government and its agencies and instrumentalities and other high quality money
market instruments. When a defensive position is deemed advisable, the Fund may
hold cash, high quality corporate obligations, money market instruments and U.S.
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<PAGE>
government securities without limit. (See "United States Government Securities"
in Appendix A to this Prospectus for information concerning U.S. government
securities.)
Futures Contracts. The Fund may purchase and sell exchange-traded stock
index and other financial futures contracts, although it is expected that this
activity will be minimal, and in no event will the Fund maintain futures
positions which at any time expose more than 20% of the Fund's assets to risk of
loss without seeking to close out sufficient positions to reduce such exposure
to such 20%. The Fund may engage in such futures transactions in an attempt to
protect against possible changes in the market value of securities held in or to
be purchased for the Fund's portfolio resulting from securities market
fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, or to establish a position in the derivatives markets as a temporary
substitute for a particular transaction in a particular security. The ability of
the Fund to utilize futures successfully will depend on the Sub-Adviser's
ability to predict pertinent market movements, which cannot be assured. (See
"Futures Transactions" in the Statement of Additional Information for more
information about these practices and their risks.)
Utilizing the foregoing practices is commonly known as investing in
derivatives, which may expose the Fund to significant risks. The extent of such
utilization is not formally limited, but the Fund anticipates that under normal
circumstances such utilization will not be permitted to subject more than 10% of
the Fund's total assets to risk of loss without the Fund seeking to close out
sufficient positions to reduce such risk to such 10%.
Other Investment Policies. The Fund may employ certain other investment
strategies and techniques in pursuing the Fund's investment objective, which
together with their related risks are summarized below. These investment
techniques and the related risks are described further in the Statement of
Additional Information. Inclusion of such descriptions in this Prospectus and in
the Statement of Additional Information should not be construed by investors as
a representation that these techniques will generally be extensively employed by
the Fund or that the Fund will be generally "hedged" to any particular degree
against market risks or operated in any sense whatsoever as a "hedge fund".
When-Issued and Delayed Delivery Purchases. The Fund may make contracts
to purchase securities on a "when-issued" or "delayed delivery" basis. Pursuant
to such contracts, delivery and payment for the securities occurs at a later
date than the customary settlement date. The payment obligation and the
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interest rate on the securities will be fixed at the time the Fund enters into
the commitment, but interest will not accrue to the Fund until delivery of and
payment for the securities. An amount of cash or short-term U.S. Government
securities equal to the Fund's commitment would be deposited in a segregated
account at the Fund's custodian bank to secure the Fund's obligation. Although
the Fund would generally purchase securities on a when-issued or delayed
delivery basis with the intention of actually acquiring the securities for its
portfolio (or for delivery pursuant to options contracts it has entered into),
the Fund could dispose of a security prior to settlement if the Adviser deemed
it advisable. The Fund may realize short-term gains or losses in connection with
such sales. Purchasing securities on a when-issued or delayed delivery basis
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date. This risk is in addition to the risk of a decline
in value of the Fund's other assets. Furthermore, when such purchases are made
through a dealer, the dealer's failure to consummate the sale may result in the
loss to the Fund of an advantageous yield or price.
Repurchase Agreements. The Fund may enter into repurchase agreements
with broker-dealers, banks and other financial institutions. A repurchase
agreement is a contract pursuant to which the Fund, against receipt of
securities of at least equal value, agrees to advance a specified sum to the
financial institution which agrees to reacquire the securities at a mutually
agreed upon time and price. Repurchase agreements, which are usually for periods
of one week or less, enable the Fund to invest its cash reserves at fixed rates
of return. The Fund may enter into repurchase agreements, provided that the
Fund's custodian bank always has possession of securities serving as collateral
whose market value at least equals the amount of the repurchase obligation. To
minimize the risk of loss, the Fund will enter into repurchase agreements only
with financial institutions considered by the Adviser to be creditworthy under
guidelines adopted by the Board of Trustees. If an institution enters an
insolvency proceeding, the resulting delay in liquidation of the securities
serving as collateral could cause the Fund some loss, as well as legal expense,
should the value of the securities decline prior to liquidation.
Securities Loans. The Fund may seek to obtain additional income by
making secured loans of its portfolio securities. In such transactions, the
borrower pays to the Fund an amount equal to any dividends or interest received
on loaned securities. The Fund retains all or a portion of the interest received
on investment of cash collateral or receives a fee from the borrower. All
securities loans will be made pursuant to agreements requiring that the loans be
continuously secured by collateral in cash or short-term debt obligations at
least equal at all times to the market value of the loaned securities. The
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Fund may pay reasonable finders', administrative and custodial fees in
connection with loans of its portfolio securities. Although voting rights or
rights to consent accompanying loaned securities pass to the borrower, the Fund
retains the right to call the loans at any time on reasonable notice, and it
will do so in order that the securities may be voted by the Fund with respect to
matters materially affecting the Fund's investment. The Fund may also call a
loan in order to sell the securities involved. Lending portfolio securities
involves risks of delay in recovery of the loaned securities or in some cases
loss of rights in the collateral should the borrower commence an action relating
to bankruptcy, insolvency or reorganization. Accordingly, loans of portfolio
securities will be made only to borrowers considered by the Adviser to be
creditworthy under guidelines adopted by the Board of Trustees.
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental policies which may not be
changed without the vote of a majority of the outstanding voting securities, as
defined in the 1940 Act, of the Fund. Such vote means the affirmative vote of
the lesser of (i) the holders of more than 50% of the outstanding Shares, or
(ii) the holders of 67% or more of the outstanding Shares present at a meeting
if more than 50% of the holders of the outstanding Shares are represented at the
meeting in person or by proxy.
The Fund may not:
1. Borrow money or issue senior securities, provided that the
Fund may borrow amounts not exceeding 33-1/3% of the value of its total
assets (not including the amount borrowed) for temporary purposes, and
may not make additional investments while such borrowed amounts exceed
5% of the Fund's total assets.
2. Pledge, hypothecate, mortgage or otherwise encumber its
assets, except to secure borrowing permitted by the preceding
paragraph. Collateral arrangements with respect to margin on forward
currency contracts, futures contracts and options thereon and on
securities are not deemed to be pledges or other encumbrances for
purposes of this restriction.
3. Purchase securities on margin, except the Fund may obtain
such short-term credits as may be necessary for the clearance of
security transactions and may make margin deposits in connection with
forward currency contracts, option contracts on securities, equity
indices and other financial instruments as well as financial futures
contracts and options thereon.
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<PAGE>
4. Make short sales of securities or maintain a short position
for the account of the Fund, unless at all times when a short position
is open the Fund owns an equal amount of such securities or owns
securities which, without payment of any further consideration, are
convertible into or exchangeable for securities of the same issue as,
and in equal amounts to, the securities sold short.
5. Underwrite securities issued by other persons, except to
the extent that in connection with the disposition of its portfolio
investments it may be deemed to be an underwriter under the federal
securities laws.
6. Purchase or sell real estate, although the Fund may
purchase or sell securities of issuers which deal in real estate,
securities which are secured by interests in real estate and securities
representing interests in real estate.
7. Purchase or sell commodities or commodity contracts, except
that the Fund may purchase or sell financial futures contracts and
options on financial futures contracts and engage in foreign currency
transactions.
8. Make loans, except by purchase of debt obligations in which
the Fund may invest consistent with its investment policies, by
entering into repurchase agreements or through the lending of its
portfolio securities.
9. Purchase or retain the securities of any issuer if, to the
knowledge of the Fund, those officers and Trustees of the Fund and
officers and Directors of the Manager or the Sub-Adviser who each own
beneficially more than 1/2 of 1% of the securities of that issuer
together own more than 5% of such issuer.
10. Invest in securities of any issuer if, immediately after
such investment, more than 5% of the total assets of the Fund (taken at
current value) would be invested in the securities of such issuer or
acquire more than 10% of the outstanding voting securities of any
issuer, provided that this limitation does not apply to obligations
issued or guaranteed as to interest and principal by the U.S.
Government or its agencies or instrumentalities or to repurchase
agreements secured by such obligations and that up to 25% of the Fund's
total assets (at current value) may be invested without regard to this
limitation.
11. Concentrate its investments in the securities of issuers
primarily engaged in any one industry or group of industries, provided
that this limitation does not apply to obligations issued or
guaranteed as to interest and principal by the U.S. Government or its
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agencies or instrumentalities or to repurchase agreements secured by
such obligations.
12. Buy or sell oil, gas or other mineral leases, rights or
royalty contracts although it may purchase securities of issuers which
deal in, represent interests in or are secured by interests in such
leases, rights or contracts.
13. Purchase securities of any issuer for the purpose of
exercising control or management, except in connection with a merger,
consolidation, acquisition or reorganization.
All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment. Except for the investment restrictions listed above, other
investment policies described in this Prospectus are not fundamental and may be
changed by approval of the Board of Trustees.
As non-fundamental policies the Fund intends to follow the policies of
the Securities and Exchange Commission as they are adopted from time to time
with respect to illiquid securities, including (1) treating as illiquid
securities that may not be disposed of in the ordinary course of business within
seven days at approximately the value at which the Fund has valued the
investment on its books; and (2) limiting its holdings of such securities to 15%
of its net assets. The purchase of restricted securities is not to be deemed
engaging in underwriting.
In order to permit the sale of Fund shares in certain states or foreign
countries, the Fund may make commitments more restrictive than the investment
restrictions described above. Should the Fund determine that any such commitment
is no longer in the best interests of the Fund, it may revoke the commitment by
terminating sales of its shares in the sate or country involved.
