1940 Act File No. 811-6698
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 6 ............................... X
EQUITY 500 INDEX PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
Jay S. Neuman, Esq. Copies to: Burton M. Leibert, Esq.
Federated Investors Tower Willkie Farr & Gallagher
Pittsburgh, Pennsylvania 15222-3779 One Citicorp Center
(Name and Address of Agent for Service) 153 East 53rd Street
New York, New York 10022
EQUITY 500 INDEX PORTFOLIO
PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT
Equity 500 Index Portfolio (the "Portfolio") is a no-load, diversified,
open-end management investment company which was organized as a trust under
the laws of the State of New York on December 11, 1991. Beneficial
interests in the Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the meaning
of Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act").
Investments in the Portfolio may only be made by investment companies,
insurance company separate accounts, common or commingled trust funds or
similar organizations or entities that are "accredited investors" within
the meaning of Regulation D under the 1933 Act. This Registration Statement
does not constitute an offer to sell, or the solicitation of an offer to
buy, any "security" within the meaning of the 1933 Act.
The investment objective of the Portfolio is to provide investment results
that, before expenses, correspond to the total return (i.e., the
combination of capital changes and income) of common stocks publicly traded
in the United States, as represented by the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500" or "Index").
Additional information about the investment policies of the Portfolio
appears in Part B.
The Portfolio is not managed according to traditional methods of "active"
investment management, which involve the buying and selling of securities
based upon economic, financial, and market analyses and investment
judgment. Instead, the Portfolio, utilizing a "passive" or "indexing"
investment approach, attempts to duplicate, before expenses, the
performance of the S&P 500. There is no assurance that the Portfolio will
achieve its investment objective.
Under normal conditions when the Portfolio's assets are above $10 million,
the Portfolio will invest at least 80% of its assets in common stocks of
companies which compose the S&P 500. In seeking to duplicate the
performance of the S&P 500, Bankers Trust Company ("Bankers Trust"), as the
Portfolio's investment adviser (the "Adviser"), will attempt over time to
allocate the Portfolio's portfolio of investments among common stocks in
approximately the same weightings as the S&P 500, beginning with the
heaviest-weighted stocks that make up a larger portion of the Index's
value. Over the long term, Bankers Trust seeks a correlation between the
performance of the Portfolio, before expenses, and that of the S&P 500 of
0.98 or better (0.95 or better if Portfolio asset levels are below $10
million). A figure of 1.00 would indicate perfect correlation. In the
unlikely event that the correlation is not achieved, the Board of Trustees
will consider alternative structures.
The Adviser utilizes a two-stage sampling approach in seeking to obtain its
objective. Stage one, which encompasses large cap stocks, maintains the
stock holdings at or near their benchmark weights. Large capitalization
stocks are defined as those securities which represent 0.10% or more of the
Index. In stage two, smaller stocks are analyzed and selected using risk
characteristics and industry weights in order to match the sector and risk
characteristics of the smaller companies in the S&P 500. This approach
helps to maximize portfolio liquidity while minimizing costs.
Bankers Trust generally will seek to match the composition of the S&P 500
but usually will not invest the Portfolio's stock portfolio to mirror the
Index exactly. Because of the difficulty and expense of executing
relatively small stock transactions, the Portfolio may not always be
invested in the less heavily weighted S&P 500 stocks, and may at times have
its portfolio weighted differently from the S&P 500, particularly if the
Portfolio has a low level of assets. When the Portfolio's size is greater,
Bankers Trust expects to purchase more of the stocks in the S&P 500 and to
match the relative weighting of the S&P 500 more closely, and anticipates
that the Portfolio will be able to mirror, before expenses, the performance
the S&P 500 with little variance at asset levels of $10 million or more. In
addition, the Portfolio may omit or remove any S&P 500 stock from the
Portfolio if, following objective criteria, Bankers Trust judges the stock
to be insufficiently liquid or believes the merit of the investment has
been substantially impaired by extraordinary events or financial
conditions. Bankers Trust will not purchase the stock of Bankers Trust New
York Corporation, which is included in the Index, and instead will
overweight its holdings of companies engaged in similar businesses.
Under normal conditions, Bankers Trust will attempt to invest as much of
the Portfolio's assets as is practical in common stocks included in the S&P
500. However, the Portfolio may maintain up to 25% of its assets in short-
term debt securities and money market instruments hedged with stock index
futures and options to meet redemption requests or to facilitate the
investment in common stocks.
When the Portfolio has cash from new investments in the Portfolio or holds
a portion of its assets in money market instruments, it may enter into
stock index futures or options to attempt to increase its exposure to the
stock market. Strategies the Portfolio could use to accomplish this include
purchasing futures contracts, writing put options, and purchasing call
options. When the Portfolio wishes to sell securities, because of
shareholder redemptions or otherwise, it may use stock index futures or
options to hedge against market risk until the sale can be completed. These
strategies could include selling futures contracts, writing call options,
and purchasing put options.
Bankers Trust will choose among futures and options strategies based on its
judgment of how best to meet the Portfolio's goals. In selecting futures
and options, Bankers Trust will assess such factors as current and
anticipated stock prices, relative liquidity and price levels in the
options and futures markets compared to the securities markets, and the
Portfolio's cash flow and cash management needs. If Bankers Trust judges
these factors incorrectly, or if price changes in the Portfolio's futures
and options positions are not well correlated with those of its other
investments, the Portfolio could be hindered in the pursuit of its
objective and could suffer losses. The Portfolio could also be exposed to
risks if it could not close out its futures or options positions because of
an illiquid secondary market.
SHORT-TERM INSTRUMENTS. The Portfolio intends to stay invested in the
securities described above to the extent practical in light of its
objective and long-term investment perspective. However, the Portfolio's
assets may be invested in short-term instruments with remaining maturities
of 397 days or less to meet anticipated redemptions and expenses or for
day-to-day operating purposes. Short-term instruments consist of: (i)
short-term obligations of the U.S. government, its agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-
term debt securities rated Aa or higher by Moody's Investors Service, Inc.
("Moody's") or AA or higher by Standard & Poor's Rating Group ("S&P") or,
if unrated, of comparable quality in the opinion of Bankers Trust; (iii)
commercial paper; (iv) bank obligations, including negotiable certificates
of deposit, time deposits and bankers' acceptances; and (v) repurchase
agreements. At the time the Portfolio invests in commercial paper, bank
obligations or repurchase agreements, the issuer or the issuer's parent
must have outstanding debt rated Aa or higher by Moody's or AA or higher by
S&P or outstanding commercial paper or bank obligations rated Prime-1 by
Moody's or A-1 by S&P; or, if no such ratings are available, the instrument
must be of comparable quality in the opinion of Bankers Trust.
ABOUT THE S&P 500 INDEX. The S&P 500 is a well-known stock market index
that includes common stocks of 500 companies from several industrial
sectors representing a significant portion of the market value of all
common stocks publicly traded in the United States, most of which are
listed on the New York Stock Exchange Inc. (the "NYSE"). Stocks in the S&P
500 are weighted according to their market capitalization (i.e., the number
of shares outstanding multiplied by the stock's current price). Bankers
Trust believes that the performance of the S&P 500 is representative of the
performance of publicly traded common stocks in general. The composition of
the S&P 500 is determined by S&P and is based on such factors as the market
capitalization and trading activity of each stock and its adequacy as a
representation of stocks in a particular industry group, and may be changed
from time to time.
The Portfolio is not sponsored, endorsed, sold or promoted by S&P. S&P
makes no representation or warranty, implied or express, to purchasers of
the Portfolio or any member of the public regarding the advisability of
investing in index funds or the ability of the S&P 500 to track market
performances. S&P does not guarantee the accuracy and/or the completeness
of the S&P 500 or any data included therein.
S&P makes no warranty, express or implied, as to the results to be obtained
by the Portfolio, owners of the Portfolio, any person or any entity from
the use of the S&P 500 or any data included therein. S&P makes no express
or implied warranties and hereby expressly disclaims all such warranties of
merchantability or fitness for a particular purpose for use with respect to
the S&P 500 or any data included therein.
For more complete information about the S&P 500 see Part B.
DERIVATIVES. The Portfolios may invest in stock index futures and options
thereon which are commonly known as derivatives. Generally, a derivative is
a financial arrangement, the value of which is based on, or "derived" from,
a traditional security, asset or market index. Some "derivatives" such as
mortgage-related and other asset-backed securities are in many respects
like any other investment, although they may be more volatile or less
liquid than more traditional debt securities. There are, in fact, many
different types of derivatives and many different ways to use them. There
are a range of risks associated with those uses. Futures and options are
commonly used for traditional hedging purposes to attempt to protect a fund
from exposure to changing interest rates, securities prices or currency
exchange rates and for cash management purposes as a low cost method of
gaining exposure to a particular securities market without investing
directly in those securities. The Adviser will only use derivative for cash
management purposes. Derivatives will not be used to increase portfolio
risk above the level that could be achieved using only traditional
investment securities or to acquire exposure to changes in the value of
assets or indices that by themselves would not be purchased for the
Portfolio.
INVESTMENT COMPANY SECURITIES. Securities of other investment companies may
be acquired by the Portfolio to the extent permitted under the 1940 Act,
that is, the Portfolio may invest a maximum of up to 10% of its total
assets in securities of other investment companies so long as not more than
3% of the total outstanding voting stock of any one investment company is
held by the Portfolio. In addition, not more than 5% of the Portfolio's
total assets may be invested in the securities of any one investment
company. The Portfolio may be permitted to exceed these limitations by an
exemptive order of the SEC. It should be noted that investment companies
incur certain expenses such as management, custodian, and transfer agency
fees, and, therefore, any investment by the Portfolio in shares of other
investment companies would be subject to such duplicate expenses.
ADDITIONAL INVESTMENT LIMITATIONS
As a diversified fund, no more than 5% of the assets of the Portfolio may
be invested in the securities of one issuer (other than U.S. government
securities), except that up to 25% of the Portfolio's assets may be
invested without regard to this limitation. The Portfolio will not invest
more than 25% of its assets in the securities of issuers in any one
industry. In the unlikely event that the S&P 500 should concentrate to an
extent greater than that amount, the Portfolio's ability to achieve its
investment objective may be impaired. These are fundamental investment
policies of the Portfolio which may not be changed without investor
approval. No more than 15% of the Portfolio's net assets may be invested in
illiquid or not readily marketable securities (including repurchase
agreements and time deposits maturing in more than seven days). Additional
investment policies of the Portfolio are contained in Part B.
RISK FACTORS
As described above, the Portfolio invests in an index of securities that is
representative of the stock market as a whole. While the performance of the
S&P 500 has fluctuated considerably, the long-term performance of the S&P
500 has been greater than inflation.
The ability of the Portfolio to meet its investment objective depends to
some extent on the cash flow. Bankers Trust will make investment changes to
accommodate cash flow in an attempt to maintain the similarity of the
Portfolio to the S&P 500. Investors should also be aware that the
performance of the S&P 500 is a hypothetical number which does not take
into account brokerage commissions and other costs of investing, unlike the
Portfolio which must bear these costs. Finally, since the Portfolio seeks
to track the S&P 500, Bankers Trust generally will not attempt to judge the
merits of any particular stock as an investment.
PORTFOLIO TURNOVER. The frequency of portfolio transactions--the
Portfolio's turnover rate--will vary from year to year depending on market
conditions and the Portfolio's cash flows. The Portfolio's annual portfolio
turnover rate is not expected to exceed 100%. The Portfolio's portfolio
turnover rates for the years ended December 31, 1996 and 1995 were 15% and
6%, respectively.
ITEM 5. MANAGEMENT OF THE FUND
The affairs of the Portfolio are managed by the Board of Trustees. By
virtue of the responsibilities assumed by Bankers Trust, the administrator
of the Portfolio, the Portfolio does not require employees other than its
executive officers. None of the executive officers of the Portfolio devote
full time to the affairs of the Portfolio.
The Portfolio has retained the services of Bankers Trust as investment
adviser. Mr. Frank Salerno, Managing Director of Bankers Trust, is
primarily responsible for the day-to-day management of the Portfolio.Mr.
Frank Salerno, Managing Director of Bankers Trust, is responsible for the
day-to-day management of the Portfolio. Mr. Salerno has been employed by
Bankers Trust since 1981 and has managed the Portfolio's assets since the
Portfolio commenced operations.
Bankers Trust, a New York banking corporation with principal offices at 280
Park Avenue, New York, New York 10017, is a wholly-owned subsidiary of
Bankers Trust New York Corporation. Bankers Trust conducts a variety of
general banking and trust activities and is a major wholesale supplier of
financial services to the international and domestic institutional market.
As of December 31, 1996, Bankers Trust New York Corporation was the seventh
largest bank holding company in the United States with total assets of
approximately $120 billion. Bankers Trust is a worldwide merchant bank
dedicated to servicing the needs of corporations, governments, financial
institutions and private clients through a global network of over 120
offices in more than 40 countries. Investment management is a core business
of Bankers Trust, built on a tradition of excellence from its roots as a
trust bank founded in 1903. The scope of Bankers Trust's investment
management capability is unique due to its leadership positions in both
active and passive quantitative management and its presence in major equity
and fixed income markets around the world. Bankers Trust is one of the
nation's largest and most experienced investment managers, with
approximately $227 billion in assets under management globally. Of that
total, approximately $92 billion are in U.S. equity index assets alone.
This makes Bankers Trust one of the nation's leading managers of index
funds.
