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. 3 /X/
Post-Effective Amendment No. / /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
Amendment No. 3 /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
Title of Proposed Proposed
Securities Maximum Maximum Amount of
Being Amount Being Offering Price Aggregate Registration
Registered Registered Per Unit Offering Price Fee
Shares of
Beneficial
Interest 2,000,000 $10.00* $20,000,000 $3,637**
*Initial; net asset value thereafter.
**$6,395 for $20,000,000 less $2,758.64 paid
with original filing for $8,000,000.
<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
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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 2,000,000 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 which recently commenced operations 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 Annex 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 Persons(1)
Public
Per share $10.00 None $10.00
------ ---------- ------
Total $20,000,000 None $20,000,000
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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 and other costs to be borne by the Fund will
amount to $46,000 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). There can be no assurance that
any such repurchase offers will be made.
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,
which will be made only if and when the Trustees determine, in their discretion,
that any such offer would be in the best interests of the Fund and the
Shareholders.
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.
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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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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)
Management Fees (including investment advisory
fees) (after waivers and reimbursements)(2).......... 15%
Administration Fees (after waivers and
reimbursements)(3)................................... None
Other Expenses (estimated)(1).......................... 58%
Total Annual Fund Operating Expenses(1,2,3)............ 73%
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(1) The percentages assume average annual net assets of $18,000,000.
(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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Example 1 year 3 years 5 years 10 years
You would pay the
following expenses
on a $1,000 invest-
ment, assuming a 5%
annual return $7.00 $23.00 $40.00 $88.00
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 2,000,000 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
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monthly basis. There is no minimum purchase in this offering. Shares may be
purchased directly from the Fund.
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.
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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.
USE OF PROCEEDS
The net proceeds to the Fund from the sale of the Shares offered hereby
(estimated to be $19,954,000), 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 I. 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
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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.
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
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<PAGE>
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 daily recurring expenses and to provide for any share
repurchases authorized by the Trustees, the Fund may hold cash, high quality
corporate obligations, money market instruments and U.S. government securities.
When the Adviser determines that market conditions warrant, the Fund may adopt a
temporary defensive posture and hold such 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
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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 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
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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 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
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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.
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
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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 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.
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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 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,
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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
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.
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
Fund's approval,
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manage the Fund's Acceptable securities (identified by the Manager). PanAgora is
staffed by personnel substantially experienced in various techniques of
investment management.
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, 2717 Furlong Road,
Doylestown, PA 18901, 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.
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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 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
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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.
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. The Board of Trustees of the Fund currently contemplates
that from time to time, but not more frequently than quarterly, the Board may,
in its discretion, consider repurchasing Shares through tender offers to all
Shareholders, if the Board determines that such action would be in the best
interests of the Fund and its Shareholders.
There can be no assurance that the Board will authorize any such
repurchases.
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.
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Before any repurchases of Shares are authorized, 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, to effect repurchases of Shares
only if they are in the best interests of the Shareholders and the Fund and
would not have a material adverse effect, including adverse tax consequences, on
the Fund or its Shareholders.
If any 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
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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.
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
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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
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, 10,100
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, 2717 Furlong Road, Doylestown, PA
18901, 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 LLP, One Post Office Square, Boston, Massachusetts
02109, is legal counsel to the Fund and the Manager.
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AUDITORS
Livingston & Haynes, P.C., Two Sun Life Park, Wellesley Hills,
Massachusetts 02181, serves as independent public accountant for the Fund and
will audit its financial statements annually.
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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
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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
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.
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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.
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.
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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.
(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.
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-- 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.
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
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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
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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.
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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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
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with the same delivery date. If the price of the initial sale of the futures
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
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involve the borrowing of funds to finance the transactions. Rather, initial
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
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predict movements in the direction of interest rates and other factors affecting
securities markets. For example, if the Fund has hedged against the possibility
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
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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
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
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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
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.
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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
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
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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
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".
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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. David W.C. Putnam, President and Secretary of the Fund, is
President, a director and a principal stockholder (indirectly) 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 Anne Mary Trustee General Treasurer of the Sisters
Donovan, SNB de N. of Notre Dame de Namur, Boston.
447 Chestnut Hill Ave.
Brookline, MA 02146
Ronald P. Hogan Trustee Chief Executive Officer, Saint
Saint Joseph's Health Joseph's Health System, 1995 -
System present; President, Georgia-
Atlanta, Georgia Pacific Corporation, prior to
1995.
William H. Izlar, Jr. Trustee Partner, King and Spalding (law
1100 Johnson Perry Road firm), 1965-1985; Manaing
Suite 435 Director, Banker's Trust Company,
Atlanta, GA 30342 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.
Sister June Ketterer, Trustee Provincial Superior, St. Joseph
SGM Province, Sisters of Charity of
Grey Nuns Provincial Montreal, "Grey Nuns", 1995 -
House present; Vice President for
10 Pelham Road Mission Effectiveness, Lexington,
Lexington, MA 02173 Massachusetts, 1987-1995.
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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
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Position(s) Held Principal Occupation(s)
Name and Address* with the Fund During Past Five Years
Joel M. Ziff Trustee Director, Eastern Mercy Health
Eastern Mercy System; Partner (retired) of
Health System, Author Andersen & Co.,
Philadelophia, PA accountants.
*The address of each of the Trustees is the address of the Fund.
**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 may be compensated by the Fund at annual rates and
in amounts for attendance at Trustees' meetings and for reimbursement for
out-of-pocket expenses, all as may be determined by the Trustees from time to
time.
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. Otherwise, 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
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of .25% per annum of the Fund's average monthly net assets, subject to voluntary
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
commissions, if any, paid on such transactions. Over- the-counter stocks and
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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
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
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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 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
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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.
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
B-18
<PAGE>
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
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
B-19
<PAGE>
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.
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.
B-20
<PAGE>
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.
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 Fund's opening balance sheet, included herein, has been audited by
Livinston & Hayes, P.C., independent public accountants, whose opinion also
appears herein. They will be the Fund's accountants for other purposes as well.
B-21
<PAGE>
Independent Auditors' Report
To the Shareholders and Trustees of The Principled Equity Market Fund.
We have audited the accompanying statement of assets and liabilities of
The Principled Equity Market Fund (the "Fund"), as of October 28, 1996. This
financial statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement based on 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 financial statement 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 financial statement referred to above present
fairly, in all material respects, the financial position of The Principled
Equity Market Fund as of October 28, 1996 in conformity with generally accepted
accounting principles.
S/Livingston & Haynes, P.C.
Livingston & Haynes, P.C.
Wellesley Hills, Massachusetts
October 29, 1996
B-22
<PAGE>
THE PRINCIPLED EQUITY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 28, 1996
Assets:
Cash $101,000
Deferred Organizational expenses (Note 1) 46,000
--------
Total assets 147,000
Liabilities:
Organizational costs payable (Note 1) 46,000
--------
Total liabilities 46,000
--------
Net Assets:
Capital stock (unlimited shares authorized
at no par value, amount paid in on 10,100
shares issued and outstanding) 101,000
Accumulated undistributed net investment income
--
--------
Net assets (equivalent to $10.00 per share,
based on 10,100 capital shares outstanding) $101,000
========
The accompanying notes are an integral part of this financial statement.
B-23
<PAGE>
THE PRINCIPLED EQUITY MARKET FUND
NOTES TO THE FINANCIAL STATEMENT
OCTOBER 28, 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The Principled Equity Market Fund ("the Fund") was organized as a
Massachusetts business trust on April 26, 1994. The Fund is a closed-end
diversified management investment company. The following is a summary of
significant accounting policies followed by the Fund which are in conformity
with those generally accepted in the investment company industry:
A. Operations - The Fund has had no operations other than those relating
to organizational matters. All of the outstanding shares of beneficial
interest are owned by F.L. Putnam Investment Management Company.
B. Deferred Organizational Expenses - Costs to be incurred in connection
with organization and registration will be deferred and amortized over
a period of 60 months from the date upon which the Fund commences
operations.
C. Income Taxes - The Fund intends to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and
to distribute each year all of its taxable income to its shareholders.
No provision for federal income taxes is necessary since the Fund
intends to qualify for and elect the special tax treatment afforded a
"regulated investment company" under subchapter M of the Internal
Revenue Code.
D. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
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<PAGE>
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE - 2 INVESTMENT ADVISORY AND SUB-ADVISORY CONTRACTS
The Fund has entered into an Investment Advisory Contract with the F.L.
Putnam Investment Management Company. The basic fee payable to the Adviser under
the investment Advisory Agreement is based on an annual rate of .25% applied to
the average monthly net assets of the Fund. The Adviser has elected to waive
.10% of the annual fee in the Fund's first year of operations.
Pursuant to the Investment Advisory Contract, the Adviser is
responsible for the management of the Fund's portfolio. The Adviser is obligated
to supervise the performance of administrative and professional services
provided by others to the Trust and will provide all facilities, equipment and
personnel and, if requested, office space necessary to perform its duties under
the Investment Advisory Contract.
The Fund has also agreed to an Investment Sub-Advisory Contract between
the Adviser and PanAgora Asset Management, Inc., whereby the Adviser will pay an
annual rate of .15% of the Fund's average monthly net assets to the Sub-Adviser.
Pursuant to the Investment Sub-Advisory Contract, the Sub-Adviser is
responsible for the management of the investment and reinvestment of securities
selected by the Adviser.
NOTE 3 - ADMINISTRATION AND TRANSFER AGENT SERVICES
The Fund has entered into an agreement with Anchor Investment
Management Company for administrative, transfer agent and dividend disbursing
agent services. The annual fee of $12,000 payable under this agreement will be
waived in the Fund's first year of operations.
NOTE 4 - RELATED PARTIES
The President and Secretary of the Fund is also a director and
principal stockholder (indirectly) of the Fund's Adviser.
B-25
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Auditors"
and "Financial Statements", and to the use of our report dated October 29, 1996,
in this Registration Statement (Form N-2 No. 33- 78256) of The Principled Equity
Market Fund.
S/Livingston & Haynes, P.C.
Livingston & Haynes, P.C.
Wellesley Hills, Massachusetts
October 29, 1996
<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
Report of Independent Accountants
Statement of Assets and Liabilities as of October 28, 1996
Consent of Independent Accountants
(2) Exhibits
(a) --Amended Agreement and Declaration of Trust*.
(b) --Amended By-Laws*.
(c) --Not Applicable.
(d) --Specimen certificate for shares of beneficial interest.*
(e) --Not Applicable.
(f) --Not Applicable.
(g) --Investment Advisory Agreement.
(i) --Management Agreement (revised).*
(ii)--Sub-Advisory Agreement (revised).*
(h) --Not Applicable.
(i) --Not Applicable.
(j) --Custodian Contract (revised).*
(k) (a) --Transfer Agency and Services Agreement (revised).*
(b) --Administration Agreement (revised).*
(l) --Opinion and Consent of Sullivan & Worcester LLP.
(m) --Not Applicable
(n) --Not Applicable.
(o) --Not Applicable.
(p) --Subscription Agreement.
(q) --Not Applicable.
(r) --Not Applicable.
- --------
*Amended and revised Exhibits have not been materially changed substantively
since the original filing of the Registration Statement.
C-1
<PAGE>
Item 25. Marketing Arrangements
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.................................. 6,060
Printing (other than stock certificates)........... 2,000
Fees and expenses of qualification under state
securities laws (including fees of counsel)...... 7,000
Accounting fees and expenses....................... 1,000
Legal fees and expenses............................ 25,000
Fees and expenses of Custodian..................... 2,000
Miscellaneous...................................... 2,940
Total......................................... $46,000
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 October 28, 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
C-2
<PAGE>
or officer of the Registrant. The Declaration of Trust and Bylaws of the
Registrant do not authorize indemnification where it is determined, in the
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
Set forth below is a description of each of the Manager and the
Sub-Adviser and of each of their officers and directors and any other business
profession, vocation or employment of a substantial nature engaged in by each of
such officers or directors during the past two years.
F. L. Putnam Investment Management Company (the "Manager") is a
registered investment adviser offering investment advisory services to
individuals, corporations and other institutional accounts.
C-3
<PAGE>
Frederic L. Putnam, a director of the Manager, is Chairman and
President of Colonial Gas, a distributor of natural gas, and of F.L. Putnam
Securities Company, Incorporated.
Albert W. Moore, a director of the Manager, is a director of Advest,
Inc., a securities broker-dealer, and a consultant to its parent company, The
Advest Group, Inc., and is a director of Maine Capital Corp.
Alan L. Gosule, a director of the Manager, is a partner of the law firm
of Rogers & Wells, and a trustee of the Northstar investment trusts.
Michael Robbins, a director of the Manager, is a Senior Vice President
of Advest, Inc. and a director of Nuclear Metals, Inc., a speciality metals
processor.
David Y. Williams, a director of the Manager, is president and a
director of Anchor Investment Management Corp. and Anchor & Co., Inc., a
securities broker/dealer, and a trustee and president of the Anchor investment
trusts.
Maurice Aloysius Donahue, a director of the Manager, is a director of
Vanguard Savings Bank and a director and trustee of the Institute for
Governmental Services.
J. Stephen Putnam, a director of the Manager, is a director of F. L.
Putnam Securities Company Incorporated, President and a director of Robert
Thomas Securities, Inc., a securities broker-dealer, and a trustee of the Anchor
investment trusts.
David W. C. Putnam; President and a director of the Fund and the
Manager, is also Clerk and a director of F. L. Putnam Securities Company
Incorporated, Interstate Power Company, Inc., Trust Realty Corp. and Bow Ridge
Mining Co., and a trustee of the Anchor and the Northstar investment trusts.
PanAgora Asset Management, Inc. (the "Sub Adviser") is a Delaware
corporation, a registered investment adviser under the Investment Adviser's Act
of 1940, a registered commodity trading adviser (effective date January 17,
1990) and a member of the National Futures Association. The business office
address and telephone number are: 260 Franklin Street, Boston, Massachusetts
02110 and (617) 439-6300. The Sub-Adviser is a joint venture of Lehman Brothers,
Inc. (a registered broker/dealer) and Nippon Life Insurance Company (a mutual
life insurance company). Bruce E. Clarke, President and Director of the
Sub-Adviser oversees the management of all commodity trading accounts. Employees
who manage commodity trading accounts are Edgar E. Peters, Richard T. Wilk,
William G. Zink and Paul R. Samuelson.
PanAgora Asset Management, Inc. was incorporated in Delaware in
September 1989 as a wholly-owned subsidiary of The Boston Company, Inc. On April
27, 1990 The Boston Company sold 50% of its interest in PanAgora Asset
Management, Inc. to Nippon Life Insurance Company and 25% to Shearson Lehman
C-4
<PAGE>
Brothers, Inc. Upon the acquisition of The Boston Company by Mellon Bank
Corporation on May 21, 1993, The Boston Company's 25% interest in PanAgora was
transferred to Shearson, making Shearson's ownership 50%. On August 2,1993,
Shearson changed its name to Lehman Brothers, Inc. and the ownership today is
50% Lehman Brothers, Inc. and 50% Nippon Life Insurance Company. Prior to the
incorporation of PanAgora Asset Management, Inc., all commodity trading was
performed by Dr. Richard A. Crowell and Mr. Edgar E. Peters as officers of
Boston Safe Deposit and Trust Company, a subsidiary of The Boston Company, Inc.
and a Massachusetts bank.
Principals of the Sub-Adviser (in addition to Lehman Brothers and
Nippon Life) are as follows:
Bruce E. Clarke
Mr. Clarke is President and Managing Director of PanAgora Asset
Management, Inc. He is responsible for overseeing all investment activities of
PanAgora. Prior to becoming President in September 1994, Mr. Clarke was
responsible for all global investments as the Director of Global Investments for
the Sub-Adviser. He was also Vice President of Boston Safe Deposit and Trust
Company (a Massachusetts bank) until July of 1995. Mr. Clarke joined The Boston
Company in October 1988. Previous to that, Mr. Clarke was Vice-Director of SIGE
S.p.A. (a financial services firm) in Milan, Italy from August 1987 to October
1988 where he developed SIGE's international corporate finance business. From
August 1984 to July 1987, Mr. Clarke was a Portfolio manager at Shearson Lehman
Global Asset Management (an investment advisory firm) in London. Mr. Clarke
currently oversees all investment activities of the Trading Adviser.
Edgar E. Peters
Mr. Peters is the Director of Tactical Asset Allocation for PanAgora
Asset Management, Inc. He was elected to the Board of Directors of the
Sub-Adviser on March 13, 1995. He is responsible for overseeing all tactical
asset allocation investments. He was Vice President of Boston Safe Deposit and
Trust Company (a Massachusetts bank) until July of 1995. Mr. Peters, who joined
The Boston Company in August 1985, directed investment of commodity trading
accounts as Vice President of Boston Safe Deposit and Trust Company, a
subsidiary of The Boston Company, Inc. Previous to that, Mr. Peters was Manager
of Investment Technology at Interactive Data Corporation (a computer services
company) where he assisted clients in using passive investment services from
March 1983 to August 1985. Mr. Peters currently oversees the management of
tactical asset allocation commodity trading accounts for the Sub-Adviser.
Richard T. Wilk
Mr. Wilk is a Senior Investment Manager of PanAgora Asset Management,
Inc. responsible for managing global and asset allocation investments. He was
Vice President of Boston Safe Deposit and Trust Company (a Massachusetts bank)
until July of 1995. Mr. Wilk joined The Boston Company in January 1980. From
1982 to 1985, Mr. Wilk was Product Manager of Boston Safe's Analytical
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<PAGE>
Time-Sharing Service. Mr. Wilk currently manages global and asset allocation
commodity trading accounts for the Sub-Adviser.
William G. Zink
Mr. Zink was general manager of PanAgora Asset Management, Inc. from
January 1990 until September 1993. He is now a Senior Investment Manager of
PanAgora responsible for managing equity investments. He was Vice President of
Boston Safe Deposit and Trust Company (a Massachusetts bank) from November 1988
until July of 1995. Prior to that, he was Vice President of The Boston Company
Advisors, Inc. (a registered investment advisor) from June 1989 to June 1991,
Vice President of The Boston Company Institutional Investors, Inc. (a registered
investment advisor) from June 1989 to June 1991. Mr. Zink was Vice President of
Interactive Data Corporation (a financial services company) from April 1975 to
September 1988. Mr. Zink currently manages equity commodity trading accounts for
the Sub-Adviser.
Paul R. Samuelson
Dr. Samuelson is Director of Equity and Fixed Income Investments for
PanAgora Asset Management, Inc. He joined PanAgora in September 1993 and was
elected to the Board of Directors on March 15, 1995. Dr. Samuelson was a partner
with Hagler, Mastrovita and Hewitt (an investment management firm) from
September 1991 to August 1993. Prior to that he was Vice President of Colonial
Management Association (an investment management firm) from December 1986 to
August 1991, and a consultant at Acadian Asset Management, Inc. (an investment
management firm) from October 1981 to November 1986. Dr. Samuelson currently
oversees equity and fixed income trading accounts for the Sub-Adviser.
Richard A. Crowell
Dr. Crowell is Vice Chairman of PanAgora Asset Management, Inc., a
registered investment adviser and commodity trading adviser. Dr. Crowell was
President of PanAgora until September 1994 and was Senior Vice President of
Boston Safe Deposit and Trust Company (a Massachusetts bank) until February
1993. Dr. Crowell, who joined The Boston Company, Inc. in 1964, held numerous
positions there including Director of Investment Research and Technology. Dr.
Crowell managed and directed investment activities for all PanAgora accounts
until September 1994. Prior to staring PanAgora, Dr. Crowell directed investment
of commodity trading accounts as Senior Vice President of Boston Safe Deposit
and Trust Company, a subsidiary of The Boston Company, Inc.
Haruaki Deguchi
Mr. Deguchi has been a director of PanAgora Asset Management, Inc.
since May 9, 1995. He is also general manager of Nippon Life Insurance Company
(a mutual life insurance company) since March 1995 and a director of PanAgora
Asset Management Limited (a London investment management firm) since May 9,
1995. Mr. Deguchi was managing director of NLI International Ltd. (a subsidiary
of Nippon Life Insurance Company) in London, England from April 1992 to March
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<PAGE>
1995. Prior to that, he was deputy general manager of Nippon Life Insurance
company in Tokyo, Japan from April 1972 to March 1992.
Kathleen DeVivo
Ms. DeVivo has been secretary of PanAgora Asset Management, Inc. since
September 1991. She is also compliance officer since April 1990 and was vice
president of Boston Safe Deposit and Trust Company (a Massachusetts bank) until
June 1991. Prior to that, she was senior operations officer at The Boston
Company Institutional Investors, Inc. (a registered investment adviser) from
June 1985 to February 1987.
Richard S. Fuld, Jr.
Mr. Fuld has been a director of PanAgora Asset Management, Inc. since
November 12, 1993. He is also a director of Lehman Brothers, Inc. (a registered
broker/dealer) and predecessor companies in New York since March 1978 and a
director of PanAgora Asset Management Limited (a London investment management
firm) since 1993.
Bruce R. Lakefield
Mr. Lakefield has been a director of PanAgora Asset Management, Inc.
since April 8, 1994. He is also a managing director of Lehman Brothers, Inc. (a
registered broker/dealer) and predecessor companies since May 1974 and a
director of PanAgora Asset Management Limited (a London investment management
firm) since 1994.
Toru Morishige
Mr. Morishige has been a director of PanAgora Asset Management, Inc.
since May 9, 1995. He is also a director and vice chairman of PanAgora Asset
Management Limited (a London investment management firm) since May 9, 1995.
Prior to that, Mr. Morishge was the president of NLI International Canada, Inc.
(a Canadian subsidiary of Nippon Life Insurance Company) in Toronto form April
1992 to April 1995. He was general manager of Japan Center for International
Finance (a subsidiary of Nippon Life Insurance Company) located in Tokyo, Japan
from April 1989 to March 1992. From April 1972 to March 1989, he was deputy
general manager of Nippon Life Insurance Company (a mutual life insurance
company) in Tokyo, Japan.
Randolph S. Petralia
Mr. Petralia has been a director of PanAgora Asset Management, Inc.
since July 17, 1995. He is also a director of PanAgora Asset Management Limited
(a London investment management firm) since July 17, 1995. Mr. Petralia is also
a manager at Lehman Brothers, Inc. (a registered broker/dealer) in New York
since August 1987. Prior to that, Mr. Petralia was director of the Japan Society
in New York from March 1983 to July 1987.
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Masataka Shimasaki
Mr. Shimasaki has been a director of PanAgora Asset Management, Inc.
since November 12, 1993. He is also general manager of Nippon Life Insurance
Company (a mutual life insurance company) since March 1967 and a director of
PanAgora Asset Management Limited (a London investment management firm) since
November 12, 1993.
Makoto Toda
Mr Toda has been a director of PanAgora Asset Management, Inc. since
May 9, 1995 and was a director of PanAgora from April 1990 to June 1992. He is
also a director of PanAgora Asset Management Limited (a London investment
management firm) since May 1995 and was previously a director of that firm from
May 1989 to June 1992. Mr. Toda is also managing director of Nippon Life
Insurance Company (a Mutual life insurance company) in Tokyo, Japan since April
1964.
Michael H. Turpin
Mr. Turpin has been treasurer of PanAgora Asset Management, Inc. since
September 1991. He has been controller of PanAgora since April 1991. Mr. Turpin
was vice president of Northeast Saw and Supply Company (a Massachusetts
corporation) in Northboro, Massachusetts.
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, 2717 Furlong Road, Doylestown, PA 18901.
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:
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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;
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(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 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.