MANAGEMENT
The Sub-Adviser
PanAgora Asset Management, Inc. ("PanAgora" or the "Sub- Adviser") is a
registered investment adviser organized in 1989, with offices at 260 Franklin
Street, Boston, Massachusetts, 02110, and affiliated offices in London, England.
It is wholly-owned, directly or indirectly, by its ultimate parents, Nippon Life
Insurance Company and Lehman Brothers Inc. PanAgora specializes in quantitative
investment techniques and will as a sub-advisor employed by the Manager with the
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Fund's approval, manage the Fund's Acceptable securities (identified by the
Manager). PanAgora is staffed by personnel substantially experienced in various
techniques of investment management.
The Manager
F. L. Putnam Investment Management Company, Langley Place, 10 Langley
Road, Newton Center, Massachusetts 02159, serves as the general investment and
business manager ("Manager") of the Fund pursuant to a written management
agreement (the "Management Agreement"). The Manager and its principal officers
have provided investment advisory services to individual, corporate and other
institutional clients for many years.
The Manager is a Maine corporation registered with the Securities and
Exchange Commission as an investment adviser, and is wholly-owned by F. L.
Putnam Securities Company, Incorporated, a Delaware corporation, Two City
Center, Portland, ME 04101, which is a financial services holding company,
substantially all of the outstanding voting stock of which is held by David W.
C. Putnam, a Trustee of the Fund, and members of his family.
Subject to the direction and control of the Trustees, the Manager is
responsible for supervising the overall management of the Fund's investments and
business affairs. The Management Agreement permits the Manager, with the
approval of the Fund's Shareholders and Trustees, to delegate all or any part of
its duties and obligations to one or more sub-investment advisers. PanAgora
Asset Management, Inc. is such a sub-investment adviser pursuant to a written
investment advisory agreement (the "Sub- Advisory Agreement") providing for
PanAgora to manage the Acceptable securities identified by the Manager. For its
services, the Fund pays the Manager a monthly fee equal to .25% per annum of the
Fund's average monthly net assets. From this fee the Manager pays a monthly fee
at the annual rate of .15% of such average net assets to the Sub-Adviser and
retains a fee of .10% of such net assets. The Manager has waived its portion of
the fee for at least the first year of the Fund's operation.
The Fund pays all expenses incurred in its operation not assumed by the
Manager, including such investment advisory fee, expenses for legal,
bookkeeping, accounting and auditing services, interest, taxes, costs of
printing and distributing reports to shareholders, proxy materials,
prospectuses, statements of additional information and share certificates,
charges of its custodian bank, fees of the Administrator for administration,
transfer agency and dividend disbursing services, registration fees, fees and
expenses of the Trustees who are not interested persons of the Manager,
insurance, brokerage costs, litigation and other extraordinary or nonrecurring
expenses. Under the Management Agreement, the Manager will reduce its fee to the
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extent that expenses payable by the Fund would exceed the limit on expenses
applicable to the Fund in any state in which Shares are then qualified for sale.
Portfolio Managers
David W. C. Putnam, President of the Manager, will be primarily
responsible for selecting Acceptable securities. Mr. Putnam has been in the
investment management business for many years and has had substantial experience
in selecting such securities.
The Portfolio Manager who is primarily responsible for the Fund's
investment management by PanAgora is William G. Zink, Senior Manager, Equities,
of PanAgora. Mr. Zink is responsible for overseeing many investment products for
PanAgora. Mr. Zink has been associated with PanAgora or its affiliates for 6
years, prior to which he was a Vice President of Interactive Data Corporation
where he managed the portfolio management and mutual fund pricing businesses.
The Administrator
Anchor Investment Management Corporation, 418 Hilltop Circle,
Glenmoore, PA 19343, is Administrator, Transfer Agent and Dividend Disbursing
Agent of the Fund. As Administrator it will oversee or provide bookkeeping,
securities transactions, net asset value computations and other operational
matters for the Fund. Its fees from the Fund will currently total $12,000 per
year which it has agreed to waive for the Fund's first year of operation.
Portfolio Brokerage Transactions
Subject to the supervision of the Trustees, the Sub-Adviser and/or the
Manager selects the brokers and dealers which execute orders to purchase and
sell portfolio securities for the Fund. They seek to obtain the best available
price and most favorable execution with respect to all transactions for the
Fund.
Subject to the consideration of best price and execution and to
applicable regulations, the receipt of research services and, if and when
applicable, sales of Fund shares may also be considered factors in the selection
of brokers and dealers that execute orders to purchase and sell portfolio
securities for the Fund.
Consistent with the Fund's policy of obtaining best price and execution
on portfolio transactions, the Trustees have determined that portfolio
transactions for the Fund may be executed through a broker that may be
considered an affiliated person of the Fund or the Manager or the Sub-Adviser,
if in the judgment of the Manager or the Sub-Adviser, the use of such
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affiliated broker is likely to result in prices and executions at least as
favorable to the Fund as those available from other qualified brokers and if, in
such transactions, such affiliated broker charges the Fund commission rates
consistent with those charged by the broker to comparable unaffiliated customers
in similar transactions.
Portfolio brokerage transactions are further described in the Statement
of Additional Information.
DISTRIBUTIONS AND TAXES
Distributions
The Fund intends to pay quarterly dividends on the Shares out of net
investment income and short-term capital gains. Declaration of dividends to
shareholders is expected to commence approximately 180 days from the date of
this Prospectus. The Fund's net investment income is all of its income (other
than net capital gains) reduced by its expenses. In addition, the Fund intends
to distribute annually to shareholders all of "net capital gains". The Fund's
net capital gains equals the excess of its net long-term capital gains over its
net short-term capital losses.
The Fund expects for the presently foreseeable future to declare all
dividends and distributions in additional Shares of the Fund taken at their net
asset value on the record date, provided that Shareholders may elect in advance
to have dividends and distributions paid to them in cash.
Federal Taxes
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code. As a regulated investment company, the Fund will not be
subject to federal income tax on net investment income and capital gains (short-
and long-term), if any, that it distributes to its shareholders if at least 90%
of its net investment income and net short-term capital gains for the taxable
year are distributed, but will be subject to tax at regular corporate rates on
any income or gains that are not distributed. In addition, dividends and
distributions paid to shareholders are taxable as ordinary income or capital
gains. Shareholders may be proportionately liable for taxes on income and gains
of the Fund but shareholders not subject to tax on their income will not be
required to pay tax on amounts distributed to them. The Fund will inform
shareholders of the amount and nature of the income or gains.
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Capital Gains
Shareholders may realize a capital gain or loss when Shares are sold.
Other Tax Information
In addition to federal taxes, investors may be subject to state or
local taxes on their investment, depending on the laws in the investor's area.
For a further discussion of the tax treatment of distributions, see The
Statement of Additional Information.
SHARE REPURCHASES AND TENDER OFFERS
Shares of the Fund are not expected to have a public market and will,
therefore, be illiquid. To address this possibility and to provide some
liquidity for its Shareholders, the Board of Trustees of the Fund currently
contemplates that from time to time, but not more frequently than quarterly, the
Board may consider repurchasing Shares through tender offers to all
Shareholders.
There can be no assurance that the Fund will repurchase Shares or that
such repurchases of Shares would result in the Shares trading at a price which
is equal to the net asset value.
If the Fund must liquidate portfolio securities in order to effect
repurchases of Shares, the Fund may realize gains and losses. Such gains may be
realized on securities held for less than three months. Because of the
limitation of 30% on the portion of the Fund's gross income that may be derived
from the sale or disposition of stocks and securities held less than three
months (in order to retain the Fund's tax status as a regulated investment
company accorded special tax treatment under the Code), such gains would reduce
the ability of the Fund to sell other securities held for less than three months
that the Fund may wish to sell in the ordinary course of its portfolio
management. Such liquidation of portfolio securities may also result in the
realization of long-term gains by the Fund.
In authorizing repurchases of Shares, the Trustees will consider the
effect of such repurchases on the Fund's expense ratio, portfolio turnover, its
ability to achieve its investment objective and the maintenance of its status as
a regulated investment company. It is the policy of the Board of Trustees, which
may be changed by the Board, not to effect repurchases of Shares which would
have a material adverse effect, including adverse tax consequences, on the Fund
or its shareholders.
Quarterly, the Board of Trustees may consider making a tender offer for
the Shares at their then-current net asset value. At that time, the Board of
Trustees will consider the liquidity provided by the trading on the
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over-the-counter-market, if any, including the historical price performance and
trading volume of the Shares and whether such a tender is in the best interests
of the Fund and its shareholders.
If such a tender offer is made, notice will be provided which will
describe the tender offer and contain information that shareholders should
consider in deciding whether to tender their Shares to the Fund as well as
detailed instructions on how to tender Shares.
PRINCIPAL SHAREHOLDER
As of the date of this Prospectus, the Manager owned all the
outstanding Shares of the Fund, which it purchased in connection with the
contribution of the initial capital of the Fund. The Manager has represented
that the Shares were purchased for investment purposes only and will be sold
only pursuant to an effective registration statement under the Securities Act of
1933, as amended, or an applicable exemption therefrom.
PURCHASE OF SHARES
Investors may purchase Shares from the Fund at an initial public
offering price of $10.00 per share and at net asset value from time to time
thereafter on a monthly basis. There is no minimum purchase in this offering.