Bankers Trust has more than 50 years of experience managing retirement
assets for the nation's largest corporations and institutions. In the past,
these clients have been serviced through separate account and commingled
fund structures. Bankers Trust's officers have had extensive experience in
managing investment portfolios having objectives similar to those of the
Portfolio.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees, manages the Portfolio in accordance with the Portfolio's
investment objective and stated investment policies, makes investment
decisions for the Portfolio, places orders to purchase and sell securities
and other financial instruments on behalf of the Portfolio and employs
professional investment managers and securities analysts who provide
research services to the Portfolio. Bankers Trust may utilize the expertise
of any of its worldwide subsidiaries and affiliates to assist in its role
as Adviser. All orders for investment transactions on behalf of the
Portfolio are placed by Bankers Trust with broker-dealers and other
financial intermediaries that it selects, including those affiliated with
Bankers Trust. A Bankers Trust affiliate will be used in connection with a
purchase or sale of an investment for the Portfolio only if Bankers Trust
believes that the affiliate's charge for the transaction does not exceed
usual and customary levels. The Portfolio will not invest in obligations
for which Bankers Trust or any of its affiliates is the ultimate obligor or
accepting bank. The Portfolio may, however, invest in the obligations of
correspondents and customers of Bankers Trust.
Under its Investment Advisory Agreement, Bankers Trust receives a fee from
the Portfolio, computed daily and paid monthly, at the annual rate of 0.10%
of the average daily net assets of the Portfolio.
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Portfolio
described in this Registration Statement without violation of the Glass-
Steagall Act or other applicable banking laws or regulations.
Under an Administration and Services Agreement with the Portfolio , Bankers
Trust calculates the value of the assets of the Portfolio and generally
assists the Board of Trustees in all aspects of the administration and
operation of the Portfolio. The Administration and Services Agreement
provides for the Portfolio to pay Bankers Trust a fee, computed daily and
paid monthly, at the rate of 0.05% of the average daily net assets of the
Portfolio. Under the Administration and Services Agreement, Bankers Trust
may delegate one or more of its responsibilities to others, including
affiliates of Edgewood, at Bankers Trust's expense. For more information,
see Part B.
Bankers Trust acts as Custodian of the Assets of the Portfolio and serves
as the Transfer Agent for the Portfolio under the Administration and
Services Agreement with the Portfolio.
The Portfolio bears its own expenses. Operating expenses for the Portfolio
generally consist of all costs not specifically borne by Bankers Trust or
Edgewood Services, Inc. (`Edgewood'') including investment advisory and
administration and service fees, fees for necessary professional services,
amortization of organizational expenses, the costs associated with
regulatory compliance and maintaining legal existence and investor
relations.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES
The Portfolio is organized as a trust under the laws of the State of New
York. The Portfolio's Declaration of Trustprovides that investors in the
Portfolio (e.g., investment companies, insurance company separate accounts
and common and commingled trust funds) will each be liable for all
obligations of the Portfolio. However, the risk of an investor in the
Portfolio incurring financial loss on account of such liability is limited
to circumstances in which both inadequate insurance existed and the
Portfolio itself was unable to meet its obligations.
Investments in the Portfolio have no preemptive or conversion rights and
are fully paid and nonassessable, except as set forth below. The Portfolio
is not required and has no current intention to hold annual meetings of
investors, but the Portfolio will hold special meetings of investors when
in the judgment of the Trustees it is necessary or desirable to submit
matters for an investor vote. Changes in fundamental policies will be
submitted to investors for approval. Investors have under certain
circumstances (e.g., upon application and submission of certain specified
documents to the Trustees by a specified number of investors) the right to
communicate with other investors in connection with requesting a meeting of
investors for the purpose of removing one or more Trustees. Investors also
have the right to remove one or more Trustees without a meeting by a
declaration in writing by a specified number of investors. Upon liquidation
of the Portfolio, investors would be entitled to share pro rata in the net
assets of the Portfolio available for distribution to investors.
The net asset value of the Portfolio is determined each day on which the
NYSE is open ("Portfolio Business Day") (and on such other days as are
deemed necessary in order to comply with Rule 22c-1 under the Investment
Company Act of 1940, as amended (the "1940 Act")). This determination is
made each Portfolio Business Day as of the close of regular trading on the
NYSE (currently 4:00 p.m., Eastern time) (the "Valuation Time").
Each investor in the Portfolio may add to or reduce its investment in the
Portfolio on each Portfolio Business Day. At the Valuation Time, on each
such business day, the value of each investor's beneficial interest in the
Portfolio will be determined by multiplying the net asset value of the
Portfolio by the percentage, effective for that day, that represents that
investor's share of the aggregate beneficial interests in the Portfolio.
Any additions or withdrawals, which are to be effected on that day, will
then be effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio will then be re-computed as the percentage equal
to the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio as of the Valuation Time, on such day plus or
minus, as the case may be, the amount of any additions to or withdrawals
from the investor's investment in the Portfolio effected on such day, and
(ii) the denominator of which is the aggregate net asset value of the
Portfolio as of the Valuation Time on such day plus or minus, as the case
may be, the amount of the net additions to or withdrawals from the
aggregate investments in the Portfolio by all investors in the Portfolio.
The percentage so determined will then be applied to determine the value of
the investor's interest in the Portfolio as of the Valuation Time, on the
following business day of the Portfolio.
The "net income" of the Portfolio shall consist of (i) all income accrued,
less the amortization of any premium, on the assets of the Portfolio, less
(ii) all actual and accrued expenses of the Portfolio determined in
accordance with generally accepted accounting principles. Interest income
includes discount earned (including both original issue and market
discount) on discount paper accrued ratably to the date of maturity and any
net realized gains or losses on the assets of the Portfolio. All the net
income of the Portfolio is allocated pro rata among the investors in the
Portfolio. The net income is accrued daily and distributed monthly to the
investors in the Portfolio.
Under the anticipated method of operation of the Portfolio, the Portfolio
will not be subject to any income tax. However, each investor in the
Portfolio will be taxable on its share (as determined in accordance with
the governing instruments of the Portfolio) of the Portfolio's ordinary
income and capital gain in determining its income tax liability. The
determination of such share will be made in accordance with the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations promulgated
thereunder.
It is intended that the Portfolio's assets, income and distributions will
be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the
investor invested all of its assets in the Portfolio.
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See "General Description of
Registrant" above.
An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined if an order is
received by the Portfolio by the designated cutoff time for each accredited
investor. The net asset value of the Portfolio is determined on each
Portfolio Business Day. The Portfolio's portfolio securities are valued
primarily on the basis of market quotations or, if quotations are not
readily available, by a method which the Board of Trustees believes
accurately reflects fair value.
There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times
as is reasonably practicable in order to enhance the yield on its assets,
investments must be made in Federal funds (i.e., monies credited to the
account of the Portfolio's custodian bank by a Federal Reserve Bank).
The Portfolio and Edgewood reserve the right to cease accepting investments
at any time or to reject any investment order.
The placement agent for the Portfolio is Edgewood. The principal business
address of Edgewood is Clearing Operations, P.O. Box 897, Pittsburgh,
Pennsylvania 15230-0897. Edgewood receives no additional compensation for
serving as the placement agent for the Portfolio.
ITEM 8. REDEMPTION OR REPURCHASE
An investor in the Portfolio may withdraw all or any portion of its
investment at the net asset value next determined if a withdrawal request
in proper form is furnished by the investor to the Portfolio by the
designated cutoff time for each accredited investor. The proceeds of a
withdrawal will be paid by the Portfolio in Federal funds normally on the
Portfolio Business Day the withdrawal is effected, but in any event within
seven days. The Portfolio reserves the right to pay redemptions in kind.
Unless requested by an investor, the Portfolio will not make a redemption
in kind to the investor, except in situations where that investor may make
redemptions in kind. Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any withdrawal
may be suspended or the payment of the withdrawal proceeds postponed during
any period in which the NYSE is closed (other than weekends or holidays) or
trading on the NYSE is restricted or, to the extent otherwise permitted by
the 1940 Act, if an emergency exists.
ITEM 9. PENDING LEGAL PROCEEDINGS
Not applicable.
ADDITIONAL INFORMATION
REPURCHASE AGREEMENTS. In a repurchase agreement the Portfolio buys a
security and simultaneously agrees to sell it back at a higher price at a
future date. In the event of the bankruptcy of the other party to a
repurchase agreement, the Portfolio could experience delays in recovering
either its cash or selling the securities subject to the repurchase
agreement. To the extent that, in the meantime, the value of the securities
repurchased had decreased or the value of the securities had increased, the
Portfolio could experience a loss. In all cases, Bankers Trust must find
the creditworthiness of the other party to the transaction satisfactory.
SECURITIES LENDING. The Portfolio is permitted to lend up to 30% of the
total value of its securities. These loans must be secured continuously by
cash or equivalent collateral or by a letter of credit at least equal to
the market value of the securities loaned plus accrued income. By lending
its securities, the Portfolio can increase its income by continuing to
receive income on the loaned securities as well as by the opportunity to
receive interest on the collateral. During the term of the loan, the
Portfolio continues to bear the risk of fluctuations in the price of the
loaned securities. In lending securities to brokers, dealers and other
organizations, the Portfolio is subject to risk which, like those
associated with other extensions of credit, includes delays in recovery and
possible loss of rights in the securities lent should the borrower fail
financially.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and
payment for these securities may take place as long as a month or more
after the date of the purchase commitment. The value of these securities is
subject to market fluctuation during this period and no income accrues to
the Portfolio until settlement takes place. The Portfolio segregates with
the Custodian liquid securities in an amount at least equal to these
commitments. When entering into a when-issued or delayed delivery
transaction, the Portfolio will rely on the other party to consummate the
transaction; if the other party fails to do so, the Portfolio may be
disadvantaged.
OPTIONS ON STOCK INDICES. The Portfolio may purchase and write put and call
options on stock indices listed on stock exchanges. A stock index
fluctuates with changes in the market values of the stocks included in the
index.
Options on stock indices are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive a cash "exercise
settlement amount" equal to (a) the amount, if any, by which the fixed
exercise price of the option exceeds (in the case of a put) or is less than
(in the case of a call) the closing value of the underlying index on the
date of exercise, multiplied by (b) a fixed "index multiplier". Receipt of
this cash amount will depend upon the closing level of the stock index upon
which the option is based being greater than, in the case of a call, or
less than, in the case of a put, the exercise price of the option. The
amount of cash received will be equal to such difference between the
closing price of the index and the exercise price of the option expressed
in dollars times a specified multiple. The writer of the option is
obligated, in return for the premium received, to make delivery of this
amount. The writer may offset its position in stock index options prior to
expiration by entering into a closing transaction on an exchange or the
option may expire unexercised.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, whether the
Portfolio will realize a gain or loss from the purchase or writing of
options on an index depends upon movements in the level of stock prices in
the stock market generally or, in the case of certain indices, in an
industry or market segment, rather than movements in the price of a
particular stock. Accordingly, successful use by the Portfolio of options
on stock indices will be subject to Bankers Trust's ability to predict
correctly movements in the direction of the stock market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.
FUTURES CONTRACTS ON STOCK INDICES. The Portfolio may enter into contracts
providing for the making and acceptance of a cash settlement based upon
changes in the value of an index of securities ("Futures Contracts"). This
investment technique is designed only to hedge against anticipated future
change in general market prices which otherwise might either adversely
affect the value of securities held by the Portfolio or adversely affect
the prices of securities which are intended to be purchased at a later date
for the Portfolio. A Futures Contract may also be entered into to close out
or offset an existing futures position.
In general, each transaction in Futures Contracts involves the
establishment of a position which will move in a direction opposite to that
of the investment being hedged. If these hedging transactions are
successful, the futures positions taken for the Portfolio will rise in
value by an amount which approximately offsets the decline in value of the
portion of the Portfolio's investments that are being hedged. Should
general market prices move in an unexpected manner, the full anticipated
benefits of Futures Contracts may not be achieved or a loss may be
realized.
Although Futures Contracts would be entered into for hedging purposes only,
such transactions do involve certain risks. These risks could include a
lack of correlation between the Futures Contract and the equity market, a
potential lack of liquidity in the secondary market and incorrect
assessments of market trends which may result in poorer overall performance
than if a Futures Contract had not been entered into.
Brokerage costs will be incurred and "margin" will be required to be posted
and maintained as a good-faith deposit against performance of obligations
under Futures Contracts written for the Portfolio. The Portfolio may not
purchase or sell a Futures Contract (or options thereon) if immediately
thereafter its margin deposits on its outstanding Futures Contracts (and
its premium paid on outstanding options thereon) would exceed 5% of the
market value of the Portfolio's total assets.
OPTIONS ON FUTURES CONTRACTS. The Portfolio may invest in options on such
Futures Contracts for similar purposes.
ASSET COVERAGE. The Portfolio will cover the Portfolio's transactions in
futures and related options, as well as in when-issued and delayed
delivery, as required under applicable interpretations of the Securities
and Exchange Commission, either by owning the underlying securities or by
segregating liquid assets with the Portfolio's Custodian in an amount at
all times equal to or exceeding the Portfolio's commitment with respect to
these instruments or contracts.
EQUITY 500 INDEX PORTFOLIO
PART B
ITEM 10. COVER PAGE.
Not applicable.
ITEM 11. TABLE OF CONTENTS. PAGE
General Information and History 1
Investment Objectives and Policies 1
Management of the Fund 9
Control Persons and Principal Holder of Securities 10
Investment Advisory and Other Services 11
Brokerage Allocation and Other Practices 13
Capital Stock and Other Securities 15
Purchase, Redemption and Pricing of Securities Being Offered 15
Tax Status 16
Underwriters 17
Calculation of Performance Data 17
Financial Statements 17
Appendix A 18
Appendix B 19
ITEM 12. GENERAL INFORMATION AND HISTORY
Not applicable.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES
Part A contains additional information about the investment objective and
policies of Equity 500 Index Portfolio (the "Portfolio"). This Part B
should only be read in conjunction with Part A.
CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES. Certificates of deposit
are receipts issued by a depository institution in exchange for the deposit
of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to
maturity. Bankers' acceptances typically arise from short-term credit
arrangements designed to enable businesses to obtain funds to finance
commercial transactions. Generally, an acceptance is a time draft drawn on
a bank by an exporter or an importer to obtain a stated amount of funds to
pay for specific merchandise. The draft is then "accepted" by a bank that,
in effect, unconditionally guarantees to pay the face value of the
instrument on its maturity date. The acceptance may then be held by the
accepting bank as an earning asset or it may be sold in the secondary
market at the going rate of discount for a specific maturity. Although
maturities for acceptances can be as long as 270 days, most acceptances
have maturities of six months or less.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from 1
to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note
(which is a type of commercial paper) represents a direct borrowing
arrangement involving periodically fluctuating rates of interest under a
letter agreement between a commercial paper issuer and an institutional
lender pursuant to which the lender may determine to invest varying
amounts.