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
31st day of October, 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 October 31, 1996
David W. C. Putnam* executive officer) and
Trustee
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/S/C. Kent Russell Treasurer (principal October 31, 1996
C. Kent Russell* financial and accounting
officer)
/S/Howard R. Buckley Trustee October 31, 1996
Howard R. Buckley*
/S/Sister Mary Laboure Trustee October 31, 1996
Sister Mary Laboure*
/S/Daniel F. Russell Trustee October 31, 1996
Daniel F. Russell*
/S/William H. Izlar, Jr. Trustee October 31, 1996
William H. Izlar, Jr.*
*By John Hand
John Hand, Attorney-in-
Fact
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EXHIBIT (a)
DECLARATION OF TRUST
OF
THE PRINCIPLED EQUITY MARKET FUND
Langley Place, 10 Langley Road
Newton, Massachusetts 02159
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I -- Name and Definitions............................................. 1
Section 1.1 Name.................................................... 1
Section 1.2 Definitions............................................. 1
ARTICLE II -- Trustees........................................................ 4
Section 2.1 Number of Trustees...................................... 4
Section 2.2 Election or Appointment and Term........................ 4
Section 2.3 Resignation and Removal................................. 4
Section 2.4 Vacancies............................................... 5
ARTICLE III -- Powers of Trustees............................................. 5
Section 3.1 General................................................. 5
Section 3.2 Business and Investments................................ 6
Section 3.3 Legal Title............................................. 7
Section 3.4 Issuance and Repurchase of Securities................... 7
Section 3.5 Borrowing Money; Lending Trust Assets................... 7
Section 3.6 Delegation; Committees.................................. 8
Section 3.7 Collection and Payment.................................. 8
Section 3.8 Expenses................................................ 8
Section 3.9 Litigation.............................................. 8
Section 3.10 Miscellaneous Powers.................................... 9
Section 3.11 Manner of Acting; Bylaws................................ 9
ARTICLE IV -- Investment Adviser, Distributor, Custodian
and Shareholder Servicing Agent...............................10
Section 4.1 Investment Adviser......................................10
Section 4.2 Distributor.............................................10
Section 4.3 Shareholder Servicing Agent.............................11
Section 4.4 Custodian...............................................11
Section 4.5 Parties to Agreements...................................11
ARTICLE V -- Limitations of Liability of Shareholders,
Trustees and Others............................................11
Section 5.1 No Personal Liability of
Shareholders, Trustees, etc...........................11
Section 5.2 Non-Liability of Trustees, etc..........................12
Section 5.3 Indemnification.........................................12
Section 5.4 No Protection Against Certain
1940 Act Liabilities..................................13
Section 5.5 No Bond Required of Trustees............................13
Section 5.6 No Duty of Investigation;
Notice in Trust Instruments, etc......................13
Section 5.7 Reliance on Experts, etc................................14
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ARTICLE VI -- Shares of Beneficial Interest...................................14
Section 6.1 Beneficial Interest.....................................14
Section 6.2 Rights of Shareholders..................................14
Section 6.3 Trust Only..............................................15
Section 6.4 Issuance of Shares......................................15
Section 6.5 Voting Powers...........................................15
Section 6.6 Series of Shares........................................16
ARTICLE VII -- Redemptions....................................................18
Section 7.1 Redemptions.............................................18
Section 7.2 Redemption of Shares for Tax Purposes;
Disclosure of Holding.................................19
Section 7.3 Redemptions to Reimburse Trust
for Loss on Nonpayment for Shares
or for Other Charges..................................19
Section 7.4 Redemptions Pursuant to Constant
Net Asset Value Policy..................................20
Section 7.5 Payment for Redeemed Shares in Kind.....................20
Section 7.6 Repurchase of Shares by Agreement
with Shareholder......................................20
ARTICLE VIII -- Determination of Net Asset Value, Net Income and Dividends
and Distributions...........................................21
Section 8.1 Net Asset Value.........................................21
Section 8.2 Net Income..............................................21
Section 8.3 Dividends and Distributions.............................21
Section 8.4 Power to Modify Foregoing Procedures....................22
ARTICLE IX -- Duration; Termination of Trust;
Amendment; Mergers, etc.......................................22
Section 9.1 Duration................................................22
Section 9.2 Termination of Trust....................................22
Section 9.3 Amendment Procedure.....................................23
Section 9.4 Merger, Consolidation and
Sale of Assets........................................24
Section 9.5 Incorporation...........................................24
ARTICLE X -- Financial Reports; Books and Records.............................24
ARTICLE XI -- Miscellaneous...................................................25
Section 11.1 Filing..................................................25
Section 11.2 Resident Agent..........................................25
Section 11.3 Governing Law...........................................25
Section 11.4 Counterparts............................................25
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Section 11.5 Reliance by Third Parties...............................25
Section 11.6 Provisions in Conflict with
Law or Regulations....................................26
Section 11.7 Use of the Name "Principled"............................26
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<PAGE>
DECLARATION OF TRUST
OF
THE PRINCIPLED EQUITY MARKET FUND
Declaration of Trust of The Principled Equity Market Fund made the 26th
day of April, 1994, as amended from time to time, by the persons named at the
foot of this Declaration of Trust and their successors, as trustees (such
individuals, so long as they shall continue in office in accordance with the
provisions of this Declaration of Trust, and all other individuals who may
hereafter be duly elected or appointed, qualified and serving as trustees in
accordance with the provisions hereof, being hereinafter called "Trustees"):
THE TRUSTEES hereby declare that all money and property contributed to
the trust established hereby shall be held and managed in trust for the benefit
of the holders from time to time of the shares of beneficial interest issued
hereunder and subject to the provisions hereof, to wit:
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name. The name of the trust established hereby (the
"Trust") is "The Principled Equity Market Fund" and so far as may be practicable
the Trustees shall conduct the Trust's activities, execute all documents and sue
or be sued under that name, which name (and the word "Trust" wherever herein
used) shall refer to the Trustees as trustees, and not as individuals, or
personally, and shall not refer to the officers, agents, employees or
Shareholders of the Trust. If the Trustees determine that the Trust's use of
such name is not advisable or if the Trust is required to discontinue the use of
such name pursuant to Section 11.7 hereof, then subject to that section the
Trustees may adopt such other name for the Trust as they deem proper and the
Trust may hold its property and conduct its activities under such other name.
Section 1.2. Definitions. Wherever they are used herein, the following
terms have the respective meanings assigned to them below:
(a) the terms "Affiliated Person" and "Commission" have the meanings
assigned to them in the l940 Act.
(b) "Bylaws" means the Bylaws referred to in Section 3.11 hereof, as
amended and in effect from time to time.
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(c) "Declaration" means this Declaration of Trust, as amended and in
effect from time to time. Reference in this to "Declaration," "hereof,"
"herein," "hereby" and "hereunder" shall be deemed to refer to this Declaration
rather than the article or section in which such words appear.
(d) "Distributor" means a party, other than the Trust, to an agreement
described in Section 4.2 hereof.
(e) "Fundamental Policies" as used with respect to any Series or Class
of Shares of the Trust, means the investment policies and restrictions
applicable to such Series or Class which are set forth in the Prospectus or the
Statement of Additional Information relating to such Series or Class and are
designated therein as fundamental policies.
(f) "Investment Adviser" means a party, other than the Trust, to an
agreement described in Section 4.1 hereof.
(g) "Majority Shareholder Vote," means the action by written consent or
vote of a plurality of all outstanding Shares of the Trust and/or as required,
of each Series and Class of Shares of the Trust entitled to vote thereon,
provided that, if such action is at a meeting of Shareholders, such plurality
shall be of such Shares represented in person or by proxy, if a quorum (as
determined in accordance with the Bylaws) is present; provided, that as used
with respect to any action requiring the affirmative vote of "a majority of the
outstanding voting securities" of the Trust, as the quoted phrase is defined in
the l940 Act, "Majority Shareholder Vote" means the vote for such action at a
meeting of Shareholders of the smallest percentage of all outstanding Shares (or
of Shares of any particular Series or Class) of the Trust entitled to vote on
such action which satisfies such l940 Act voting requirement.
(h) "l940 Act" means the provisions of the Investment Company Act of
l940 and the rules and regulations thereunder as amended from time to time and
any order or orders thereunder which may from time to time be applicable to the
Trust.
(i) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
(j) "Prospectus" as used with respect to any Shares of the Trust, means
the prospectus relating to such Shares, which constitutes part of the currently
effective Registration Statement of the Trust under the Securities Act of l933,
as such prospectus may be amended or supplemented from time to time.
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(k) "Shareholder" means a record holder of outstanding Shares.
(l) "Shareholder Servicing Agent" means the party, other than the
Trust, to the agreement described in Section 4.3 hereof.
(m) "Shares" means the units of interest into which the beneficial
interest in the Trust shall be divided from time to time, including the Shares
of any and all Series and Classes which may be established and designated hereby
or by the Trustees hereunder, and includes fractions of Shares as well as whole
Shares. "Series" or "Class" means the Shares representing the beneficial
interest in one of the separate Series or Classes of Shares of the Trust which
are established and designated in Section 6.1 hereof or which may be established
and designated from time to time by the Trustees pursuant to that section. All
references to Shares in this Declaration which are not accompanied by a
reference to any particular Series or Class of Shares shall be deemed to apply
to all outstanding Shares of any or all Series and Classes.
(n) "Single Class Voting," as used with respect to any matter to be
acted upon at a meeting or by written consent of Shareholders, means that on
such matter each holder of one or more Shares shall be entitled to one vote for
each Share standing in his or her name on the records of the Trust, irrespective
of Series or Class, as applicable, and all outstanding Shares of all Series or
Classes, as applicable, vote as a single Class.
(o) "Statement of Additional Information," as used with respect to any
Shares of the Trust, means the statement of additional information relating to
such Shares, which constitutes part of the currently effective Registration
Statement of the Trust under the Securities Act of l933, as such statement of
additional information may be amended or supplemented from time to time.
(p) "Trust" means the trust established hereby by whatever
name it may then be known.
(q) "Trust Property" means any and all assets and property, real or
personal, tangible or intangible, which is owned or held by or for the account
of the Trust or the Trustees.
(r) "Trustees" means the individuals who have signed this Declaration,
so long as they shall continue in office in accordance with the provisions
hereof, and all other individuals who may from time to time be duly elected or
appointed, qualified and serving as Trustees in accordance with the provisions
hereof, and reference herein to Trustee or the Trustees shall refer to such
individual or individuals in their capacity as trustees hereunder.
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<PAGE>
ARTICLE II
TRUSTEES
Section 2.1. Number of Trustees. The number of Trustees shall be such
number as shall be fixed from time to time by a written instrument signed by a
majority of the Trustees, provided, however, that the number of Trustees shall
not be less than one (1).
Section 2.2. Election or Appointment and Term. The initial Trustees
shall be the individuals signing this Declaration in that capacity. Thereafter,
subject to Section l6(a) of the l940 Act, the Trustees may elect or appoint
themselves or their successors at such regular intervals, if any, as they deem
proper, and may appoint Trustees to fill vacancies as provided in Section 2.4
hereof; provided, that Trustees shall be elected by a Majority Shareholder Vote
and at such time or times as the Trustees shall determine that such action is
required under Section l6(a) of the l940 Act or, if not so required, that such
action is advisable. Subject to Section 2.3 hereof, the Trustees shall have the
power to set and alter the terms of office of the Trustees, and they may at any
time lengthen or shorten their own terms or make their terms of unlimited
duration; provided, that the term of office of any incumbent Trustee shall
continue until terminated as provided in Section 2.4 hereof or, if not so
terminated, until the election of such Trustee's successor in office has become
effective in accordance with this Section 2.2.
Section 2.3. Resignation and Removal. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees, and such resignation shall be
effective upon such delivery or at any later date according to the terms of the
instrument. Any of the Trustees may be removed by the action of two-thirds of
the remaining Trustees; provided, that if the removal of one or more Trustees
would have the effect of reducing the number of remaining Trustees below the
minimum number prescribed by Section 2.1 hereof, then subject to Section l6(a)
of the l940 Act, at the time of the removal of such Trustee or Trustees, the
remaining Trustees shall elect or appoint a number of additional Trustees at
least sufficient to increase the number of Trustees holding office to the
minimum number prescribed by Section 2.1 hereof. Upon the resignation or removal
of a Trustee, or his otherwise ceasing to be a Trustee, he shall execute and
deliver such documents as the remaining Trustees shall require for the purpose
of conveying to the Trust or the remaining Trustees any Trust Property held in
his name. Upon the incapacity or death of any Trustee, his legal representative
shall execute and deliver on his behalf such documents as the remaining Trustees
shall require as provided in the preceding sentence. However, the execution and
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delivery of such documents by a former Trustee or his legal representative shall
not be requisite to the vesting of title to the Trust Property in the remaining
Trustees as provided in Section 3.3 hereof.
Section 2.4. Vacancies. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of such Trustee's death, resignation,
removal, bankruptcy, adjudicated incompetence or other incapacity to perform the
duties of the office of Trustee. No such vacancy shall operate to annul this
Declaration or to revoke any existing agency created pursuant to the terms of
this Declaration. In the case of an existing vacancy, including a vacancy
existing by reason of an increase in the number of Trustees, subject to the
provisions of Section l6(a) of the l940 Act, the remaining Trustees, or, if only
one Trustee shall then remain in office, the sole remaining Trustee, shall
appoint such individual to fill such vacancy as they or he, in their or his
discretion, shall see fit. An appointment of a Trustee may be made in
anticipation of a vacancy to occur at a later date by reason of retirement or
resignation of a Trustee or an increase in the number of Trustees; provided,
that such appointment shall not become effective prior to such retirement or
resignation or such increase in the number of Trustees. Whenever a vacancy in
the number of Trustees shall occur, until such vacancy is filled as provided in
this Section 2.4, the Trustees in office, regardless of their number, shall have
all the powers granted to the Trustees and shall discharge all the duties
imposed upon the Trustees by this Declaration. A written instrument certifying
the existence of such vacancy signed by a majority of the Trustees shall be
conclusive evidence of the existence of such vacancy.
ARTICLE III
POWERS OF TRUSTEES
Section 3.1. General. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without The Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper or desirable in order to promote the
interests of the Trust although such things are not herein specifically
mentioned.
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Any determination as to what is in the interests of the Trust made by the
Trustees in good faith shall be conclusive. In construing the provisions of this
Declaration, the presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
Section 3.2. Business and Investments. The Trustees shall have the
power with respect to the Trust and its assets and Shares:
(a) to conduct, operate and carry on the business of an investment
company, either directly or through one or more wholly-owned subsidiaries, and
in connection therewith:
(i) to subscribe for, purchase or otherwise acquire and
invest and reinvest in, to hold for investment or otherwise, to sell,
transfer, assign, negotiate, exchange, lend or otherwise dispose of,
and to turn to account or realize upon and generally deal in and with
(a) securities (which term, "securities," shall include without
limitation any and all bills, notes, bonds, debentures or other
obligations or evidences of indebtedness, certificates of deposit,
bankers' acceptances, commercial paper, repurchase agreements or other
money market instruments; stocks, shares or other equity ownership
interests; and warrants, options or other instruments representing
rights to subscribe for, purchase, receive or otherwise acquire or to
sell, transfer, assign or otherwise dispose of, and scrip,
certificates, receipts or other instruments evidencing any ownership
rights or interests in, any of the foregoing or in indices of any of
the foregoing), "when issued" and "delayed delivery" contracts for
securities, issued, guaranteed or sponsored by any governments,
political subdivisions or governmental authorities, agencies or
instrumentalities, by any individuals, firms, companies, corporations,
syndicates, associations or trusts, or by any other organizations or
entities whatsoever, irrespective of their forms or the names by which
they may be described, whether or not they be organized and operated
for profit, and whether they be domestic or foreign with respect to The
Commonwealth of Massachusetts or the United States of America, and
options or other instruments entered into on a national securities
exchange relating to foreign currencies; (b) futures contracts and
forward contracts with respect to instruments described in
3.2(a)(i)(a), futures contracts on indices of such instruments, and
options on all contracts described in this subsection 3.2(a)(i)(b); (c)
precious metals and other minerals, contracts to purchase and sell, and
other
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interests of every nature and kind in, such metals or minerals; and
(d) rare coins and other numismatic items; and
(ii) to acquire and become the owner of or interested in any
securities by delivering or issuing in exchange or payment therefor, in
any lawful manner, any of the Trust Property; and
(iii) to exercise all rights, powers and privileges relating
to, and to do all acts and things to protect or enhance the value of
securities or interests held.
The Trustees shall not be limited by any law limiting the investments which may
be made by fiduciaries; and
(b) to conduct, operate, carry on and engage in any other lawful
business and activity which to such extent and manner as the Trustees, in their
sole and absolute discretion, may determine.
Section 3.3. Legal Title. Legal title to all the Trust Property shall
be vested in the Trustees as joint tenants, except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or in the name of any
other Person as nominee, on such terms as the Trustees may determine, provided
that the interest of the Trust therein is appropriately protected. The right,
title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
termination of the term of office of a Trustee as provided in Section 2.2 or 2.4
hereof, such Trustee shall automatically cease to have any right, title or
interest in any of the Trust Property, and the right, title and interest of such
Trustee in the Trust Property shall vest automatically in the remaining
Trustees. Such vesting and cessation of title shall be effective whether or not
conveyancing documents have been executed and delivered as provided in Section
2.3 hereof.
Section 3.4. Issuance and Repurchase of Securities. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares of the
Trust, and, subject to Articles VII, VIII and IX hereof, to apply to any such
repurchase, redemption, retirement, cancellation or acquisition of Shares any
funds or other assets of the Trust, whether constituting capital or surplus or
otherwise, to the full extent now or hereafter permitted by applicable law.
Section 3.5. Borrowing Money; Lending Trust Assets. Subject to any
applicable Fundamental Policies of the Trust or any applicable provision of the
Bylaws, the Trustees shall have power to borrow money or otherwise obtain credit
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and to secure the same by mortgaging, pledging or otherwise subjecting as
security the assets of the Trust, to endorse, guarantee, or undertake the
performance of any obligation, contract or engagement of any other Person and to
lend Trust Property.
Section 3.6. Delegation; Committees. The Trustees shall have power,
consistent with their continuing exclusive authority over the management of the
Trust and the Trust Property, to delegate from time to time to such committee or
committees as they may from time to time appoint from among their own number or
to such officers, employees or agents of the Trust as they may from time to time
designate the doing of such things and the execution of such instruments either
in the name of the Trust or the names of the Trustees or otherwise as the
Trustees may deem expedient.
Section 3.7. Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
Section 3.8. Expenses. The Trustees shall have the power to incur and
pay any expenses which, in the opinion of the Trustees, are necessary or
incidental to carry out any of the purposes of this Declaration, and to pay
reasonable compensation from the funds of the Trust to themselves as Trustees.
The Trustees shall fix the compensation of all officers, employees and Trustees
of the Trust.
Section 3.9. Litigation. The Trustees shall have the power to engage in
and to prosecute, defend, compromise, abandon, or adjust, by arbitration or
otherwise, any actions, suits, proceedings, disputes, claims, and demands
relating to the Trust or the Trust Property, and, out of the Trust Property, to
pay or to satisfy any debts, claims or expenses incurred in connection
therewith, including those of litigation, and such power shall include without
limitation the power of the Trustees or any appropriate committee thereof, in
the exercise of their or its good faith business judgment, to consent to the
dismissal of any action, suit, proceeding, dispute, claim, or demand, derivative
or otherwise, brought by any person, including a Shareholder in such
Shareholder's own name or in the name of the Trust, whether or not the Trust or
any of the Trustees may be named individually therein or the subject matter
arises by reason of business for or on behalf of the Trust.
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Section 3.10. Miscellaneous Powers. The Trustees shall have the power
to: (a) employ or contract with such Persons as the Trustees may deem desirable
for the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, subject to and in accordance with
Sections 2.3 and 2.4 hereof; elect and remove at will such officers and appoint
and terminate such agents or employees as they consider appropriate; and appoint
from their own number and terminate at will any one or more committees which may
exercise some or all of the power and authority of the Trustees as the Trustees
may determine; (d) purchase, and pay for out of Trust Property, insurance
policies insuring the Trust Property, and, to the extent permitted by law and
not inconsistent with any applicable provision of this Declaration or the
Bylaws, insuring the Shareholders, Trustees, officers, employees, agents,
investment advisers, distributors, selected dealers or independent contractors
of the Trust against all claims arising by reason of holding any such position
or by reason of any action taken or omitted to be taken by any such Person in
such capacity, whether or not constituting negligence, or whether or not the
Trust would have the power to indemnify such Person against such liability; (e)
establish pension, profit sharing, Share purchase, and other retirement,
incentive and benefit plans for any Trustees, officers, employees and agents of
the Trust; (f) indemnify any person with whom the Trust has dealings, including
the Shareholders, Trustees, officers, employees, agents, investment advisers,
distributors, selected dealers and independent contractors of the Trust, to such
extent permitted by law and not inconsistent with any applicable provision of
the Bylaws as the Trustees shall determine; (g) guarantee indebtedness or
contractual obligations of others; (h) determine and change the fiscal year of
the Trust and the method by which its accounts shall be kept; and (i) adopt a
seal for the Trust, but the absence of such seal shall not impair the validity
of any instrument executed on behalf of the Trust.
Section 3.11. Manner of Acting; Bylaws. Except as otherwise provided
herein, in the Bylaws or in any applicable provision of law, any action to be
taken by the Trustees may be taken by a majority of the Trustees present at a
meeting of Trustees (a quorum being present), including any meeting which
employs a conference telephone circuit or similar communications equipment so
that all persons involved in such meeting can participate therein, or by written
consent or consents of a majority of the Trustees. The Trustees shall adopt
Bylaws not inconsistent with this Declaration to provide for the conduct of the
business of the Trust and may amend or repeal such Bylaws to the extent such
power is not reserved to the Shareholders by express provision of such Bylaws.
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ARTICLE IV
INVESTMENT ADVISER, ADMINISTRATOR, DISTRIBUTOR, CUSTODIAN
AND SHAREHOLDER SERVICING AGENT
Section 4.1. Investment Adviser. The Trustees may in their discretion
from time to time enter into investment advisory or management or administrative
agreements whereby an Investment Adviser or administrator which is the other
party to any such contract shall undertake to furnish the Trust such management,
investment advisory or supervisory, administrative, accounting, legal,
statistical and research facilities and services, and such other facilities and
services, if any, as the Trustees shall from time to time consider desirable,
all upon such terms and conditions as the Trustees may in their discretion
determine to be not inconsistent with this Declaration, the applicable
provisions of the l940 Act and any applicable provisions of the Bylaws of the
Trust. To the extent required by the 1940 Act or other applicable law or
regulations, any such advisory or management agreement and any amendment thereto
shall be subject to approval by a Majority Shareholder Vote at a meeting of the
Shareholders of the Trust. Notwithstanding any provisions of this Declaration,
the Trustees may authorize any Investment Adviser (subject to such general or
specific instructions as the Trustees may from time to time adopt) to effect
purchases, sales, loans or exchanges of portfolio securities of the Trust on
behalf of the Trustees or may authorize any officer or employee of the Trust or
any Trustee to effect such purchases, sales, loans or exchanges pursuant to
recommendations of any Investment Adviser (and all without further action by the
Trustees). Any such purchases, sales, loans and exchanges shall be deemed to
have been authorized by all of the Trustees. The Trustees may, in their sole
discretion, call a meeting of Shareholders in order to submit to a vote of
Shareholders at such meeting the approval of continuance of any such investment
advisory or management agreement. If the Shareholders of any one or more Series
or Classes of Shares should fail to approve any such investment advisory or
management agreement, the Investment Adviser may nonetheless serve as Investment
Adviser with respect to any Series or Class whose Shareholders approve such
contract.
Section 4.2. Distributor. The Trustees may in their discretion from
time to time enter into agreements providing for the sale of Shares to net the
Trust not less than the net asset value (or such other amount as may be
permitted by law) per Share (as described in Article VIII hereof) and pursuant
to which the Trust may appoint the other party to any such agreement as its
sales agent for the distribution of such Shares. Each such agreement shall
contain such terms and conditions as the Trustees may in their discretion
determine to be not inconsistent with this Declaration, the applicable
provisions of the l940 Act and any applicable provisions of the Bylaws of the
Trust.