Orders for the purchase of shares received by the Fund by the close of
regular trading (normally 4:00 p.m. New York time) on the New York Stock
Exchange (the "Exchange") on any business day on which shares are offered
(normally the last business day of each month) will be effected at the net asset
value per share determined as of the close of trading on the Exchange on that
day. The Fund reserves the right in its sole discretion (i) to suspend the
offering of the Shares at any time, (ii) to reject purchase orders for any
reason and (iii) to institute a minimum initial investment amount.
To eliminate the need for safekeeping, the Fund generally will not
issue share certificates. The Fund's transfer agent maintains records of the
number of Shares held in each Shareholder's account, and issues confirmation
statements to each Shareholder of record showing that Shareholder's purchases
and sales of Shares of the Fund.
NET ASSET VALUE
The net asset value of the Shares will be determined at least once each
month on the last business day thereof by dividing the value of all assets of
the Fund less all liabilities by the total number of Shares outstanding, and
adjusting to the nearest cent per share.
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Short-term obligations with remaining maturities of 60 days or less are
valued by the Fund at amortized cost when amortized cost is fair value. All
other investments are valued at market value or, where market quotations are not
readily available, at fair value as determined in good faith by or under the
direction of the Trustees of the Fund. Additional information concerning the
Fund's valuation policies is contained in the Statement of Additional
Information.
THE FUND AND ITS SHARES
The Fund is a closed-end diversified management investment company,
newly established as an unincorporated business trust organized under the laws
of The Commonwealth of Massachusetts pursuant to an Agreement and Declaration of
Trust dated April 26, 1994 (the "Declaration of Trust"). Under the Declaration
of Trust, the Trustees have authority to issue an unlimited number of shares of
beneficial interest of the Fund. When issued, each share of the Fund will be,
fully paid and nonassessable by the Fund, except as set forth in the following
paragraph. Shares of the Fund have no preemptive, conversion, exchange or
redemption rights. Each share has one vote, with fractional shares voting
proportionately. Shares are freely transferable. If the Fund were liquidated,
shareholders would receive the net assets of the Fund. Each share represents an
equal proportionate interest in the Fund with each other share of the Fund and
is entitled to share pro rata in the net assets of the Fund available for
distribution.
The Trustees may authorize separate series and classes of shares of
beneficial interest at any time. Currently, the Trustees have authorized the
issuance only of the Shares offered pursuant to this Prospectus.
As a Massachusetts business trust, the Fund is not required to hold
annual shareholders meetings, although special meetings may be called for
purposes such as electing or removing Trustees, changing fundamental policies or
approving an investment advisory agreement. In addition, a special meeting of
shareholders of the Fund will be held if, at any time, less than a majority of
the Trustees then in office have been elected by shareholders of the Fund.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Fund and requires that a contractual notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
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executed by the Fund or the Trustees. The Declaration of Trust provides for
indemnification out of the Fund's property for all loss and expense of any
shareholder held personally liable for the obligations of the Fund. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances where the contract notice is inapplicable,
absent or ineffective and the Fund is unable to meet its obligations. The
likelihood of such circumstances is remote.
As of the data of this Prospectus, the Fund had outstanding, 10,000
Shares of beneficial interest, none of which were held by the Fund.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
All cash and securities of the Fund are held by Investors Bank and
Trust Company, 1 Lincoln Plaza, Boston, Massachusetts 02205, as custodian.
Anchor Investment Management Corporation, 418 Hilltop Circle, Glenmoore, PA
19343, serves as the Transfer Agent and Dividend Disbursing Agent for the
Shares.
REPORTS TO SHAREHOLDERS
The Fund will send unaudited semiannual and audited annual reports to
its Shareholders, including a list of investments held.
LEGAL COUNSEL
Sullivan & Worcester, One Post Office Square, Boston, Massachusetts
02109, is legal counsel to the Fund and the Manager.
AUDITORS
Livingston & Haynes, P.C., Two Sun Life Park, Wellesley Hills,
Massachusetts 02181, serves as independent public accountants for the Fund and
will audit its financial statements annually.
ADDITIONAL INFORMATION
Further information concerning these securities may be found in the
Registration Statement, of which this Prospectus and the Statement of Additional
Information constitute a part, on file with the Securities and Exchange
Commission. The table of contents of the Statement of Additional Information is
set forth below.
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Table of Contents of
The Statement of Additional Information
Page
Investment Policies and Techniques
Special Considerations
Trustees and Officers
Management
Portfolio Transactions
Determination of Net Asset Value
Taxation
Additional Information
Financial Statement
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus or in the Statement of Additional Information, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by the Trust. This Prospectus does not constitute an offering in any
jurisdiction in which such offering may not be lawfully made.
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APPENDIX A
This Appendix provides additional information about various of the
securities in which the Fund may invest.
I. RATINGS OF CORPORATE SECURITIES
A. CORPORATE BONDS
Standard & Poor's Corporation describes classifications of corporate
bonds as follows:
AAA -- This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay principal and
interest.
AA -- Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from the AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to
pay principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
To provide more detailed indications of corporate bond quality, the
ratings of AA, A and BBB may be modified by the addition of a plus (+) or a
minus (-) sign to show the relative standing within the major rating categories.
Moody's Investors Service, Inc. describes classifications of corporate
bonds as follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the Trustamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
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high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification of Aa, A and Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
B. PREFERRED STOCK
Standard & Poor's Corporation describes classifications of preferred
stock as follows:
AAA -- This is the highest rating that may be assigned to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations.
AA -- A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A -- An issue rated A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
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BBB -- An issue rated BBB is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Although it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for preferred stock
in this category than for issues in the A category.
To provide more detailed indications of preferred stock quality, the
ratings of AA, A and BBB may be modified by the addition of a plus (+) or a
minus (-) sign to show the relative standing within the major rating categories.
Moody's Investors Service, Inc. describes classifications of preferred
stock as follows:
aaa -- Preferred stocks which are rated aaa are considered to be top-
quality. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
aa -- Preferred stocks which are rated aa are considered to be
high-grade. This rating indicates that there is reasonable assurance that
earnings and asset protection will remain relatively well maintained in the
foreseeable future.
a -- Preferred stocks which are rated a are considered to be
upper-medium grade. While risks are judged to be somewhat greater than in the
Aaa and Aa classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa -- Preferred stocks which are rated baa are judged lower-medium
grade, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification of aa, a and baa in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category. Preferred stock ratings are based on the following considerations:
(i) Likelihood of payment -- capacity and willingness of the issuer to
meet the timely payment of preferred stock dividends and any applicable sinking
Trust requirements in accordance with the terms of the obligations.
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(ii) Nature of and provisions of the issue.
(iii) Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors' rights.
C. COMMERCIAL PAPER RATINGS
Standard & Poor's Corporation describes commercial paper ratings as follows:
The A-1+ rating is the highest, A-1 the second highest, and A-2 the
third highest commercial paper rating assigned by Standard & Poor's. Paper rated
A- 1+ must possess overwhelming safety characteristics regarding timely payment.
Commercial paper rated A-1 must have a degree of safety that is overwhelming or
very strong. Commercial paper rated A-2 must have a degree of safety that is
strong. Moody's describes commercial paper ratings as follows:
Issuers rated P-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. P-1 repayment
capacity will normally be evidenced by the following characteristics:
-- Leading market positions in well established industries.
-- High rates of return on Trusts employed.
-- Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
-- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
-- Well established access to a range of financial markets
and assured sources of alternative liquidity
Issuers rated P-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
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II. UNITED STATES GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. government include a
variety of Treasury debt securities having various interest rates and maturities
and securities issued by the Government National Mortgage Association ("GNMA").
Treasury bills have maturities of one year or less. Treasury notes have
maturities of one to ten years and Treasury bonds generally have maturities of
greater than ten years at the date of issuance. GNMA securities include GNMA
mortgage pass-through certificates. Such securities are supported by the full
faith and credit of the U.S.
Securities issued or guaranteed by U.S. government agencies or
instrumentalities include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, General Services Administration, Central
Bank for Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Maritime
Administration, The Tennessee Valley Authority, District of Columbia Armory
Board and Federal National Mortgage Association.
Some obligations of U.S. government agencies and instrumentalities,
such as securities of Federal Home Loan Banks, are supported by the right of the
issuer to borrow from the Treasury. Others, such as bonds issued by the Federal
National Mortgage Association, a private corporation, are supported only by the
credit of the instrumentality. Because the U.S. government is not obligated by
law to provide support to an instrumentality it sponsors, the Fund will invest
in the securities issued by such an instrumentality only when Management
determines under standards established by the Board of Trustees that the credit
risk with respect to the instrumentality does not make its securities unsuitable
investments. While the Fund may invest in such instruments, U.S. government
securities do not include international agencies or instrumentalities in which
the U.S. government, its agencies or instrumentalities participate, such as the
World Bank, Asian Development Bank or the Interamerican Development Bank, or
issues insured by the Federal Deposit Insurance Corporation.