For a description of commercial paper ratings, see the Appendix .
ILLIQUID SECURITIES. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because
they have not been registered under the Securities Act of 1933, as amended
(the "1933 Act"), securities which are otherwise not readily marketable and
repurchase agreements having a remaining maturity of longer than seven
calendar days. Securities which have not been registered under the 1933 Act
are referred to as private placements or restricted securities and are
purchased directly from the issuer or in the secondary market. Mutual funds
do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect
on the marketability of portfolio securities and a mutual fund might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register
such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on
an efficient institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale of such
investments to the general public or to certain institutions may not be
indicative of their liquidity.
LENDING OF PORTFOLIO SECURITIES. The Portfolio has the authority to lend
portfolio securities to brokers, dealers and other financial organizations.
The Portfolio will not lend securities to Bankers Trust Company ("Bankers
Trust"), as the Portfolio's investment adviser (the "Adviser"), Edgewood
Services, Inc. (`Edgewood'') or their affiliates. By lending its
securities, the Portfolio can increase its income by continuing to receive
interest on the loaned securities as well as by either investing the cash
collateral in short-term securities or obtaining yield in the form of
interest paid by the borrower when U.S. Government obligations are used as
collateral. There may be risks of delay in receiving additional collateral
or risks of delay in recovery of the securities or even loss of rights in
the collateral should the borrower of the securities fail financially. The
Portfolio will adhere to the following conditions whenever its securities
are loaned: (i) the Portfolio must receive at least 100% cash collateral or
equivalent securities from the borrower; (ii) the borrower must increase
this collateral whenever the market value of the securities including
accrued interest rises above the level of the collateral; (iii) the
Portfolio must be able to terminate the loan at any time; (iv) the
Portfolio must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and
any increase in market value; (v) the Portfolio may pay only reasonable
custodian fees in connection with the loan; and (vi) voting rights on the
loaned securities may pass to the borrower; provided, however, that if a
material event adversely affecting the investment occurs, the Board of
Trustees must terminate the loan and regain the voting rights of the
securities.
FUTURES CONTRACTS AND OPTIONS ON INDEX FUTURES CONTRACTS
FUTURES CONTRACTS. The Portfolio may enter into contracts for the purchase
or sale for future delivery of securities. U.S. futures contracts have been
designed by exchanges which have been designated "contracts markets" by the
Commodity Futures Trading Commission ("CFTC"), and must be executed through
a futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges guarantee
performance of the contracts between the clearing members of the exchange.
At the same time a futures contract is purchased or sold, the Portfolio
must allocate cash or securities as a deposit payment ("initial deposit").
It is expected that the initial deposit would be approximately 1 1/2% to 5%
of a contract's face value. Daily thereafter, the futures contract is
valued and the payment of "variation margin" may be required, since each
day the Portfolio would provide or receive cash that reflects any decline
or increase in the contract's value.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same
month. Such a transaction, which is effected through a member of an
exchange, cancels the obligation to make or take delivery of the
securities. Since all transactions in the futures market are made, offset
or fulfilled through a clearinghouse associated with the exchange on which
the contracts are traded, the Portfolio will incur brokerage fees when it
purchases or sells futures contracts.
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial
deposit and variation margin requirements. Rather than meeting additional
variation margin requirements, investors may close futures contracts
through offsetting transactions which could distort the normal relationship
between the cash and futures markets. Second, the liquidity of the futures
market depends on participants entering into offsetting transactions rather
than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of speculators, the
margin deposit requirements in the futures market are less onerous than
margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary
price distortions. Due to the possibility of distortion, a correct forecast
of general interest rate trends by the Adviser may still not result in a
successful transaction.
In addition, futures contracts entail risks. Although the Adviser believes
that use of such contracts will benefit the Portfolio, if the Adviser's
investment judgment about the general direction of the Index is incorrect,
the Portfolio's overall performance would be poorer than if it had not
entered into any such contract. For example, if the Portfolio has hedged
against the possibility of a decrease in the Index which would adversely
affect the value of the securities held in its portfolio and securities
prices increase instead, the Portfolio will lose part or all of the benefit
of the increased value of its securities which it has hedged because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell
securities from its portfolio to meet daily variation margin requirements.
Such sales of securities may be, but will not necessarily be, at increased
prices which reflect the rising market. The Portfolio may have to sell
securities at a time when it may be disadvantageous to do so.
OPTIONS ON INDEX FUTURES CONTRACTS. The Portfolio may purchase and write
options on futures contracts with respect to the Index. The purchase of a
call option on an index futures contract is similar in some respects to the
purchase of a call option on such an index. Depending on the pricing of the
option compared to either the price of the futures contract upon which it
is based or the price of the underlying debt securities, it may or may not
be less risky than ownership of the futures contract or underlying
securities. As with the purchase of futures contracts, when the Portfolio
is not fully invested it may purchase a call option on an index futures
contract to hedge against a market advance with respect to the Index.
The writing of a call option on a futures contract with respect to the
Index constitutes a partial hedge against declining prices of the
underlying securities which are deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is below the
exercise price, the Portfolio will retain the full amount of the option
premium which provides a partial hedge against any decline that may have
occurred in the Portfolio's holdings. The writing of a put option on an
index futures contract constitutes a partial hedge against increasing
prices of the underlying securities which are deliverable upon exercise of
the futures contract. If the futures price at expiration of the option is
higher than the exercise price, the Portfolio will retain the full amount
of the option premium which provides a partial hedge against any increase
in the price of securities which the Portfolio intends to purchase. If a
put or call option the Portfolio has written is exercised, the Portfolio
will incur a loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes in the
value of its portfolio securities and changes in the value of its futures
positions, the Portfolio's losses from existing options on futures may to
some extent be reduced or increased by changes in the value of portfolio
securities.
The purchase of a put option on a futures contract with respect to the
Index is similar in some respects to the purchase of protective put options
on the Index. For example, the Portfolio may purchase a put option on an
index futures contract to hedge against the risk of lower securities
values.
The amount of risk the Portfolio assumes when it purchases an option on a
futures contract with respect to the Index is the premium paid for the
option plus related transaction costs. In addition to the correlation risks
discussed above, the purchase of an option also entails the risk that
changes in the value of the underlying futures contract will not be fully
reflected in the value of the option purchased.
The Board of Trustees of the Portfolio has adopted the requirement that
index futures contracts and options on index futures contracts be used only
for cash management purposes. The Portfolio will not enter into any futures
contracts or options on futures contracts if immediately thereafter the
amount of margin deposits on all the futures contracts of the Portfolio and
premiums paid on outstanding options on futures contracts owned by the
Portfolio would exceed 5% of the market value of the total assets of the
Portfolio.
OPTIONS ON SECURITIES INDEXES. The Portfolio may write (sell) covered call
and put options to a limited extent on the Index ("covered options") in an
attempt to increase income. Such options give the holder the right to
receive a cash settlement during the term of the option based upon the
difference between the exercise price and the value of the Index. The
Portfolio may forgo the benefits of appreciation on the Index or may pay
more than the market price of the Index pursuant to call and put options
written by the Portfolio.
By writing a covered call option, the Portfolio forgoes, in exchange for
the premium less the commission ("net premium"), the opportunity to profit
during the option period from an increase in the market value of the Index
above the exercise price. By writing a covered put option, the Portfolio,
in exchange for the net premium received, accepts the risk of a decline in
the market value of the Index below the exercise price.
The Portfolio may terminate its obligation as the writer of a call or put
option by purchasing an option with the same exercise price and expiration
date as the option previously written.
When the Portfolio writes an option, an amount equal to the net premium
received by the Portfolio is included in the liability section of the
Portfolio's Statement of Assets and Liabilities as a deferred credit. The
amount of the deferred credit will be subsequently marked to market to
reflect the current market value of the option written. The current market
value of a traded option is the last sale price or, in the absence of a
sale, the mean between the closing bid and asked price. If an option
expires on its stipulated expiration date or if the Portfolio enters into a
closing purchase transaction, the Portfolio will realize a gain (or loss if
the cost of a closing purchase transaction exceeds the premium received
when the option was sold), and the deferred credit related to such option
will be eliminated. If a call option is exercised, the Portfolio will
realize a gain or loss from the sale of the underlying security and the
proceeds of the sale will be increased by the premium originally received.
The writing of covered call options may be deemed to involve the pledge of
the securities against which the option is being written. Securities
against which call options are written will be segregated on the books of
the custodian for the Portfolio.
The Portfolio may purchase call and put options on the Index. The Portfolio
would normally purchase a call option in anticipation of an increase in the
market value of the Index. The purchase of a call option would entitle the
Portfolio, in exchange for the premium paid, to purchase the underlying
securities at a specified price during the option period. The Portfolio
would ordinarily have a gain if the value of the securities increased above
the exercise price sufficiently to cover the premium and would have a loss
if the value of the securities remained at or below the exercise price
during the option period.
The Portfolio would normally purchase put options in anticipation of a
decline in the market value of the Index ("protective puts"). The purchase
of a put option would entitle the Portfolio, in exchange for the premium
paid, to sell the underlying securities at a specified price during the
option period. The purchase of protective puts is designed merely to offset
or hedge against a decline in the market value of the Index. The Portfolio
would ordinarily recognize a gain if the value of the Index decreased below
the exercise price sufficiently to cover the premium and would recognize a
loss if the value of the Index remained at or above the exercise price.
Gains and losses on the purchase of protective put options would tend to be
offset by countervailing changes in the value of the Index.
The Portfolio has adopted certain other nonfundamental policies concerning
index option transactions which are discussed below. The Portfolio's
activities in index options may also be restricted by the requirements of
the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company.
The hours of trading for options on the Index may not conform to the hours
during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying
securities markets that cannot be reflected in the option markets. It is
impossible to predict the volume of trading that may exist in such options,
and there can be no assurance that viable exchange markets will develop or
continue.
Because options on securities indices require settlement in cash, the
Adviser may be forced to liquidate portfolio securities to meet settlement
obligations.
RATING SERVICES
The ratings of rating services represent their opinions as to the quality
of the securities that they undertake to rate. It should be emphasized,
however, that ratings are relative and subjective and are not absolute
standards of quality. Although these ratings are an initial criterion for
selection of portfolio investments, Bankers Trust also makes its own
evaluation of these securities, subject to review by the Board of Trustees.
After purchase by the Portfolio, an obligation may cease to be rated or its
rating may be reduced below the minimum required for purchase by the
Portfolio. Neither event would require the Portfolio to eliminate the
obligation from its portfolio, but Bankers Trust will consider such an
event in its determination of whether the Portfolio should continue to
hold the obligation. A description of the ratings used herein and in Part
A is set forth in Appendix .
INVESTMENT RESTRICTIONS
The following investment restrictions are "fundamental policies" of the
Portfolio and may not be changed with respect to the Portfolio without the
approval of a "majority of the outstanding voting securities" of the
Portfolio. "Majority of the outstanding voting securities" under the
Investment Company Act of 1940, as amended (the "1940 Act"), and as used in
this Part B and Part A, means, with respect to the Portfolio, the lesser of
(i) 67% or more of the total beneficial interests of the Portfolio present
at a meeting, if the holders of more than 50% of the total beneficial
interests of the Portfolio are present or represented by proxy, or (ii)
more than 50% of the total beneficial interests of the Portfolio. As a
matter of fundamental policy, the Portfolio may not:
(1) borrow money or mortgage or hypothecate assets of the Portfolio,
except that in an amount not to exceed 1/3 of the current value of the
Portfolio's assets, it may borrow money as a temporary measure for
extraordinary or emergency purposes and enter into reverse repurchase
agreements or dollar roll transactions, and except that it may pledge,
mortgage or hypothecate not more than 1/3 of such assets to secure such
borrowings (it is intended that money would be borrowed only from banks and
only either to accommodate requests for the withdrawal of beneficial
interests while effecting an orderly liquidation of portfolio securities or
to maintain liquidity in the event of an unanticipated failure to complete
a portfolio security transaction or other similar situations) or reverse
repurchase agreements, provided that collateral arrangements with respect
to options and futures, including deposits of initial deposit and variation
margin, are not considered a pledge of assets for purposes of this
restriction and except that assets may be pledged to secure letters of
credit solely for the purpose of participating in a captive insurance
company sponsored by the Investment Company Institute; for additional
related restrictions, see clause (i) under the caption "Additional
Restrictions" below. (As an operating policy, the Portfolio may not engage
in dollar roll transactions);
(2) underwrite securities issued by other persons except insofar as the
Portfolio may technically be deemed an underwriter under the 1933 Act in
selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Portfolio's portfolio securities and provided that any such loans not
exceed 30% of the Portfolio's total assets (taken at market value); (b)
through the use of repurchase agreements or the purchase of short-term
obligations; or (c) by purchasing a portion of an issue of debt securities
of types distributed publicly or privately;
(4) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity
contracts (except futures and option contracts) in the ordinary course of
business (except that the Portfolio may hold and sell, for the Portfolio's
portfolio, real estate acquired as a result of the Portfolio's ownership of
securities);
(5) concentrate its investments in any particular industry (excluding U.S.
government securities), but if it is deemed appropriate for the achievement
of the Portfolio's investment objective, up to 25% of its total assets may
be invested in any one industry; and
(6) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements
with respect to options and futures, including deposits of initial deposit
and variation margin, are not considered to be the issuance of a senior
security for purposes of this restriction.