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Section 4.3. Shareholder Servicing Agent. The Trustees may in their
discretion from time enter into a shareholder servicing agreement whereby the
other party to such agreement shall undertake to furnish transfer agency,
shareholder and dividend disbursing services to the Trust and its Shareholders.
The agreement shall contain such terms and conditions as the Trustees may in
their discretion determine to be not inconsistent with this Declaration and any
applicable provisions of the l940 Act and the Bylaws of the Trust.
Section 4.4. Custodian. The Trustees may appoint a bank or trust
company having an aggregate capital, surplus and undivided profits (as shown in
its last published report) of at least two million dollars ($2,000,000) as
custodian of the securities and cash of the Trust. The custodian agreement shall
contain such terms and conditions as the Trustees in their discretion determine
to be not inconsistent with this Declaration, the applicable provisions of the
l940 Act and any applicable provisions of the Bylaws of the Trust.
Section 4.5. Parties to Agreements. The Trustees may enter into any
agreement of the character described in Section 4.1, 4.2, 4.3 or 4.4 of this
Article IV and into any other agreement although one or more of the Trustees or
officers of the Trust may be an officer, director, trustee, shareholder or
member of, or otherwise interested in, any other party to the agreement, and no
such agreement shall be invalidated or rendered voidable by reason of the
existence of any such relationship; nor shall any Person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust under or by reason of said agreement or accountable for any
profit realized directly or indirectly therefrom. The same Person or an
Affiliated Person of any Person may be the other party to two or more of the
agreements entered into pursuant to Sections 4.1, 4.2, 4.3 or 4.4 above or
otherwise, and any individual may be financially interested in or otherwise
affiliated with any Person who is a party to any of the agreements mentioned in
this Section 4.5.
ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 5.1. No Personal Liability of Shareholders, Trustees, etc. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. Subject to Section 5.4 hereof, no Trustee, officer, employee or agent of
the Trust shall be subject to any personal liability whatsoever to any Person,
other than the Trust or its Shareholders, in connection with Trust Property or
the affairs of the Trust, and all such Persons shall look solely to the Trust
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Property for satisfaction of claims of any nature arising in connection with the
affairs of the Trust. If any Shareholder, Trustee, officer, employee or agent,
as such, of the Trust is made a party to any suit or proceeding to enforce any
such liability, he shall not, on account thereof, be held to any personal
liability. The Trust shall indemnify and hold each Shareholder harmless from and
against all claims and liabilities to which such Shareholder may become subject
by reason of his being or having been a Shareholder, and shall reimburse such
Shareholder for all legal and other expenses reasonably incurred by him in
connection with any such claim or liability; provided, that such indemnity or
reimbursement shall be made from assets (or proceeds thereof or income
therefrom) of the one or more Series or Classes of Shares of the Trust of which
such Shareholder is a holder and in respect of which such claim or liability
arose and not from the assets (or proceeds or income therefrom) of any other
Series or Classes of Shares of the Trust. The rights accruing to a Shareholder
under this Section 5.1 shall not exclude any other right to which such
Shareholder may be lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided herein.
Section 5.2. Non-Liability of Trustees, etc. Subject to Section 5.4
hereof, no Trustee, officer, employee or agent of the Trust shall be liable to
the Trust or to any Shareholder, Trustee, officer, employee or agent of the
Trust for any action or failure to act (including without limitation the failure
to compel in any way any former or acting Trustee to redress any breach of
trust).
Section 5.3. Indemnification.
(a) Subject to Section 5.4 hereof, the Trustees shall provide for
indemnification by the Trust of every Person who is, or has been, a Trustee,
officer, employee or agent of the Trust, or of any other entity of the Trust's
request, against all liability and against all expenses reasonably incurred or
paid by him in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or having been a
Trustee, officer, employee or agent and against amounts paid or incurred by him
in the settlement thereof in such manner, to such extent and subject to such
condition and limitations as the Trustees may provide from time to time in the
Bylaws; provided, that, to the extent any claim, action, suit or proceeding
involves any act or omission of such Person in respect of one or more particular
Series or Classes of Shares of the Trust or the assets or operations of such one
or more Series or Classes of Shares, such indemnification shall be provided only
from the assets (or proceeds thereof or income therefrom) of such one or more
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Series or Classes of Shares and not from the assets (or proceeds thereof or
income therefrom) of any other Series or Class of Shares of the Trust.
(b) The words "claim," "action," "suit," or "proceeding" shall apply to
all claims, actions, suits or proceedings (civil, criminal, or other, including
appeals), actual or threatened; and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
Section 5.4. No Protection Against Certain l940 Act Liabilities.
Nothing contained in Sections 5.1, 5.2 or 5.3 hereof or in any provision of the
Bylaws referred to in Section 5.3 hereof shall protect any Trustee or officer of
the Trust from any liability to the Trust or its Shareholders for which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. Nothing contained in Sections 5.1, 5.2 or 5.3 hereof or in any agreement
of the character described in Section 4.1 or 4.2 hereof shall protect any
Investment Adviser to the Trust or Distributor of its Shares against any
liability to the Trust or its Shareholders to which he or it would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in the
performance of his or its duties to the Trust, or by reason of his or its
reckless disregard of his or its obligations and duties under the agreement
pursuant to which he or it serves as Investment Adviser to the Trust or
Distributor of its Shares.
Section 5.5. No Bond Required of Trustees. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
duties hereunder.
Section 5.6. No Duty of Investigation; Notice in Trust Instruments,
etc. No purchaser, lender or other Person dealing with the Trustees or with any
officer, employee or agent of the Trust shall be bound to make any inquiry
concerning the validity of any transaction purporting to be made by the Trustees
or by said officer, employee or agent or be liable for the application of money
or property paid, loaned, or delivered to or on the order of the Trustees or of
said officer, employee or agent. Every contract, undertaking, instrument,
certificate, Share or obligation or other security of the Trust, and every other
act or thing whatsoever executed in connection with the Trust, shall be
conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under this Declaration or in their capacity
as officers, employees or agents of the Trust. Every written agreement,
contract, instrument, undertaking, certificate, Share or other security of the
Trust executed, made or issued by the Trustees shall recite that the same is
executed, made or issued by them not individually, but as Trustees under this
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Declaration, and that the obligations created or evidenced thereby are not
binding upon any of the Trustees or Shareholders individually, but bind only the
Trust Property, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees or Shareholders individually.
Section 5.7. Reliance on Experts, etc. Each Trustee, officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by the Investment Adviser, the Distributor,
Shareholder Servicing Agent, selected dealers, accountants, appraisers or other
experts or consultants selected with reasonable care by the Trustees, officers
or employees of the Trust, regardless of whether such counsel or expert may also
be a Trustee.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 6.1. Beneficial Interest. The interest of the Trust shall be
divided into transferable units to be called Shares of Beneficial Interest,
without par value. The number of such Shares of Beneficial Interest authorized
hereunder is unlimited. Except as otherwise provided in this Section 6.1 and in
Section 6.6 hereof, each Share shall represent an equal proportionate share in
the net assets of the Trust. Without limiting the authority of the Trustees set
forth herein to establish and designate any further Series or Classes, there is
hereby established one Series of Shares to be known as "The Principled Equity
Index Fund". Each Share of any Series or Class shall represent an equal
proportionate share in the net assets of that Series or Class with each other
Share of that Series or Class. The Trustees may divide or combine the Shares of
any Series or Class into a greater or lesser number of Shares of that Series or
Class without thereby changing the proportionate interests in the assets of that
Series or Class. Subject to the provisions of Section 6.6 hereof, the Trustees
may also authorize the creation of additional Series or Classes of Shares (the
proceeds of which may, if desired, be invested in separate, independently
managed portfolios of securities. All Shares issued hereunder including, without
limitation, Shares issued in connection with a dividend or distribution in
Shares or a division of Shares, shall be fully paid and nonassessable.
Section 6.2. Rights of Shareholders. The ownership of the Trust
Property of every description and the right to conduct any business hereinbefore
described shall be vested exclusively in the Trustees, and the Shareholders
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shall have no interest therein other than the beneficial interest conferred by
their Shares, and they shall have no right to call for any partition or division
of any property, profits, rights or interests of the Trust nor can they be
called upon to assume any losses of the Trust or suffer an assessment of any
kind by virtue of their ownership of Shares. The Shares shall be personal
property giving only the rights specifically set forth in this Declaration.
Shares shall not entitle any holder thereof to preference, preemptive,
appraisal, conversion or exchange rights, except as the Trustees may determine.
Section 6.3. Trust Only. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
Section 6.4. Issuance of Shares. The Trustees in their discretion may,
from time to time without vote of the Shareholders, issue Shares of any Series
or Class in addition to the then issued and outstanding Shares and Shares held
in the treasury, to such party or parties and for consideration in such amount
not less than the net asset value (or such other amount as may be permitted by
law) per Share (determined as set forth in Article VIII hereof) and of such
type, including cash or property, at such time or times and on such terms as the
Trustees may deem fitting, and may in such manner acquire other assets
(including the acquisition of assets subject to, and in connection with, the
assumption of liabilities) and businesses. In connection with any issuance of
Shares, the Trustees may issue fractional Shares. Reductions in the number of
outstanding Shares of any Series or Class with respect to which the Trustees
shall have established a policy of maintaining a constant net asset value per
Share of such Series or Class may be made pursuant to the provisions of Section
7.4 hereof in order to maintain the constant net asset value per share of such
Series. Contributions to the Trust may be accepted for, and Shares shall be
redeemed as, whole Shares and fractions of a Share as described in the
Prospectus or the Statement of Additional Information.
Section 6.5. Voting Powers. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 2.2 hereof and the
removal of Trustees to the extent provided in Section 16(c) of the 1940 Act,
(ii) with respect to approval or termination in accordance with the l940 Act of
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any investment advisory or management agreement described in Section 4.1 hereof,
(iii) with respect to termination of the Trust as provided in Section 9.2
hereof, (iv) with respect to any amendment of this Declaration to the extent and
as provided in Section 9.3 hereof, (v) to the same extent as the stockholders of
a Massachusetts business corporation as to whether or not a court action,
proceeding or claim should or should not be brought or maintained derivatively
or as a class action on behalf of the Trust or the Shareholders, and (vi) with
respect to such additional matters relating to the Trust as may be required by
this Declaration, the Bylaws or any undertaking filed by the Trust with the
Commission (or any successor agency) or with any state, or as to which the
Trustees in their discretion shall determine such Shareholder vote to be
required by law or otherwise to be necessary, appropriate or advisable. Each
whole Share shall be entitled to one vote as to any matter on which it is
entitled to vote and each fractional Share shall be entitled to a proportionate
fractional vote, except that Shares held in the treasury of the Trust as of the
record date, as determined in accordance with the Bylaws, shall not be voted.
There shall be no cumulative voting of Shares in any election of Trustees. Until
Shares are issued, the Trustees may exercise all rights of Shareholders and may
take any action required by law, this Declaration or the Bylaws to be taken by
Shareholders. The Bylaws may include further provisions relating to
Shareholders' votes and meetings and related matters.
Section 6.6. Series of Shares. The following provisions are applicable
regarding the Series of Shares of the Trust established and designated by
Section 6.1 hereof and shall be applicable to the extent the Trustees shall
provide in respect of the establishment and designation of additional Series or
Classes as provided in that section:
(a) The number of authorized Shares and the number of Shares of each
Series or Class that may be issued shall be unlimited. The Trustees may classify
or reclassify any Shares of any Series or Class whether or not previously issued
or outstanding. The Trustees may hold as treasury Shares and reissue as Shares
(of the same or some other Series or Class), for such consideration as provided
in Article VIII hereof and on such terms as they may determine, or cancel, any
Shares of any Series or Class reacquired by the Trust in their discretion from
time to time.
(b) All consideration received by the Trust for the issue or sale of
Shares of a particular Series or Class, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from reinvestment
of such proceeds in whatever form the same may be, shall irrevocably belong to
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that Series or Class, for all purposes subject only to the rights of creditors,
and shall be so recorded upon the books of account of the Trust. In the event
that there are any assets, income, earnings, profits, and proceeds thereof,
funds or payments which are not readily identifiable as belonging to any
particular Series or Class, the Trustees shall allocate them among any one or
more of the Series or Class, established and designated from time to time in
such manner and on such basis as they, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be conclusive and binding
upon the Shareholders of all Series and Classes for all purposes.
(c) The assets belonging to each particular Series or Class shall be
charged with the liabilities of the Trust in respect of that Series or Class and
all expenses, costs, charges and reserves attributable to that Series or Class,
and any general liabilities, expenses, costs, charges or reserves of the Trust
which are not readily identifiable as belonging to any particular Series or
Class shall be allocated and charged by the Trustees to and among any one or
more of the Series or Class established and designated from time to time in such
manner and on such basis as the Trustees in their sole discretion deem fair and
equitable. Each allocation of liabilities, expenses, costs, charges and reserves
by the Trustees shall be conclusive and binding upon the holders of all Series
and Classes for all purposes.
(d) The power of the Trustees to pay dividends and to make
distributions shall be governed by Section 8.3 of this Declaration with respect
to any one or more Series or Classes which represent the beneficial interests in
separately managed components of the Trust assets immediately prior to the
establishment and designation of any additional Series or Class. With respect to
any other Series or Class, dividends and distributions on Shares of a particular
Series or Class may be paid with such frequency as the Trustees may determine,
which may be daily or otherwise, pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine, to the holders of such Shares of that Series or Class, from such of
the income and capital gains, accrued or realized, from the assets belonging to
that Series or Class as the Trustees may determine, after providing for actual
and accrued liabilities belonging to that Series or Class. All dividends and
distributions on Shares of a particular Series or Class shall be distributed pro
rata to the holders of that Series or Class in proportion to the number of
Shares of that Series or Class held by such holders at the date and time of
record established for the payment of such dividends or distributions.
(e) The Trustees shall have the power to determine the designations,
preferences, privileges, limitations and rights, including voting and dividend
rights, of each Series or Class of Shares. Subject to the provisions of Section
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6.1 and this Section 6.6, all Shares of all Series or Classes shall have
identical rights and privileges, except insofar as variations thereof among
Series or Classes shall have been determined and fixed by the Trustees.
(f) Subject to compliance with the requirements of the 1940 Act, the
Trustees shall have the authority to provide that the holders of Shares of any
Series or Class shall have the right to convert or exchange said Shares for or
into Shares of one or more other Series or Class in accordance with such
requirements and procedures as may be established by the Trustees.
(g) The establishment and designation of any Series or Class of Shares
in addition to those established and designated in Section 6.1 hereof shall be
effective upon the execution by a majority of the then Trustees of an instrument
setting forth such establishment and designation and the relative rights,
preferences, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of such Series or Class
or as otherwise provided in such instrument. At any time that there are no
Shares outstanding of any particular Series or Class previously established and
designated, the Trustees may by an instrument executed by a majority of their
number abolish that Series or Class and the establishment and designation
thereof.
(h) In the event of the liquidation of a particular Series, or Class
the Shareholders of that Series or Class which has been established and
designated and which is being liquidated shall be entitled to receive, when and
as declared by the Trustees, the excess of the assets belonging to that Series
or Class over the liabilities belonging to that Series or Class. The holders of
Shares of any Series or Class shall not be entitled thereby to any distribution
upon liquidation of any other Series or Class. The assets so distributable to
the Shareholders of any Series or Class shall be distributed among such
Shareholders in proportion to the number of Shares of that Series or Class held
by them and recorded on the books of the Trust. The liquidation of any
particular Series or Class in which there are Shares then outstanding may be
authorized by vote or written consent of a majority of the Trustees then in
office.
ARTICLE VII
REDEMPTIONS
Section 7.1. Redemptions. Each Shareholder of a particular Series or
Class shall have the right, if any, at such times as may be permitted by the
Trust, to require the Trust to redeem all or any part of his Shares of that
Series or Class, upon and subject to the terms and conditions provided in this
Article VII. The Trust shall, upon application of or pursuant to authorization
from any Shareholder, redeem from such Shareholder outstanding Shares for an
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amount per Share determined by the Trustees in accordance with the l940 Act;
provided, that (i) such amount per Share shall not exceed the cash equivalent of
the proportionate interest of each Share of that Series or Class in the Trust
Property at the time of the redemption, and (ii) if so authorized by the
Trustees, the Trust may, at any time and from time to time charge fees for
effecting such redemption, at such rates as the Trustees may establish, if and
to the extent permitted under the l940 Act, and may, at any time and from time
to time, pursuant to the l940 Act suspend such right of redemption. Redemption
and suspension and resumption of redemption of Shares shall be effected in
accordance with the procedures, and payment for Shares redeemed shall be made in
the manner, set forth in the Prospectus or the Statement of Additional
Information relating to such Shares.
Section 7.2. Redemption of Shares for Tax Purposes; Disclosure of
Holding. If the Trustees shall, at any time and in good faith, be of the opinion
that direct or indirect ownership of Shares of the Trust (or of any Series of
Shares of the Trust) has or may become concentrated in any Person to an extent
which would disqualify the Trust (or such Series) as a regulated investment
company under the Internal Revenue Code, then the Trustees shall have the power
by lot or other means deemed equitable by them (i) to call for redemption from
any such Person a number, or principal amount, of Shares of the Trust (or of
such Series) sufficient, in the opinion of the Trustees, to maintain or bring
the direct or indirect ownership of Shares of the Trust (or of such Series) into
conformity with the requirements for such qualification, and (ii) to refuse to
transfer or issue Shares of the Trust (or of such Series) to any Person whose
acquisition of the Shares of the Trust (or of such Series) would, in the opinion
of the Trustees, result in such disqualification. The redemption shall be
effected at a redemption price determined in accordance with Section 7.1 hereof.
The holders of Shares of the Trust shall upon demand disclose to the
Trustees in writing such information with respect to direct and indirect
ownership of Shares of the Trust as the Trustees deem necessary to comply with
the provisions of the Internal Revenue Code of 1986, as amended or any successor
statute, or to comply with the requirements of any other authority.
Section 7.3. Redemptions to Reimburse Trust for Loss on Nonpayment for
Shares or for Other Charges. The Trustees shall have the power to redeem Shares
owned by any Shareholder to the extent necessary (i) to reimburse the Trust for
any loss it has sustained by reason of the failure of such Shareholder to make
full payment for Shares purchased by such Shareholder, or (ii) to collect any
charge relating to a transaction effected for the benefit of such Shareholder
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which is applicable to Shares as provided in the Prospectus. Any such redemption
shall be effected at the redemption price determined in accordance with Section
7.1 hereof.
Section 7.4. Redemptions Pursuant to Constant Net Asset Value Policy.
The following provisions shall apply to any Series of the Trust during any
period that the Trustees, in their discretion, establish a policy of maintaining
a constant net asset value per Share. If for any reason the net income of the
Trust attributable to such Series or Class shall, at the time of any
determination thereof in accordance with Section 8.2 hereof, be a negative
amount, then the Trustees shall have power to cause the number of outstanding
Shares of such Series or Class to be reduced by requiring each Shareholder to
contribute to the capital of the Trust such Shareholder's proportionate part of
the total number of Shares of such Series or Class which have an aggregate
current net asset value equal as nearly as may be practicable to the negative
amount of the Trust's net income. Each Shareholder, by becoming a registered
holder of Shares, agrees to make any such contribution which may be required.
Section 7.5. Payment for Redeemed Shares in Kind. Subject to any
applicable provisions of the l940 Act, payment for any Shares redeemed pursuant
to Section 7.1 or 7.2 hereof may, at the option of the Trustees or such officer
or officers of the Trust as they may authorize for the purpose, be made in cash
or in kind, or partially in cash and partially in kind, and, in case of full or
partial payment in kind, the Trustees or such authorized officer or officers
shall have absolute discretion to determine the securities or other assets of
the Trust and the amount thereof to be distributed in kind. For such purpose,
the value of any securities or other noncash assets delivered in payment for
Shares redeemed shall be determined in the same manner as the value of such
securities or other noncash assets are determined in accordance with Section 8.1
hereof for purposes of determining the net asset value per Share applicable to
such Shares, as of the same time that the net asset value per Share applicable
to such Shares is determined.
Section 7.6. Repurchase of Shares by Agreement with Shareholder. The
Trust may repurchase its Shares from any Shareholder directly or through an
agent designated by it for the purpose, by agreement with such Shareholder, at a
price not exceeding the redemption price of such Shares determined pursuant to
Section 7.1 hereof.
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ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DIVIDENDS AND DISTRIBUTIONS
Section 8.1. Net Asset Value. Subject to the applicable provisions of
the l940 Act, the Trustees shall have the power and duty to cause the net asset
value per Share of each Series or Class of outstanding Shares of the Trust to be
determined in such manner, with such frequency and at such specific time of day
as shall be set forth in or prescribed by the Trustees in accordance with the
Bylaws. The Trustees may delegate the power and duty to determine the net asset
value per Share of any Series or Class of outstanding Shares to one or more of
their number, or to one or more officers of the Trust, or to any Investment
Adviser, custodian, Shareholder Servicing Agent, or other agent appointed for
the purpose by the Trust.
Section 8.2. Net Income. Subject to any applicable provisions of the
l940 Act, the Trustees shall have the power and duty to cause the net income
attributable to each Series or Class of the Trust to be determined on an accrual
basis with the same frequency and at the same time of day as the net asset value
per Share of such Series or Class of the Trust is determined in accordance with
Section 8.1 hereof. The Trustees shall have full discretion, to the extent not
inconsistent with the l940 Act, to determine whether any cash or property of the
Trust shall be treated as income or as principal and whether any item of expense
shall be charged to the income or the principal account, and their determination
shall be conclusive upon the Shareholders. In the case of stock dividends
received, the Trustees shall have full discretion to determine, in the light of
the particular circumstances, how much, if any, of the value thereof shall be
treated as income, and the balance, if any, shall be treated as principal.
Section 8.3. Dividends and Distributions. The Trustees shall have the
power to declare and pay ratably to the Shareholders of any Series or Class as
dividends or distributions on their Shares, such proportion of the net income,
capital gains, surplus (including paid-in surplus), capital or assets of such
Series or Class as the Trustees may deem proper. Dividends and distributions on
any Series or Class of Shares may be paid with such frequency (which may be
daily or at such other intervals as shall be specified in a standing resolution
or resolutions adopted by the Trustees) and may be paid in cash or other
property, or in additional Shares, in such manner, at such times, and on such
terms as the Trustees shall determine. Dividends and distributions may be paid
to the Shareholders of record at the time of declaring the dividend or
distribution or to the Shareholders of record at such other date as the Trustees
shall determine. The Trustees may always retain from the net income of the Trust
such amount as they may deem necessary to pay debts or expenses or to meet
obligations of the Trust or as they may deem desirable to use in the conduct of
the affairs or to retain for future requirements of the business of the Trust.
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Inasmuch as the computation of net income and gains for Federal income
tax purposes may vary from the computation thereof on the books of the Trust,
the foregoing provisions of this Section 8.3 shall be interpreted to give the
Trustees the power in their discretion to distribute for any fiscal year as
income dividends and as capital gains distributions, respectively, additional
amounts sufficient to enable the Trust to avoid or reduce liability for taxes.
Section 8.4. Power to Modify Foregoing Procedures. Notwithstanding any
of the foregoing provisions of this Article VIII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the net
asset value per Share of outstanding Shares, the net income of the Trust, or for
the declaration and payment of dividends and distributions, as they may deem
necessary or desirable to enable the Trust to comply with any provision of the
l940 Act, including without limitation any rule or regulation adopted pursuant
to Section 22 of the l940 Act by the Commission.
ARTICLE IX
DURATION; TERMINATION OF
TRUST; AMENDMENT; MERGERS, ETC.
Section 9.1. Duration. The Trust shall continue without limitation of
time but subject to the provisions of this Article IX.
Section 9.2. Termination of Trust. (a) The Trust or any Series or Class
may be terminated by the vote or written consent of a majority of the Trustees.