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ANNEX I
Certain Characteristics of Interest to Various Investors
Concerned with Ethical, Social Justice, Environmental,
and other Non-Financial Aspects of their Investments
Alcohol - Production and Distribution
Animals - Use in Testing Biotechnology
Biotechnology - Fetal Tissue Research
Biotechnology - Genetic Engineering
Board of Directors - Composition
Community Involvement (Support)
Community Reinvestment Act Rating
Employment Practices - AIDS
Employment Practices - Equal Opportunity
Employment Practices - Family Benefits
Energy Sources - Coal
Energy Sources - Nuclear
Energy Sources - Oil
Energy Sources - Solar and Alternative
Equal Employment Policies & Programs
Environment - Recycler
Environment - Produces Recyclable Products
Environment - Uses Recycled Products
Environment - CERES Principle Signatory
Environment - Energy Conservation
Environment - Major Polluter (USA)
Environment - Major Polluter (World)
Human Life Issues - Abortion: Products, Services,
Ownership of Facilities
Human Life Issues - Contraception Products:
Production and Distribution
Management Composition
Maquiladoras - Environment
Maquiladoras - Labor Practices
Military - Department of Defense Prime Contractor
Military - Weapons Producer
Military - Nuclear Weapons Research
Military - Nuclear Weapons Producer
Military - Chemical Weapons
Military - Biological Weapons
Northern Ireland - Presence
Northern Ireland - MacBride Principles Signatory
Product Safety
Shareholder Resolutions
South Africa - Direct Involvement
South Africa - Indirect Involvement
South Africa - Presence
South Africa - Principles for South Africa Signatory
Tobacco - Production and Distribution
A-6
<PAGE>
Part B
STATEMENT OF ADDITIONAL INFORMATION ________ ____, 1996
THE PRINCIPLED EQUITY MARKET FUND
Langley Place, 10 Langley Road
Newton Center, Massachusetts 02159
(617) 964-7600
This Statement of Additional Information is not a prospectus, but
expands upon and supplements the information contained in the Prospectus of The
Principled Equity Market Fund (the "Fund") which bears the same date as this
Statement of Additional Information and should be read in conjunction with it.
The Fund's Prospectus may be obtained from the Fund.
[Subject to Completion. Information contained herein is subject to
completion or amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission. These securities may
not be sold nor may any offers to buy be accepted prior to the time the
registration statement becomes effective. This Statement of Additional
Information does not constitute a prospectus.]
Table of Contents
Page
Investment Policies and Techniques
Special Considerations
Trustees and Officers
Management
Portfolio Transactions
Determination of Net Asset Value
Taxation
Additional Information
Financial Statement
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Statement of Additional Information or in the Prospectus, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by the Fund. This Statement of Additional Information does not
constitute an offering in any jurisdiction in which such offering may not be
lawfully made.
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<PAGE>
INVESTMENT POLICIES AND TECHNIQUES
The Prospectus describes the investment objective of the Fund and
summarizes certain investment policies and techniques the Fund expects to
employ. The following discussion supplements the description of the Fund's
investment policies and techniques in the Prospectus.
A. FUTURES STRATEGIES
The Fund may at times seek to hedge against a decline in the value of
securities included in the Fund's portfolio or an increase in the price of
securities which the Fund plans to purchase through the purchase and sale of
financial futures contracts. Expenses and losses incurred as a result of such
hedging strategies will reduce the current return of the Fund.
The ability of the Fund to engage in the futures strategies described
below will depend on the availability of liquid markets in such instruments.
Accordingly, no assurance can be given that the Fund will be able to use these
instruments effectively for the purposes stated below. Futures transactions
involve certain risks which are described below under "Risks of Futures
Strategies."
Futures Contracts. A financial futures contract sale creates an
obligation by the seller to deliver the type of financial instrument called for
in the contract in a specified delivery month for a stated price. A financial
futures contract purchase creates an obligation by the purchaser to take
delivery of the type of financial instrument called for in the contract in a
specified delivery month at a stated price. The specific instruments delivered
or taken, respectively, at settlement date are not determined until on or near
that date. The determination is made in accordance with the rules of the
exchange on which the futures contract sale or purchase was made. Futures
contracts are traded in the United States only on commodity exchanges or boards
of trade -- known as "contract markets" -- approved for such trading by the
Commodity Futures Trading Commission (the "CFTC"), and must be executed through
a futures commission merchant or brokerage firm which is a member of the
relevant contract market.
Although futures contracts by their terms call for actual delivery or
acceptance of commodities or securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out a futures contract sale is effected by purchasing a futures contract for the
same aggregate amount of the specific type of financial instrument or commodity
with the same delivery date. If the price of the initial sale of the futures
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<PAGE>
contract exceeds the price of the offsetting purchase, the seller is paid the
difference and realizes a gain. Conversely, if the price of the offsetting
purchase exceeds the price of the initial sale, the seller realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by the
purchaser's entering into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the purchaser realizes a gain, and if the purchase
price exceeds the offsetting sale price, he realizes a loss. In general, 40% of
the gain or loss arising from the closing out of a futures contract traded on an
exchange approved by the CFTC is treated as short-term gain or loss, and 60% is
treated as long-term gain or loss.
The Fund may sell financial futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market value of the securities held by the Fund will fall, thus
reducing its net asset value. This interest rate risk can be reduced without
employing futures as a hedge by selling such securities and either reinvesting
the proceeds in securities with shorter maturities or by holding assets in cash.
However, this strategy entails increased transaction costs in the form of dealer
spreads and brokerage commissions and would typically reduce the Fund's average
yield as a result of the shortening of maturities.
The sale of financial futures contracts provides a means of hedging
against rising interest rates. As rates increase, the value of the Fund's short
position in the futures contracts will also tend to increase, thus offsetting
all or a portion of the depreciation in the market value of the Fund's
investments which are being hedged. While the Fund will incur commission
expenses in selling and closing out futures positions (which is done by taking
an opposite position in the futures contract), commissions on futures
transactions tend to be lower than transaction costs incurred in the purchase
and sale of portfolio securities.
The Fund may purchase interest rate futures contracts in anticipation
of a decline in interest rates when it is not fully invested. As such purchases
are made, the Fund intends that an equivalent amount of futures contracts will
be closed out.
Unlike cases where the Fund purchases or sells a security, no price is
paid or received by the Fund when it purchases or sells a futures contract. Upon
entering into a contract, the Fund is required to deposit with its custodian in
a segregated account in the name of the futures broker an amount of cash and/or
U.S. Governments Securities. This amount is known as "initial margin." The
nature of initial margin in futures transactions is different from that of
margin in securities transactions in that futures contract margin does not
involve the borrowing of funds to finance the transactions. Rather, initial
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margin is similar to a performance bond or good faith deposit which is returned
to the Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin" or "maintenance margin",
to and from the broker (or the custodian) are made on a daily basis as the price
of the underlying security or commodity fluctuates, making the long and short
positions in the futures contract more or less valuable. This is known as
"marking to the market." For example, when the Fund has purchased a futures
contract on a security and the price of the underlying security has risen, that
position will have increased in value and the Fund will receive from the broker
a variation margin payment based on that increase in value. Conversely, when the
Fund has purchased a security futures contract and the price of the underlying
security has declined, the position would be less valuable and the Fund would be
required to make a variation margin payment to the broker.
The Fund may elect to close some or all of its futures positions at any
time prior to their expiration in order to reduce or eliminate a hedge position
then currently held by the fund. The Fund may close its positions by taking
opposite positions which will operate to terminate the fund's position in the
futures contracts. Final determinations of variation margin are then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or a gain. Such closing transactions involve additional
commission costs.
Limitations. The Fund will not purchase or sell futures contracts if,
as a result, the sum of the margin deposits on its existing futures contracts
would exceed 5% of the Fund's total assets or if more than 20% of the Fund's
total assets would be exposed to risk of loss by futures contracts. Nor will the
Fund maintain a futures position which exposes the Fund to such risk of loss
without seeking to close out such position. The Fund anticipates that under
normal circumstances not more than 10% of the Fund's total assets will be
maintained subject to such risk without the Fund seeking to close out sufficient
positions to reduce such risk to such 10%. In addition, with respect to each
futures contract purchased the Fund will set aside in a segregated account at
its custodian bank an amount of cash or short-term U.S. Government Securities
equal to the total market value of such contracts less the initial margin
deposited therefor.
Risks of Transactions in Futures Contracts. Successful use of futures
contracts by the Fund is subject to the ability of its investment advisers to
predict movements in the direction of interest rates and other factors affecting
securities markets. For example, if the Fund has hedged against the possibility
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of decline in the values of its investment and the values of its investments
increase instead, the Fund will lost part or all of the benefit of the increase
through payments of daily maintenance margin. The Fund may have to sell
investments at a time when it may be disadvantageous to do so in order to meet
margin requirements.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain market clearing
facilities inadequate, and thereby result in the institution by exchanges of
special procedures which may interfere with the timely execution of customer
orders.
To reduce or eliminate a hedge position held by the Fund, the Fund may
seek to close out a position. The ability to establish and close out positions
will be subject to the development and maintenance of a liquid secondary market.
It is not certain that this market will develop or continue to exist for
particular futures contracts. Reasons for the absence of a liquid secondary
market on an exchange include the following: (i) there may be insufficient
trading interest in certain contracts; (ii) restrictions may be imposed by an
exchange on opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of contracts, or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts (or a particular class or
series of contracts), in which event the secondary market on that exchange for
such contracts (or in the class or series of contracts) would cease to exist,
although outstanding contracts on the exchange that had been issued by a
clearing corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
Index Futures Contracts. An index futures contract is a contract to buy
or sell units of an index at a specified future date at a price agreed upon when
the contract is made. Entering into a contract to buy units of an index is
commonly referred to as buying or purchasing a contract or holding a long
position in the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short position. A unit
is the current value of the index. The Fund may enter into stock index futures
contracts, debt index futures contracts, or other index futures contracts
appropriate to its objective.