ADDITIONAL RESTRICTIONS. In order to comply with certain statutes and
policies the Portfolio will not as a matter of operating policy:
(i) borrow money (including through dollar roll transactions) for any
purpose in excess of 10% of the Portfolio's assets (taken at cost) except
that the Portfolio may borrow for temporary or emergency purposes up to 1/3
of its total assets;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of
the Portfolio's total assets (taken at market value), provided that
collateral arrangements with respect to options and futures, including
deposits of initial deposit and variation margin, and reverse repurchase
agreements are not considered a pledge of assets for purposes of this
restriction;
(iii) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that deposits
of initial deposit and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures;
(iv) sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right to obtain
securities, without payment of further consideration, equivalent in kind
and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions;
(v) invest for the purpose of exercising control or management;
(vi) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a sponsor or
dealer results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in the open
market, is part of a plan of merger or consolidation; provided, however,
that securities of any investment company will not be purchased for the
Portfolio if such purchase at the time thereof would cause (a) more than
10% of the Portfolio's total assets (taken at the greater of cost or market
value) to be invested in the securities of such issuers; (b) more than 5%
of the Portfolio's total assets (taken at the greater of cost or market
value) to be invested in any one investment company; or (c) more than 3% of
the outstanding voting securities of any such issuer to be held for the
Portfolio, unless permitted to exceed these limitations by an exemptive
order of the SEC; and provided further that, except in the case of merger
or consolidation, the Portfolio shall not invest in any other open-end
investment company unless the Portfolio (1) waives the investment advisory
fee with respect to assets invested in other open-end investment companies
and (2) incurs no sales charge in connection with the investment;
(vii) invest more than 15% of the Portfolio's net assets (taken at the
greater of cost or market value) in securities that are illiquid or not
readily marketable not including (a) Rule 144A securities that have been
determined to be liquid by the Board of Trustees; and (b) commercial paper
that is sold under section 4(2) of the 1933 Act which: (i) is not traded
flat or in default as to interest or principal; and (ii) is rated in one of
the two highest categories by at least two nationally recognized
statistical rating organizations and the Portfolio's (Fund's) Board of
Trustees have determined the commercial paper to be liquid; or (iii) is
rated in one of the two highest categories by one nationally recognized
statistical rating agency and the Portfolio's (Fund's) Board of Trustees
have determined that the commercial paper is equivalent quality and is
liquid;
(viii) invest more than 10% of the Portfolio's total assets (taken at
the greater of cost or market value) in securities that are restricted as
to resale under the 1933 Act (other than Rule 144A securities deemed liquid
by the Portfolio's Board of Trustees);
(ix) no more than 5% of the Portfolio's total assets are invested in
securities issued by issuers which (including predecessors) have been in
operation less than three years;
(x) with respect to 75% of the Portfolio's total assets, purchase
securities of any issuer if such purchase at the time thereof would cause
the Portfolio to hold more than 10% of any class of securities of such
issuer, for which purposes all indebtedness of an issuer shall be deemed a
single class and all preferred stock of an issuer shall be deemed a single
class, except that futures or option contracts shall not be subject to
this restriction;
(xi) if the Portfolio is a "diversified" fund with respect to 75% of its
assets, invest more than 5% of its total assets in the securities
(excluding U.S. government securities) of any one issuer;
(xii) purchase or retain in the Portfolio's portfolio securities any
securities issued by an issuer any of whose officers, directors, trustees
or security holders is an officer or Trustee of the Portfolio, or is an
officer or partner of the Adviser, if after the purchase of the securities
of such issuer for the Portfolio one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or both, all
taken at market value, of such issuer, and such persons owning more than
1/2 of 1% of such shares or securities together own beneficially more than
5% of such shares or securities, or both, all taken at market value;
(xiii) invest more than 5% of the Portfolio's net assets in warrants
(valued at the lower of cost or market) (other than warrants acquired by
the Portfolio as part of a unit or attached to securities at the time of
purchase), but not more than 2% of the Portfolio's net assets may be
invested in warrants not listed on the NYSE or the American Stock Exchange;
(xiv) make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an equal amount
of such securities or securities convertible into or exchangeable, without
payment of any further consideration, for securities of the same issue and
equal in amount to, the securities sold short, and unless not more than
10% of the Portfolio's net assets (taken at market value) is represented
by such securities, or securities convertible into or exchangeable for such
securities, at any one time (the Portfolio has no current intention to
engage in short selling);
(xv) write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call is within
the investment policies of the Portfolio and the option is issued by the
Options Clearing Corporation, except for put and call options issued by
non-U.S. entities or listed on non-U.S. securities or commodities
exchanges; (b) the aggregate value of the obligations underlying the puts
determined as of the date the options are sold shall not exceed 50% of the
Portfolio's net assets; (c) the securities subject to the exercise of the
call written by the Portfolio must be owned by the Portfolio at the time
the call is sold and must continue to be owned by the Portfolio until the
call has been exercised, has lapsed, or the Portfolio has purchased a
closing call, and such purchase has been confirmed, thereby extinguishing
the Portfolio's obligation to deliver securities pursuant to the call it
has sold; and (d) at the time a put is written, the Portfolio establishes a
segregated account with its custodian consisting of cash or short-term U.S.
Government securities equal in value to the amount the Portfolio will be
obligated to pay upon exercise of the put (this account must be maintained
until the put is exercised, has expired, or the Portfolio has purchased a
closing put, which is a put of the same series as the one previously
written); and
(xvi) buy and sell puts and calls on securities, stock index futures or
options on stock index futures, or financial futures or options on
financial futures unless such options are written by other persons and: (a)
the options or futures are offered through the facilities of a national
securities association or are listed on a national securities or
commodities exchange, except for put and call options issued by non-U.S.
entities or listed on non-U.S. securities or commodities exchanges; (b)
the aggregate premiums paid on all such options which are held at any time
do not exceed 20% of the Portfolio's total net assets; and (c) the
aggregate margin deposits required on all such futures or options thereon
held at any time do not exceed 5% of the Portfolio's total assets.
The Portfolio will comply with the securities laws and regulations of all
states in which any investor in the Portfolio is registered. The Portfolio
will comply with the permitted investments and investment limitations in
the securities laws and regulations of all states in which any registered
investment company investing in the Portfolio is registered.
ITEM 14. MANAGEMENT OF THE FUND
The Board of Trustees is composed of persons experienced in financial
matters who meet throughout the year to oversee the activities of the
Portfolio. In addition, the Trustees review contractual arrangements with
companies that provide services to the Portfolio.
The Trustees and officers of the Portfolio, their birthdates and their
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. Unless otherwise indicated, the
address of each officer is Clearing Operations, P.O. Box 897, Pittsburgh,
Pennsylvania 15230-0897.
TRUSTEES
CHARLES P. BIGGAR (birthdate: October 13, 1930) - Trustee; Retired;
Director of Chase/NBW Bank Advisory Board; Director, Batemen, Eichler, Hill
Richards Inc.; formerly Vice President of International Business Machines
and President of the National Services and the Field Engineering Divisions
of IBM. His address is 12 Hitching Post Lane, Chappaqua, New York 10514.
PHILIP W. COOLIDGE* (birthdate: September 2, 1951) - Trustee; Chairman,
Chief Executive Officer and President, SFG (since December, 1988) and
Signature (since April, 1989). His address is 6 St. James Avenue, Boston,
Massachusetts 02116.
S. LELAND DILL (birthdate: March 28, 1930) - Trustee; Retired; Director,
Coutts Group; Coutts (U.S.A.) International; Coutts Trust Holdings, Ltd;
Director, Zweig Series Trust; formerly Partner of KPMG Peat Marwick;
Director, Vinters International Company Inc.; General Partner of Pemco (an
investment company registered under the 1940 Act). His address is 5070
North Ocean Drive, Singer Island, Florida 33404.
PHILIP SAUNDERS, JR. (birthdate: October 11, 1935) - Trustee; Principal,
Philip Saunders Associates (Consulting); former Director of Financial
Industry Consulting, Wolf & Company; President, John Hancock Home Mortgage
Corporation; and Senior Vice President of Treasury and Financial Services,
John Hancock Mutual Life Insurance Company, Inc. His address is 445 Glen
Road, Weston, Massachusetts 02193.
*Indicates an `interested person'' (as defined in the 1940 Act) for the
Trust.
OFFICERS
Unless otherwise specified, each officer listed below holds the same
position with the Trust and the Portfolio.
RONALD M. PETNUCH (birthdate: February 27, 1960) - President and Treasurer;
Senior Vice President; Federated Services Company (`FSC''); formerly,
Director of Proprietary Client Services, Federated Administrative Services
(`FAS''), and Associate Corporate Counsel, Federated Investors (``FI'').
CHARLES L. DAVIS, JR. (birthdate: March 23, 1960) - Vice President and
Assistant Treasurer; Vice President, FAS.
JAY S. NEUMAN (birthdate: April 22, 1950) - Secretary; Corporate Counsel,
FI.
Messrs. Coolidge, Petnuch, Davis, and Neuman also hold similar positions
for other investment companies for which Signature or Edgewood,
respectively or an affiliate serves as the principal underwriter.
No person who is an officer or director of Bankers Trust is an officer or
Trustee of the Portfolio. No director, officer or employee of Edgewood or
any of its affiliates will receive any compensation from the Portfolio for
serving as an officer of the Portfolio.
For the year ended December 31, 1996, the Portfolio incurred Trustees fees
of $9,865.
The following table reflects fees paid to the Trustees of the Portfolio for
the year ended December 31, 1996:
TRUSTEE COMPENSATION TABLE
NAME OF PERSON, COMPENSATION TOTAL COMPENSATION
POSITION FROM PORTFOLIO FROM FUND COMPLEX*
Charles P. Biggar,
Trustee of Portfolio $1955 $28,750
S. Leland Dill,
Trustee of Portfolio $2015 $28,750
Philip Saunders, Jr.,
Trustee of Portfolio $1955 $28,750
Philip W. Coolidge $23 $1,250
Trustee of Portfolio
*Aggregated information is furnished for the BT Family of Funds which
consists of the following: BT Investment Funds, BT Institutional Funds,
BT Pyramid Funds, BT Advisor Funds, BT Investment Portfolios, Cash
Management Portfolio, Treasury Money Portfolio, Tax Free Money Portfolio,
NY Tax Free Money Portfolio, International Equity Portfolio, Utility
Portfolio, Short Intermediate US Government Securities Portfolio,
Intermediate Tax Free Portfolio, Asset Management Portfolio, Equity 500
Index Portfolio, and Capital Appreciation Portfolio.
Bankers Trust reimbursed the Portfolio for a portion of their Trustee fees
for the period above.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of February 20, 1996, Equity 500 Index Fund and BT Investment Equity 500
Index Fund (each a "Fund") (series of shares of BT Institutional Funds and
BT Pyramid Mutual Funds, respectively) owned approximately 100% of the
value of the outstanding interests in the corresponding Portfolio. Because
each Fund controls the corresponding Portfolio, it may take actions
without the approval of any other investor in the Portfolio.
Each Fund has informed the Portfolio that whenever it is requested to vote
on matters pertaining to the fundamental policies of the Portfolio, the
Fund will hold a meeting of shareholders and will cast its votes as
instructed by the Fund's shareholders. It is anticipated that other
registered investment companies investing in the Portfolio will follow the
same or a similar practice.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES
Under the terms of the Portfolio's investment advisory agreement with
Bankers Trust (the "Advisory Agreement"), Bankers Trust manages the
Portfolio subject to the supervision and direction of the Board of Trustees
of the Portfolio. Bankers Trust will: (i) act in strict conformity with
the Portfolio's Declaration of Trust, the 1940 Act and the Investment
Advisers Act of 1940, as the same may from time to time be amended; (ii)
manage the Portfolio in accordance with the Portfolio's investment
objective, restrictions and policies; (iii) make investment decisions for
the Portfolio; and (iv) place purchase and sale orders for securities and
other financial instruments on behalf of the Portfolio.
Bankers Trust bears all expenses in connection with the performance of
services under the Advisory Agreement. The Trust and the Portfolio each
bear certain other expenses incurred in its operation, including: taxes,
interest, brokerage fees and commissions, if any; fees of Trustees of the
Trust or the Portfolio who are not officers, directors or employees of
Bankers Trust, Edgewood or any of their affiliates; SEC fees and state Blue
Sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; certain insurance premiums; outside auditing and legal
expenses; costs of maintenance of corporate existence; costs attributable
to investor services, including, without limitation, telephone and
personnel expenses; costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and for
distribution to existing shareholders; costs of shareholders' reports and
meetings of shareholders, officers and Trustees of the Trust or the
Portfolio; and any extraordinary expenses.
Bankers Trust may have deposit, loan and other commercial banking
relationships with the issuers of obligations which may be purchased on
behalf of the Portfolio, including outstanding loans to such issuers which
could be repaid in whole or in part with the proceeds of securities so
purchased. Such affiliates deal, trade and invest for their own accounts
in such obligations and are among the leading dealers of various types of
such obligations. Bankers Trust has informed the Portfolio that, in making
its investment decisions, it does not obtain or use material inside
information in its possession or in the possession of any of its
affiliates. In making investment recommendations for the Portfolio,
Bankers Trust will not inquire or take into consideration whether an issuer
of securities proposed for purchase or sale by the Portfolio is a customer
of Bankers Trust, its parent or its subsidiaries or affiliates and, in
dealing with its customers, Bankers Trust, its parent, subsidiaries and
affiliates will not inquire or take into consideration whether securities
of such customers are held by any fund managed by Bankers Trust or any such
affiliate.
For the fiscal years ended December 31, 1996, 1995 and 1994, Bankers Trust
accrued $1,505,963, $770,530 and $428,346, respectively, in compensation
for investment advisory services provided to the Portfolio. During the same
period, Bankers Trust reimbursed $870,024, $418,814 and $249,230,
respectively, to the Portfolio to cover expenses.