Upon any such termination:
(i) The Trust, Series or Class terminated shall carry on no
business except for the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust, Series or Class terminated and all of the powers of the Trustees
under this Declaration shall continue until the affairs of the Trust,
Series or Class terminated shall have been wound up, including the
power to fulfill or discharge the contracts of the Trust, Series or
Class, collect its assets, sell, convey, assign, exchange, transfer or
otherwise dispose of all or any part of its remaining Trust Property to
one or more persons at public or private sale for consideration which
may consist in whole or in part of cash, securities or other property
of any kind and discharge or pay its liabilities, and to do all other
acts appropriate to liquidate its business.
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(iii) After paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases, indemnities and
refunding agreements, as they deem necessary for their protection, the
Trustees may distribute the remaining Trust Property of the Trust,
Series or Class terminated in cash or in kind or partly each, among its
Shareholders according to their respective rights and interests.
(b) After termination of the Trust and distribution to the Shareholders
as herein provided, a majority of the Trustees shall execute and lodge among the
records of the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder, and the rights and interests of all
Shareholders of the Trust, Series or Class terminated shall thereupon cease.
Section 9.3. Amendment Procedure. (a) This Declaration or any
provisions establishing any Series or Class may be amended by a vote or written
consent of a majority of the Trustees. However, if any such amendment materially
adversely affects the rights of any Shares of any Series or any Class with
respect to matters to which such amendment is applicable, such amendment shall
be subject to approval by holders of a majority of the Shares of such Series or
Class. An amendment or other action which provides for an additional Series of
Shares (and/or Classes thereof), which Series (and/or Classes thereof) may vote
separately or together with Shares of other Series (and/or Classes thereof) and
makes other provisions regarding such Series (and/or Classes thereof) and their
relations to existing or future Series (and/or Classes thereof) in any and all
respects, including, without limitation, preferential or limited dividend,
distribution, redemption and liquidation rights, preferences, limitations and
any other differences regarding the allocation of expenses of the Trust to or
among such Series (and/or Classes thereof), and voting rights or the expansion,
limitation or denial thereof, and any other matter affecting any Series (and/or
Classes thereof), all or any of which may be more or less favorable to any such
Series (and/or Classes thereof) in relation to any other Series (and/or Classes
thereof), shall not be deemed to adversely affect the rights of any other Series
of Shares (and/or Classes thereof). The Trustees may also amend this Trust
Agreement without any Shareholder approval to change the name of the Trust, to
supply any omission, to cure, correct or supplement any ambiguous, defective or
inconsistent provision thereof, or, if they deem it necessary, to conform this
Trust Agreement to the requirements of applicable federal laws or regulations or
the requirements of the Internal Revenue Code, or to eliminate or reduce any
federal, state or local taxes which are or may be payable by the Trust or the
Shareholders, but the Trustees shall not be liable for failing to do so.
(b) A certificate signed by a majority of the Trustees or by the
Secretary or any Assistant Secretary of the Trust, setting forth an amendment
and reciting that it was duly adopted as herein provided, or a copy of this
Declaration or provisions, as amended, and executed by a majority of the
Trustees or certified by the Secretary or any Assistant Secretary of the Trust,
shall be conclusive evidence of such amendment.
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<PAGE>
Section 9.4. Merger, Consolidation and Sale of Assets. The Trust or any
Series or Class may merge into or consolidate with any other corporation,
association, trust or other organization or may sell, lease or exchange any or
all or substantially all of its Trust Property, including its good will, upon
such terms, conditions and consideration as may be authorized by a majority of
the Trustees.
Section 9.5. Incorporation. The Trustees may cause to be organized or
assist in organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other organization
to take over all or any part of the Trust Property or to carry on any business
in which the Trust shall directly or indirectly have any interest, and to sell,
convey and transfer all or any part of the Trust Property to any such
corporation, trust, partnership, association or organization in exchange for the
shares or securities thereof or otherwise, and to lend money to, subscribe for
the shares or securities of, and enter into any contracts with any such
corporation, trust, partnership, association or organization in which the Trust
holds or is about to acquire shares or any other interest. The Trustees may also
cause a merger or consolidation between the Trust or any Series or Class or any
successor thereto and any such corporation, trust, partnership, association or
other organization if and to the extent permitted by law, as provided under the
law then in effect. Nothing contained herein shall be construed as requiring
approval of Shareholders for the Trustees to organize or assist in organizing
one or more corporations, trusts, partnerships, associations or other
organizations and selling, conveying or transferring a portion of the Trust
Property to such organizations or entities.
ARTICLE X
FINANCIAL REPORTS; BOOKS AND RECORDS
The Trustees shall make required financial reports. Shareholders may
inspect the books and records of the Trust only at the discretion of the
Trustees.
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<PAGE>
ARTICLE XI
MISCELLANEOUS
Section 11.1. Filing. This Declaration and any amendment hereto, or
other document required to be so filed, shall be filed in the office of the
Secretary of The Commonwealth of Massachusetts and in such other places as may
be required under the laws of The Commonwealth of Massachusetts and may also be
filed or recorded in such other places as the Trustees deem appropriate. Each
such amendment or document so filed shall be accompanied by a certificate signed
and acknowledged by a Trustee or by the Secretary or any Assistant Secretary of
the Trust stating that such action was duly taken in a manner provided herein.
Such amendment or document shall become effective as provided by applicable law.
A restated Declaration, amending and integrating into a single instrument all of
the provisions of this Declaration which are then in effect and operative, may
be executed from time to time by a majority of the Trustees and shall be
conclusive evidence of all amendments contained therein and may thereafter be
referred to in lieu of the original Declaration and the various amendments
thereto.
Section 11.2. Resident Agent. To the extent required, the Trustees
shall have power to appoint a resident agent for the Trust in The Commonwealth
of Massachusetts, and from time to time to replace the resident agent so
appointed.
Section 11.3. Governing Law. This Declaration is executed by the
Trustees with reference to the laws of The Commonwealth of Massachusetts, and
the rights of all parties and the validity and construction of every provision
hereof shall be subject to and construed according to the laws of said
Commonwealth.
Section 11.4. Counterparts. The Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
Section 11.5. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust, appears to be a Trustee
hereunder, or Secretary or Assistant Secretary of the Trust, certifying to: (i)
the number or identity of Trustees or Shareholders, (ii) the due authorization
of the execution of any instrument or writing, (iii) the form of any vote passed
at a meeting of Trustees or Shareholders, (iv) the fact that the number of
Trustees or Shareholders present at any meeting or executing any written
instrument satisfies the requirements of this Declaration, (v) the form of any
Bylaws adopted by or the identity of any officers elected by the Trustees, or
(vi) the existence of any fact or facts which in any manner relate to the
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<PAGE>
affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees and their successors.
Section 11.6. Provisions in Conflict with Law or Regulations. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the l940 Act, the regulated investment company provisions of the
Internal Revenue Code of 1986, as amended, or any successor statute or with
other applicable laws and regulations, the conflicting provisions shall be
deemed superseded by such law or regulation to the extent required to eliminate
such conflict, if required by law; provided, however, that such determination
shall not affect any of the remaining provisions of this Declaration or render
invalid or improper any action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
pertain only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
Section 11.7. Use of the Name "Principled." F.L. Putnam Investment
Management Company ("Putnam") has consented to the use by the Trust of the
identifying name "Principled," which is a property right of Putnam. The Trust
will only use the name "Principled" as a component of its name and for no other
purpose, and will not purport to grant to any third party the right to use the
name "Principled" for any purpose. Putnam or any corporate affiliate of Putnam
may use or grant to others the right to use the name "Principled," as all or a
portion of a corporate or business name or for any commercial purpose, including
a grant of such right to any other investment company. At the request of Putnam,
the Trust will take such action as may be required to provide its consent to the
use of the name "Principled" by Putnam, or any corporate affiliate of Putnam, or
by any person to whom Putnam or an affiliate of Putnam shall have granted the
right to the use of the name "Principled." Upon the termination of any
investment advisory or management agreement or underwriting agreement into which
Putnam or any affiliate of Putnam and the Trust may enter, the Trust shall, upon
request by Putnam, cease to use the name "Principled" as a component of its
name, and shall not use such name or initials as a part of its name or for any
other commercial purpose, and shall cause its officers and trustees to take any
and all actions which Putnam may request to effect the foregoing and to reconvey
to Putnam or such corporate affiliate any and all rights to such name.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands, all
as of the day and year first above written.
S/ John Hand
John Hand, as
Trustee and
not individually
S/ Virginia Spencer
Virginia Spencer, as
Trustee and
not individually
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EXHIBIT (a)
THE PRINCIPLED EQUITY INDEX FUND
Amendment to Declaration of Trust
Dated July 6, 1994
We, the undersigned, being all of the members of the Board of Trustees
of The Principled Equity Index Fund, a Massachusetts business trust organized
under a Declaration of Trust dated April 26, 1994, hereby amend said Declaration
of Trust, effective July 6, 1994 by deleting Section 3.11 of Article III and
inserting the following in lieu thereof:
Section 3.11. Manner of Acting: Bylaws. Except as otherwise provided
herein, in the Bylaws or in any applicable provision of law, any action to be
taken by the Trustees may be taken by a majority of the Trustees present at a
meeting of Trustees (a quorum being present), including any meeting which
employs a conference telephone circuit or similar communications equipment so
that all persons involved in such meeting can participate therein, or by written
consent or consents of a majority of the Trustees. The Trustees shall adopt
Bylaws not inconsistent with this Declaration to provide for the conduct of the
business of the Trust and may amend or repeal such Bylaws to the extent such
power is not reserved to the Shareholders by express provision of such Bylaws.
<PAGE>
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WITNESS our hands this 6th day of July, 1994.
/s/John Hand
John Hand
/s/ Virginia Spencer
Virginia Spencer
Exhibit (a)
THE PRINCIPLED EQUITY INDEX FUND
Amendment to Declaration of Trust
Dated July 6, 1994
The undersigned, being the sole Trustee of The Principled Equity Index
Fund, a Massachusetts business trust organized under a Declaration of Trust
dated April 26, 1994, as heretofore amended July 6, 1994, hereby further amends
said Declaration of Trust by changing the name of said Trust to "The Principled
Equity Market Fund" effective concurrently with the filing of the next amendment
to the Trust's registration statement filed with the Securities and Exchange
Commision under the Securities Act of 1933, and by substituting such new name
for the name of the Trust everywhere that it appears in said Declaration of
Trust, effective at the same time, wherever the Trust's name appears therein.
WITNESS my hand this 1st day of November, 1996.
S/John Hand, Trustee
John Hand, Trustee
EXHIBIT (b)
BYLAWS
OF
THE PRINCIPLED EQUITY MARKET FUND
ARTICLE I
Definitions
The terms "Affiliated Person," "Commission," "Declaration,"
"Distributor," "Investment Adviser," "Majority Shareholder Vote," "1940 Act,"
"Series," "Shareholder," "Shareholder Servicing Agent," "Shares," "Trust,"
"Trust Property," and "Trustees" have the respective meanings given them in the
Declaration of Trust of The Principled Equity Market Fund dated April 26, 1994,
as amended from time to time.
ARTICLE II
Offices
Section 2.1. Principal Office. The principal office of the Trust in The
Commonwealth of Massachusetts shall be located at the principal place of
business in The Commonwealth of the individual, firm or corporation acting as
the Trust's resident agent in The Commonwealth of Massachusetts.
Section 2.2. Other Offices. In addition to its principal office in The
Commonwealth of Massachusetts, the Trust may have an office or offices at such
other places within or without The Commonwealth of Massachusetts as the Trustees
may from time to time designate or the business of the Trust may require.
ARTICLE III
Shareholders' Meetings
Section 3.1. Time and Place of Meetings. All meetings of Shareholders
shall be held at such time and place, whether within or without The Commonwealth
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of Massachusetts, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 3.2. Meetings. Meetings of Shareholders shall be held whenever
a vote of Shareholders is required by the Declaration and at such other times as
the Trustees may determine to be necessary, appropriate or advisable. Meetings
of Shareholders to consider any matter as to which a vote of Shareholders is
required by the l940 Act or is permitted by Section l5(a)(3), l6(a) or 32(a)(3)
of, or Rule l2b-l(b)(3)(iii) under, the l940 Act and as to which the Trustees
have not called a meeting of Shareholders shall be called by the secretary upon
the written request of the holders of Shares entitled to cast not less than
twenty-five percent of all the votes then entitled to be cast at a meeting of
Shareholders without regard to Series.Such request shall state the purpose or
purposes of such meeting and the matters proposed to be acted on thereat. The
secretary shall inform such Shareholders of the estimated reasonable cost of
preparing and mailing such notice of the meeting. Upon payment to the Trust of
such costs, the secretary shall give notice stating the purpose or purposes of
the meeting to each Shareholder entitled to vote at such meeting. Unless
requested by the holders of Shares entitled to cast a majority of all the votes
then entitled to be cast at a meeting of Shareholders without regard to Series,
a meeting need not be called to consider any matter which is substantially the
same as a matter voted on at any meeting of Shareholders held during the
preceding twelve months.
Section 3.3. Notice of Meetings. Written notice of each meeting of
Shareholders stating the place, date and hour thereof, and in the case of a
special meeting specifying the purpose or purposes thereof, shall be given to
each Shareholder entitled to vote thereat not less than ten nor more than ninety
days prior to the meeting either by mail or by presenting it to such Shareholder
personally or by leaving it at his or her residence or usual place of business.
If mailed, such notice shall be deemed to be given when deposited in the United
States mail, postage prepaid, addressed to the Shareholder at his or her post
office address as it appears on the records of the Trust.
Section 3.4. Quorum; Adjournments. Except as otherwise provided by law,
by the Declaration or by these Bylaws, at all meetings of Shareholders the
holders of a majority of the Shares issued and outstanding and entitled to vote
thereat without regard to Series, present in person or represented by proxy,
shall be requisite and shall constitute a quorum for the transaction of
business; but this section shall not affect any applicable requirement of law or
the Declaration for the vote necessary for the adoption of any measure. In the
absence of a quorum, the Shareholders present in person or represented by proxy
and entitled to vote thereat shall have power to adjourn the meeting from time
to time without notice other than announcement at the meeting until such quorum
shall be present;
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and at any meeting at which a quorum shall be present, the holders of Shares
entitled to cast not less than a majority of all the votes entitled to be cast
at such meeting without regard to Series shall have the power to adjourn the
meeting from time to time without notice other than announcement at such
meeting; provided, however, that written notice shall be given as required by
Section 3.3 if such meeting is adjourned to a date more than one hundred and
twenty days after the record date originally scheduled with respect to the
meeting. At any such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted had a quorum been
present at the time originally fixed for the meeting.
Section 3.5. Vote Required. Except as otherwise provided by law, by the
Declaration or by these Bylaws, at each meeting of Shareholders at which a
quorum is present, all matters shall be decided by Majority Shareholder Vote.
Section 3.6. Voting. At any meeting of Shareholders, each Shareholder
having the right to vote shall be entitled to vote in person or by proxy, and
each Shareholder of record shall be entitled to one vote for each Share and to
the fractional portion of one vote for each fractional Share entitled to vote so
registered in his or her name on the records of the Trust on the date fixed as
the record date for the determination of Shareholders entitled to vote at such
meeting. If the Declaration of the 1940 Act requires that Shares be voted by
Series, each Shareholder shall be entitled to vote in person or by proxy, each
share or fraction thereof of such Series standing in his or her name on the
register of the Trust at the time of determining net asset value on such record
date.
Section 3.7. Proxies. Each proxy shall be in writing executed by the
Shareholder giving the proxy or by his or her duly authorized attorney. No proxy
shall be valid after the expiration of three years from its date, unless a
longer period is provided for in the proxy.
Section 3.8. Inspectors. The Trustees may, in advance of any meeting of
Shareholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairperson of the meeting may, and on the
request of any Shareholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his or her duties, shall
take and sign an oath to execute faithfully the duties of inspector at such
meeting with strict impartiality and according to the best of his or her
ability.
The inspectors shall determine the number of Shares outstanding and the
voting power of each, the number of Shares represented at the meeting, the
existence of a quorum, the validity and effect of the proxies, and shall receive
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votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, and determine the result.
On request of the chairman of the meeting or any Shareholder entitled
to vote thereat, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any fact
found by them. No Trustee or candidate for the office of Trustee shall act as
inspector of an election of Trustees.
Section 3.9. Procedures at Meetings. Except as otherwise provided
herein, at all meetings of Shareholders, all questions relating to the order and
manner in which matters are submitted to a vote, and other matters relating to
questions of procedure shall be decided by the chairman of the meeting, in a
manner consistent with these Bylaws.
Section 3.10. Informal Action by Shareholders. Any action required or
permitted to be taken at a meeting of Shareholders may be taken without a
meeting if a consent in writing, setting forth such action, is signed by each
Shareholder entitled to vote on the matter, and such consents are filed with the
records of the Trust.
ARTICLE IV
Trustees
Section 4.1. Annual Meetings of the Trustees. An annual meeting of the
Trustees may be held on such date as the Trustees shall prescribe. At each
annual meeting, the Trustees may elect officers, appoint committees, consider
approving the continuation of any agreement between the Trust and an Investment
Adviser or Distributor and, if applicable, of any distribution and services plan
of the Trust pursuant to Rule l2b-l under the l940 Act, or otherwise, and shall
take any action which the Trustees are required to take annually by the l940
Act, and transact such other business as may properly come before the meeting.
Section 4.2. Regular and Special Meetings of the Trustees. The Trustees
may in their discretion provide for regular or special meetings of the Trustees.
Regular meetings of the Trustees may be held without further notice at such time
and place as shall be fixed in advance by the Trustees. Special meetings of the
Trustees may be called at any time by the president and shall be called by the
president or the secretary upon the written request of any two Trustees.
Section 4.3. Notice of Special Meetings. Notice of any special meeting
of the Trustees shall be given by written notice delivered personally,
telegraphed, telecopied or mailed to each Trustee at his or her business or
<PAGE>
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residence address or by telephone. Personally delivered or telegram or
telecopier notices or notice by telephone shall be given at least forty-eight
hours prior to the meeting. Notice by mail shall be given at least five days
prior to the meeting. If mailed, such notice will be deemed to be given when
deposited in the United States mail properly addressed, with postage thereon
prepaid. If notice is given by telegram, such notice shall be deemed to be given
when the telegram is delivered to the telegraph company. If such notice is given
by telecopier such notice shall be given when the telecopy is sent. Neither the
business to be transacted at, nor the purpose of, any special meeting of the
Trustees need be stated in the notice, unless specifically required by the l940
Act. If all Trustees are present at a meeting, such meeting shall be duly
constituted whether or not any notice thereof shall have been given.
Section 4.4. Quorum; Adjournments. A majority of the number of Trustees
(but not fewer than two Trustees, if there are two or more Trustees) shall
constitute a quorum for the transaction of business at any meeting of the
Trustees; provided, that if less than a majority of such number of Trustees is
present at any such meeting, a majority of the Trustees present or the sole
Trustee present may adjourn the meeting from time to time without further notice
until a quorum is present.
Section 4.5. Voting. The action of a majority of the Trustees present
at a meeting at which a quorum is present shall be the action of the Trustees,
unless the concurrence of a greater proportion or of any specified group of
Trustees is required for such action by law, the Declaration or these Bylaws.
Section 4.6. Executive and Other Committees. The Trustees may designate
one or more committees, each committee to consist of two or more Trustees and to
have such title as the Trustees may consider to be properly descriptive of its
function, except that not more than one committee shall be designated as the
Executive Committee. Each such committee shall serve at the pleasure of the
Trustees.
In the absence of any member of such committee, the members thereof
present at any meeting, whether or not they constitute a quorum, may appoint a
Trustee to act in the place of such absent member.
The Trustees may delegate to any of the committees appointed under this
Section 4.6 any of the powers of the Trustees, except the power to: (a) amend
the Declaration; (b) authorize the merger or consolidation of the Trust or the
sale, lease or exchange of all or substantially all of the Trust Property; (c)
approve the incorporation of the Trust; (d) approve the termination of the
Trust; (e) declare dividends or distributions on Shares; (f) issue Shares except
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pursuant to a general formula or method specified by the Trustees by resolution;
(g) amend these Bylaws; or (h) elect or appoint or remove Trustees.
Each committee shall keep minutes or other appropriate written evidence
of its meetings or proceedings and shall report the same to the Trustees as and
when requested by the Trustees, and shall observe such other procedures with
respect to its meetings as may be prescribed by the Trustees in the resolution
appointing such committee, or, if and to the extent not so prescribed, as are
prescribed in these Bylaws with respect to meetings of the Trustees.
Section 4.7. Participation in Meetings by Telephone. Any Trustee may
participate in a meeting of the Trustees or of any committee of the Trustees
which employs a conference telephone circuit or similar communications equipment
so that all persons involved in such meeting can participate therein.
Participation in a meeting by these means shall constitute presence in person at
the meeting.
Section 4.8. Informal Action by Trustees. Any action required or
permitted to be taken at any meeting of the Trustees or of any committee of the
Trustees may be taken without a meeting, if the consent in a writing or writings
to such action is signed by a majority of the Trustees or members of any such
committee. Such written consent shall be filed with the minutes of proceedings
of the Trustees or of the committee.
Section 4.9. Compensation. The Trustees shall determine and from time
to time fix by resolution the compensation payable to Trustees for their
services to the Trust in that capacity. Such compensation may consist of a fixed
annual fee or a fixed fee for attendance at meetings of the Trustees or of any
committee of the Trustees of which the Trustees receiving such fees are members,
or a combination of a fixed annual fee and a fixed fee for attendance. In
addition, the Trustees may authorize the reimbursement of Trustees for their
expenses for attendance at meetings of the Trustees or of any committee of the
Trustees of which they are members. Nothing herein contained shall be construed
to preclude any Trustee from serving the Trust in any other capacity and
receiving compensation therefor.
ARTICLE V
Waiver of Notice
Whenever any notice is required to be given pursuant to law, the
Declaration or these Bylaws, a waiver thereof in writing, signed by the person
or persons entitled to such notice, or, in the case of any waiver of notice of
any meeting of Shareholders, signed by the proxy for a Shareholder entitled to
notice thereof, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Neither the business to be transacted
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at nor the purpose of any meeting need be set forth in the waiver of notice,
unless specifically required by law, the Declaration or these Bylaws. The
attendance of any person at any meeting in person, or, in the case of a meeting
of Shareholders, by proxy, shall constitute a waiver of notice of such meeting,
except where such person attends a meeting for the express purpose of objecting
to the transaction of any business on the ground that the meeting is not
lawfully called or convened.
ARTICLE VI
Officers
Section 6.1. Executive Officers. The executive officers of the Trust
shall be a president, a treasurer, and a secretary, and one or more
vice-presidents. If the Trustees shall elect a chairperson pursuant to Section
6.7, then the chairperson shall also be an executive officer of the Trust. If
the Trustees shall elect one or more vice-presidents, each such vice-president
shall be an executive officer. The chairperson, if there is one, shall be
elected from among the Trustees, but no other executive officer need be a
Trustee. Any two or more executive offices, except those of president and
vice-president, may be held by the same person. A person holding more than one
office may not act in more than one capacity to execute, acknowledge or verify
on behalf of the Trust an instrument required by law to be executed,
acknowledged or verified by more than one officer. The executive officers of the
Trust shall be elected at each annual meeting of Trustees.
Section 6.2. Other Officers and Agents. The Trustees may also elect or
may delegate to the president authority to appoint, remove or fix the duties,
compensation or terms of office of one or more assistant vice-presidents,
assistant treasurers and assistant secretaries, and such other officers and
agents as the Trustees shall at any time and from time to time deem to be
advisable.