For example, the Standard & Poor's Composite 500 Stock Price Index
("S&P 500") is composed of 500 selected common stocks, most of which are listed
on the New York Stock Exchange. The S&P 500 assigns relative weightings to the
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common stocks included in the Index, and the value fluctuates with changes in
the market values of those common stocks. In the case of the S&P 500, contracts
are to buy or sell 500 units. Thus, if the value of the S&P 500 were $150, one
contract would be worth $75,000 (500 units x $150). The stock index futures
contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the contract.
For example, if the Fund enters into a futures contract to buy 500 units of the
S&P 500 at a specified future date at a contract price of $150 and the S&P 500
is at $154 on that future date, the Fund will gain $2,000 (500 units x gain of
$4). If the Fund enters into a futures contract to sell 500 units of the stock
index at a specified future date at a contract price of $150 and the S&P 500 is
at $152 on that future date, the Fund will lose $1,000 (500 units x loss of $2).
There are several risks in connection with the use by the Fund of index
futures as a hedging device. One risk arises because of the imperfect
correlation between movements in the prices of the index futures and movements
in the prices of securities which are the subject of the hedge. The Sub-Adviser
will, however, attempt to reduce this risk by buying or selling, to the extent
possible, futures on indices the movements of which will, in its judgment, have
a significant correlation with movements in the prices of the securities sought
to be hedged.
The successful use of index futures by the Fund for hedging purposes is
also subject to the Sub-Adviser's ability to predict movements in the direction
of the market. It is possible that, where the Fund has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in the Fund's portfolio may
decline. If this occurred, the Fund would lose money on the futures and also
experience a decline in value in its portfolio securities. It is also possible
that, if the Fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities prices
increase instead, the Fund will lose part of all of the benefit of the increased
value of those securities it has hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if the fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements at a time when it is disadvantageous to do so.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the index futures
and the portion of the portfolio being hedged, the prices of index futures may
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not correlate perfectly with movements in the underlying index due to certain
market distortions. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures markets
are less onerous than margin requirements in the securities market, and as a
result the futures market may attract more speculators than the securities
market does. Increased participation by speculators in the futures market may
also cause temporary price distortions. Due to the possibility of price
distortions in the futures market and also because of the imperfect correlation
between movements in the index and movements in the prices of index futures,
even a correct forecast of general market trends by the Sub-Adviser may still
not result in a successful hedging transaction over a short time period.
B. REPURCHASE AGREEMENTS
A repurchase agreement is an agreement under which the Fund acquires a
money market instrument (generally a security issued by the U.S. Government or
an agency or instrumentality thereof, a banker's acceptance or a certificate of
deposit) from a commercial bank, broker or dealer, subject to resale to the
seller at an agreed upon price and date (normally the next business day). The
resale price reflects an agreed upon interest rate effective for the period the
instrument is held by the Fund and is unrelated to the interest rate on the
underlying instrument. In these transactions, the instruments acquired by the
Fund (including accrued interest) must have a total value in excess of the value
of the repurchase agreement and will be held by the Fund's custodian until
repurchased. BSC will use standards set by the Fund's Trustees in reviewing the
creditworthiness of parties to repurchase agreements with the Fund. In addition,
no more than an aggregate of 15% of the Fund's net assets, at the time of
investment, will be invested in illiquid investments including repurchase
agreements having maturities longer than seven days.
The use of repurchase agreements by the Fund involves certain risks.
For example, if the seller under a repurchase agreement defaults on its
obligation to repurchase the underlying instrument at a time when the value of
the instrument has declined, the Fund may incur a loss upon its disposition. If
the seller becomes insolvent and subject to liquidation or reorganization under
bankruptcy or other laws, a bankruptcy court may determine that the underlying
instrument is collateral for a loan by the Fund and therefore is subject to sale
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by the trustee in bankruptcy. Finally, the Fund's right to liquidate its
collateral in the event of a default could involve certain costs, losses or
delays and, to the extent that proceeds from any sale upon default of the
obligation to repurchases are less than the repurchase price, the Fund could
suffer a loss.
As an alternative to using repurchase agreements, the Fund may from
time-to-time invest up to 5% of its assets in money market investment companies
sponsored by a third party for short-term liquidity purposes.
J. SHORT-TERM TRADING
In seeking the Fund's objective, the Sub-Adviser will buy or sell
portfolio securities whenever BSC believes it appropriate to do so. In deciding
whether to sell a portfolio security, BSC will not consider how long the Fund
has owned the security. From time to time the Fund will buy securities intending
to seek short-term trading profits. A change in the securities held by the Fund
is known as "portfolio turnover" and generally involves expense to the Fund.
These expenses may include brokerage commissions or dealer mark-ups and other
transaction costs on both the sale of securities and the reinvestment of the
proceeds in other securities. If sales of portfolio securities cause the Fund to
realize net short-term capital gains, such gains will be taxable as ordinary
income. As a result of the Fund's investment policies, under certain market
conditions the Fund's portfolio turnover rate may be higher than that of other
mutual funds. Portfolio turnover rate for a fiscal year is the ratio of the
lesser of purchases or sales of portfolio securities to the monthly average of
the value of portfolio securities -- excluding securities whose maturities at
acquisition were one year or less. The Fund's portfolio turnover rate is not a
limiting factor when BSC considers a change in the Fund's portfolio.
M. WHEN-ISSUED SECURITIES
The Fund may purchase securities on a "when-issued" or delayed delivery
basis. In such transactions, the price is fixed at the time the commitment to
purchase is made, but delivery and payment for the securities take place at a
later date, normally within one month. At the time the Fund makes the commitment
to purchase a security on a when-issued or delayed delivery basis, it will
record the transaction and reflect the value of the security less the liability
to pay the purchase price in determining the Fund's net asset value. The value
of the security on the settlement date may be more or less than the price paid
as a result of, among other things, changes in the level of interest rates or
other market factors. Accordingly, there is a risk of loss which is in addition
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to the risk of decline in the value of the Fund's other assets. No interest
accrues on the security between the time the Fund enters into the commitment and
the time the security is delivered. The Fund may establish a segregated account
with its custodian in which it will maintain cash and marketable securities
equal in value to commitments for when-issued or delayed delivery securities.
Such segregated securities either will mature or, if necessary, be sold on or
before the settlement date. While when-issued or delayed delivery securities may
be sold prior to the settlement date, it is intended that the Fund will purchase
such securities with the purpose of actually acquiring them unless a sale
appears desirable for investment reasons.
SPECIAL CONSIDERATIONS
As a newly organized entity, the Fund has no operating history. The
Fund is not intended to be a complete investment program and, due to the
uncertainty inherent in all investments, there can be no assurance that the Fund
will achieve its investment objective.
Shares of the Fund are not expected to have a public market and will,
therefore, be illiquid. Although tender offers may be considered by the Trustees
quarterly, there can be no assurance that any such tender offers will be made.
Accordingly, the Fund should not be considered as a short-term investment or
trading vehicle. The value of the Shares as well as the opportunities for gains
will fluctuate depending upon market factors.
The Fund may enter into financial futures contracts and enter into
various currency transactions, including forward currency contracts. The Fund
may invest a portion of its assets in restricted securities, purchase securities
on a "when-issued" or delayed delivery basis, enter into repurchase agreements
and lend its portfolio securities. These investment strategies and policies
involve certain special risks. See "Investment Objective and Policies - Other
Investment Policies", "Investment Restrictions" and "Distributions and Taxes".
Given the risks described above, an investment in the Shares may not be
appropriate for all investors. Investors should carefully consider their ability
to assume these risks before making an investment in the Fund.
TRUSTEES AND OFFICERS
The Board of Trustees of the Fund is responsible for the overall
management and operations of the Fund. The Trustees and executive officers of
the Fund and their principal occupations during the last five years are set
forth below. As described below, David W.C. Putnam, President and Secretary of
the Fund, is President of F. L. Putnam Investment Management Company, the
Fund's Manager.
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Position(s) Held Principal Occupation(s)
Name and Address with the Fund During Past Five Years
---------------- ------------- ----------------------
Howard R. Buckley Trustee President, Chief Executive
Mercy Hospital Officer and Trustee, Mercy
144 State Street Hospital, Portland, Maine;
Portland, ME 04101 President, Chief Executive
Officer and Director, Mercy
Health Systems of Maine, 1993--
present.
Sister Sheila Carney, Trustee President, Pittsburgh
R.S.M., (Pennsylvania) Regional
Sisters of Mercy Community, Sisters of Mercy of
3333 Fifth Avenue the Americas, 1987-present;
Pittsburgh, PA 15213 Acting President, Holy Cross
Health Corporation, Fort
Lauderdale Florida, 1992-present;
Chair, Board of Members,
Eastern Mercy Health System,
Radnor, Pennsylvania,
1991-present.
William T. Foley Trustee President and Chief Executive
1583 Buckline Way Officer, Saint Joseph's Health
Atlanta, Georgia 30338 System, 1991 - present;
Chief Executive Officer, Saint
Joseph's Hospital of Atlanta,
1988 - present.
William H. Izlar, Jr. Trustee Partner, King and Spalding (law
1100 Johnson Ferry Road firm), 1965- 1985;
Suite 435 Managing Director, Banker's Trust
Atlanta, GA 30342 Company, 1985 until retirement
therefrom in 1990; Chairman,
Director, Eastern Mercy Health
System, 1994 - present and
Director, 1993 - present;
Director, St. Joseph's Health
System, Atlanta, Georgia.
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Position(s) Held Principal Occupation(s)
Name and Address with the Fund During Past Five Years
---------------- ------------- ----------------------
Sister Mary Laboure Trustee President, Portland (Maine)
Morin, R.S.M. Regional Community, Sisters of
St. Joseph's Convent Mercy of the Americas, 1989 -
605 Stevens Avenue present; Assistant to the
Portland, ME 04103 Superior General and Ministry
Director, Sisters of Mercy of
Portland, 1984-1989; Member,
Eastern Mercy Health System,
Radnor, Pennsylvania.