ADMINISTRATOR
Under administration and services agreements, Bankers Trust is obligated on
a continuous basis to provide such administrative services as the Board of
Trustees of the Trust and the Portfolio reasonably deem necessary for the
proper administration of the Trust or the Portfolio. Bankers Trust will
generally assist in all aspects of the Fund's and Portfolio's operations;
supply and maintain office facilities (which may be in Bankers Trust's own
offices), statistical and research data, data processing services,
clerical, accounting, bookkeeping and recordkeeping services (including
without limitation the maintenance of such books and records as are
required under the 1940 Act and the rules thereunder, except as maintained
by other agents), internal auditing, executive and administrative services,
and stationery and office supplies; prepare reports to shareholders or
investors; prepare and file tax returns; supply financial information and
supporting data for reports to and filings with the SEC and various state
Blue Sky authorities; supply supporting documentation for meetings of the
Board of Trustees; provide monitoring reports and assistance regarding
compliance with Declarations of Trust, by-laws, investment objectives and
policies and with Federal and state securities laws; arrange for
appropriate insurance coverage; calculate NAVs, net income and realized
capital gains or losses; and negotiate arrangements with, and supervise and
coordinate the activities of, agents and others to supply services.
Pursuant to a Sub-Administration Agreement (the `Sub-Administration
Agreement'), FSC performs such sub-administration duties for the Trust and
the Portfolio as from time to time may be agreed upon by Bankers Trust and
FSC. The Sub-Administration Agreement provides that FSC will receive such
compensation as from time to time may be agreed upon by FSC and Bankers
Trust. All such compensation will be paid by Bankers Trust.
For the years ended December 31, 1996, 1995 and 1994, Bankers Trust accrued
$752,981, $385,265 and $214,173, respectively, in compensation for
administrative and other services provided to the Portfolio.
BANKING REGULATORY MATTERS
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the
Portfolio contemplated by the investment advisory agreement and other
activities for the Fund and the Portfolio described in the Prospectus and
this SAI without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. However, counsel has pointed out that future
changes in either Federal or state statutes and regulations concerning the
permissible activities of banks or trust companies, as well as future
judicial or administrative decisions or interpretations of present and
future statutes and regulations, might prevent Bankers Trust from
continuing to perform those services for the Trust and the Portfolio.
State laws on this issue may differ from the interpretations of relevant
Federal law and banks and financial institutions may be required to
register as dealers pursuant to state securities law. If the circumstances
described above should change, the Boards of Trustees would review the
relationships with Bankers Trust and consider taking all actions necessary
in the circumstances.
CUSTODIAN AND TRANSFER AGENT
Bankers Trust serves as Custodian for the Portfolio pursuant to the
administration and services agreements. As Custodian, it holds the
Portfolio's assets. Bankers Trust also serves as transfer agent of the
Portfolio pursuant to the respective administration and services agreement.
Bankers Trust may be reimbursed by the Portfolio for its out-of-pocket
expenses. Bankers Trust will comply with the self-custodian provisions of
Rule 17f-2 under the 1940 Act.
COUNSEL AND INDEPENDENT ACCOUNTS
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New
York, New York 10022-4669, serves as Counsel to the Portfolio. Coopers &
Lybrand L.L.P. are the Independent Accountants for the Portfolio, providing
audit services, tax return preparation, and assistance and consultation
with respect to the preparation of filings with the SEC. The principal
business address of Coopers & Lybrand L.L.P. is 1100 Main Street, Suite
900, Kansas City, Missouri 64105.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES
The Adviser is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for the
Portfolio, the selection of brokers, dealers and futures commission
merchants to effect transactions and the negotiation of brokerage
commissions, if any. Broker- dealers may receive brokerage commissions on
portfolio transactions, including options, futures and options on futures
transactions and the purchase and sale of underlying securities upon the
exercise of options. Orders may be directed to any broker-dealer or futures
commission merchant, including to the extent and in the manner permitted by
applicable law, Bankers Trust or its subsidiaries or affiliates. Purchases
and sales of certain portfolio securities on behalf of the Portfolio are
frequently placed by the Adviser with the issuer or a primary or secondary
market-maker for these securities on a net basis, without any brokerage
commission being paid by the Portfolio. Trading does, however, involve
transaction costs. Transactions with dealers serving as market-makers
reflect the spread between the bid and asked prices. Transaction costs may
also include fees paid to third parties for information as to potential
purchasers or sellers of securities. Purchases of underwritten issues may
be made which will include an underwriting fee paid to the underwriter.
The Adviser seeks to evaluate the overall reasonableness of the brokerage
commissions paid (to the extent applicable) in placing orders for the
purchase and sale of securities for the Portfolio taking into account such
factors as price, commission (negotiable in the case of national securities
exchange transactions), if any, size of order, difficulty of execution and
skill required of the executing broker-dealer through familiarity with
commissions charged on comparable transactions, as well as by comparing
commissions paid by the Portfolio to reported commissions paid by others.
The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
The Adviser is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended, when placing portfolio transactions for
the Portfolio with a broker to pay a brokerage commission (to the extent
applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research,
market or statistical information. The term "research, market or
statistical information" includes advice as to the value of securities; the
advisability of investing in, purchasing or selling securities; the
availability of securities or purchasers or sellers of securities; and
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of
accounts.
Consistent with the policy stated above, the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. and such other policies as
the Portfolio's Trustees may determine, the Adviser may consider sales of
securities of shares of the Portfolio's investors as a factor in the
selection of broker-dealers to execute portfolio transactions. Bankers
Trust will make such allocations if commissions are comparable to those
charged by nonaffiliated, qualified broker-dealers for similar services.
Higher commissions may be paid to firms that provide research services to
the extent permitted by law. Bankers Trust may use this research
information in managing the Portfolio's assets, as well as the assets of
other clients.
Except for implementing the policies stated above, there is no intention to
place portfolio transactions with particular brokers or dealers or groups
thereof. In effecting transactions in over-the-counter securities, orders
are placed with the principal market-makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Although certain research, market and statistical information from brokers
and dealers can be useful to the Portfolio and to the Adviser, it is the
opinion of the management of the Portfolio that such information is only
supplementary to the Adviser's own research effort, since the information
must still be analyzed, weighed and reviewed by the Adviser's staff. Such
information may be useful to the Adviser in providing services to clients
other than the Portfolio, and not all such information is used by the
Adviser in connection with the Portfolio. Conversely, such information
provided to the Adviser by brokers and dealers through whom other clients
of the Adviser effect securities transactions may be useful to the Adviser
in providing services to the Portfolio.
In certain instances there may be securities which are suitable for the
Portfolio as well as for one or more of the Adviser's other clients.
Investment decisions for the Portfolio and for the Adviser's other clients
are made with a view to achieving their respective investment objectives.
It may develop that a particular security is bought or sold for only one
client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more
clients when one or more clients are selling that same security. Some
simultaneous transactions are inevitable when several clients receive
investment advice from the same investment adviser, particularly when the
same security is suitable for the investment objectives of more than one
client. When two or more clients are simultaneously engaged in the purchase
or sale of the same security, the securities are allocated among clients in
a manner believed to be equitable to each. It is recognized that in some
cases this system could have a detrimental effect on the price or volume of
the security as far as the Portfolio in concerned. However, it is believed
that the ability of the Portfolio to participate in volume transactions
will produce better executions for the Portfolio.
For the fiscal years ended December 31, 1996, 1995 and 1994, the Portfolio
paid brokerage commissions in the amount of $289,791, $172,924 and $97,069,
respectively.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES
Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Investors are entitled to
participate pro rata in distributions of taxable income, loss, gain and
credit of the Portfolio. Upon liquidation or dissolution of the Portfolio,
investors are entitled to share pro rata in the Portfolio's net assets
available for distribution to its investors. Investments in the Portfolio
have no preference, preemptive, conversion or similar rights and are fully
paid and nonassessable, except as set forth below. Investments in the
Portfolio may not be transferred. Certificates representing an investor's
beneficial interest in the Portfolio are issued only upon the written
request of an investor.
Each investor is entitled to a vote in proportion to the amount of its
investment in the Portfolio. Investors in the Portfolio do not have
cumulative voting rights, and investors holding more than 50% of the
aggregate beneficial interest in the Portfolio may elect all of the
Trustees if they choose to do so and in such event the other investors in
the Portfolio would not be able to elect any Trustee. The Portfolio is not
required and has no current intention to hold annual meetings of investors
but the Portfolio will hold special meetings of investors when in the
judgment of the Portfolio's Trustees it is necessary or desirable to submit
matters for an investor vote. No material amendment may be made to the
Portfolio's Declaration of Trust without the affirmative majority vote of
investors (with the vote of each being in proportion to the amount of its
investment).
The Portfolio may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by the vote of two thirds of
its investors (with the vote of each being in proportion to its percentage
of the beneficial interests in the Portfolio), except that if the Trustees
recommend such sale of assets, the approval by vote of a majority of the
investors (with the vote of each being in proportion to its percentage of
the beneficial interests of the Portfolio) will be sufficient. The
Portfolio may also be terminated (i) upon liquidation and distribution of
its assets if approved by the vote of two thirds of its investors (with the
vote of each being in proportion to the amount of its investment) or (ii)
by the Trustees by written notice to its investors.
The Portfolio is organized as a trust under the laws of the State of New
York. Investors in the Portfolio will be held personally liable for its
obligations and liabilities, subject, however, to indemnification by the
Portfolio in the event that there is imposed upon an investor a greater
portion of the liabilities and obligations of the Portfolio than its
proportionate beneficial interest in the Portfolio. The Declaration of
Trust also provides that the Portfolio shall maintain appropriate insurance
(for example, fidelity bonding and errors and omissions insurance) for the
protection of the Portfolio, its investors, Trustees, officers, employees
and agents covering possible tort and other liabilities. Thus, the risk of
an investor incurring financial loss on account of investor liability is
limited to circumstances in which both inadequate insurance existed and the
Portfolio itself was unable to meet its obligations.
The Declaration of Portfolio further provides that obligations of the
Portfolio are not binding upon the Trustees individually but only upon the
property of the Portfolio and that the Trustees will not be liable for any
action or failure to act, but nothing in the Declaration of Trust protects
a Trustee against any liability to 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.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See "Purchase of Securities Being
Offered" and "Redemption or Repurchase" in Part A.
The Portfolio determines its net asset value on each day on which the NYSE
is open ("Portfolio Business Day"). This determination is made each
Portfolio Business Day as of the close of regular trading on the NYSE
(currently 4:00 p.m., Eastern York time) (the "Valuation Time") by dividing
the value of the Portfolio's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or
accrued) by the value of the investment of the investors in the Portfolio
at the time the determination is made. (As of the date of this Registration
Statement, the NYSE and New York chartered banks are both open for trading
every weekday except for: (a) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas; and (b) the preceding Friday of the
subsequent Monday when one of the calendar-determined holidays falls on a
Saturday or Sunday, respectively. Purchases and withdrawals will be
effected at the time of determination of net asset value next following the
receipt of any purchase or withdrawal order.
Equity and debt securities (other than short-term debt obligations maturing
in 60 days or less), including listed securities and securities for which
price quotations are available, will normally be valued on the basis of
market valuations furnished by a pricing service. Short-term debt
obligations and money market securities maturing in 60 days or less are
valued at amortized cost, which approximates market. Other assets are
valued at fair value using methods determined in good faith by the Board of
Trustees.
ITEM 20. TAX STATUS
The Portfolio is organized as a trust under New York law. Under the
anticipated method of operation of the Portfolio, the Portfolio will not be
subject to any income tax. However each investor in the Portfolio will be
taxable on its share (as determined in accordance with the governing
instruments of the Portfolio) of the Portfolio's ordinary income and
capital gain in determining its income tax liability. The determination of
such share will be made in accordance with the Internal Revenue Code of
1986, as amended (the "Code"), and regulations promulgated thereunder.
The Portfolio's taxable year-end is December 31. Although, as described
above, the Portfolio will not be subject to Federal income tax, it will
file appropriate income tax returns.
It is intended that the Portfolio's assets, income and distributions will
be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the
investor invested all of its assets in the Portfolio.
There are certain tax issues that will be relevant to only certain of the
investors, specifically investors that are segregated asset accounts and
investors who contribute assets rather than cash to the Portfolio. It is
intended that such segregated asset accounts will be able to satisfy
diversification requirements applicable to them and that such contributions
of assets will not be taxable provided certain requirements are met. Such
investors are advised to consult their own tax advisors as to the tax
consequences of an investment in the Portfolio.
FOREIGN SECURITIES. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. It is impossible to
determine the effective rate of foreign tax in advance since the amount of
the Portfolio's assets to be invested in various countries will vary.
If the Portfolio is liable for foreign taxes, and if more than 50% of the
value of the Portfolio's total assets at the close of its taxable year
consists of stocks or securities of foreign corporations, it may make an
election pursuant to which certain foreign taxes paid by it would be
treated as having been paid directly by its investors. Pursuant to such
election, the amount of foreign taxes paid will be included in the income
of the Portfolio's investors, and such investors (except tax-exempt
investors) may, subject to certain limitations, claim either a credit or
deduction for the taxes. Each such investor will be notified after the
close of the Portfolio's taxable year whether the foreign taxes paid will
"pass through" for that year and, if so, such notification will designate
(a) the investor's portion of the foreign taxes paid to each such country
and (b) the portion which represents income derived from sources within
each such country.
The amount of foreign taxes for which an investor may claim a credit in any
year will generally be subject to a separate limitation for "passive
income," which includes, among other items of income, dividends, interest
and certain foreign currency gains. Because capital gains realized by the
Portfolio on the sale of foreign securities will be treated as U.S.-source
income, the available credit of foreign taxes paid with respect to such
gains may be restricted by this limitation.
ITEM 21. UNDERWRITERS
The placement agent for the Portfolio is Signature, which receives no
additional compensation for serving in this capacity. Investment companies,
insurance company separate accounts, common and commingled trust funds and
similar organizations and entities may continuously invest in the
Portfolio.
ITEM 22. CALCULATION OF PERFORMANCE DATA
Not applicable.
ITEM 23. FINANCIAL STATEMENTS
The financial statements for the Portfolio for the period ended December
31, 1996 are incorporated herein by reference to the Annual Report dated
December 31, 1996. A copy of the Annual Report may be obtained without
charge by contacting the Trust.