Section 6.3. Tenure, Resignation and Removal. Each officer of the Trust
shall hold office until his or her successor is elected or appointed or until
his or her earlier displacement from office by resignation, removal or
otherwise; provided, that if the term of office of any officer elected or
appointed pursuant to Section 6.2 shall have been fixed by the Trustees or by
the president acting under authority delegated by the Trustees, such officer
shall cease to hold such office no later than the date of expiration of such
term, regardless of whether any other person shall have been elected or
appointed to succeed him or her. Any officer of the Trust may resign at any time
by written notice to the Trust. Any officer or agent of the Trust may be removed
at any time by the Trustees or by the president acting under authority delegated
by the Trustees pursuant to Section 6.2 if in their or his or her judgment the
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best interests of the Trust would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights between the Trust and such officer or agent.
Section 6.4. Vacancies. If the office of any officer becomes vacant for
any reason, the vacancy may be filled by the Trustees or by the president acting
under authority delegated by the Trustees pursuant to Section 6.2. Each officer
elected or appointed to fill a vacancy shall hold office for the balance of the
term for which his or her predecessor was elected or appointed.
Section 6.5. Compensation. The compensation, if any, of all officers of
the Trust shall be fixed by the Trustees or by the president acting under
authority delegated by the Trustees pursuant to Section 6.2.
Section 6.6. Authority and Duties. All officers as between themselves
and the Trust shall have such powers, perform such duties and be subject to such
restrictions, if any, in the management of the Trust as may be provided in these
Bylaws, or, to the extent not so provided, as may be prescribed by the Trustees
or by the president acting under authority delegated by the Trustees pursuant to
Section 6.2.
Section 6.7. Chairperson. When and if the Trustees deem such action to
be necessary or appropriate, they may elect a chairperson from among the
Trustees. The chairperson of the Trust shall preside at meetings of the
Shareholders and of the Trustees; and he or she shall have such other powers and
duties as may be prescribed by the Trustees. The chairperson shall in the
absence or disability of the president exercise the powers and perform the
duties of the president.
Section 6.8. President. The president of the Trust shall have general
and active management of the business of the Trust, shall see to it that all
orders, policies and resolutions of the Trustees are carried into effect, and,
in connection therewith, shall be authorized to delegate to any vice-president
of the Trust such of his or her powers and duties as president and at such times
and in such manner as he or she shall deem advisable. In the absence or
disability of the chairperson, or if there is no chairperson, the president
shall preside at all meetings of the Shareholders and of the Trustees; and he
shall have such other powers and perform such other duties as are incident to
the office of a chief executive officer and as the Trustees may from time to
time prescribe.
Section 6.9. Vice-Presidents. The vice-president, if any, or, if there
is more than one, then the vice-presidents of the Trust, shall assist the
president in the management of the business of the Trust and the implementation
of orders, policies and resolutions of the Trustees at such times and in such
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manner as the president may deem to be advisable. If there is more than one
vice-president, the Trustees may designate one as the executive vice-president,
in which case he or she shall be first in order of seniority, and the Trustees
may also grant to other vice-presidents such titles as shall be descriptive of
their respective functions or indicative of their relative seniority. In the
absence or disability of both the president and the chairperson, or in the
absence or disability of the president if there is no chairman, the
vice-president, or, if there is more than one, the vice-presidents in the order
of their relative seniority, shall exercise the powers and perform the duties of
those officers; and the vice-president or vice-presidents shall have such other
powers and perform such other duties as from time to time may be prescribed by
the president or by the Trustees.
Section 6.10. Assistant Vice-Presidents. The assistant vice-president,
if any, or if there is more than one, the assistant vice-presidents of the
Trust, shall perform such duties as may from time to time be prescribed by the
Trustees or by the president acting under authority delegated by the Trustees
pursuant to Section 6.2.
Section 6.11. Secretary. The secretary of the Trust shall (a) keep the
minutes of the meetings and proceedings and any written consents evidencing
actions of the Shareholders, the Trustees and any committees of the Trustees in
one or more books provided for that purpose; (b) see that all notices are duly
given in accordance with the provisions of these Bylaws or as required by law;
(c) be custodian of the business records and of the seal of the Trust, and, when
authorized by the Trustees, cause the seal of the Trust to be affixed to any
document requiring it, and when so affixed attested by his or her signature as
secretary or by the signature of an assistant secretary; and (d) in general,
perform such other duties as from time to time may be assigned to him or her by
the president or by the Trustees.
Section 6.12. Assistant Secretaries. The assistant secretary, if any,
or, if there is more than one, the assistant secretaries of the Trust in the
order determined by the Trustees or by the president, shall in the absence or
disability of the secretary exercise the powers and perform the duties of the
secretary, and he or she or they shall perform such other duties as the
Trustees, the president or the secretary may from time to time prescribe.
Section 6.13. Treasurer. The treasurer of the Trust shall keep full and
accurate accounts of receipts and disbursements in books belonging to the Trust,
shall deposit all moneys and other valuable effects in the name and to the
credit of the Trust in such depositories as may be designated by the Trustees,
and shall render to the Trustees and the president, at regular meetings of the
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Trustees or whenever they or the president may require it, an account of all his
or her transactions as treasurer and of the financial condition of the Trust.
If required by the Trustees, the treasurer shall give the Trust a bond
in such sum and with such surety or sureties as shall be satisfactory to the
Trustees for the faithful performance of the duties of his or her office and for
the restoration to the Trust, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind belonging to the Trust in his or her possession or under his or
her control.
Section 6.14. Assistant Treasurers. The assistant treasurer, if any,
or, if there is more than one, the assistant treasurers in the order determined
by the Trustees or by the president, shall in the absence or disability of the
treasurer exercise the powers and perform the duties of the treasurer, and he or
she or they shall perform such other duties as the Trustees, the president or
the treasurer may from time to time prescribe.
ARTICLE VII
Contracts, Checks and Drafts
Section 7.1. Contracts. The Trustees may authorize any officer or agent
to enter into any contract or to execute and deliver any instrument in the name
and on behalf of the Trust, and such authority may be general or confined to
specific instances. All contracts entered into on behalf of the Trust shall
comply with Section 5.6 of the Declaration.
Section 7.2. Checks and Drafts. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Trust shall be signed by such officer or officers or agent or agents
of the Trust and in such manner as shall from time to time be determined by the
Trustees.
ARTICLE VIII
Shares of Beneficial Interest
Section 8.1. Certificates of Shares. For any Series of Shares for which
the Trustees shall issue Share certificates each Shareholder of such Series
shall be entitled, upon written request made to the Trust or the Shareholder
Servicing Agent, to a certificate or certificates which shall represent and
certify the number of Shares held by him in the Trust. Each certificate shall be
signed by the chairperson, if there is one, the president or a vice-president
and countersigned by the secretary or an assistant secretary or the treasurer or
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an assistant treasurer and may be sealed with the seal of the Trust. The
signatures and seal, if any, on a certificate may be either manual or facsimile.
A certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. A full record of the issuance of each
certificate and the identifying number assigned thereto shall be made on the
books and records of the Trust usually kept for the purpose or required by
statute.
Section 8.2. Transfers of Shares. Upon surrender to the Trust or the
Shareholder Servicing Agent of a certificate duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, the Trust
shall issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books. Shares of the Trust not
represented by certificate shall be transferred by recording the transaction on
the books of the Trust maintained by the Shareholder Servicing Agent upon
presentation of proper evidence of succession, assignment or authority to
transfer.
The Trust shall be entitled to treat the holder of record of any Share
or Shares as the holder in fact thereof and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such Share or Shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by applicable law.
Section 8.3. Lost Certificates. The Trustees may by resolution
establish procedures pursuant to which a new certificate may be issued in place
of any certificate theretofore issued by the Trust which has been mutilated or
which is alleged to have been lost, stolen or destroyed, upon presentation of
each such mutilated certificate, or the making by the person claiming any such
certificate to have been lost, stolen or destroyed of an affidavit as to the
fact and circumstances of the loss, theft or destruction thereof. The Trustees,
in their discretion and as a condition precedent to the issuance of any new
certificate, may include among such procedures a requirement that the owner of
any certificate alleged to have been lost, stolen or destroyed, or his legal
representative, furnish the Trust with a bond, in such sum and with such surety
or sureties as they may direct, as indemnity against any claim that may be made
against the Trust in respect of such lost, stolen or destroyed certificate.
Section 8.4. Fixing of Record Date. For the purpose of determining the
Shareholders entitled to notice of, or to vote at, any meeting of Shareholders
or at any adjournment thereof in respect of which a new record date is not
fixed, or to express written consent to or dissent from the taking of action by
Shareholders without a meeting, or for the purpose of determining the
Shareholders entitled to receive payment of any dividend or other distribution
or allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of Shares, or for the purpose of any other lawful action,
<PAGE>
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the Trustees may fix, in advance, a date as the record date for any such
determination of Shareholders. Such date shall not be more than ninety days, and
in case of a meeting of Shareholders not less than ten days, before the date on
which the meeting or particular action requiring such determination of
Shareholders is to be held or taken. If no record date is fixed, (a) the record
date for the determination of Shareholders entitled to notice of or to vote at a
meeting of Shareholders shall be the later of: (i) the close of business on the
day on which the notice of meeting is first mailed to any Shareholder; or (ii)
the thirtieth day before the meeting; (b) the record date for determining the
Shareholders entitled to express written consent to the taking of any action
without a meeting, when no prior action by the Trustees is necessary, shall be
the day on which the first written consent is expressed; and (c) the record date
for the determination of Shareholders entitled to receive payment of a dividend
or other distribution or an allotment of any other rights shall be at the close
of business on the day on which the resolution of the Trustees declaring the
dividend, distribution or allotment of rights is adopted.
ARTICLE IX
Fiscal Year
The fiscal year of the Trust shall be fixed and may from time to time
be changed by resolution of the Trustees; provided, that if a different fiscal
year shall not have been fixed by the Trustees on or before December 31, 1994,
the first fiscal year of the Trust shall end on that date, and thereafter,
unless the Trustees shall fix a different fiscal year, it shall be the period of
twelve consecutive calendar months ending on the thirty-first day of December in
each year.
ARTICLE X
Seal
The Trustees shall adopt a seal, which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time provide. The
seal of the Trust may be affixed to any document, and the seal and its
attestation may be lithographed, engraved or otherwise printed on any document.
ARTICLE XI
Indemnification and Insurance
Section 11.1. The Trust shall indemnify any person who is a present or
former Trustee or officer of the Trust and who, by reason of his or her position
as such, was, is or is threatened to be made a party to any threatened, pending
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or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than any action or suit by or in the right of the Trust)
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement, actually and reasonably incurred by him in connection with the
claim, action, suit or proceeding, if he or she acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Trust, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction or
upon the plea of nolo contendere or its equivalent shall not, of itself, create
a presumption that the person did not act in good faith and in a manner which he
or she reasonably believed to be in or not opposed to the best interests of the
Trust, and, with respect to any criminal action or proceeding, had reasonable
cause to believe that his or her conduct was unlawful.
Section 11.2. The Trust shall indemnify any person who is a present or
former Trustee or officer of the Trust and who, by reason of his or her position
as such, was, is or is threatened to be made a party to any threatened, pending
or completed action or suit by or on behalf of the Trust to obtain a judgment or
decree in its favor against expenses, including attorneys' fees, actually and
reasonably incurred by him or her in connection with the defense or settlement
of the action or suit, if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
Trust; provided, that no indemnification shall be made in respect of any claim,
issue or matter as to which such person has been adjudged to be liable for
negligence or misconduct in the performance of his or her duty to the Trust,
except to the extent that the court in which the action or suit was brought
determines upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for those expenses which the court shall deem proper, and
such person is not adjudged to be liable by reason of his or her willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
Section 11.3. To the extent that a Trustee or officer of the Trust has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section ll.l or ll.2, or in defense of any claim,
issue or matter therein, he or she shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him or her in
connection therewith.
Section 11.4. Unless a court orders otherwise, any indemnification
under Section ll.l or ll.2 may be made by the Trust only as authorized in the
specific case after a determination that indemnification of the person to be
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indemnified is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in Sections ll.l or ll.2. The
determination shall be made by: (a) the Trustees, by a majority vote of a quorum
consisting of Trustees who were not parties to the action, suit or proceeding;
or (b) if the required quorum is not obtainable or if a quorum of disinterested
Trustees so directs, an independent legal counsel in a written opinion.
Nothing contained in this Article XI shall be construed to protect any
person against any liability to the Trust or its Shareholders to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office (any such conduct being hereinafter referred to as "Disabling
Conduct"). No indemnification shall be made pursuant to this Article XI unless:
(a) there is a final determination on the merits by a court or other
body before whom the action, suit or proceeding was brought that the person to
be indemnified was not liable by reason of Disabling Conduct; or
(b) in the absence of such a judicial determination, there is a reasonable
determination, based upon a review of the facts, that such person was not liable
by reason of Disabling Conduct, which determination shall be made by:
(i) a majority of a quorum of Trustees who are neither
"interested persons" of the Trust, as defined in Section 2(a)(19) of
the 1940 Act, nor parties to the action, suit or proceeding; or
(ii) an independent legal counsel in a written opinion.
Section 11.5. Notwithstanding any provision of this Article XI, any
advance payment of expenses by the Trust to any person to be indemnified
hereunder shall be made only upon the undertaking by or on behalf of such person
to repay the advance unless it is ultimately determined that he or she is
entitled to indemnification as above provided, and only if one of the following
conditions is met:
(a) the person to be indemnified provides a security for his or her
undertaking; or
(b) the Trust is insured against losses arising by reason of any lawful
advances; or
(c) there is a determination, based on a review of readily- available
facts, that there is no reason to believe that the person to be indemnified
<PAGE>
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ultimately will be entitled to indemnification, which determination shall be
made by:
(i) a majority of a quorum of Trustees who are neither
"interested persons" of the Trust, as defined in Section 2(a)(19) of
the 1940 Act, nor parties to the action, suit or proceeding; or
(ii) an independent legal counsel in a written
opinion.
Section 11.6. The indemnification provided by this Article XI shall
continue as to a person who has ceased to be a Trustee or officer of the Trust
and inure to the benefit of the legal representatives of such person and shall
not be deemed exclusive of any other rights to which such person may be entitled
under any agreement, vote of Trustees or otherwise, both as to action in his or
her official capacity and as to action in another capacity while holding office;
provided, that no person may satisfy any right of indemnity granted herein or to
which he or she may be otherwise entitled, except out of the Trust Property, and
no Shareholder shall be personally liable with respect to any claim for
indemnity.
Section 11.7. The Trust may purchase and maintain insurance on behalf
of any person who is or was a Trustee, officer, employee or agent of the Trust,
against any or her liability asserted against him and incurred by him or her in
any such capacity, or arising out of his or her status as such. However, the
Trust shall not purchase insurance to indemnify any Trustee or officer against
liability for any conduct in respect of which the l940 Act prohibits the Trust
itself from indemnifying or her.
ARTICLE XII
Net Asset Value
The Trustees shall by resolution prescribe the manner, frequency and
time of day for determining the net asset value per Share of each Series of the
outstanding Shares of the Trust.
ARTICLE XIII
Federal Supremacy
If at a time when the Trust is registered as an investment company
under the l940 Act, any of the foregoing provisions of these Bylaws or of the
Declaration or the law of The Commonwealth of Massachusetts relating to business
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trusts shall conflict or be inconsistent with any applicable provision of the
l940 Act, the applicable provision of the l940 Act shall be controlling and the
Trust shall not take any action which is in conflict or inconsistent therewith.
ARTICLE XIV
Amendments
These Bylaws may be amended, altered or repealed, or new Bylaws may be
adopted by the Trustees. The Trustees shall in no event adopt Bylaws which are
in conflict with the Declaration and, subject to Article XIII of these Bylaws,
any apparent inconsistency shall be construed in favor of the related provisions
in the Declaration.
ARTICLE XV
Declaration of Trust
The Declaration of Trust establishing the Trust, dated April 26, l994,
a copy of which, together with all amendments thereto, is on file in the office
of the Secretary of State of The Commonwealth of Massachusetts, provides that
the name "The Principled Equity Market Fund" refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or personally; and
no Trustee, Shareholder, officer, employee or agent of the Trust shall be held
personally liable, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise, in connection with the
affairs of the Trust, but the Trust Property only shall be liable.
Exhibit (d)
[CERTIFICATE FRONT]
The Commonwealth of Massachusetts
NUMBER SHARES
The Principled Equity Market Fund
THIS CERTIFIES THAT _____________________________ of ______________________ is
the owner of _______________________ Shares in The Principled Equity Market Fund
created by a Declaration of Trust dated June 26, 1994, as amended and recorded
with the Secretary of The Commonwealth of Massachusetts which shares are fully
paid and non-assessable, and subject to the provision of this Trust, are
transferable by assignment endorsed thereon, and, the surrender of this
certificate.
IN WITNESS WHEREOF, the Trustees hereunto set their hand and have
caused their seal to be affixed hereto this ______________ day of
________________A.D. 19____
[CERTIFICATE BACK]
Certificate
for
ISSUED TO
___________________________
DATED
___________________________
FOR VALUE RECEIVED, _____________________ hereby sell, assign and transfer
unto ___________________________________________________________________________
_________________________________________________________________________ Shares
of the Capital represented by the within Certificate, and do hereby irrevocably
constitute and appoint _______________________________________________ Attorney
to transfer the said Shares on the books of the within named Organization with
full power of substitution in the premises.
Dated ___________________________________ 19_____
in presence of
_______________________________
__________________________________
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OF
enlargement OR ANY CHANGE WHATEVER.
EXHIBIT (g)(i)
MANAGEMENT AGREEMENT
AGREEMENT made as of this 7th day of October, 1996, by and between The
Principled Equity Market Fund, a Massachusetts business trust (the "Fund"), and
F. L. Putnam Investment Management Company, a Maine corporation (the "Manager").
W I T N E S S E T H :
WHEREAS, the Fund is engaged in business as a closed-end management
investment company and is so registered under the Investment Company Act of
1940, as amended; and
WHEREAS, the Manager is engaged in the business of rendering investment
advisory services and is registered under the Investment Advisers Act of 1940,
as amended; and
WHEREAS, the Fund desires to retain the Manager to furnish management
services and the Manager is willing to furnish such services;
NOW, THEREFORE, it is hereby agreed between the parties hereto as follows:
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(a) Services Rendered and Expenses Paid by the Manager.
The Manager, subject to the control, direction and supervision of the
Board of Trustees of the Fund and in conformity with applicable laws, third
Agreement, the Fund's Declaration of Trust, By-Laws, registration statements and
amendments thereto, prospectuses and statements of additional information as in
effect from time to time, and stated investment objectives, policies and
restrictions, shall, with its own expense:
(i) manage the investment and reinvestment of the Fund's assets,
and formulate and implement investment programs;
(ii) place all orders for the purchase and sale of portfolio
investments for the Fund's account with brokers or dealers selected by
the Manager;
(iii) supervise the overall conduct of the administration of the
Fund's business and operations, except to the extent that actual
administration is conducted by others with whom the Fund may contract
therefor; and
(iv) furnish to the Fund office space, facilities, equipment and
personnel adequate to provide the services described in sub-paragraphs
(i), (ii) and (iii), above, and pay the compensation of each Trustee
and officer of the Fund who is an affiliated person of the Manager.
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(b) In performing the services described in sub-paragraph (ii)
above, the Manager shall seek to obtain for the Fund the most favorable
price and execution available. The Manager may, to the extent
authorized by law, cause the Fund to pay a broker or dealer that
provides brokerage or research services to the Manager or its
affiliates an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction. The Manager
shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with any investment policy
or the purchase, sale, or retention of any investment on the
recommendation of the Manager; provided, however, that nothing herein
contained shall be construed to protect the Manager against any
liability to the Fund by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties under this Agreement.
(c) Except as otherwise agreed, or as otherwise provided
herein, the Fund shall pay, or arrange for others to pay, all its
expenses other than those expressly stated to be payable by the Manager
hereunder, which expenses payable by the Fund shall include, without
limitation, (i) interest and taxes; (ii) brokerage commissions and
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other costs in connection with the purchase and sale of portfolio
investments; (iii) compensation of its Trustees and officers other than
those who are affiliated persons of the Manager and of any other
employees or agents of the Fund; (iv) fees of outside counsel to and of
independent accountants of the Fund selected by the Board of Trustees;
(v) custodian, transfer agent, dividend disbursing agent and
administration agent fees and expenses; (vi) bookkeeping expenses and
expenses of ascertaining the net asset value of shares of the Fund;
(vii) expenses related to the repurchase or redemption of its shares;
(viii) expenses related to the issuance of its shares; (ix) fees and
related expenses of registering and qualifying the Fund and its shares
under state and federal securities laws; (x) expenses of preparing,
printing and mailing registration statements, prospectuses, reports,
notices and proxy solicitation materials of the Fund; (xi) all other
expenses incidental to holding meetings of the Fund's shareholders,
such as proxy solicitations therefor; (xii) expenses for servicing
accounts, such as the provision of accounting and tax information to
shareholders; (xiii) insurance premiums for fidelity coverage and
errors and omissions insurance; (xiv) dues for the Fund's membership in
trade associations and (xv) such other expenses as may arise,
including, without limitation, those associated with actions, suits, or
proceedings to which the Fund is a party or arising from any legal
obligation which the Fund may have to indemnify its officers, Trustees,
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employees and agents with respect thereto. To the extent that any of
the foregoing expenses are allocated between the Fund and any other
party, such allocations shall be pursuant to methods approved by the
Board of Trustees.
(d) Role of the Manager. Delegation of Duties.
(i) The Manager, and any person controlling, controlled by or
under common control with the Manager, shall be free to render similar
services to others and to engage in other activities, so long as the
services rendered to the Fund are not impaired.
(ii) Except as otherwise required by the Investment Company
Act of 1940, as amended, any of the shareholders, Trustees, officers
and employees of the Fund may be a shareholder, director, officer or
employee of, or be otherwise interested in, the Manager, and in any
person controlling, controlled by or under common control with the
Manager, and the Manager, and any person controlling, controlled by or
under common control with the Manager, may have an interest in the
Fund.
(iii) Except as otherwise agreed, in the absence of willful
misfeasance, bad faith, gross negligence, or reckless disregard of its
obligations or duties hereunder, the Manager shall not be subject to
liability to the Fund for any act or omission in the course of, or
<PAGE>
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connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security.
(iv) With the approval of the Fund, the Manager may delegate
any or all of its duties to one or more subadvisers.
(e) Compensation of the Manager.
(i) As full compensation for the services rendered, facilities
furnished and expenses paid by the Manager under this Agreement, the
Fund agrees to pay to the Manager a fee at the annual rate of .25% of
the Fund's average monthly net assets. Such fee shall be accrued and
paid at such intervals, not more than monthly, as soon as practicable
after the end of each month or shorter period. For purposes of
calculating such fee, the Fund's average monthly net assets shall be
determined in the manner provided in the Fund's prospectus and
statement of additional information.
(ii) If the Manager shall serve for less than the whole of any
period, the foregoing compensation shall be prorated.
(f) Term and Termination.
(i) This Agreement shall become effective on the date hereof,
shall remain in full force and effect for two years from the date
hereof and shall continue in full force and effect for successive
<PAGE>
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periods of one year thereafter, but only so long as each such
continuance is approved at least annually (i) by either the Board of
Trustees of the Fund or by vote of a majority of the outstanding voting
securities of the Fund and in either event and (ii) by vote of a
majority of the Board of Trustees of the Fund who are not parties to
this Agreement or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval.
(ii) This Agreement may be terminated at any time without the
payment of any penalty by vote of the Board of Trustees of the Fund or
by vote of a majority of the outstanding voting securities of the Fund
or by the Manager, on not more than sixty (60) days, nor less than
thirty (30) days, written notice to the other party, or upon such
shorter notice as may be mutually agreed upon.
(iii) This Agreement shall automatically terminate in the
event of its assignment.
(g) Miscellaneous. For the purposes of this Agreement, the
terms "affiliated person," "assignment," "interested person," and
"majority of the outstanding voting securities" shall have their
respective meanings defined in the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, subject, however, to
<PAGE>
-8-
such exemptions as may be granted to either the Manager or the Fund by
the Securities and Exchange Commission, and the term "brokerage and
research services" shall have the meaning given in the Securities
Exchange Act of 1934, as amended, and the rules and regulations
thereunder.