David W. C. Putnam Trustee, President and Director, F. L.
F. L. Putnam Investment President and Putnam Securities Company,
Management Company, Secretary Incorporated, F. L. Putnam
Langley Place, Investment Management Company;
Ten Langley Road President and Trustee, Anchor
Newton Center, MA 02159 Capital Accumulation Trust,
Anchor International Bond Trust,
Anchor Gold and Currency Trust,
Anchor Strategic Assets Trust;
Northstar Trustee, The Northstar
Advantage Government Securities
Fund, The Northstar Advantage
High Yield Bond Fund, The
Northstar Advantage Income Fund,
The Northstar Advantage Growth
Fund, The Northstar Advantage
Special Fund, The Northstar
Advantage Strategic Income
Fund.
Daniel F. Russell Trustee President, Chief Executive
Eastern Mercy Health Officer and Director, Eastern
System Mercy Health System; Chairman,
100 Matsonford Road Board of Directors, Catholic
Building 3 Health Association, 1994 -
Suite 220 present.
Radnor, PA 19087
C. Kent Russell (To be completed)
Eastern Mercy Health
System
100 Matsonford Road
Building 3
Suite 220
Radner, PA 19087
*Mr. Putnam is an "interested person" of the Fund as defined in the
Investment Company Act of 1940 by reason of his affiliation with the Fund and
the Adviser.
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After the Fund's first year of operation, each Trustee who is not an
interested person of the Fund will be compensated by the Fund at the rate of
$__________ per annum and $_________ for each Board of Trustees meeting attended
in person and will be reimbursed for out-of-pocket expenses.
The Declaration of Trust and the By-Laws of the Fund provide that the
Fund will indemnify its Trustees and officers against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Fund, unless it is determined in the manner specified in
the Declaration of Trust and the By-Laws that they have not acted in good faith
in the reasonable belief that their actions were in the best interests of the
Fund or that such indemnification would relieve any officer or Trustee of any
liability to the Fund or its shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of his duties. The Fund, at its
expense, provides liability insurance for the benefit of its Trustees and
officers.
Although nominee holders of the Shares may at times be the record
holders of 5% of more of the outstanding Shares, to the knowledge of the Fund no
person owns beneficially 5% or more of the Shares, except the Manager, which
owns 100% of the Shares. As of the date hereof, the Trustees and officers of the
Fund as a group owned less than 1% of the outstanding Shares of the Fund.
MANAGEMENT
The Manager, serves as general investment and business manager of the
Fund pursuant to a written management agreement (the "Management Agreement").
Pursuant to a Sub-Advisory Agreement with the Manager and approval of
the Fund, the Sub-Adviser is employed by the Manager as a sub-investment adviser
to manage the Acceptable securities selected by the Manager.
The Sub-Adviser and the Manager are responsible for investment of the
Fund's assets in accordance with the Fund's investment objective and policies
and the directions of the Trustees. They make investment decisions for the Fund
and place orders for the purchase and sale of its portfolio securities. The
Manager supervises the administration of the business affairs of the Fund. In
addition, the Manager provides the Fund with certain office space and facilities
for managing the Fund's business affairs, with the services of required
executive personnel and with certain clerical services and facilities. These
services are provided without reimbursement by the Fund for any costs incurred.
As compensation for these services, the Fund pays the Manager a fee at the rate
of .25% per annum of the Fund's average monthly net assets, subject to voluntary
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waiver or reimbursement by the Manager. From this fee the Manager pays the
Sub-Adviser a fee at the rate of .15% per annum of such average net assets. The
Fund's average monthly net assets are determined for the purpose of calculating
these fees by taking the average of all the monthly determinations of net assets
(total assets, less all liabilities) on the last business day of each calendar
month. The fees are payable for each calendar month as soon as practicable after
the end of that month. The Manager has waived its portion of the fees for at
least the first year of operation of the Fund.
The Fund pays its own expenses as described in the Prospectus under
"Management - The Manager." However, the Management Agreement provides that if
the total expenses of the Fund in any fiscal year exceed the permissible limits
applicable to the Fund in any state in which shares of the Fund are then
qualified for sale (no such limits are currently so applicable), the
compensation due the Manager for such fiscal year shall be reduced by the amount
of such excess by a reduction or refund thereof at the time such compensation is
payable after the end of each calendar month during such fiscal year of the
Fund, subject to readjustment during the Fund's fiscal year. Taxes, brokerage
costs, interest expenses and extraordinary expenses, are not included as
expenses for the purpose of this expense limitation.
Unless earlier terminated pursuant to its terms, each of the Management
Agreement and the Sub-Advisory Agreement will continue in effect for two years
from its date of execution and may be continued from year to year thereafter if
such continuation is specifically approved at least annually (i) by the Board of
Trustees or by the vote of a majority, as defined in the 1940 Act, of the Fund's
outstanding Shares, and (ii) by the vote of a majority of the Trustees who are
not parties to such agreement or interested persons, as defined in the 1940 Act,
of any such party, by votes cast in person at a meeting called for the purpose
of voting on such approval. Each such agreement provides that it shall terminate
automatically if assigned, and that it may be terminated without penalty by vote
of the Trustees or the shareholders of the Fund and, in the case of the
Sub-Advisory Agreement, also by the Manager, or by the Manager or the Sub-
Adviser, as appropriate, upon not more than 60 nor less than 30 days' written
notice, or upon such shorter notice as may be mutually agreed upon.
David W. C. Putnam, Secretary and a Trustee of the Fund, is
the President and a Director of the Manager.
PORTFOLIO TRANSACTIONS
Subject to the supervision of the Trustees, the Manager and the
Sub-Adviser are responsible for decisions to buy and sell securities for the
Fund and for the placement of its portfolio business and the negotiation of
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commissions, if any, paid on such transactions. Over-the-counter stocks and
bonds are generally traded on a net basis with dealers acting as principal for
their own account without a stated commission, although prices of such
securities usually include a profit to the dealer. Orders are placed directly
with a principal market maker unless equal or better price and execution can be
obtained by using a broker. In underwritten offerings, securities are usually
purchased at a fixed price which includes an amount of compensation to the
underwriter generally referred to as the underwriter's concession or discount.
Certain money market instruments may be purchased directly from an issuer, in
which case no commissions or discounts are paid. Brokerage commissions are paid
on transactions in listed securities, options, futures contracts and options
thereon.
The Fund may, from time to time, place brokerage transactions with a
broker that may be considered an affiliated person of the Fund or the Manager or
the Sub-Adviser. When such transactions are made, in accordance with Rule 17e-1
under the 1940 Act, commissions paid must be "reasonable and fair compared to
the commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time."
The Manager and the Sub-Adviser are responsible for effecting portfolio
transactions and will do so in a manner deemed fair and reasonable to the Fund
and not according to any formula. The primary consideration in all portfolio
transactions will be prompt execution of orders in an efficient manner at the
most favorable price. In selecting broker-dealers and negotiating commissions,
the Manager or the Sub-Adviser consider the firm's reliability, the quality of
its execution services on a continuing basis and its financial condition. When
more than one firm is believed to meet these criteria, preference may be given
to brokers that provide research or statistical material or other services to
the Fund or to the Manager or the Sub-Adviser. The Manager and the Sub-Adviser
are of the opinion that, because this material must be analyzed and reviewed,
its receipt and use does not reduce expenses but may benefit the Fund by
supplementing the research of the Manager and the Sub-Adviser.
The Manager and the Sub-Adviser may effect portfolio transactions for
other investment companies and advisory accounts. Research services furnished by
broker-dealers through which the Fund effects its securities transactions may be
used by them in servicing all of their accounts. In their opinion, it is not
possible to measure separately the benefits from research services to each of
its accounts, including the Fund. They will attempt to allocate equitably
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<PAGE>
portfolio transactions among the Fund and other accounts whenever concurrent
decisions are made to purchase or sell securities by the Fund and another
account. In making such allocations between the Fund and other accounts, the
main factors to be considered are the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the opinions of the persons responsible for recommending
investments to the Fund and the other accounts. In some cases this procedure
could have an adverse effect on the Fund. In the opinion of the Manager and the
Sub-Adviser, however, the results of such procedures will, on the whole, be in
the best interest of the Fund.
DETERMINATION OF NET ASSET VALUE
The following discussion supplements the discussion of the
determination of the net asset value of Shares contained in the Prospectus.
In valuing the Fund's assets, securities listed on an exchange or
traded over-the-counter and quoted on the NASDAQ System will be valued at the
last sale price on the day of valuation (using prices as of the close of
trading) or, if there has been no sale that day, at the last bid price reported
on the day of valuation or the last bid price reported as of the close of
business on the preceding business day. Over-the-counter securities not quoted
on the NASDAQ System will be valued at the current bid price as obtained from
two dealers which make markets in such securities or from a pricing service.
Securities for which reliable quotations are not readily available and other
assets will be valued at their fair value as determined in good faith by or
under the direction of the Board of Trustees. Money market instruments with
remaining maturities of 60 days or less will be valued at amortized cost when
amortized cost is fair value.