APPENDIX A
Set forth below are descriptions of the ratings of Moody's Investors
Service, Inc. (`Moody's'') and Standard & Poor's Ratings Group (``S&P''),
which represent their opinions as to the quality of the securities which
they undertake to rate. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality.
S&P'S COMMERCIAL PAPER RATINGS
A is the highest commercial paper rating category utilized by S&P, which
uses the numbers 1+, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-
term debt rating is A or better. The issuer has access to at least two
additional channels of borrowing. Basic earnings and cash flow are in an
upward trend. Typically, the issuer is a strong company in a well-
established industry and has superior management.
MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well-established industries;
high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal
cash generation; well-established access to a range of financial markets
and assured sources of alternate liquidity.
Issuers rated Prime-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.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes
in the level of debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is
maintained.
APPENDIX B
The table on the following page shows the performance of the S&P 500 for
the periods indicated. Stock prices fluctuated widely during the periods
but were higher at the end than at the beginning. The results shown should
not be considered as a representation of the income or capital gain or loss
which may be generated by the Index in the future. Nor should this be
considered as a representation of the past or future performance of the
Fund.
STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS*
{PRIVATE TOTAL YEAR TOTAL
}YEAR RETURN RETURN
1996 22.96% 1960 0.47%
1995 37.49% 1959 11.96%
1994 1.32% 1958 43.36%
1993 9.99% 1957 -10.78%
1992 7.67% 1956 6.56%
1991 30.55% 1955 31.56%
1990 -3.17% 1954 52.62%
1989 31.49% 1953 -0.99%
1988 16.81% 1952 18.73%
1987 5.23% 1951 24.02%
1986 18.47% 1950 31.71%
1985 32.16% 1949 18.79%
1984 6.27% 1948 5.50%
1983 22.51% 1947 5.71%
1982 21.41% 1946 -8.07%
1981 -4.91% 1945 36.44%
1980 32.42% 1944 19.75%
1979 18.44% 1943 25.90%
1978 6.56% 1942 20.34%
1977 -7.18% 1941 -11.59%
1976 23.84% 1940 -9.78%
1975 37.20% 1939 -0.41%
1974 -26.47% 1938 31.12%
1973 -14.66% 1937 -35.03%
1972 18.98% 1936 33.92%
1971 14.31% 1935 47.67%
1970 4.01% 1934 -1.44%
1969 -8.51% 1933 53.99%
1968 11.06% 1932 -8.19%
1967 23.98% 1931 -43.34%
1966 -10.06% 1930 -24.90%
1965 12.45% 1929 -8.42%
1964 16.48% 1928 43.61%
1963 22.08% 1927 37.49%
1962 -8.73% 1926 11.62%
1961 26.89%
*Source: Ibbotson Associates
PART C OTHER INFORMATION
Responses to Items 24(b)(6), 24(b)(10), 24(b)(11), and 24(b)(12) have been
omitted pursuant to paragraph 4 of Instruction F of the General
Instructions to Form N-1A.
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements:
Incorporated by reference to the Annual Report of Equity 500
Index Fund dated December 31, 1996, pursuant to Rule 411
under the Securities Act of 1933. (File Nos. 33-34079 and
811-06071).
(b) Exhibits:
(1) Conformed copy of Declaration of Trust of the
Registrant; (2)
(i) Amendment No. 1 to Declaration of Trust; (2)
(2) By-Laws of the Registrant; (2)
(3) Not applicable.
(4) Not applicable.
(5) Advisory Agreement between the Registrant and Bankers
Trust Company ("Bankers Trust"); (2)
(6) Not applicable.
(7) Not applicable.
(8) Conformed copy of Custodian Agreement between the Registrant
and Bankers Trust; +.
(9) Administration and Services Agreement between the
Registrant and Bankers Trust; (1)
(i) Conformed copy of Exclusive Placement Agent Agreement; +
(ii) Copy of Exhibit A to Exclusive Placement Agent
Agreement; +
(10) Not applicable.
(11) Not applicable.
(12) Not applicable.
(13) Investment representation letters of initial
investors; (1)
(14) Not applicable.
(15) Not applicable.
(16) Not applicable.
(17) Copy of financial Data Schedule; (3)
(18) Not applicable
(19) Conformed copy of Power of Attorney; (3)
+ All exhibits have been filed electronically.
(1) Incorporated by reference to Registrant's registration statement
on Form N-1A (`Registration Statement'') as filed with the Securities
and Exchange Commission (`Commission'') on June 9, 1992.
(2) Incorporated by reference to Amendment No. 4 to Registrant's
Registration Statement as filed with the Commission on April 26,
1996.
(3) Incorporated by reference to Amendment No. 5 to Registrant's
Registration Statement as filed with the Commission on March 19,
1997.
ITEM 25. Persons Controlled by or Under Common Control with Registrant:
None
ITEM 26. Number of Holders of Securities:
Title of Class Number of Record Holders
as of May 1, 1997
Equity 500 Index Portfolio 4
ITEM 27. Indemnification: (2)
ITEM 28. Business and Other Connections of Investment Adviser:
Bankers Trust serves as investment adviser to each Portfolio. Bankers
Trust, a New York banking corporation, is a wholly owned subsidiary of
Bankers Trust New York Corporation. Bankers Trust conducts a variety of
commercial banking and trust activities and is a major wholesale supplier
of financial services to the international institutional market. To the
knowledge of the Trust, none of the directors or
officers of Bankers Trust, except those set forth below, is or has been at
anytime during the past two fiscal years engaged in any other business,
profession, vocation or employment of a substantial nature, except that
certain directors and officers also hold various positions with and engage
in business for Bankers Trust New York Corporation. Set forth below are the
names and principal businesses of the directors and officers of Bankers
Trust who are or during the past two fiscal years have been engaged in any
other business, profession, vocation or employment of a substantial nature.
These persons may be contacted c/o Bankers Trust Company, 130 Liberty
Street, New York, New York 10006.
George B. Beitzel, International Business Machines Corporation, Old Orchard
Road, Armonk, NY 10504. Director, Bankers Trust Company; Retired senior
vice president and Director, International Business machines Corporation;
Director, Computer Task Group; Director, Phillips Petroleum Company;
Director, Caliber Systems, Inc. (formerly, Roadway Services Inc.);
Director, Rohm and Haas Company; Director, TIG Holdings; Chairman emeritus
of Amherst College; and Chairman of the Colonial Willimsburg Foundation.
Richard H. Daniel, Bankers Trust Company, 130 Liberty Street, New York, New
York 10006. Vice chairman and chief financial officer, Bankers Trust
Company and Bankers Trust New York Corporation; Beneficial owner, general
partner, Daniel Brothers, Daniel Lingo & Assoc., Daniel Pelt & Assoc.;
Beneficial owner, Rhea C. Daniel Trust.
2.Response is incorporated by reference to Registrant's Amendment No. 4 on
Form N-1A filed April 26, 1996.
Philip A. Griffiths, Bankers Trust Company, 130 Liberty Street, New York,
New York 10006. Director, Institute for Advanced Study; Director, Bankers
Trust Company; Chairman, Committee on Science, Engineering and Public
Policy of the National Academies of Sciences and Engineering & the
Institute of Medicine; and Chairman and member, Nominations Committee and
Committee on Science and Engineering Indicators, National Science Board;
Trustee, North Carolina School of Science and Mathematics and the Woodward
Academy.
William R. Howell, J.C. Penney Company, Inc., P.O. Box 10001, Plano, TX
75301-0001. Chairman Emeritus, J.C. Penney Company, Inc.; Director, Bankers
Trust Company; Director, Exxon Corporation; Director, Halliburton Company;
Director, Warner-Lambert Corporation; Director, The Williams Companies,
Inc.; and Director, National Retail Federation.
Vernon E. Jordan, Jr., Akin, Gump, Strauss, Hauer & Feld, LLP, 1333 New
Hampshire Ave., N.W., Washington, DC 20036. Senior Partner, Akin, Gump,
Strauss, Hauer & Feld, LLP; Director, Bankers Trust Company; Director,
American Express Company; Director, Dow-Jones, Inc.; Director, J.C. Penney
Company, Inc.; Director, Revlon Group Incorporated; Director, Ryder System,
Inc.; Director, Sara Lee Corporation; Director, Union Carbide Corporation;
Director, Xerox Corporation; Trustee, Brookings Institution; Trustee, The
Ford Foundation; and Trustee, Howard University.
David Marshall, 130 Liberty Street, New York, New York 10006. Chief
Information Officer and Executive Vice President, Bankers Trust New York
Corporation; Senior Managing Director, Bankers Trust Company.
Hamish Maxwell, Philip Morris Companies Inc., 120 Park Avenue, New York, NY
10006. Retired Chairman and Chief Executive Officer, Philip Morris
Companies Inc.; Director, Bankers Trust Company; Director, The News
Corporation Limited; Director, Sola International Inc.; and Chairman, WWP
Group pic.
Frank N. Newman, Bankers Trust Company, 130 Liberty Street, New York, New
York 10006. Chairman of the Board, Chief Executive Officer and President,
Bankers Trust New York Corporation and Bankers Trust Company; Director,
Bankers Trust Company; Director, Dow-Jones, Inc.; and Director, Carnegie
Hall.
N.J. Nicholas Jr., 745 Fifth Avenue, New York, NY 10020. Director, Bankers
Trust Company; Director, Boston Scientific Corporation; and Director, Xerox
Corporation.
Russell E. Palmer, The Palmer Group, 3600 Market Street, Suite 530,
Philadelphia, PA 19104. Chairman and Chief Executive Officer of The Palmer
Group; Director, Bankers Trust Company; Director, Allied-Signal Inc.;
Director, Federal Home Loan Mortgage Corporation; Director, GTE
Corporation; Director, The May Department Stores Company; Director,
Safeguard Scientifics, Inc.; and Trustee, University of Pennsylvania.
Donald L. Staheli, Bankers Trust Company, 130 Liberty Street, New York, New
York 10006. Chairman of the Board and Chief Executive Officer, Continental
Grain Company; Director, Bankers Trust Company; Director, ContiFinancial
Corporation; Director, Prudential Life Insurance Company of America;
Director, Fresenius Medical Care, A.g.; Director, America-China Society;
Director, National Committee on United States-China Relations; Director,
New York City Partnership; Chairman, U.S.-China Business Council; Chairman,
Council on Foreign Relations; Chairman, National Advisor Council of Brigham
Young University's Marriott School of Management; Vice Chairman, The Points
of Light Foundation; and Trustee, American Graduate School of International
Management.
Patricia Carry Stewart, c/o Office of the Secretary, 130 Liberty Street,
New York, NY 10006. Director, Bankers Trust Company; Director, CVS
Corporation; Director, Community Foundation for Palm Beach and Martin
Counties; Trustee Emerita, Cornell University.
George J. Vojta, Bankers Trust Company, 130 Liberty Street, New York, NY
10006. Vice Chairman, Bankers Trust New York Corporation and Bankers Trust
Company; Director, bankers Trust Company; Director; Alicorp S.A.; Director;
Northwest Airlines; Director, Private Export Funding Corp.; Director, New
York State Banking Board; Director, St. Lukes-Roosevelt Hospital Center;
Partner, New York City Partnership; and Chairman, Wharton Financial
Services Center.
Paul A. Volcker, Bankers Trust Company, 130 Liberty Street, New York, New
York 10006. Director, Bankers Trust Company; Director, American Stock
Exchange; Director, Nestle S.A.; Director, Prudential Insurance Company;
Director, UAL Corporation; Chairman, Group of 30; North American Chairman,
Trilateral Commission; Co-Chairman, Bretton Woods Committee; Co-Chairman,
U.S./Hong Kong Economic Cooperation Committee; Director, American Council
on Germany; Director, Aspen Institute; Director, Council on Foreign
Relations; Director, The Japan Society; and Trustee, The American Assembly.
Melvin A. Yellin, Bankers Trust Company, 130 Liberty Street, New York, New
York 10006. Senior Managing Director and General Counsel of Bankers Trust
New York Corporation and Bankers Trust Company; Director, 1136 Tenants
Corporation; and Director, ABA Securities Association.
Item 29. Principal Underwriters:
a) Edgewood Service, Inc., the placement agent for shares of the
Registrant, also acts as principal underwriter for the following open-end
investment companies: BT Investment Funds, BT Advisor Funds, BT Pyramid
Mutual Funds, BT Institutional Funds, Excelsior Institutional Trust
(formerly, UST Master Funds, Inc.), Excelsior Tax-Exempt Funds, Inc.
(formerly, UST Master Tax-Exempt Funds, Inc.), Excelsior Institutional
Trust, FTI Funds, FundManager Portfolios, Marketvest Funds, Marketvest
Funds, inc. and Old Westbury Funds, Inc.
b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Lawrence Caracciolo Director, President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Arthur L. Cherry Director, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
J. Christopher Donahue Director, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Ronald M. Petnuch Vice President, President and Treasurer
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Thomas P. Schmitt Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Assistant Secretary
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Thomas J. Ward Assistant Secretary, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Kenneth W. Pegher, Jr. Treasurer, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
(c) None
ITEM 30. Location of Accounts and Records:
Registrant: Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Bankers Trust Company: 130 Liberty Street,
(Investment Adviser, Custodian New York, New York 10006.
and Administrator)
Investors Fiduciary Trust Company: 127 West 10th Street,
(Transfer Agent and Dividend Kansas City, MO 64105.
Distribution Agent)
Edgewood Services, Inc.: Clearing Operations, P.O. Box 897,
(Placement Agent Pittsburgh, Pennsylvania 15230-0897.
and Sub-Administrator)
ITEM 31. Management Services:
Not applicable.
ITEM 32. Undertakings:
Not applicable.
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940,
the Registrant, EQUITY 500 INDEX PORTFOLIO, has duly caused this Amendment
No. 6 to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Pittsburgh and
Commonwealth of Pennsylvania on the 2nd day of June, 1997.