(h) Limitation of Liability of the Trustees and Shareholders.
A copy of the Declaration of Trust of the Fund is on file with
the Secretary of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees
of the Fund as Trustees and not individually and that the obligations
of this instrument are not binding upon any of the Trustees, officers
or shareholders of the Fund but are binding only upon the assets and
property of the Fund.
IN WITNESS WHEREOF the parties hereto have caused this
Agreement to be duly executed as of the date first written above.
THE PRINCIPLED EQUITY MARKET FUND
By: /s/David W.C. Putnam
David W.C. Putnam, President
F. L. PUTNAM INVESTMENT MANAGEMENT
COMPANY
By: /s/Susanne Stauffer
Susanne Stauffer, Authorized Officer
EXHIBIT g(ii)
SUB-ADVISORY AGREEMENT
AGREEMENT made as of this 7th day of October, 1996, by and between PanAgora
Asset Management, Inc. (the "Sub-Adviser"), and F. L. Putnam Investment
Management Company, (the "Manager").
W I T N E S S E T H :
WHEREAS, the Principled Equity Market Fund, a Massachusetts business trust
(the "Fund"), is engaged in business as a closed-end management investment
company and is so registered under the Investment Company Act of 1940, as
amended; and
WHEREAS, each of the Manager and the Sub-Adviser is engaged in the business
of rendering investment advisory services and is registered under the Investment
Advisers Act of 1940, as amended; and
WHEREAS, the Fund desires to retain the Manager to furnish management
services and the Manager desires to retain the Sub-Advisor to furnish certain of
such services, with the approval of the Fund;
NOW, THEREFORE, it is hereby agreed between the parties hereto as follows:
(a) Services Rendered and Expenses Paid by the Sub-Adviser.
<PAGE>
-2-
The Sub-Adviser, subject to the control, direction and supervision of
the Board of Trustees of the Fund and in conformity with applicable laws, this
Agreement, the Fund's Declaration of Trust, By-Laws, registration statements and
amendments thereto, prospectuses and statements of additional information as in
effect from time to time, and stated investment objectives, policies and
restrictions, shall, at its own expense:
(i) with full discretion manage the investment and
reinvestment of securities which have been selected by the Manager and
designated by the Manager as Acceptable securities as described in the
Fund's current prospectus from time to time; and
(ii) with full discretion place all orders for the purchase
and sale of such investments and, as requested by the Manager from time
to time, other investments for the Fund's account with brokers or
dealers selected by the Sub-Adviser or the Manager.
(b) In performing the services described in sub-paragraph (ii)
above, the Sub-Adviser shall seek to obtain for the Fund the most
favorable price and execution available. The Sub-Adviser may, to the
extent authorized by law, cause the Fund to pay a broker or dealer that
provides brokerage or research services to the Sub-Adviser or the
Manager or their affiliates an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission
<PAGE>
-3-
another broker or dealer would have charged for effecting that
transaction. The Sub-Adviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with any investment policy or the purchase, sale, or
retention of any investment on the recommendation of the Sub-Adviser;
provided, however, that nothing herein contained shall be construed to
protect the Sub-Adviser against any liability to the Fund or the
Manager by reason of willful misfeasance, bad faith or gross negligence
in the performance of its duties, or by reason of reckless disregard of
its obligations and duties under this Agreement.
(c) Role of the Sub-Adviser.
(i) The Sub-Adviser, and any person controlling, controlled by
or under common control with the Sub-Adviser, shall be free to render
similar services to others and to engage in other activities, so long
as the services rendered to the Fund are not impaired.
(ii) Except as otherwise required by the Investment Company
Act of 1940, as amended, any of the shareholders, Trustees, officers
and employees of the Fund may be a shareholder, director, officer or
employee of, or be otherwise interested in, the Sub-Adviser, and in any
person controlling, controlled by or under common control with, the
<PAGE>
-4-
Sub-Adviser, and the Sub-Adviser, and any person controlling,
controlled by or under common control with the Sub-Adviser, may have an
interest in the Fund.
(iii) Except as otherwise agreed, in the absence of willful
misfeasance, bad faith, gross negligence, or reckless disregard of its
obligations or duties hereunder, the Sub-Adviser shall not be subject
to liability to the Fund or the Manager for any act or omission in the
course of, or connected with, rendering services hereunder or for any
losses that may be sustained in the purchase, holding or sale of any
security.
(d) Compensation of the Sub-Adviser.
(i) As full compensation for the services rendered,
facilities furnished and expenses paid by the Sub-Adviser under this
Agreement, the Manager agrees to pay to the Sub-Adviser a fee at the
annual rate of .15% of the Fund's average monthly net assets. Such fee
shall be accrued and paid at such intervals, not less frequently than
monthly, as soon as practicable after the end of each month or shorter
period. For purposes of calculating such fee, the Fund's average
monthly net assets shall be determined in the manner provided in the
Fund's prospectus and statement of additional information.
<PAGE>
-5-
(ii) If the Sub-Adviser shall serve for less than the whole of
any period, the foregoing compensation shall be prorated.
(e) Term and Termination.
(i) This Agreement shall become effective on the date hereof,
shall remain in full force and effect for two years from the date
hereof and shall continue in full force and effect for successive
periods of one year thereafter, but only so long as each such
continuance is approved at least annually by the Manager and (i) by
either the Board of Trustees of the Fund or by vote of a majority of
the outstanding voting securities of the Fund and in either event and
(ii) by vote of a majority of the Board of Trustees of the Fund who are
not parties to this Agreement or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such
approval.
(ii) This Agreement may be terminated at any time without the
payment of any penalty by vote of the Board of Trustees of the Fund or
by vote of a majority of the outstanding voting securities of the Fund
or by the Manager, or the Sub-Adviser on not more than sixty (60) days,
nor less than thirty (30) days, written notice to the other party, or
upon such shorter notice as may be mutually agreed upon.
<PAGE>
-6-
(iii) This Agreement shall automatically terminate in the
event of its assignment.
(f) Miscellaneous. For the purposes of this Agreement, the
terms "affiliated person," "assignment," "interested person," and
"majority of the outstanding voting securities" shall have their
respective meanings defined in the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, subject, however, to
such exemptions as may be granted to either the Manager or the Fund by
the Securities and Exchange Commission, and the term "brokerage and
research services" shall have the meaning given in the Securities
Exchange Act of 1934, as amended, and the rules and regulations
thereunder.
(g) Limitation of Liability of the Trustees and Shareholders.
A copy of the Declaration of Trust of the Fund is on file with
the Secretary of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees
of the Fund as Trustees and not individually and that the obligations
of this instrument are not binding upon any of the Trustees, officers
or shareholders of the Fund but are binding only upon the assets and
property of the Fund.
<PAGE>
-7-
IN WITNESS WHEREOF the parties hereto have caused this
Agreement to be duly executed as of the date first written above.
F. L. PUTNAM INVESTMENT MANAGEMENT
COMPANY
By: /s/Susanne Stauffer
Susanne Stauffer, Authorized Officer
PANAGORA ASSET MANAGEMENT, INC.
By: /s/ Kathleen DeVivo_
Kathleen DeVivo, Compliance Officer
Accepted and approved as of the date first above-written:
THE PRINCIPLED EQUITY MARKET FUND
By: /s/David W.C. Putnam
David W.C. Putnam, President
EXHIBIT (j)
CUSTODIAN AGREEMENT
between
THE PRINCIPLED EQUITY MARKET FUND
and
INVESTORS BANK & TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
1. Bank Appointed Custodian.......................................... 1
2. Definitions....................................................... 1
2.1 Authorized Person...................................... 1
2.2 Board.................................................. 1
2.3 Security............................................... 1
2.4 Portfolio Security..................................... 2
2.5 Officers' Certificate.................................. 2
2.6 Book-Entry System...................................... 2
2.7 Depository............................................. 2
2.8 Proper Instructions.................................... 2
2.9 Foreign Securities..................................... 2
3. Separate Accounts................................................. 2
4. Certification as to Authorized Persons............................ 3
5. Custody of Cash................................................... 3
5.1 Purchase of Securities................................. 3
5.2 Redemptions............................................ 4
5.3 Distributions and Expenses of Fund..................... 4
5.4 Payment in Respect of Securities....................... 4
5.5 Repayment of Loans..................................... 4
5.6 Repayment of Cash...................................... 4
5.7 Foreign Exchange Transactions.......................... 4
5.8 Other Authorized Payments.............................. 4
5.9 Termination............................................ 4
6. Securities........................................................ 5
6.1 Segregation and Registration........................... 5
6.2 Voting and Proxies..................................... 5
6.3 Book-Entry System...................................... 5
6.4 Use of a Depository.................................... 6
6.5 Use of Book-Entry System for Commercial Paper.......... 7
6.6 Use of Immobilization Programs......................... 7
6.7 Eurodollar CD's ....................................... 9
6.8 Options and Futures Transactions....................... 9
<PAGE>
Page
6.9 Segregated Account.............................. 10
6.10 Interest Bearing Call or Time Deposits.......... 11
6.11 Transfer of Securities.......................... 11
7. Redemptions....................................................... 13
8. Merger, Dissolution, etc. of Fund................................. 13
9. Actions of Bank Without Prior Authorization....................... 13
10. Collection; Defaults.............................................. 14
11. Maintenance of Records............................................ 14
12. Reserved.......................................................... 15
13. Concerning the Bank............................................... 15
13.1 Performance of Duties;
Standard of Care..................................... 15
13.2 Agents and Subcustodians............................... 16
13.3 Duties of the Bank with Respect to Property
Held Outside of the United States.................... 16
13.4 Insurance.............................................. 20
13.5 Fees and Expenses of Bank.............................. 20
13.6 Advances by Bank...................................... 20
14. Termination....................................................... 20
15. Confidentiality................................................... 21
16. Notices........................................................... 21
17. Amendments........................................................ 22
18. Parties........................................................... 22
19. Governing Law..................................................... 22
20. Counterparts...................................................... 22
21. Limitation of Liability........................................... 22
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of this 7th day of October, 1996, between The Principled
Equity Market Fund, a Massachusetts Business Trust (the "Fund") and INVESTORS
BANK & TRUST COMPANY (the "Bank").
The Fund, an open-end management investment company, desires to place and
maintain all of its portfolio securities and cash in the custody of the Bank.
The Bank has at least the minimum qualifications required by Section 17(f)(1) of
the Investment Company Act of 1940, as amended, (the "1940 Act") to act as
custodian of the portfolio securities and cash of the Fund, and has indicated
its willingness to so act, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as custodian
of its portfolio securities and cash delivered to the Bank as hereinafter
described and the Bank agrees to act as such upon the terms and conditions
hereinafter set forth.
2. Definitions. Whenever used herein, the terms listed below will have the
following meaning:
2.1 Authorized Person. Authorized Person will mean any of the persons
duly authorized to give Proper Instructions or otherwise act on behalf of the
Fund by appropriate resolution of its Board, and set forth in a certificate as
required by Section 4 hereof.
2.2 Board. Board will mean the Board of Directors or the Board of
Trustees of the Fund, as the case may be.
2.3 Security. The term security as used herein will have the same
meaning as when such term is used in the Securities Act of 1933, as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
<PAGE>
2.4 Portfolio Security. Portfolio Security will mean any security owned
by the Fund.
2.5 Officers' Certificate. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
2.6 Book-Entry System. Book-Entry System shall mean the Federal
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.7 Depository. Depository shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934, as amended,
("Exchange Act"), its successor or successors and its nominee or nominees. The
term "Depository" shall further mean and include any other person authorized to
act as a depository under the 1940 Act, its successor or successors and its
nominee or nominees, specifically identified in a certified copy of a resolution
of the Board.
2.8 Proper Instructions. Proper Instructions shall mean (i) instructions
regarding the purchase or sale of Portfolio Securities, and payments and
deliveries in connection therewith, given by an Authorized Person as shall have
been designated in an Officers' Certificate, such instructions to be given in
such form and manner as the Bank and the Fund shall agree upon from time to
time, and (ii) instructions (which may be continuing instructions) regarding
other matters signed or initialed by such one or more persons from time to time
designated in an Officers' Certificate as having been authorized by the Board.
Oral instructions will be considered Proper Instructions if the Bank reasonably
believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Fund shall cause all
oral instructions to be promptly confirmed in writing. The Bank shall act upon
and comply with any subsequent Proper Instruction which modifies a prior
instruction and the sole obligation of the Bank with respect to any follow-up or
confirmatory instruction shall be to make reasonable efforts to detect any
discrepancy between the original instruction and such confirmation and to report
such discrepancy to the Fund. The Fund shall be responsible, at the Fund's
expense, for taking any action, including any reprocessing, necessary to correct
any such discrepancy or error, and to the extent such action requires the Bank
to act the Fund shall give the Bank specific Proper Instructions as to the
action required. Upon receipt of an Officers' Certificate as to the
authorization by the Board accompanied by a detailed description of procedures
approved by the Fund, Proper Instructions may include communication effected
directly between electro-mechanical or electronic devices provided that the
Board and the Bank are satisfied that such procedures afford adequate safeguards
for the Fund's assets.
2.9 Foreign Securities. The term Foreign Securities as used herein will
have the same meaning as when such term is used in Rule 17f-5 of the 1940 Act.
3. Separate Accounts. If the Fund has more than one series or portfolio,
the Bank will segregate the assets of each series or portfolio to which this
2
<PAGE>
Agreement relates into a separate account for each such series or portfolio
containing the assets of such series or portfolio (and all investment earnings
thereon). Unless the context otherwise requires, any reference in this Agreement
to any actions to be taken by the Fund shall be deemed to refer to the Fund
acting on behalf of one or more of its series, any reference in this Agreement
to any assets of the Fund, including, without limitation, any portfolio
securities and cash and earnings thereon, shall be deemed to refer only to
assets of the applicable series, any duty or obligation of the Bank hereunder to
the Fund shall be deemed to refer to duties and obligations with respect to the
individual series and any obligation or liability of the Fund hereunder shall be
binding only with respect to the individual series, and shall be discharged only
out of the assets of such series.
4. Certification as to Authorized Persons. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
Board, it being understood that upon the occurrence of any change in the
information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund, will sign a new or amended certification setting forth
the change and the new, additional or omitted names or signatures. The Bank will
be entitled to rely and act upon any Officers' Certificate given to it by the
Fund which has been signed by Authorized Persons named in the most recent
certification.
5. Custody of Cash. As custodian for the Fund, the Bank will open and
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Sections 13.2 or 13.3 hereof, including borrowed funds,
delivered to the Bank, subject only to draft or order by the Bank acting
pursuant to the terms of this Agreement. Upon receipt by the Bank of Proper
Instructions (which may be continuing instructions) or in the case of payments
for redemptions and repurchases of outstanding shares of beneficial interest in
the Fund, notification from the Fund's transfer agent as provided in Section 7,
requesting such payment, designating the payee or the account or accounts to
which the Bank will release funds for deposit, and stating that it is for a
purpose permitted under the terms of this Section 5, specifying the applicable
subsection, the Bank will make payments of cash held for the accounts of the
Fund, insofar as funds are available for that purpose, only as permitted in
subsections 5.1-5.9 below.
5.1 Purchase of Securities. Upon the purchase of securities for the
Fund, against contemporaneous receipt of such securities by the Bank registered
in the name of the Fund or in the name of, or properly endorsed and in form for
transfer to, the Bank, or a nominee of the Bank, or receipt for the account of
the Bank pursuant to the provisions of Section 6 below, each such payment to be
made at the purchase price shown on a broker's confirmation (or transaction
report in the case of Book Entry Paper) of purchase of the securities received
by the Bank before such payment is made, as confirmed in the Proper Instructions
received by the Bank before such payment is made.
3
<PAGE>
5.2 Redemptions. In such amount as may be necessary for the repurchase
or redemption of shares of beneficial interest in the Fund offered for
repurchase or redemption in accordance with Section 7 of this Agreement.
5.3 Distributions and Expenses of Fund. For the payment on the account
of the Fund of dividends or other distributions to shareholders as may from time
to time be declared by the Board, interest, taxes, management or supervisory
fees, distribution fees, fees of the Bank for its services hereunder and
reimbursement of the expenses and liabilities of the Bank as provided hereunder,
fees of any transfer agent, fees for legal, accounting, and auditing services,
or other operating expenses of the Fund.
5.4 Payment in Respect of Securities. For payments in connection with
the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5 Repayment of Loans. To repay loans of money made to the Fund, but,
in the case of final payment, only upon redelivery to the Bank of any Portfolio
Securities pledged or hypothecated therefor and upon surrender of documents
evidencing the loan;
5.6 Repayment of Cash. To repay the cash delivered to the Fund for the
purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 Foreign Exchange Transactions. For payments in connection with
foreign exchange contracts or options to purchase and sell foreign currencies
for spot and future delivery which may be entered into by the Bank on behalf of
the Fund upon the receipt of Proper Instructions, such Proper Instructions to
specify the currency broker or banking institution (which may be the Bank, or
any other subcustodian or agent hereunder, acting as principal) with which the
contract or option is made, and the Bank shall have no duty with respect to the
selection of such currency brokers or banking institutions with which the Fund
deals or for their failure to comply with the terms of any contract or option.
5.8 Other Authorized Payments. For other authorized transactions of the
Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 Termination. Upon the termination of this Agreement as hereinafter
set forth pursuant to Section 8 and Section 14 of this Agreement.
4
<PAGE>
6. Securities.
6.1 Segregation and Registration. Except as otherwise provided
herein, and except for securities to be delivered to any subcustodian appointed
pursuant to Sections 13.2 or 13.3 hereof, the Bank as custodian, will receive
and hold pursuant to the provisions hereof, in a separate account or accounts
and physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate), in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, and will execute and deliver all
such certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state. The Bank will use its best efforts
to the end that the specific Portfolio Securities held by it hereunder will be
at all times identifiable.
The Fund will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Portfolio Securities which
may from time to time be registered in the name of the Fund.
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Fund all notices, proxies
and proxy soliciting materials with respect to such Securities, such proxies to
be executed by the registered holder of such Securities (if registered otherwise
than in the name of the Fund), but without indicating the manner in which such
proxies are to be voted.
6.3 Book-Entry System. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits of Fund assets
in the Book-Entry System, and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officers' Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the Book-Entry
System provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect to
the Fund's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry Portfolio Securities which are included with
5
<PAGE>
other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Fund. Where securities are
transferred to the Fund's account, the Bank shall also, by book entry or
otherwise, identify as belonging to the Fund a quantity of securities in
fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased for
the account of the Fund or shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund upon (i) receipt of advice from the
Book-Entry System that such Securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its agent) to reflect
such payment and transfer for the account of the Fund. The Bank (or its agent)
shall transfer securities sold or loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System that payment
for securities sold or payment of the initial cash collateral against the
delivery of securities loaned by the Fund has been transferred to the Account;
and
(ii) the making of an entry on the records of the Bank (or
its agent) to reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Book-Entry System of transfers of securities for
the account of the Fund shall identify the Fund, be maintained for the Fund by
the Bank and shall be provided to the Fund at its request. The Bank shall send
the Fund a confirmation, as defined by Rule 17f-4 of the 1940 Act, of any
transfers to or from the account of the Fund;
(d) The Bank will promptly provide the Fund with any report
obtained by the Bank or its agent on the Book-Entry System's accounting system,
internal accounting control and procedures for safeguarding securities deposited
in the Book-Entry System;
(e) The Bank shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the Book-Entry System by reason of any gross
negligence, willful misfeasance or bad faith of the Bank or any of its agents or
of any of its or their employees or from any reckless disregard by the Bank or
any such agent of its duty to use its best efforts to enforce such rights as it
may have against the Book-Entry System; at the election of the Fund, it shall be
entitled to be subrogated for the Bank in any claim against the Book-Entry
System or any other person which the Bank or its agent may have as a consequence
of any such loss or damage if and to the extent that the Fund has not been made
whole for any loss or damage;
6.4 Use of a Depository. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits in DTC or
other such Depository and (ii) for any subsequent changes to such arrangements
following such approval, the Board has reviewed and approved the arrangement and
has not delivered an Officers' Certificate to the Bank indicating that the Board
has withdrawn its approval:
6
<PAGE>
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities including
stock dividends, rights and other items of like nature, and to receive and remit
to the Bank on behalf of the Fund all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name
of any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made through
the clearing medium employed by such Depository for transactions of participants
acting through it. Upon any purchase of Portfolio Securities, payment will be
made only upon delivery of the securities to or for the account of the Fund and
the Fund shall pay cash collateral against the return of Portfolio Securities
loaned by the Fund only upon delivery of the Securities to or for the account of
the Fund; and upon any sale of Portfolio Securities, delivery of the Securities
will be made only against payment thereof or, in the event Portfolio Securities
are loaned, delivery of Securities will be made only against receipt of the
initial cash collateral to or for the account of the Fund; and
(d) The Bank shall be liable to the Fund for any loss or damage to
the Fund resulting from use of a Depository by reason of any gross negligence,
willful misfeasance or bad faith of the Bank or its employees or from any
reckless disregard by the Bank of its duty to use its best efforts to enforce
such rights as it may have against a Depository. In this connection, the Bank
shall use its best efforts to ensure that:
(i) The Depository obtains replacement of any certificated
Portfolio Security deposited with it in the event such Security is lost,
destroyed, wrongfully taken or otherwise not available to be returned to the
Bank upon its request;
(ii) Any proxy materials received by a Depository with
respect to Portfolio Securities deposited with such Depository are forwarded
immediately to the Bank for prompt transmittal to the Fund;
(iii) Such Depository immediately forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the Bank such
records with respect to the performance of the Bank's obligations and duties
hereunder as may be necessary for the Fund to comply with the recordkeeping
requirements of Section 31(a) of the 1940 Act and Rule 31(a) thereunder; and
(v) Such Depository delivers to the Bank and the Fund all
internal accounting control reports, whether or not audited by an independent
public accountant, as well as such other reports as the Fund may reasonably
request in order to verify the Portfolio Securities held by such Depository.
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6.5 Use of Book-Entry System for Commercial Paper. Provided (i) the Bank
has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of confirmation from an
Issuer (as defined below) that the Fund has purchased such Issuer's Book-Entry
Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund,
commercial paper issued by issuers with whom the Bank has entered into a
book-entry agreement (the "Issuers"). In maintaining its Book-Entry Paper
System, the Bank agrees that:
(a) the Bank will maintain all Book-Entry Paper held by the Fund
in an account of the Bank that includes only assets held by it for customers;
(b) the records of the Bank with respect to the Fund's purchase of
Book-Entry Paper through the Bank will identify, by book-entry, Commercial Paper
belonging to the Fund which is included in the Book-Entry Paper System and shall
at all times during the regular business hours of the Bank be open for
inspection by duly authorized officers, employees or agents of the Fund;
(c) The Bank shall pay for Book-Entry Paper purchased for the
account of the Fund upon contemporaneous (i) receipt of advice from the Issuer
that such sale of Book-Entry Paper has been effected, and (ii) the making of an
entry on the records of the Bank to reflect such payment and transfer for the
account of the Fund;
(d) The Bank shall cancel such Book-Entry Paper obligation upon
the maturity thereof upon contemporaneous (i) receipt of advice that payment for
such Book-Entry Paper has been transferred to the Fund, and (ii) the making of
an entry on the records of the Bank to reflect such payment for the account of
the Fund;
(e) the Bank shall transmit to the Fund a transaction journal
confirming each transaction in Book-Entry Paper for the account of the Fund on
the next business day following the transaction; and
(f) the Bank will send to the Fund such reports on its system of
internal accounting control with respect to the Book-Entry Paper System as the
Fund may reasonably request from time to time.