TAXATION
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). In order to so qualify, the Fund must, among other things, (i) derive
at least 90% of its gross income from dividends, interest, payments with respect
to certain securities loans, gains from the sale of securities or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in stock, securities or currencies; (ii) derive less than 30% of its gross
income from gains from the sale or other disposition of securities held for
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<PAGE>
less than three months; (iii) distribute at least 90% of its dividend, interest
and certain other taxable income each year; and (iv) at the end of each fiscal
quarter maintain at least 50% of the value of its total assets in cash,
government securities, securities of other regulated investment companies, and
other securities of issuers which represent, with respect to each issuer, no
more than 5% of the value of the Fund's total assets and 10% of the outstanding
voting securities of such issuer, and with no more than 25% of its assets
invested in the securities (other than those of the U.S. Government or other
regulated investment companies) of any one issuer or of two or more issuers
which the Fund controls and which are engaged in the same, similar or related
trades and businesses. To the extent it qualifies for treatment as a regulated
investment company, the Fund will not be subject to federal income tax on income
paid to its shareholders in the form of dividends or capital gains
distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any,
of the Fund's "required distribution" over actual distributions in any calendar
year. Generally, the "required distribution" is 98% of the Fund's ordinary
income for the calendar year plus 98% of its capital gain net income recognized
during the one-year period ending on October 31 plus undistributed amounts from
prior years. The Fund intends to make distributions sufficient to avoid
imposition of the excise tax. For a distribution to qualify as such with respect
to a calendar year under the foregoing rules, it must be declared by the Fund
during October, November or December and paid by the Fund before the following
February 1. Such distributions will be taxable as if received on December 31 in
the year they are declared by the Fund, rather than the year in which they are
received.
Under current federal tax law, the Fund will receive net investment
income in the form of interest by virtue of holding Treasury bills, notes and
bonds, and will recognize interest attributable to it from holding zero coupon
Treasury securities. Current federal tax law requires that a holder of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the Fund receives no interest payment
in cash on the security during the year. As an investment company, the Fund must
pay out substantially all of its net investment income each year. Accordingly,
the Fund may be required to pay out as an income distribution each year an
amount which is greater than the total amount of cash interest the Fund actually
received. Such distributions will be made from the cash assets of the Fund or by
liquidation of portfolio securities, if necessary. If a distribution of cash
necessitates the liquidation of portfolio securities, BSC will select which
securities to sell. The Fund may realize a gain or loss from such sales. In the
event the Fund realizes net capital gains from such transactions, shareholders
may receive a larger capital gain distribution, if any, than they would in the
absence of such transactions.
B-16
<PAGE>
Certain options, futures contracts, and options on futures contracts
are "section 1256 contracts." Any gains or losses on section 1256 contracts are
generally considered 60% long-term and 40% short-term capital gains or losses
("60/40 gains or losses"). Also, section 1256 contracts held by the Fund at the
end of each taxable year are treated for federal income tax purposes as being
sold on such date for their fair market value. The resultant gains or losses are
treated as 60/40 gains or losses. When the section 1256 contract is subsequently
disposed of, the actual gain or loss will be adjusted by the amount of the
year-end gain or loss. The use of section 1256 contracts may increase the amount
of short-term capital gain realized by the Fund and taxed as ordinary income
when distributed to shareholders.
Hedging transactions in options, futures contracts and straddles or
other similar transactions will subject the Fund to special tax rules (including
mark-to-market, straddle, wash sale and short sale rules). The effect of these
rules may be to accelerate income to the Fund, defer losses to the Fund, cause
adjustments in the holding periods of the Fund's securities or convert
short-term capital losses into long-term capital losses. Hedging transactions
may increase the amount of short-term capital gain realized by the Fund which is
taxed as ordinary income when distributed to shareholders. The Fund may make one
or more of the various elections available under the Code with respect to
hedging transactions. If the Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
positions will be determined under rules that vary according to the elections
made. The Fund will use its best efforts to make any available elections
pertaining to the foregoing transactions in a manner believed to be in the best
interests of the Fund. The 30% limit on gains from the sale of securities held
for less than three months and the diversification requirements applicable to
the Fund's assets may limit the extent to which the Fund will be able to engage
in transactions in options, futures contracts, or options on futures contracts.
Shareholders of the Fund will be subject to federal income taxes on
distributions made by the Fund whether received in cash or additional shares of
the Fund. Distributions by the Fund of net income and short-term capital gains,
if any, will be taxable to shareholders as ordinary income. Distributions of
long-term capital gains, if any, will be taxable to the shareholders as
long-term capital gains, without regard to how long a shareholder has held
shares of the Fund. A loss on the sale of shares held for 6 months or less will
be treated as a long-term capital loss to the extent of any long-term capital
gain dividend paid to the shareholder with respect to such shares. Corporate
B-17
<PAGE>
shareholders should not anticipate that dividends and distributions by the Fund
will qualify for the dividends received deduction, since dividends paid by the
Fund are not expected to be derived from dividend income.
There are differences between federal income tax rules and the
accounting principles adopted by the Fund. To the extent that current net
realized capital gains are distributed during the course of a fiscal year, the
subsequent realization of capital losses at or before the end of the fiscal year
could offset such gains for federal income tax purposes. If the amount of
distributions paid by the Fund for any fiscal year exceeds its investment
company taxable income plus net realized capital gains for the year, the excess
is treated as a return of capital. Each distribution paid for that year could be
treated, in the same proportion, in part as a distribution of taxable income and
in part as a return of capital. Shareholders are not subject to current federal
income tax on the part which is treated as a return of capital, but their basis
in shares of the Fund would be reduced by that amount. This reduction of basis
would operate to increase capital gain (or decrease capital loss) upon
subsequent sale of shares.
The Fund's investment in securities issued at a discount and certain
other obligations will (and investments in securities purchased at a discount
may) require the Fund to accrue and distribute income not yet received. In order
to generate sufficient cash to make the requisite distributions, the Fund may be
required to sell securities in its portfolio that it otherwise would have
continued to hold.
The Fund's transactions in foreign currency-denominated debt
securities, certain foreign currency options, futures contracts, and forward
contracts may give rise to ordinary income or loss to the extent such income or
loss results from fluctuations in the value of the foreign currency concerned.
If more than 50% of the Fund's assets at year end consist of the debt
and equity securities of foreign corporations, the Fund may elect to permit
shareholders to claim a credit or deduction on their income tax returns for
their pro rata portion of qualified taxes paid by the Fund to foreign countries.
In such a case, shareholders will include in gross income from foreign sources
their pro rata shares of such taxes. A shareholder's ability to claim a foreign
tax credit or deduction in respect of foreign taxes paid by the Fund may be
subject to certain limitations imposed by the Code, as a result of which a
shareholder may not get a full credit or deduction for the amount of such taxes.
Shareholders who do not itemize on their federal income tax returns may claim a
credit (but no deduction) for such foreign taxes.
B-18
<PAGE>
Investment by the Fund in certain "passive foreign investment
companies" could subject the Fund to a U.S. federal income tax or other charge
on the proceeds from the sale of its investment in such a company; however, this
tax can be avoided by the Fund's making an election to mark such investments to
market annually or to treat the passive foreign investment company as a
"qualified electing fund."
The Fund will notify shareholders each year of the amount of dividends
and distributions, including the portion of dividends, if any, that may qualify
for the dividends received deduction and the amount of any distribution of
long-term capital gains or return of capital.
Redemptions and exchanges of Fund shares are taxable events and,
accordingly, shareholders may realize gains and losses on these transactions. If
shares have been held for more than one year, gain or loss realized will be
long-term capital gain or loss unless the shareholder is a dealer in securities.
However, if a shareholder sells Fund shares at a loss within six months after
purchasing the shares, the loss will be treated as a long-term capital loss to
the extent of any long-term capital gain distributions received by the
shareholder. Furthermore, no loss will be allowed on the sale of Fund shares to
the extent the shareholder acquired other Fund shares within 30 days prior to
the sale of the shares or 30 days after such sale.
As discussed above, there may be a difference between the Fund's book
income and its taxable income. This difference may cause a portion of the Fund's
income distributions to constitute return of capital for tax purposes or require
the Fund to make distributions exceeding book income to qualify as a regulated
investment company.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative action.
Dividends and distributions also may be subject to state and local
taxes. Dividends paid by the Fund from income attributable to interest on
obligations of the U.S. Government and certain of its agencies and
instrumentalities may be exempt from state and local taxes in certain states.
The Fund will advise shareholders of the proportion of its dividends consisting
of such governmental interest. Shareholders should consult their tax advisers
regarding the possible exclusion of this portion of their dividends for state
and local tax purposes.
B-19
<PAGE>
The foregoing discussion relates solely to U.S. federal income tax law.
Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the Fund, including the possibility that
distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISERS REGARDING SPECIFIC
QUESTIONS AS TO FEDERAL, FOREIGN, STATE OR LOCAL TAXES.
ADDITIONAL INFORMATION
Further information concerning the Fund and its Shares may be found in
the Registration Statement, of which the Prospectus and Statement of Additional
Information constitute a part, on file with the Securities and Exchange
Commission.
FINANCIAL STATEMENTS
[The completed Financial Statements will be filed by amendment.]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Principled Equity Market Fund
We have audited the accompanying statement of assets and liabilities of
The Principled Equity Market Fund as of ________, 1996. This statement of assets
and liabilities is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this statement based upon our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets and liabilities is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the statement of assets and liabilities referred to
above, presents fairly, in all material respects, the financial position of The
Principled Equity Market Fund, as of _________, 1996, in conformity with
generally accepted accounting principles.
Livingston & Haynes, P.C.