EQUITY 500 INDEX PORTFOLIO
By /s/Jay S. Neuman
Jay S. Neuman, Secretary
June 2, 1997
EXHIBIT 8 UNDER FORM
EXHIBIT 10 UNDER ITEM 601/REG. S-K
BANKERS TRUST COMPANY
One Bankers Trust Plaza, New York, New York 10006
Mailing Address:
P.O. Box 318, Church Street Station
New York, New York 10008
Mutual Fund/Business Trust/Non-Series
CUSTODIAN AGREEMENT
AGREEMENT dated as of July 1, 1996 between BANKERS TRUST COMPANY (the
`Custodian'') and CASH MANAGEMENT PORTFOLIO (the ``Customer'').
WHEREAS, the Customer desires to appoint the Custodian as custodian on
behalf of the Customer under the terms and conditions set forth in this
Agreement, and the Custodian has agreed to so act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. Employment of Custodian. The Customer hereby employs the
Custodian as custodian of all assets of the Customer which are delivered to
and accepted by the Custodian or any Subcustodian (as that term is defined
in Section 4) (the `Property'') pursuant to the terms and conditions set
forth herein. Without limitation, such Property shall include stocks and
other equity interests of every type, evidences of indebtedness, other
instruments representing same or rights or obligations to receive,
purchase, deliver or sell same and other non-cash investment property of
the Customer which is acceptable for deposit (`Securities'') and cash from
any source and in any currency (`Cash''). The Custodian shall not be
responsible for any property of the Customer held or received by the
Customer or others and not delivered to the Custodian or any Subcustodian.
2. Maintenance of Securities and Cash at Custodian and Subcustodian
Locations. Pursuant to Instructions, the Customer shall direct the
Custodian to (a) settle Securities transactions and maintain cash in the
country or other jurisdiction in which the principal trading market for
such Securities is located, where such Securities are to be presented for
payment or where such Securities are acquired and (b) maintain cash and
cash equivalents in such countries in amounts reasonably necessary to
effect the Customer's transactions in such Securities. Instructions to
settle Securities transactions in any country shall be deemed to authorize
the holding of such Securities and Cash in that country.
3. Custody Account. The Custodian agrees to establish and maintain
custody account or accounts on its books in the name of the Customer (the
`Account'') for any and all Property from time to time received and
accepted by the Custodian or any Subcustodian for the Account of the
Customer. The Custodian shall have the right, in its sole discretion, to
refuse to accept any Property that is not in proper form for deposit for
any reason. The Customer acknowledges its responsibility as a principal
for all of its obligations to the Custodian arising under or in connection
with this Agreement, warrants its authority to deposit in the Account any
Property received therefor by the Custodian or a Subcustodian and to give,
and authorize others to give, instructions relative thereto. The
Custodian may deliver securities of the same class in place of those
deposited in the Account.
The Custodian shall hold, keep safe and protect as custodian for the
Account, on behalf of the Customer, all Property in such Account. All
transactions, including, but not limited to, foreign exchange transactions,
involving the Property shall be executed or settled solely in accordance
with Instructions, except that until the Custodian receives Instructions to
the contrary, the Custodian will:
(a) collect all interest and dividends and all other income and
payments, whether paid in cash or in kind, on the Property, as
the same become payable and credit the same to the Account;
(b) present for payment all Securities held in the Account which are
called, redeemed or retired or otherwise become payable and all
coupons and other income items which call for payment upon
presentation to the extent that the Custodian or Subcustodian is
actually aware of such opportunities and hold the cash received
in the Account pursuant to this Agreement;
(c) (i) exchange Securities where the exchange is purely ministerial
(including, without limitation, the exchange of temporary
securities for those in definitive form and the exchange of
warrants, or other documents of entitlement to securities, for
the Securities themselves) and (ii) when notification of a tender
or exchange offer (other than ministerial exchanges described in
(i) above is received for the Account, endeavor to receive
Instructions, provided that if such Instructions are not received
in time for the Custodian to take timely action, no action shall
be taken with respect thereto;
(d) whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or stock
split is received for the Account and such rights entitlement or
fractional interest bears an expiration date, if after
endeavoring to obtain Instructions such Instructions are not
received in time for the Custodian to take timely action or if
actual notice of such actions was received too late to seek
Instructions, sell in the discretion of the Custodian (which sale
the Customer hereby authorizes the Custodian to make) such rights
entitlement or fractional interest and credit the Account with
the net proceeds of such sale;
(e) execute in the Customer's name for the Account, whenever the
Custodian deems it appropriate, such ownership and other
certificates as may be required to obtain the payment of income
from the Property in the Account;
(f) pay for the Account, any and all taxes and levies in the nature
of taxes imposed on interest, dividends or other similar income
on the Property in the Account by any governmental authority. In
the event there is insufficient Cash available in the Account to
pay such taxes and levies, the Custodian shall notify the
Customer of the amount of the shortfall and the Customer, at its
option, may deposit additional Cash in the Account or take steps
to have sufficient Cash available. The Customer agrees, when
and if requested by the Custodian and required in connection with
the payment of any such taxes to cooperate with the Custodian in
furnishing information, executing documents or otherwise; and
(g) appoint brokers and agents for any of the ministerial
transactions involving the Securities described in (a) - (f),
including, without limitation, affiliates of the Custodian or any
Subcustodian.
4. Subcustodians and Securities Systems. The Customer authorizes and
instructs the Custodian to hold the Property in the Account in custody
accounts which have been established by the Custodian with (a) one of its
U.S. branches or another U.S. bank or trust company or branch thereof
located in the U.S. which is itself qualified under the Investment Company
Act of 1940, as amended (`1940 Act''), to act as custodian (individually,
a `U.S. Subcustodian''), or a U.S. securities depository or clearing agent
or system in which the Custodian or a U.S. Subcustodian participates
(individually, a `U.S. Securities System'') or (b) one of its non-U.S.
branches or majority-owned non-U.S. subsidiaries, a non-U.S. branch or
majority-owned subsidiary of a U.S. bank or a non-U.S. bank or trust
company, acting as custodian (individually, a `non- U.S. Subcustodian'';
U.S. Subcustodians and non-U.S. Subcustodians, collectively,
`Subcustodians''), or a non-U.S. depository or clearing agency or system
in which the Custodian or any Subcustodian participates (individually, a
`non-U.S. Securities System''; U.S. Securities System and non-U.S.
Securities System, collectively, `Securities System''), provided that in
each case in which a U.S. Subcustodian or U.S. Securities System is
employed, each such Sub-Custodian or Securities System shall have been
approved by Instructions; provided further that in each case in which a
non-U.S. Subcustodian or non-U.S. Securities System is employed, (a) such
Subcustodian or Securities System either (i) a `qualified U.S. bank'' as
defined by Rule 17f-5 under the 1940 Act (`Rule 17f-5'') or (ii) an
`eligible foreign custodian'' within the meaning of rule 17f-5 or such
Subcustodian or Securities System is the subject of an order granted by the
U.S. Securities and Exchange Commission (`SEC'') exempting such agent or
the subcustody arrangements thereto from all or part of the provisions of
Rule 17f-5 and (b) the agreement between the Custodian and such non-U.S.
Subcustodian has been approved by Instructions; it being understood that
the Custodian shall have no liability or responsibility for determining
whether the approval by the Customer of any Subcustodian or Securities
System has been proper under the 1940 Act or any rule or regulations
thereunder.
Upon receipt of Instructions, the Custodian agrees to cease the
employment of any Subcustodian or Securities System with respect to the
Customer, and if desirable and practicable, appoint a replacement
subcustodian or securities system in accordance with the provisions of this
Section. In addition, the Custodian may, at any time in its discretion,
upon written notification to the Customer, terminate the employment of any
Subcustodian or Securities System.
Upon request of the Customer, the Custodian shall deliver to the
Customer annually a certificate stating: (a) the identity of each non-U.S.
Subcustodian and non-U.S. Securities System then acting on behalf of the
Custodian and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such non-U.S.
Subcustodian and non-U.S. Securities System; (b) the countries in which
each non-U.S. Subcustodian or non-U.S. Securities System is located; and
(c) so long as Rule 17f-5 requires the Customer's Board of Trustees to
directly approve its foreign custody arrangements, such other information
relating to such non-U.S. Subcustodians and non-U.S. Securities Systems as
may reasonably be requested by the Customer to ensure compliance with Rule
17f-5. So long as Rule 17f-5 requires the Customer's Board of Trustees to
directly approve its foreign custody arrangements, the Custodian also shall
furnish annually to the Customer information concerning such non-U.S.
Subcustodians and non-U.S. Securities Systems similar in kind and scope as
that furnished to the Customer in connection with the initial approval of
this Agreement. Custodian agrees to promptly notify the Customer, if in
the normal course of its custodian activities, the Custodian has reason to
believe that any non-U.S. Subcustodian or non-U.S. Securities System has
ceased to be a qualified U.S. bank or an eligible foreign custodian each
within the meaning of Rule 17f-5 or has ceased to be subject to an
exemptive order from the SEC.
5. Use of Subcustodian. With respect to Property in the Account
which is maintained by the Custodian in the custody of a Subcustodian
employed pursuant to Section 4:
(a) The Custodian will identify on its books as belonging to the
Customer any Property held by such Subcustodian.
(b) Any Property in the Account held by a Subcustodian will be
subject only to the instructions of the Custodian or its agents.
(c) Property deposited with a Subcustodian will be maintained in an
account holding only assets for customers of the Custodian.
(d) Any agreement the Custodian shall enter into with a non-U.S.
Subcustodian with respect to the holding of Property shall
require that (i) the Account will be adequately indemnified or
its losses adequately insured; (ii) the Securities are not
subject to any right, charge, security interest, lien or claim of
any kind in favor of such Subcustodian or its creditors except a
claim for payment in accordance with such agreement for their
safe custody or administration and expenses related thereto,
(iii) beneficial ownership of such Securities be freely
transferable without the payment of money or value other than for
safe custody or administration and expenses related thereto, (iv)
adequate records will be maintained identifying the Property held
pursuant to such Agreement as belonging to the Custodian, on
behalf of its customers and (v) to the extent permitted by
applicable law, officers of or auditors employed by, or other
representatives of or designated by, the Custodian, including the
independent public accountants of or designated by, the Customer
be given access to the books and records of such Subcustodian
relating to its actions under its agreement pertaining to any
Property by it thereunder or confirmation of or pertinent
information contained in such books and records be furnished to
such persons designated by the Custodian.
6. Use of Securities System. With respect to Property in the
Account which are maintained by the Custodian or any Subcustodian in the
custody of a Securities System employed pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian will be required by its
agreement with the Custodian to, identify on its books such
Property as being held for the account of the Custodian or
Subcustodian for its customers.
(b) Any Property held in a Securities System for the account of the
Custodian or a Subcustodian will be subject only to the
instructions of the Custodian or such Subcustodian, as the case
may be.
(c) Property deposited with a Securities System will be maintained in
an account holding only assets for customers of the Custodian or
Subcustodian, as the case may be, unless precluded by applicable
law, rule, or regulation.
(d) The Custodian shall provide the Customer with any report obtained
by the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
securities deposited in the Securities System.
7. Agents. The Custodian may at any time or times in its sole
discretion appoint (or remove) any other U. S. bank or trust company which
is itself qualified under the 1940 Act to act as custodian, as its agent to
carry out such of the provisions of this Agreement as the Custodian may
from time to time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities or
liabilities hereunder.
8. Records, Ownership of Property, Statements, Opinions of
Independent Certified Public Accountants.
(a) The ownership of the Property whether Securities, Cash and/or
other property, and whether held by the Custodian or a Subcustodian or in a
Securities System as authorized herein, shall be clearly recorded on the
Custodian's books as belonging tothe Account and not for the Custodian's
own interest. The Custodian shall keep accurate and detailed accounts of
all investments, receipts, disbursements and other transactions for the
Account. All accounts, books and records of the Custodian relating
thereto shall be open to inspection and audit at all reasonable times
during normal business hours by any person designated by the Customer. All
such accounts shall be maintained and preserved in the form reasonably
requested by the Customer. The Custodian will supply to the Customer from
time to time, as mutually agreed upon, a statement in respect to any
Property in the Account held by the Custodian or by a Subcustodian. In the
absence of the filing in writing with the Custodian by the Customer of
exceptions or objections to any such statement within sixty (60) days of
the mailing thereof, the Customer shall be deemed to have approved such
statement within sixty (60) days of the mailing thereof, the Customer shall
be deemed to have approved such statement and in such case or upon written
approval of the Customer of any such statement, such statement shall be
presumed to be for all purposes correct with respect to all information set
forth therein.
(b) The Custodian shall take all reasonable action as the Customer
may request to obtain from year to year favorable opinions from the
Customer's independent certified public accountants with respect to the
Custodian's activities hereunder in connection with the preparation of the
Customer's Form N-1A and the Customer's Form N-SAR or other periodic
reports to the SEC and with respect to any other requirements of the SEC.
(c) At the request of the Customer, the Custodian shall deliver to
the Customer a written report prepared by the Custodian's independent
certified public accountants with respect to the services provided by the
Custodian under this Agreement, including, without limitation, the
Custodian's accounting system, internal accounting control and procedures
for safeguarding Cash and Securities, including Cash and Securities
deposited and/or maintained in a securities system or with a Subcustodian.
Such report shall be of sufficient scope and in sufficient detail as may
reasonably be required by the Customer and as may reasonably be obtained by
the Custodian.
(d) The Customer may elect to participate in any of the electronic
on-line service and communications systems offered by the Custodian which
can provide the Customer, on a daily basis, with the ability to view on-
line or to print on hard copy various reports of Account activity and of
Securities and/or Cash being held in the Account. To the extent that such
service shall include market values in Securities in the Account, the
Customer hereby acknowledges that the Custodian now obtains and may in the
future obtain information on such values from outside sources that the
Custodian considers to be reliable and the Customer agrees that the
Custodian (i) does not verify or represent or warrant either the
reliability of such service nor the accuracy or completeness of any such
information furnished or obtained by or through such service and (ii) shall
be without liability in selecting and utilizing such service or furnishing
any information derived therefrom.