6.6 Use of Immobilization Programs. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving the
maintenance of Portfolio Securities in an immobilization program operated by a
bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and (ii)
for each year following such approval the Board has reviewed and approved the
arrangement and has not delivered an Officers' Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
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6.7 Eurodollar CDs. Any Portfolio Securities which are Eurodollar CDs
may be physically held by the European branch of the U.S. banking institution
that is the issuer of such Eurodollar CD (a "European Branch"), provided that
such Securities are identified on the books of the Bank as belonging to the Fund
and that the books of the Bank identify the European Branch holding such
Securities. Notwithstanding any other provision of this Agreement to the
contrary, except as stated in the first sentence of this subsection 6.7, the
Bank shall be under no other duty with respect to such Eurodollar CDs belonging
to the Fund, and shall have no liability to the Fund or its shareholders with
respect to the actions, inactions, whether negligent or otherwise of such
European Branch in connection with such Eurodollar CDs, except for any loss or
damage to the Fund resulting from the Bank's own gross negligence, willful
misfeasance or bad faith in the performance of its duties hereunder.
6.8 Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
1. The Bank shall take action as to put options ("puts") and call
options ("calls") purchased or sold (written) by the Fund regarding escrow or
other arrangements (i) in accordance with the provisions of any agreement
entered into upon receipt of Proper Instructions between the Bank, any
broker-dealer registered under the Exchange Act and a member of the National
Association of Securities Dealers, Inc. (the "NASD"), and, if necessary, the
Fund relating to the compliance with the rules of the Options Clearing
Corporation and of any registered national securities exchange, or of any
similar organization or organizations.
2. Unless another agreement requires it to do so, the Bank shall
be under no duty or obligation to see that the Fund has deposited or is
maintaining adequate margin, if required, with any broker in connection with any
option, nor shall the Bank be under duty or obligation to present such option to
the broker for exercise unless it receives Proper Instructions from the Fund.
The Bank shall have no responsibility for the legality of any put or call
purchased or sold on behalf of the Fund, the propriety of any such purchase or
sale, or the adequacy of any collateral delivered to a broker in connection with
an option or deposited to or withdrawn from a Segregated Account (as defined in
subsection 6.9 below). The Bank specifically, but not by way of limitation,
shall not be under any duty or obligation to: (i) periodically check or notify
the Fund that the amount of such collateral held by a broker or held in a
Segregated Account is sufficient to protect such broker of the Fund against any
loss; (ii) effect the return of any collateral delivered to a broker; or (iii)
advise the Fund that any option it holds, has or is about to expire. Such duties
or obligations shall be the sole responsibility of the Fund.
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(b) Puts, Calls and Futures Traded on Commodities Exchanges
1. The Bank shall take action as to puts, calls and futures
contracts ("Futures") purchased or sold by the Fund in accordance with the
provisions of any agreement among the Fund, the Bank and a Futures Commission
Merchant registered under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization or organizations, regarding account deposits
in connection with transactions by the Fund.
2. The responsibilities and liabilities of the Bank as to futures,
puts and calls traded on commodities exchanges, any Futures Commission Merchant
account and the Segregated Account shall be limited as set forth in subparagraph
(a)(2) of this Section 6.8 as if such subparagraph referred to Futures
Commission Merchants rather than brokers, and Futures and puts and calls thereon
instead of options.
6.9 Segregated Account. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund, into which Account or Accounts may be transferred upon
receipt of Proper Instructions cash and/or Portfolio Securities:
(a) in accordance with the provisions of any agreement among the
Fund, the Bank and a broker-dealer registered under the Exchange Act and a
member of the NASD or any Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Options
Clearing Corporation and of any registered national securities exchange or the
Commodity Futures Trading Commission or any registered Contract Market, or of
any similar organizations regarding escrow or other arrangements in connection
with transactions by the Fund;
(b) for the purpose of segregating cash or securities in
connection with options purchased or written by the Fund or commodity futures
purchased or written by the Fund;
(c) for the deposit of liquid assets, such as cash, U.S.
Government securities or other high grade debt obligations, having a market
value (marked to market on a daily basis) at all times equal to not less than
the aggregate purchase price due on the settlement dates of all the Fund's then
outstanding forward commitment or "when-issued" agreements relating to the
purchase of Portfolio Securities and all the Fund's then outstanding commitments
under reverse repurchase agreements entered into with broker-dealer firms;
(d) for the purposes of compliance by the Fund with the procedures
required by Investment Company Act Release No. 10666, or any subsequent release
or releases of the Securities and Exchange Commission relating to the
maintenance of Segregated Accounts by registered investment companies;
(e) for other proper corporate purposes, but only, in the case of
this clause (e), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board, or of the Executive Committee
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signed by an officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such Segregated Account and
declaring such purposes to be proper corporate purposes.
(f) assets may be withdrawn from the Segregated Account pursuant
to Proper Instructions only
(i) with respect to assets deposited in accordance with the
provisions of any agreements referenced in (a) or (b) above, in accordance with
the provisions of such agreements;
(ii) with respect to assets deposited pursuant to (c) or (d)
above, for sale or delivery to meet the Fund's obligations under outstanding
firm commitment or when issued agreements for the purchase of Portfolio
Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal or
greater value deposited in the Segregated Account;
(iv) to the extent that the Fund's outstanding forward
commitment or when-issued agreements for the purchase of portfolio securities or
reverse repurchase agreements are sold to other parties or the Fund's
obligations thereunder are met from assets of the Fund other than those in the
Segregated Account;
(v) for delivery upon settlement of a forward commitment
agreement for the sale of Portfolio Securities; or
(vi) with respect to assets deposited pursuant to (e) above,
in accordance with the purposes of such account as set forth in Proper
Instructions.
6.10 Interest Bearing Call or Time Deposits. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by the Fund of
interest-bearing fixed-term and call deposits, transfer cash, by wire or
otherwise, in such amounts and to such bank or banks as shall be indicated in
such Proper Instructions. The Bank shall include in its records with respect to
the assets of the Fund appropriate notation as to the amount of each such
deposit, the banking institution with which such deposit is made (the "Deposit
Bank"), and shall retain such forms of advice or receipt evidencing the deposit,
if any, as may be forwarded to the Bank by the Deposit Bank. Such deposits shall
be deemed Portfolio Securities of the Fund and the responsibility of the Bank
therefore shall be the same as and no greater than the Bank's responsibility in
respect of other Portfolio Securities of the Fund.
6.11 Transfer of Securities. The Bank will transfer, exchange, deliver
or release Portfolio Securities held by it hereunder, insofar as such Securities
are available for such purpose, provided that before making any transfer,
exchange, delivery or release under this Section the Bank will receive Proper
Instructions requesting such transfer, exchange or delivery stating that it is
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for a purpose permitted under the terms of this Section 6.11, specifying the
applicable subsection, or describing the purpose of the transaction with
sufficient particularity to permit the Bank to ascertain the applicable
subsection, only
(a) upon sales of Portfolio Securities for the account of the
Fund, against contemporaneous receipt by the Bank of payment therefor in full,
each such payment to be in the amount of the sale price shown in a broker's
confirmation of sale of the Portfolio Securities received by the Bank before
such payment is made, as confirmed in the Proper Instructions received by the
Bank before such payment is made;
(b) in exchange for or upon conversion into other securities alone
or other securities and cash pursuant to any plan of merger, consolidation,
reorganization, share split-up, change in par value, recapitalization or
readjustment or otherwise, upon exercise of subscription, purchase or sale or
other similar rights represented by such Portfolio Securities, or for the
purpose of tendering shares in the event of a tender offer therefor, provided
however that in the event of an offer of exchange, tender offer, or other
exercise of rights requiring the physical tender or delivery of Portfolio
Securities, the Bank shall have no liability for failure to so tender in a
timely manner unless such Proper Instructions are received by the Bank at least
two business days prior to the date required for tender, and unless the Bank (or
its agent or subcustodian hereunder) has actual possession of such Security at
least two business days prior to the date of tender;
(c) upon conversion of Portfolio Securities pursuant to their
terms into other securities;
(d) for the purpose of redeeming in kind shares of the Fund upon
authorization from the Fund;
(e) in the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(f) when such Portfolio Securities are called, redeemed or retired
or otherwise become payable;
(g) for the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to the Fund by
any bank, including the Bank; provided, however, that such Portfolio Securities
will be released only upon payment to the Bank for the account of the Fund of
the moneys borrowed, except that in cases where additional collateral is
required to secure a borrowing already made, and such fact is made to appear in
the Proper Instructions, further Portfolio Securities may be released for that
purpose without any such payment. In the event that any such pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from the lender in accordance with the
normal procedures of the lender, that an event of deficiency or default on the
loan has occurred, the Bank may deliver such pledged Portfolio Securities to or
for the account of the lender;
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(h) for the purpose of releasing certificates representing
Portfolio Securities, against contemporaneous receipt by the Bank of the fair
market value of such security, as set forth in the Proper Instructions received
by the Bank before such payment is made;
(i) for the purpose of delivering securities lent by the Fund to a
bank or broker dealer, but only against receipt in accordance with street
delivery custom except as otherwise provided herein, of adequate collateral as
agreed upon from time to time by the Fund and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating to such securities
entered into by the Fund;
(j) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
(k) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 14 of this Agreement.
As to any deliveries made by the Bank pursuant to subsections (a), (b),
(c), (e), (f), (g), (h) and (i) securities or cash receivable in exchange
therefor shall be delivered to the Bank.
7. Redemptions. In the case of payment of assets of the Fund held by the
Bank in connection with redemptions and repurchases by the Fund of outstanding
shares of beneficial interests in the Fund, the Bank will rely on notification
by the Fund's transfer agent of receipt of a request for redemption and
certificates, if issued, in proper form for redemption before such payment is
made. Payment shall be made in accordance with the Trust Instrument and By-laws
of the Fund, from assets available for said purpose.
8. Merger, Dissolution, etc. of Fund. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the Portfolio Securities held
by it under this Agreement and disburse cash only upon the order of the Fund set
forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the fees,
disbursements and expenses of the Bank, this Agreement will terminate.
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9. Actions of Bank Without Prior Authorization. Notwithstanding anything
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, it will without prior authorization or instruction
of the Fund or the transfer agent:
(a) Endorse for collection and collect on behalf of and in the
name of the Fund all checks, drafts, or other negotiable or transferable
instruments or other orders for the payment of money received by it for the
account of the Fund and hold for the account of the Fund all income, dividends,
interest and other payments or distribution of cash with respect to the
Portfolio Securities held thereunder;
(b) Present for payment all coupons and other income items held by
it for the account of the Fund which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;
(c) Receive and hold for the account of the Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.
(d) Execute as agent on behalf of the Fund all necessary ownership
and other certificates and affidavits required by the Internal Revenue Code or
the regulations of the Treasury Department issued thereunder, or by the laws of
any state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State;
(e) Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
(f) Exchange interim receipts or temporary securities for
definitive securities.
10. Collections and Defaults. The Bank will use all reasonable efforts to
collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Securities. If Portfolio Securities upon which such income is
payable are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to pay within
two business days from the day on which it receives knowledge of such default or
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refusal. In addition, the Bank will send the Fund a written report once each
month showing any income on any Portfolio Security held by it which is more than
ten days overdue on the date of such report and which has not previously been
reported.
11. Maintenance of Records and Accounting Services. The Bank will maintain
records with respect to transactions for which the Bank is responsible pursuant
to the terms and conditions of this Agreement, and in compliance with the
applicable rules and regulations of the 1940 Act and will furnish the Fund daily
with a statement of condition of the Fund. The Bank will furnish to the Fund at
the end of every month, and at the close of each quarter of the Fund's fiscal
year, a list of the Portfolio Securities and the aggregate amount of cash held
by it for the Fund. The books and records of the Bank pertaining to its actions
under this Agreement and reports by the Bank or its independent accountants
concerning its accounting system, procedures for safeguarding securities and
internal accounting controls will be open to inspection and audit at reasonable
times by officers of or auditors employed by the Fund and will be preserved by
the Bank in the manner and in accordance with the applicable rules and
regulations under the 1940 Act.
12. Reserved.
13. Concerning the Bank.
13.1 Performance of Duties and Standard of Care. In performing its
duties hereunder and any other duties listed on any Schedule hereto, if any, the
Bank will be entitled to receive and act upon the advice of independent counsel
of its own selection, which may be counsel for the Fund, and will be without
liability for any action taken or thing done or omitted to be done in accordance
with this Agreement in good faith in conformity with such advice. In the
performance of its duties hereunder, the Bank will be protected and not be
liable, and will be indemnified and held harmless for any action taken or
omitted to be taken by it in good faith reliance upon the terms of this
Agreement, any Officers' Certificate, Proper Instructions, resolution of the
Board, telegram, notice, request, certificate or other instrument reasonably
believed by the Bank to be genuine, except in the case of its gross negligence,
willful misfeasance or bad faith in the performance of its duties or reckless
disregard of its obligations and duties hereunder, and for any other loss to the
Fund, except in the case of its negligence, gross negligence, willful
misfeasance or bad faith in the performance of its duties or reckless disregard
of its obligations and duties hereunder.
The Bank will be under no duty or obligation to inquire into and will not
be liable for:
(a) the validity of the issue of any Portfolio Securities
purchased by or for the Fund, the legality of the purchases thereof or the
propriety of the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or for
the Fund or the propriety of the amount for which the same are sold;
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(c) the legality of an issue or sale of any shares of beneficial
interest in the Fund or the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any shares of beneficial
interest in the Fund or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the Fund or
the legality of the distribution of any Portfolio Securities as payment in kind
of such dividend; and
(f) any property or moneys of the Fund unless and until received
by it, and any such property or moneys delivered or paid by it pursuant to the
terms hereof.
Moreover, the Bank will not be under any duty or obligation to ascertain
whether any Portfolio Securities at any time delivered to or held by it for the
account of the Fund are such as may properly be held by the Fund under the
provisions of its Trust Instrument, By-laws, any federal or state statutes or
any rule or regulation of any governmental agency.
Notwithstanding anything in this Agreement to the contrary, in no event
shall the Bank be liable hereunder or to any third party:
(a) for any losses or damages of any kind resulting from acts of
God, earthquakes, fires, floods, storms or other disturbances of nature,
epidemics, strikes, riots, nationalization, expropriation, currency
restrictions, acts of war, civil war or terrorism, insurrection, nuclear fusion,
fission or radiation, the interruption, loss or malfunction of utilities,
transportation, or computers (hardware or software) and computer facilities, the
unavailability of energy sources and other similar happenings or events except
as results from the Bank's own gross negligence; or
(b) for special, punitive or consequential damages arising from
the provision of services hereunder, even if the Bank has been advised of the
possibility of such damages.
13.2 Agents and Subcustodians with Respect to Property of the Fund Held
in the United States. The Bank may employ agents in the performance of its
duties hereunder and shall be responsible for the acts and omissions of such
agents as if performed by the Bank hereunder. Without limiting the foregoing,
certain duties of the Bank hereunder may be performed by one or more affiliates
of the Bank.
Upon receipt of Proper Instructions, the Bank may employ subcustodians,
provided that any such subcustodian meets at least the minimum qualifications
required by Section 17(f)(1) of the 1940 Act to act as a custodian of the Fund's
assets with respect to property of the Fund held in the United States. The Bank
shall have no liability to the Fund or any other person by reason of any act or
omission of any subcustodian and the Fund shall indemnify the Bank and hold it
harmless from and against any and all actions, suits and claims, arising
directly or indirectly out of the performance of any subcustodian. Upon request
of the Bank, the Fund shall assume the entire defense of any action, suit, or
claim subject to the foregoing indemnity. The Fund shall pay all fees and
expenses of any subcustodian.
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13.3 Duties of the Bank with Respect to Property of the Fund Held
Outside of the United States.
(a) Appointment of Foreign Sub-Custodians. The Fund hereby
authorizes and instructs the Bank to employ as sub-custodians for the Fund's
Foreign Securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories designated on
the Schedule attached hereto (each, a "Selected Foreign Sub-Custodian"). Upon
receipt of Proper Instructions, together with a certified resolution of the
Fund's Board of Trustees, the Bank and the Fund may agree to designate
additional foreign banking institutions and foreign securities depositories to
act as Selected Foreign Sub-Custodians hereunder. Upon receipt of Proper
Instructions, the Fund may instruct the Bank to cease the employment of any one
or more such Selected Foreign Sub-Custodians for maintaining custody of the
Fund's assets, and the Bank shall so cease to employ such sub-custodian as soon
as alternate custodial arrangements have been implemented.
(b) Foreign Securities Depositories. Except as may otherwise be
agreed upon in writing by the Bank and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as Selected Foreign
Sub-Custodians pursuant to the terms hereof. Where possible, such arrangements
shall include entry into agreements containing the provisions set forth in
subparagraph (d) hereof. Notwithstanding the foregoing, except as may otherwise
be agreed upon in writing by the Bank and the Fund, the Fund authorizes the
deposit in Euroclear, the securities clearance and depository facilities
operated by Morgan Guaranty Trust Company of New York in Brussels, Belgium, of
Foreign Securities eligible for deposit therein and to utilize such securities
depository in connection with settlements of purchases and sales of securities
and deliveries and returns of securities, until notified to the contrary
pursuant to subparagraph (a) hereunder.
(c) Segregation of Securities. The Bank shall identify on its
books as belonging to the Fund the Foreign Securities held by each Selected
Foreign Sub-Custodian. Each agreement pursuant to which the Bank employs a
foreign banking institution shall require that such institution establish a
custody account for the Bank and hold in that account, Foreign Securities and
other assets of the Fund, and, in the event that such institution deposits
Foreign Securities in a foreign securities depository, that it shall identify on
its books as belonging to the Bank the securities so deposited.
(d) Agreements with Foreign Banking Institutions. Each of the
agreements pursuant to which a foreign banking institution holds assets of the
Fund (each, a "Foreign Sub-Custodian Agreement") shall be substantially in the
form previously made available to the Fund and shall provide that: (a) the
Fund's assets will not be subject to any right, charge, security interest, lien
or claim of any kind in favor of the foreign banking institution or its
creditors or agent, except a claim of payment for their safe custody or
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administration (including, without limitation, any fees or taxes payable upon
transfers or re-registration of securities); (b) beneficial ownership of the
Fund's assets will be freely transferable without the payment of money or value
other than for custody or administration (including, without limitation, any
fees or taxes payable upon transfers or re- registration of securities); (c)
adequate records will be maintained identifying the assets as belonging to Bank;
(d) officers of or auditors employed by, or other representatives of the Bank,
including to the extent permitted under applicable law, the independent public
accountants for the Fund, will be given access to the books and records of the
foreign banking institution relating to its actions under its agreement with the
Bank; and (e) assets of the Fund held by the Selected Foreign Sub-Custodian will
be subject only to the instructions of the Bank or its agents.
(e) Access of Independent Accountants of the Fund. Upon request of
the Fund, the Bank will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of any
foreign banking institution employed as a Selected Foreign Sub-Custodian insofar
as such books and records relate to the performance of such foreign banking
institution under its Foreign Sub-Custodian Agreement.
(f) Reports by Bank. The Bank will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and other
assets of the Fund held by Selected Foreign Sub-Custodians, including but not
limited to an identification of entities having possession of the Foreign
Securities and other assets of the Fund.
(g) Transactions in Foreign Custody Account. Transactions with
respect to the assets of the Fund held by a Selected Foreign Sub-Custodian shall
be effected pursuant to Proper Instructions from the Fund to the Bank and shall
be effected in accordance with the applicable Foreign Sub-Custodian Agreement.
If at any time any Foreign Securities shall be registered in the name of the
nominee of the Selected Foreign Sub-Custodian, the Fund agrees to hold any such
nominee harmless from any liability by reason of the registration of such
securities in the name of such nominee.
Notwithstanding any provision of this Agreement to the contrary, settlement
and payment for Foreign Securities received for the account of the Fund and
delivery of Foreign Securities maintained for the account of the Fund may be
effected in accordance with the customary established securities trading or
securities processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an agent for
such purchaser or dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or dealer.
In connection with any action to be taken with respect to the Foreign
Securities held hereunder, including, without limitation, the exercise of any
voting rights, subscription rights, redemption rights, exchange rights,
conversion rights or tender rights, or any other action in connection with any
other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Fund such
information in connection therewith as is made available to the Bank by the
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<PAGE>
Foreign Sub-Custodian, and shall promptly forward to the applicable Foreign
Sub-Custodian any instructions, forms or certifications with respect to such
Rights, and any instructions relating to the actions to be taken in connection
therewith, as the Bank shall receive from the Fund pursuant to Proper
Instructions. Notwithstanding the foregoing, the Bank shall have no further duty
or obligation with respect to such Rights, including, without limitation, the
determination of whether the Fund is entitled to participate in such Rights
under applicable U.S. and foreign laws, or the determination of whether any
action proposed to be taken with respect to such Rights by the Fund or by the
applicable Foreign Sub-Custodian will comply with all applicable terms and
conditions of any such Rights or any applicable laws or regulations, or market
practices within the market in which such action is to be taken or omitted.
(h) Liability of Selected Foreign Sub-Custodians. Each Foreign
Sub-Custodian Agreement with a foreign banking institution shall require the
institution to exercise reasonable care in the performance of its duties and to
indemnify, and hold harmless, the Bank and each Fund from and against certain
losses, damages, costs, expenses, liabilities or claims arising out of or in
connection with the institution's performance of such obligations, all as set
forth in the applicable Foreign Sub-Custodian Agreement. The Fund acknowledges
that the Bank, as a participant in Euroclear, is subject to the Terms and
Conditions Governing the Euroclear System, a copy of which has been made
available to the Fund. The Fund acknowledges that pursuant to such Terms and
Conditions, Morgan Guaranty Brussels shall have the sole right to exercise or
assert any and all rights or claims in respect of actions or omissions of, or
the bankruptcy or insolvency of, any other depository, clearance system or
custodian utilized by Euroclear in connection with the Fund's securities and
other assets.
(i) Liability of Bank. The Bank shall have no more or less
responsibility or liability on account of the acts or omissions of any Selected
Foreign Sub-Custodian employed hereunder than any such Selected Foreign
Sub-Custodian has to the Bank and, without limiting the foregoing, the Bank
shall not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions, or acts of
war or terrorism, political risk (including, but not limited to, exchange
control restrictions, confiscation, insurrection, civil strife or armed
hostilities) other losses due to Acts of God, nuclear incident or any loss where
the Selected Foreign Sub-Custodian has otherwise exercised reasonable care.
(j) Monitoring Responsibilities. The Bank shall furnish annually
to the Fund, information concerning the Selected Foreign Sub-Custodians employed
hereunder for use by the Fund in evaluating such Selected Foreign Sub-Custodians
to ensure compliance with the requirements of Rule 17f-5 of the Act. In
addition, the Bank will promptly inform the Fund in the event that the Bank is
notified by a Selected Foreign Sub-Custodian that there appears to be a
substantial likelihood that its shareholders' equity will decline below $200
million (U.S. dollars or the equivalent thereof) or that its shareholders'
equity has declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles) or any other capital adequacy
test applicable to it by exemptive order, or if the Bank has actual knowledge of
any material loss of the assets of the Fund held by a Foreign Sub-Custodian.
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(k) Tax Law. The Bank shall have no responsibility or liability
for any obligations now or hereafter imposed on the Fund or the Bank as
custodian of the Fund by the tax laws of any jurisdiction, and it shall be the
responsibility of the Fund to notify the Bank of the obligations imposed on the
Fund or the Bank as the custodian of the Fund by the tax law of any non-U.S.
jurisdiction, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting. The sole responsibility of the Custodian with regard to such tax law
shall be to use reasonable efforts to assist the Fund with respect to any claim
for exemption or refund under the tax law of jurisdictions for which the Fund
has provided such information.
13.4 Insurance. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Fund held by it as it uses
in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Fund.
13.5. Fees and Expenses of Bank. The Fund will pay or reimburse the Bank
from time to time for any transfer taxes payable upon transfer of Portfolio
Securities made hereunder, and for all necessary proper disbursements, expenses
and charges made or incurred by the Bank in the performance of this Agreement
(including any duties listed on any Schedule hereto, if any) including any
indemnities for any loss, liabilities or expense to the Bank as provided above.