Boston, Massachusetts,
_____________ ,1996
B-20
<PAGE>
The Principled Equity Market Fund
STATEMENT OF ASSETS AND LIABILITIES
_____________ ___, 1996
ASSETS
Portfolio
Income Equity
Cash...................................................$ $
Deferred organization, registration and financing
costs (Note 3).........................................$ $
$ $
LIABILITIES
None...................................................$_________ $
_________ Commitments
NET ASSETS
Shares of beneficial interest, no par value, unlimited
number of authorized shares of beneficial interest,
________ shares issued and outstanding.................$_________ $_________
Net assets applicable to shares of beneficial interest..$_________ $_________
The accompanying notes are an integral part of this financial statement.
NOTES TO FINANCIAL STATEMENT
________ __, 1996
A. The Principled Equity Market Fund (the "Fund") was organized under
Massachusetts law on _________ __, 1994 by a Declaration of Trust and is
registered with the Securities and Exchange Commission as a closed-end
diversified management investment company under the Investment Company Act of
1940. The Fund intends to qualify as and elect for it the tax treatment
applicable to regulated investment companies under Subchapter M of the Internal
Revenue Code of 1986, as amended.
The Fund has had no operations other than those relating to
organizational matters and the registration of equity securities for sale to the
public. All of the outstanding shares of beneficial interest (the "Shares") are
owned by F. L. Putnam Investment Management Company (the "Manager").
The costs incurred by the Fund in connection with its organization,
estimated at $_______, have been deferred and will be amortized over a period of
60 months from the date upon which the Fund commences its investment activities.
B. The Fund has entered into an Investment Advisory Agreement, and agreed to a
Sub-Advisory Agreement as described under "Management" in the Prospectus.
B-21
<PAGE>
Part C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements:
Included in Part A:
None
Included in Part B:
Notes to Financial Statement
(to be filed by amendment)
Report of Independent Accountants
(to be filed by amendment)
Statement of Assets and Liabilities ____, 1996
(to be filed by amendment)
Consent of Independent Accountants
(to be filed by amendment)
(2) Exhibits:
(a) --Agreement and Declaration of Trust.
(b) --By-Laws.
(c) --Not Applicable.
(d) --Specimen certificate for shares of beneficial interest.*
(e) --Not Applicable.
(f) --Not Applicable.
(g) --Form of Investment Advisory Agreement.
(i) --Form of Management Agreement.
(ii)--Form of Sub-Advisory Agreement.
(h) --Not Applicable.
(i) --Not Applicable.
(j) --Form of Custodian Contract.
(k) (a) --Form of Transfer Agency and Services Agreement.
(b) --Form of Administration Agreement.
(l) --Form of Opinion and Consent of Sullivan & Worcester.*
(m) --Not Applicable
(n) --Not Applicable.
(o) --Not Applicable.
(p) --Form of Subscription Agreement.*
(q) --Not Applicable.
(r) --Not Applicable.
Item 25. Marketing Arrangements
- --------
* To be filed by amendment.
C-1
<PAGE>
See the "Cover Page", "Prospectus Summary" and "Purchase of
Shares" in the Prospectus.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses expected to be
incurred in connection with the offering described in this Registration
Statement.
Registration fees................................................. *
Printing (other than stock certificates).......................... *
Fees and expenses of qualification under state
securities laws (including fees of counsel)..................... *
Accounting fees and expenses...................................... *
Legal fees and expenses........................................... *
Fees and expenses of Custodian.................................... *
Fees and expenses of Transfer Agent............................... *
Miscellaneous..................................................... *
Total..........................................................$ *
- --------------
*To be completed by amendment.
Item 27. Persons Controlled by or Under Common Control with
Registrant
After completion of Registrant's initial public offering, the
Registrant expects that no person will be directly or indirectly controlled by
or under common control with the Registrant.
As of the effective date of the Registration Statement, F. L.
Putnam Investment Management Company, the Manager of the Registrant, will hold
all of the outstanding shares of the Registrant which will be purchased pursuant
to a Subscription Agreement before the effective date of this Registration
Statement.
Item 28. Number of Holders of Securities (as of _________, 1996)
Number of
Title of Class Record Holders
Shares of beneficial interest . . . . . . . . 1
Item 29. Indemnification
Under the Registrant's Declaration of Trust and Bylaws, any past or
present Trustee or officer of the Registrant is indemnified to the fullest
extent permitted by law against liability and all expenses reasonably incurred
by him in connection with any action, suit or proceeding to which he may be a
party or is otherwise involved by reason of his being or having been a Trustee
or officer of the Registrant. The Declaration of Trust and Bylaws of the
Registrant do not authorize indemnification where it is determined, in the
C-2
<PAGE>
manner specified in the Declaration of Trust and the Bylaws of the Registrant,
that such Trustee or officer has not acted in good faith in the reasonable
belief that his actions were in the best interest of the Registrant. Moreover,
the Declaration of Trust and Bylaws of the Registrant do not authorize
indemnification where such Trustee or officer is liable to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the questions of whether such indemnification is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The Registrant, its Trustees and officers, its Manager and investment
adviser, and persons affiliated with them are insured under a policy of
insurance maintained by the Registrant and its investment adviser, within the
limits and subject to the limitations of the policy, against certain expenses in
connection with the defense of actions, suits or proceedings, and certain
liabilities that might be imposed as a result of such actions, suits or
proceedings, to which they are parties by reason of being or having been such
Trustees or officers. The policy expressly excludes coverage for any Trustee or
officer whose personal dishonesty, fraudulent breach of trust, lack of good
faith, or intention to deceive or defraud has been finally adjudicated or may be
established or who willfully fails to act prudently.
Item 30. Business and Other Connections of the Investment Adviser
(a) F. L. Putnam Investment Management Company (the "Manager") is a
registered investment adviser offering investment advisory services to
individuals, corporations and other institutional accounts.
Set forth below is a list of the officers and Directors of the Adviser
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and directors
during the past two years.
C-3
<PAGE>
Position With
Name the Adviser Other Business, etc.
---- ----------- --------------------
David W. C. Putnam President, and Clerk and Director of F. L.
F. L. Putnam Investment Director Putnam Securities Company
Management Company, Incorporated, Interstate Power
Ten Langley Road Company, Inc., Trust Realty
Newton Center, MA 02159 Corp. and Bow Ridge Mining Co.
President and Trustee of The
Principled Equity Index Fund,
Anchor Capital Accumulation
Trust, Anchor International
Bond Trust, Anchor Gold and
Currency Trust, Anchor Strategic
Assets Trust, The Northstar
Advantage Government Securities
Fund, The Northstar Advantage
High Yield Bond Fund, The
Northstar Advantage Income Fund,
The Northstar Advantage Growth
Fund, The Northstar Advantage
Special Fund, The Northstar
Advantage Strategic Income Fund.
Item 31. Location of Accounts and Records
Persons maintaining physical possession of accounts, books and other documents
required to be maintained by Section 31(a) of the Investment Company Act of 1940
and the Rules promulgated thereunder, include Registrant, Registrant's
custodian, Investors Bank and Trust Company, 1 Lincoln Plaza, Boston,
Massachusetts 02205 and its transfer agent, Anchor Investment Management
Corporation, 418 Hilltop Circle, Glenmore, PA 19343.
Item 32. Management Services
.............................................Not applicable.
Item 33. Undertakings
General Undertakings:
(1) The Registrant undertakes to suspend offering of the shares
covered hereby until it amends its Prospectus contained herein if (1) subsequent
to the effective date of this Registration Statement, its net asset value per
share declines more than 10% from its net asset value per share as of the
effective date of this Registration Statement or (2) its net asset value
increases to an amount greater than its net proceeds as stated in the
Prospectus.
(2) Not applicable.
(3) Not applicable.
Registrant undertakes:
C-4
<PAGE>
4(a) to file, during any period in which offers or sale are being
made, a post-effective amendment to the registration statement:
(1) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(2) to reflect in the prospectus any facts or events after the effective
date of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement;
(3) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(b) that, for the purpose of determining any liability under the
Securities Act of 1933, Act such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of those securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(c) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering;
(5) (a) for the purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as a part
of this Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 497(h) under the
Securities Act of 1933 shall be deemed to be part of this Registration Statement
as of the time it was declared effective;
(b) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof;
(6) to send by first class mail or other means designed to ensure equally
prompt delivery, within two business days of receipt of a written or oral
request, any Statement of Additional Information.
Rule 415 Undertaking
"The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
C-5
<PAGE>
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
C-6
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Boston, and the Commonwealth of Massachusetts, on the
16th day of February, 1996.
THE PRINCIPLED EQUITY MARKET FUND
By:/s/ John Hand
John Hand, Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the capacity
and on the dates indicated:
Signatures Title Date
/S/David W. C. Putnam President (principal February 16, 1996
David W. C. Putnam* executive officer) and
Trustee
/S/C. Kent Russell Treasurer (principal February 16, 1996
C. Kent Russell* financial and accounting
officer)
/S/Howard R. Buckley Trustee February 16, 1996
Howard R. Buckley*
/S/Sister Mary Laboure Trustee February 16, 1996
Sister Mary Laboure*
/S/Daniel F. Russell Trustee February 16, 1996
Daniel F. Russell*
/S/Sister Sheila Carney Trustee February 16, 1996
Sister Sheila Carney*
C-7
<PAGE>
/S/William H. Izlar, Jr. Trustee February 16, 1996
William H. Izlar, Jr.*
/S/William T. Foley Trustee February 16, 1996
William T. Foley*
*By /s/ John Hand
John Hand, Attorney-in-
Fact
C-8