For the services rendered by the Bank hereunder, the Fund will pay to the Bank
such compensation or fees at such rate and at such times as shall be agreed upon
in writing by the parties from time to time. The Bank will also be entitled to
reimbursement by the Fund for all reasonable expenses incurred in conjunction
with termination of this Agreement.
13.6 Advances by Bank. The Bank may, in its sole discretion, advance
funds on behalf of the Fund to make any payment permitted by this Agreement upon
receipt of any proper authorization required by this Agreement for such payments
by the Fund. Should such a payment or payments, with advanced funds, result in
an overdraft (due to insufficiencies of the Fund's account with the Bank, or for
any other reason) this Agreement deems any such overdraft or related
indebtedness, a loan made by the Bank to the Fund payable on demand and bearing
interest at the current rate charged by the Bank for such loans unless the Fund
shall provide the Bank with agreed upon compensating balances. The Fund agrees
that the Bank shall have a continuing lien and security interest to the extent
of any overdraft or indebtedness, in and to any property at any time held by it
for the Fund's benefit or in which the Fund has an interest and which is then in
the Bank's possession or control (or in the possession or control of any third
party acting on the Bank's behalf). The Fund authorizes the Bank, in its sole
discretion, at any time to charge any overdraft or indebtedness, together with
interest due thereon against any balance of account standing to the credit of
the Fund on the Bank's books.
14. Termination.
(a) This Agreement may be terminated at any time after three years from
the date of this Agreement without penalty upon sixty days written notice
delivered by either party to the other by means of registered mail, and upon the
expiration of such sixty days this Agreement will terminate; provided, however,
20
<PAGE>
that the effective date of such termination may be postponed to a date not more
than ninety days from the date of delivery of such notice (i) by the Bank in
order to prepare for the transfer by the Bank of all of the assets of the Fund
held hereunder, and (ii) by the Fund in order to give the Fund an opportunity to
make suitable arrangements for a successor custodian. At any time after the
termination of this Agreement, the Fund will, at its request, have access to the
records of the Bank relating to the performance of its duties as custodian.
(b) In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection 14(c), deliver the Portfolio Securities and cash of the
Fund held by the Bank to a bank or trust company of its own selection which
meets the requirements of Section 17(f)(1) of the 1940 Act and has a reported
capital, surplus and undivided profits aggregating not less than $2,000,000, to
be held as the property of the Fund under terms similar to those on which they
were held by the Bank, whereupon such bank or trust company so selected by the
Bank will become the successor custodian of such assets of the Fund with the
same effect as though selected by the Board.
(c) Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank.
15. Confidentiality. Both parties hereto agree than any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed to any other person without the consent of the other party,
except as may be required by applicable law or at the request of a governmental
agency. The parties further agree that a breach of this provision would
irreparably damage the other party and accordingly agree that each of them is
entitled, without bond or other security, to an injunction or injunctions to
prevent breaches of this provision.
16. Notices. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and mailed or delivered to it at
its office at the address set forth below; namely:
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(a) In the case of notices sent to the Fund to:
The Principled Equity Market Fund
F.L. Putnam Investment Management Co.
10 Langlely Road
Room 400
Newton Center, MA 02159
Attn: Mr. David Putnam, President
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
89 South Street
Attention: James Keenan
or at such other place as such party may from time to time designate in
writing.
17. Amendments. This Agreement may not be altered or amended, except by an
instrument in writing, executed by both parties, and in the case of the Fund,
such alteration or amendment will be authorized and approved by its Board.
18. Parties. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 14 hereof will not be deemed to
be an assignment within the meaning of this provision.
19. Governing Law. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts.
20. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
21. Limitation of Liability. A copy of the Declaration of Trust of the Fund
is on file with the Secretary of the Fund and notice is hereby given that this
Agreement has been executed on behalf of the Fund by an officer of the Fund as
an officer and not individually and the obligations of the Fund arising out of
this Agreement are not binding upon any of the trustees, officers or investors
of the Fund individually but are binding only upon the assets and property of
the Fund.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
The Principled Equity Market Fund
By: /s/David W.C. Putnam
Name: David W.C. Putnam
Title: President
ATTEST: /s/Linda B. Osterberg
Linda B. Osterberg
Investors Bank & Trust Company
By: /s/ Robert D. Mancuso
Name: Robert D. Mancuso
Title: Managing Director
ATTEST: /s/C. M. Keene
C. M. Keene
DATE: October 7, 1996
Exhibit (k)(a)
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 7th day of October, 1996 by and between THE
PRINCIPLED EQUITY MARKET FUND, a Massachusetts business trust having its
principal office and place of business at Langley Place, 10 Langley Road, Newton
Centre, Massachusetts (the "Fund"), and ANCHOR INVESTMENT MANAGEMENT
CORPORATION, a Massachusetts corporation, having its principal office and place
of business at 2717 Furlong Road, Doylestown, Pennsylvania (the "Company").
W I T N E S S E T H:
WHEREAS, the Fund desires to appoint the Company as its transfer agent,
dividend disbursing agent and agent in connection with certain other activities,
and the Company desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE 1. Terms of Appointment; Duties of the Company
1.01 Subject to the terms and conditions set forth in this Agreement,
the Fund hereby employs and appoints the Company to act as, and the Company
agrees to act as, transfer agent for the Fund's authorized and issued shares of
beneficial interest without par value ("Shares"), dividend disbursing agent in
connection with any accumulation, open-account or similar plans provided to the
shareholders of the Fund ("Shareholders") and set out in the prospectus and
statement of additional information of the Fund as from time to time in effect.
1.02 The Company agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and the Company, the Company shall:
(i) receive for acceptance and processing, orders for the
purchase of Shares, and promptly deliver payment and appropriate documentation
therefor to the custodian of the Fund authorized pursuant to the Fund's
governing documents (the "Custodian");
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(ii) pursuant to purchase orders or other appropriate
instructions, issue the appropriate number of Shares and hold Shares in the
appropriate Shareholder account, and, if requested and properly authorized,
issue appropriate certificates therefor;
(iii) receive for acceptance and processing, redemption
requests and redemption directions, and deliver the appropriate documentation
therefor to the Custodian;
(iv) at the appropriate time as and when it receives monies
paid to it by the Custodian with respect to any repurchase of Shares, pay over
or cause to be paid over in the appropriate manner such monies as instructed by
the selling Shareholders;
(v) effect transfer of Shares by the registered owners thereof
upon receipt of appropriate documentation;
(vi) prepare and transmit payments for dividends and
distributions declared by the Fund; and
(vii) maintain records of account for and advise the Fund and
its Shareholders as to the foregoing.
(b) In addition to and not in lieu of the services set forth in
paragraph (a) above, the Company shall perform all of the customary services of
a transfer agent, dividend disbursing agent and, as relevant, agent in
connection with any dividend reinvestment plans, including but not limited to:
(i) maintaining all Shareholder accounts, (ii) preparing Shareholder mailing
lists, (iii) mailing proxies, (iv) receiving and tabulating proxies, (v) mailing
of additional information to current Shareholders, (vi) withholding taxes on
U.S. residents and non-resident alien accounts where applicable, (vii) preparing
and filing U.S. Treasury Department Forms 1099 and other appropriate forms
required with respect to dividends and distributions by federal authorities for
all registered Shareholders, (viii) preparing and mailing confirmation forms and
statements of account to Shareholders for all purchases and redemptions of
Shares and other confirmable transactions in Shareholder accounts, (ix)
preparing and mailing activity statements for Shareholders, and (x) providing
Shareholder account information. The Fund shall provide the Company with any
information required in connection with the furnishing of the foregoing
services.
(c) Procedures applicable to the services provided under this Agreement
may be established from time to time by agreement between the Fund and the
Company.
Article 2. Fees and Expenses
2.01 For performance by the Company pursuant to this Agreement, the
Fund agrees to pay the Company monthly a fee at the annual rate of $6,000. Such
fees and the out-of-pocket expenses and advances identified under Section 2.02
below may be changed from time to time subject to mutual written agreement
between the Fund and the Company.
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2.02 In addition to the fee paid under Section 2.01 above, the Fund
agrees to reimburse the Company for all out-of-pocket expenses or advances
incurred by the Company in performing its duties as Transfer Agent hereunder. In
addition, any other expenses incurred by the Company at the request or with the
consent of the Fund will be reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses
promptly. Postage and cost of materials for mailing of dividends, proxies, Fund
reports and other mailings to all Shareholder accounts shall be advanced to the
Company by the Fund in immediately available funds prior to the mailing date of
such materials.
Article 3. Representations and Warranties of the Company
The Company represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and in good
standing under the laws of The Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in The Commonwealth
of Massachusetts.
3.03 It is empowered under applicable laws and by its charter and
bylaws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4. Representations and Warranties of the Fund
The Fund represents and warrants to the Company that:
4.01 It is an unincorporated business trust duly organized and existing
and in good standing under the laws of The Commonwealth of Massachusetts.
4.02 It is empowered under applicable laws and by its governing
documents to enter into and perform this Agreement.
4.03 All proceedings required by said governing documents have been
taken to authorize it to enter into and perform this Agreement.
4.04 It is an investment company registered under the Investment
Company Act of 1940.
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Article 5. Indemnification
5.01 The Company shall not be responsible for, and the Fund shall
indemnify and hold the Company and its officers, directors, employees and agents
harmless from and against, any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or attributable to:
(a) all actions of the Company or its agents or subcontractors
required to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct;
(b) the Fund's refusal or failure to comply with the terms of
this Agreement, or the Fund's lack of good faith, negligence or willful
misconduct, or the breach of any representation or warranty of the Fund
hereunder;
(c) the reliance on or use by the Company or its agents or
subcontractors of information, records or documents which (i) are received by
the Company or its agents or subcontractors and furnished to it by or on behalf
of the Fund, and (ii) have been prepared and/or maintained by the Fund or any
other person or firm (other than the Company or its agents or subcontractors) on
behalf of the Fund;
(d) the reliance on, or the carrying out by the Company or its
agents or subcontractors of, any instructions or requests of the Fund's
representatives; or
(e) the offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations or the securities
laws or regulations of any state, including, without limitation, any requirement
that such Shares be registered in such state, or in violation of any stop order
or other determination or ruling by any federal agency or any state with respect
to the offer or sale of such Shares in such state.
5.02 The Company shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liabilities arising out of or attributable to the Company's refusal
or failure to comply with the terms of this Agreement, or the Company's lack of
good faith, negligence or willful misconduct, or the breach of any
representation or warranty of the Company hereunder.
5.03 At any time the Company may apply to any officer of the Fund for
instructions, and may consult with the Fund's legal counsel with respect to any
matter arising in connection with the services to be performed by the Company
under this Agreement, and the Company and its agents or subcontractors shall not
be liable and shall be indemnified by the Fund for any action taken or omitted
by it in reliance upon such instructions or upon the opinion of such counsel.
The Company and its officers, directors, employees, agents and subcontractors
<PAGE>
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shall be protected and indemnified in acting upon any papers or documents
furnished by or on behalf of the trust, reasonably believed to be genuine and to
have been signed by the proper person or persons, or upon any instructions,
information, data, records or documents provided the Company or its agents or
subcontractors by telephone, in person, or by machine readable input, facsimile,
CRT data entry or other similar means authorized by the Fund, and the Company
and its officers, directors, employees, agents and subcontractors shall not be
held to have notice of any change of authority of any person until receipt of
written notice thereof from the Fund. The Company and its officers, directors,
employees, agents and subcontractors shall also be protected and indemnified in
recognizing Shares certificates which are reasonably believed to bear the proper
manual or facsimile signatures of the officers of the Fund, and the proper
countersignature of any former transfer agent or registrar, or of a co-transfer
agent or co-registrar.
5.04 In the event either party is unable to perform its obligations
under this Agreement because of acts of God, strikes, equipment or transmission
failure or damage reasonably beyond its control, or other causes reasonably
beyond its control, such party shall not be liable to the other for any damages
resulting from such failure to perform or otherwise from such causes.
5.05 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement of for any act
or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall, as a condition to indemnification, in no case confess any
claim or make any compromise in any case in which the other party may be
required to indemnify it except with the other party's prior written consent.
Article 6. Covenants of the Fund and the Company
6.01 The Fund shall promptly furnish to the Company the following:
(a) a certified copy of the resolution of the Board of
Trustees of the Fund authorizing the appointment of the Company and the
execution and delivery of this Agreement.
(b) a copy of the Declaration of Trust and Bylaws of the Fund
and all amendments thereto.
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6.02 The Company hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of Share
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
6.03 The Company shall keep records relating to the services to be
performed hereunder in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the rules and regulations promulgated thereunder, the Company agrees that
all such records prepared or maintained by the Company relating to the services
to be performed by the Company hereunder are property of the Fund and will be
preserved, maintained at the expense of the Fund and made available in
accordance with such section, rules and regulations, and will be surrendered
promptly to the Fund at its request.
6.04 The Company and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Company will endeavor to notify the Fund
and to secure instructions from an authorized officer of the Fund as to such
inspection. The Company reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person, unless
the Fund indemnifies the Company to its reasonable satisfaction against such
liability.
Article 7. Termination of Agreement
7.01 This Agreement may be terminated by either party upon at least one
hundred twenty (120) days written notice to the other.
7.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Fund. Additionally, the Company reserves the right to charge for any other
reasonable expenses associated with such termination, but not more than an
amount equivalent to the average of the most recent three (3) months' fees.
Article 8. Assignment
8.01 Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the written consent of the other party.
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8.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
Article 9. Amendment
9.01 This Agreement may be amended or modified by a written agreement
executed by both parties.
Article 10. Massachusetts Law to Apply
10.01 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
Article 11. Merger of Agreement
11.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
hereof whether oral or written.
Article 12. Limitation of Liability
12.01 A copy of the Declaration of Fund of the Fund is on file with the
Secretary of State of The Commonwealth of Massachusetts and notice is hereby
given that this Agreement is executed on behalf of the Trustees of the Fund as
trustees and not individually and that the obligations of this Agreement are not
binding upon the Trustees or holders of Shares individually but are binding only
upon the assets or property of the Fund.
IN WITNESS WHEREOF, the parties hereto has each caused this Agreement
to be executed in its name and behalf by and through its duly authorized
officers, as of the day and year first above written.
THE PRINCIPLED EQUITY MARKET
FUND
ByS/David W.C. Putnam, President
David W.C. Putnam, President
ANCHOR INVESTMENT
MANAGEMENT CORPORATION
ByS/David Y. Williams, President
David Y. Williams, President
Exhibit (k)(b)
ADMINISTRATION AGREEMENT
AGREEMENT made as of this 7th day of October, 1996, by and between The
Principled Equity Market Fund, a Massachusetts business trust (the "Fund"), and
Anchor Investment Management Corporation, a Massachusetts corporation (the
"Administrator").
W I T N E S S E T H :
WHEREAS, the Fund is engaged in business as a closed-end management
investment company and is so registered under the Investment Company Act of
1940, as amended; and
WHEREAS, the Administrator is engaged in the business of rendering
administrative services; and
WHEREAS, the Fund desires to retain the Administrator to furnish
administrative services and the Administrator is willing to furnish such
services;
NOW, THEREFORE, it is hereby agreed between the parties hereto as
follows:
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(a) Services Rendered and Expenses Paid by the Administrator.
The Administrator, subject to the control, direction and
supervision of the Board of Trustees of the Fund and in conformity with
applicable laws, this Agreement, the Fund's Declaration of Trust By-Laws,
registration statements and amendments thereto, prospectuses and statements of
additional information, as in effect from time to time, and stated investment
objectives, policies and restrictions, shall, as directed by the Fund from time
to time, at its own expense perform as administrative services for the Fund such
of the following as the Fund shall designate:
(1) compute the net asset value per share of the Fund once
each week or at such longer intervals as the Fund may designate;
(2) prepare and file all registration or other material
required by federal and state laws for the registration or other
qualification of the Fund and its shares for sale to the public as
required by such laws;
(3) prepare and file or mail all reports and statements
required of the Fund by federal and state laws, to be filed or sent by
the Fund to all authorities and security holders of the Fund;
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(4) maintain contact with and coordinate the Fund's public
accountants, legal counsel, custodian, transfer and service agent and
other providers of services to the Fund, all of whose fees shall be
paid independently by the Fund, and perform customary checks and
confirmations of such services and the records thereof;
(5) coordinate the Fund's portfolio transactions and cash
management with the Fund's custodian;
(6) receive, confirm and pay over to the Fund's custodian the
proceeds of sales by the Fund of its shares and administer and confirm
to the Fund's transfer agent and shareholders the sales of its shares
by the Fund; and
(7) prepare and maintain on behalf of the Fund such records of
the Fund's business transactions as are not maintained by other service
providers to the Fund and generally take all such other action as may
be required to administer the Fund's business.
The Fund shall pay the Administrator's out-of-pocket expenses for
supplies, printing and postage incurred by the Administrator in the performance
of its duties hereunder. To the extent that any of the foregoing expenses are
allocated between the Fund and any other party, such allocations shall be
pursuant to methods approved by the Board of Trustees of the Fund.
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(b) Role of the Administrator.
(i) The Administrator, and any person controlling, controlled
by or under common control with the Administrator shall be free to
render similar services to others and to engage in other activities, so
long as the services rendered to the Fund are not impaired.
(ii) Except as otherwise required by the Investment Company
Act of 1940, as amended, any of the shareholders, Trustees, officers
and employees of the Fund may be a shareholder, director, officer or
employee of, or be otherwise interested in, the Administrator, and in
any person controlling, controlled by or under common control with the
Administrator, and the Administrator, and any person controlling,
controlled by or under common control with the Administrator, may have
an interest in the Fund.
(iii) Except as otherwise agreed, in the absence of willful
misfeasance, bad faith, or negligence, neither the Administrator nor
any of its officers, directors, employees or agents shall be subject to
liability to the Fund for any act or omission in the course of, or
connected with, rendering services hereunder, and each shall be
indemnified and held harmless by the Fund from and against any losses,
claims, damages and legal fees and other expenses arising out of their
due performance of this Agreement in the absence of willful
<PAGE>
-5-
misfeasance, bad faith, or negligence on the part of the Administrator
and any of its officers, directors, employees and agents.
(c) Compensation of the Administrator.
(i) As full compensation for the services rendered, facilities
furnished and costs not specifically paid by the Fund under this
Agreement, the Fund agrees to pay to the Administrator a monthly fee at
the annual rate of $6,000.
(ii) If the Administrator shall serve for less than the whole
of any period, the foregoing compensation shall be prorated.
(c) Term and Termination.
(i) This Agreement shall become effective on the date hereof,
shall remain in full force and effect for one year from the date hereof
and shall continue in full force and effect for successive periods of
one year thereafter, but only so long as each such continuance is
approved at least annually by the Board of Trustees of the Fund.
(ii) This Agreement may be terminated at any time without the
payment of any penalty by vote of the Board of Trustees of the Fund or
by the Administrator, on not more than sixty (60) days, nor less than
<PAGE>
-6-
thirty (30) days, written notice to the other party, or upon such
shorter notice as may be mutually agreed upon.
(iii) This Agreement may not be assigned by either party
without the written consent of the other party.
(d) Miscellaneous. For the purposes of this Agreement, the
terms "affiliated person," "assignment" and "interested person," shall
have their respective meanings defined in the Investment Company Act of
1940, as amended, and the rules and regulations thereunder, subject,
however, to such exemptions as may be granted to either the
Administrator or the Fund by the Securities and Exchange Commission.
(e) Limitation of Liability of the Trustees and Shareholders.
A copy of the Declaration of Trust of the Fund is on file with
the Secretary of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees
of the Fund as Trustees and not individually and that the obligations
of this instrument are not binding upon any of the Trustees, officers
or shareholders of the Fund but are binding only upon the assets and
property of the Fund.
<PAGE>
-7-
IN WITNESS WHEREOF the parties hereto have caused this
Agreement to be duly executed as of the date first written above.
THE PRINCIPLED EQUITY MARKET FUND
By: S/David W.C. Putnam
David W.C. Putnam, President
ANCHOR INVESTMENT MANAGEMENT
CORPORATION
By:S/David Y Williams, Authorized Officer
David Y. Williams, Authorized Officer
Exhibit (l)
SULLIVAN & WORCESTER LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(617) 338-2800
FAX NO. 617-338-2880
IN WASHINGTON, D.C. IN NEW YORK CITY
1025 CONNECTICUT AVENUE, N.W. 767 THIRD AVENUE
WASHINGTON, D.C. 20036 NEW YORK, NEW YORK 10017
(202) 775-8190 (212) 486-8200
FAX NO. 202-293-2275 FAX NO. 212-758-2151
October 28, 1996
The Principled Equity Market Fund
Langley Place
10 Langley Road
Newton Center, MA 02159
Re: Registration Statement on Form N-2
File No. 33-78256
Gentlemen:
We have represented The Principled Equity Market Fund (the "Fund"), an
unincorporated business trust organized under the laws of The Commonwealth of
Massachusetts pursuant to a Declaration of Trust dated April 26, 1994, as
amended (the "Declaration of Trust"), in connection with the filing of a
Registration Statement on Form N-2 and exhibits thereto, as amended (the
"Registration Statement"), in order to register under the Securities Act of
1933, as amended, 2,000,000 of the Fund's shares of beneficial interest without
par value (the "Shares").
<PAGE>
The Principled Equity Market Fund
October 28, 1996
Page 2
We have made such investigations and have relied upon originals or
copies, certified or otherwise identified to our satisfaction, of such records,
instruments, certificates, memoranda and other documents as we have deemed
necessary or advisable for the purposes of this opinion. In that examination, we
have assumed the genuineness of all signatures, the authenticity of all
documents purporting to be originals, and the conformity to the originals of all
documents purporting to be copies.
On the basis of the foregoing, we are of the opinion that the Shares,
when issued in accordance with the Declaration of Trust, will be validly issued,
fully paid and nonassessable. For purposes of this letter, we express no opinion
as to compliance with the Securities Act of 1933, as amended, applicable state
laws regulating the sale of securities or the Investment Company Act of 1940, as
amended.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Counsel" in the prospectus included in the Registration Statement.
Very truly yours,
/S/ Sullivan & Worcester LLP
SULLIVAN & WORCESTER LLP
/chpm
Exhibit (p)
INITIAL CAPITAL AGREEMENT
October 28, 1996
The Principled Equity Market Fund
Langley Place
10 Langley Road
Newton Center, MA 02159
Dear Sirs:
The Principled Equity Market Fund (the "Fund") proposes to issue and
sell to the public its shares of beneficial interest without par value (the
"Shares") pursuant to a registration statement on Form N-2 (the "Registration
Statement") filed with the Securities and Exchange Commission. In order to
provide the Fund with a net worth of at least $100,000 as required by Section 14
of the Investment Company Act of 1940, as amended, and additional
capitalization, we hereby confirm our purchase of 10,100 Shares at a price of
$10.00 per Share.
We represent and warrant to the Fund that the Shares are being acquired
by us for investment and not with a view to the resale or further distribution
thereof and that we have no present intention to redeem the Shares.
We agree that in the event the Shares are sold by us or our successors
or any current holder prior to complete amortization
<PAGE>
Page 2
of organization expenses by the Fund, the proceeds payable in respect of the
Shares shall be reduced by the pro-rata share (based on the proportionate share
of the Shares sold to the total number of Shares outstanding at the time of
sale) of the then unamortized deferred organization expenses as of he date of
such redemption.
Please confirm that the foregoing correctly sets forth our agreement
with the Fund.
Very truly yours,
F. L. Putnam Investment
Management Company
By S/David W.C. Putnam
David W.C. Putnam
President
Confirmed, as of the date
first above mentioned.
THE PRINCIPLED EQUITY
MARKET FUND
By:S/David W.C. Putnam
David W. C. Putnam
President