9. Holding of Securities, Nominees, etc. Securities in the Account
which are held by the Custodian or any Subcustodian may be held by such
entity in the name of the Customer in the Custodian's or Subcustodian's
name, in the name of the Custodian's or Subcustodian's nominee, or in
bearer form. Securities that are held by a Subcustodian or which are
eligible for deposit in a Securities System as provided above may be
maintained in the Subcustodian or the Securities System in an account for
the Customer's or Subcustodian's customers, unless prohibited by law, rule,
or regulation. The Custodian or Subcustodian, as the case may be, may
combine certificates representing Securities held in the Account with
certificates of the same issue held by it as fiduciary or as a custodian.
In the event that any Securities in the name of the Custodian or its
nominee or held by a Subcustodian and registered in the name of such
Subcustodian or its nominee are called for partial redemption by the issuer
of such Security, the Custodian may, subject to the rules or regulations
pertaining to allocation of any Securities System in which such Securities
have been deposited, allot, or cause to be allotted, the called portion of
the respective beneficial holders of such class of security in any manner
the Custodian deems to be fair and equitable.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any of the Securities in the Account, the
Custodian shall perform such services and only such services relative
thereto as are (i) set forth in Section 3 of this Agreement, (ii) described
in Exhibit A attached hereto (as such service therein described may be in
effect from time to time) (the `Proxy Service'') and (iii) as may
otherwise be agreed upon between the Custodian and the Customer. The
liability and responsibility of the Custodian in connection with the Proxy
Service referred to in (ii) of the immediately preceding sentence and in
connection with any additional services which the Custodian and the
Customer may agree upon as provided in (iii) of the immediately preceding
sentence shall be as set forth in the description of the Proxy Service and
as may be agreed upon by the Custodian and the Customer in connection with
the furnishing of any such additional service and shall not be affected by
any other term of this Agreement. Neither the Custodian nor its nominees
or agents shall vote upon or in respect of any of the Securities in the
Account, execute any form of proxy to vote thereon, or give any consent or
take any action (except as provided in Section 3) with respect thereto
except upon the receipt of Instructions relative thereto.
11. Segregated Account. To assist the Customer in complying with the
requirements of the 1940 Act and the rules and regulations thereunder, the
Custodian shall, upon receipt of Instructions, establish and maintain a
segregated account or accounts on its books for and on behalf of the
Customer.
12. Settlement Procedures. Securities will be transferred, exchanged
or delivered by the Custodian or a Subcustodian upon receipt by the
Custodian of Instructions which include all information required by the
Custodian. Settlement and payment for Securities received for the Account
and delivery of Securities out of the Account may be effected in accordance
with the customary or 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,
as such practices and procedures may be modified or supplemented in
accordance with the standard operating procedures of the Custodian in
effect from time to time for that jurisdiction or market. Provided that
the Custodian effects transactions in accordance with the customary or
established securities trading or securities processing practice or
procedures in the applicable jurisdiction or market, it shall not be
responsible for any loss arising therefrom. Subject to the exercise of
reasonable care, the Custodian may elect to effect transactions otherwise
in a jurisdiction or market.
Notwithstanding that the Custodian may settle purchases and sales
against, or credit income to, the Account, on a contractual basis, as
outlined in the Investment Manager User Guide provided to the Customer by
the Custodian, the Custodian may, at its sole option, reverse such credits
or debits to the Account in the event that the transaction does not settle,
or the income is not received in a timely manner, and the Customer agrees
to hold the Custodian harmless from any losses which may result therefrom.
Except as otherwise may be agreed upon by the parties hereto, the
Custodian shall not be required to comply with Instructions to settle the
purchase of any Securities for the Account unless there is sufficient Cash
in the Account at the time or to settle the sale of any Securities in the
Account unless such Securities are in deliverable form. Notwithstanding
the foregoing, if the purchase price of such securities exceeds the amount
of Cash in the Account at the time of settlement of such purchase, the
Custodian may, in its sole discretion, but in no way shall have any
obligation to, permit an overdraft in the Account in the amount of the
difference solely for the purpose of facilitating the settlement of such
purchase of securities for prompt delivery to the Account. The Customer
agrees to immediately repay the amount of any such overdraft in the
ordinary course of business and further agrees to indemnify and hold the
Custodian harmless from and against any and all losses, costs, including,
without limitation the cost of funds, and expenses incurred in connection
with such overdraft. The Customer agrees that it will not use the Account
to facilitate the purchase of securities without sufficient funds in the
Account (which funds shall not include the proceeds of the sale of the
purchased securities).
13. Permitted Transactions. The Customer agrees that it will cause
transactions to be made pursuant to this Agreement only upon Instructions
in accordance Section 14 and only for the purposes listed below.
(a) In connection with the purchase or sale of Securities at prices
as confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or otherwise
become payable.
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment.
(d) Upon conversion of Securities pursuant to their terms into other
securities.
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities.
(f) For the payment of interest, taxes, management or supervisory
fees, distributions or operating expenses.
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts borrowed.
(h) In connection with any loans, but only against receipt of
collateral as specified in Instructions which shall reflect any
restrictions applicable to the Customer.
(i) For the purpose of redeeming shares of the capital stock of the
Customer against delivery of the shares to be redeemed to the Custodian, a
Subcustodian or the Customer's transfer agent.
(j) For the purpose of redeeming in kind shares of the Customer
against delivery of the shares to be redeemed to the Custodian, a
Subcustodian or the Customer's transfer agent.
(k) For delivery in accordance with the provisions of any agreement
among the Customer, the Custodian and a broker-dealer registered under the
Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc., relating to compliance with the rules of The
Options Clearing Corporation, the Commodities Futures Trading Commission
and of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Customer.
(l) For release of Securities to designated brokers under covered
call options, provided, however, that such Securities shall be released
only upon payment to the Custodian of monies for the premium due and a
receipt for the Securities which are to be held in escrow. Upon exercise
of the option, or at expiration, the Custodian will receive the Securities
previously deposited from broker. The Custodian will act strictly in
accordance with Instructions in the delivery of Securities to be held in
escrow and will have no responsibility or liability for any such Securities
which are not returned promptly when due other than to make proper request
for such return.
(m) For spot or forward foreign exchange transactions to facilitate
security trading or receipt of income from Securities related transactions.
(n) Upon the termination of this Agreement as set forth in Section
20.
(o) For other proper purposes.
The Customer agrees that the Custodian shall have no obligation to
verify the purpose for which a transaction is being effected.
14. Instructions. The term `Instructions'' means instructions from
the Customer in respect of any of the Custodian's duties hereunder which
have been received by the Custodian at its address set forth in Section 21
below (i) in writing (including, without limitation, facsimile
transmission) or by tested telex signed or given by such one or more person
or persons as the Customer shall have from time to time authorized in
writing to give the particular class of Instructions in question and whose
name and (if applicable) signature and office address have been filed with
the Custodian, or (ii) which have been transmitted electronically through
an electronic on-line service and communications system offered by the
Custodian or other electronic instruction system acceptable to the
Custodian, or (iii) a telephonic or oral communication by one or more
persons as the Customer shall have from time to time authorized to give the
particular class of Instructions in question and whose name has been filed
with the Custodian; or (iv) upon receipt of such other form of instructions
as the Customer may from time to time authorize in writing and which the
Custodian has agreed in writing to accept. Instructions in the form of
oral communications shall be confirmed by the Customer by tested telex or
writing in the manner set forth in clause (i) above, but the lack of such
confirmation shall in no way affect any action taken by the Custodian in
reasonable reliance upon such oral instructions prior to the Custodian's
receipt of such confirmation. Instructions may relate to specific
transactions or to types or classes of transactions, and may be in the form
of standing instructions.
The Custodian shall have the right to assume in the absence of notice
to the contrary from the Customer that any person whose name is on file
with the Custodian pursuant to this Section has been authorized by the
Customer to give the Instructions in question and that such authorization
has not been revoked. The Custodian may act upon and conclusively rely on,
without any liability to the Customer or any other person or entity for any
losses resulting therefrom, any Instructions reasonably believed by it to
be furnished by the proper person or persons as provided above.
15. Standard of Care. The Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Custodian which are not contrary to the
provisions of this Agreement. The Custodian will use reasonable care with
respect to the safekeeping of Property in the Account and, except as
otherwise expressly provided herein, in carrying out its obligations under
this Agreement. So long as and to the extent that it has exercised
reasonable care, the Custodian shall not be responsible for the title,
validity or genuineness of any Property or other property or evidence of
title thereto received by it or delivered by it pursuant to this Agreement
and shall be held harmless in acting upon, and may conclusively rely on,
without liability for any loss resulting therefrom, any notice, request,
consent, certificate or other instrument reasonably believed by it to be
genuine and to be signed or furnished by the proper party or parties,
including, without limitation, Instructions, and shall be indemnified by
the Customer for any losses, damages, costs and expenses (including,
without limitation, the fees and expenses of counsel) incurred by the
Custodian and arising out of action taken or omitted with reasonable care
by the Custodian hereunder or under any Instructions. The Custodian shall
be liable to the Customer for any act or omission to act of any
Subcustodian to the same extent as if the Custodian committed such act
itself. Where, under applicable law, regulation, or practice (in order to
facilitate the settlement of transactions related thereto), or where the
Customer otherwise elects, Securities are held in a Securities System in a
particular market, the Custodian shall only be responsible or liable for
losses arising from employment of such Securities System caused by the
Custodian's own failure to exercise reasonable care. Where the Custodian
otherwise elects to employ a Securities System for holding Securities in a
particular market, the Custodian shall be liable to the Customer for any
act or omission of any Securities System to the same extent as if the
Custodian committed such act itself. In the event of any loss to the
Customer by reason of the failure of the Custodian or a Subcustodian to
utilize reasonable care, the Custodian shall be liable to the Customer to
the extent of the Customer's actual damages at the time such loss was
discovered without reference to any special conditions or circumstances.
In no event shall the Custodian be liable for any consequential or special
damages. The Custodian shall be entitled to rely, and may act, on advice
of counsel (who may be counsel for the Customer) on all matters and shall
be without liability for any action reasonably taken or omitted pursuant to
such advice.
In the event the Customer subscribes to an electronic on-line service
and communications system offered by the Custodian, the Customer shall be
fully responsible for the security of the Customer's connecting terminal,
access thereto and the proper and authorized use thereof and the initiation
and application of continuing effective safeguards with respect thereto and
agree to defend and indemnify the Custodian and hold the Custodian harmless
from and against any and all losses, damages, costs and expenses (including
the fees and expenses of counsel) incurred by the Custodian as a result of
any improper or unauthorized use of such terminal by the Customer or by any
others.
All collections of funds or other property paid or distributed in
respect of Securities in the Account, including funds involved in third-
party foreign exchange transactions, shall be made at the risk of the
Customer.
Subject to the exercise of reasonable care, the Custodian shall have
no liability for any loss occasioned by delay in the actual receipt of
notice by the Custodian or by a Subcustodian of any payment, redemption or
other transaction regarding Securities in the Account in respect of which
the Custodian has agreed to take action as provided in Section 3 hereof.
The Custodian shall not be liable for any loss resulting from, or caused
by, or resulting from acts of governmental authorities (whether de jure or
de facto), including, without limitation, nationalization, expropriation,
and the imposition of currency restrictions; devaluations of or
fluctuations in the value of currencies; changes in laws and regulations
applicable to the banking or securities industry; market conditions that
prevent the orderly execution of securities transactions or affect the
value of Property; acts of war, terrorism, insurrection or revolution;
strikes or work stoppages; the inability of a local clearing and settlement
system to settle transactions for reasons beyond the control of the
Custodian; hurricane, cyclone, earthquake, volcanic eruption, nuclear
fusion, fission or radioactivity, or other acts of God.
The Custodian shall have no liability in respect of any loss, damage
or expense suffered by the Customer, insofar as such loss, damage or
expense arises from the performance of the Custodian's duties hereunder by
reason of the Custodian's reliance upon records that were maintained for
the Customer by entities other than the Custodian prior to the Custodian's
employment under this Agreement.
The provisions of this Section shall survive termination of this
Agreement.
16. Investment Limitations and Legal or Contractual Restrictions or
Regulations. The Custodian shall not be liable to the Customer and the
Customer agrees to indemnify the Custodian and its nominees, for any loss,
damage or expense suffered or incurred by the Custodian or its nominees
arising out of any violation of any investment restriction or other
restriction or limitation applicable to the Customer pursuant to any
contract or any law or regulation. The provisions of this Section shall
survive termination of this Agreement.
17. Fees and Expenses. The Customer agrees to pay to the Custodian
such compensation for its services pursuant to this Agreement as may be
mutually agreed upon in writing from time to time and the Custodian's
reasonable out-of-pocket or incidental expenses in connection with the
performance of this Agreement, including (but without limitation) legal
fees as described herein and/or deemed necessary in the judgment of the
Custodian to keep safe or protect the Property in the Account. The initial
fee schedule is attached hereto as Exhibit B. The Customer hereby agrees
to hold the Custodian harmless from any liability or loss resulting from
any taxes or other governmental charges, and any expense related thereto,
which may be imposed, or assessed with respect to any Property in the
Account and also agrees to hold the Custodian, its Subcustodians, and their
respective nominees harmless from any liability as a record holder of
Property in the Account. The Custodian is authorized to charge the Account
for such items and the Custodian shall have a lien on the Property in the
Account for any amount payable to the Custodian under this Agreement,
including but not limited to amounts payable pursuant to the last paragraph
of Section 12 and pursuant to indemnities granted by the Customer under
this Agreement. The provisions of this Section shall survive the
termination of this Agreement.
18. Tax Reclaims. With respect to withholding taxes deducted and
which may be deducted from any income received from any Property in the
Account, the Custodian shall perform such services with respect thereto as
are described in Exhibit C attached hereto and shall in connection
therewith be subject to the standard of care set forth in such Exhibit C.
Such standard of care shall not be affected by any other term of this
Agreement.
19. Amendment, Modifications, etc. No provision of this Agreement
may be amended, modified or waived except in a writing signed by the
parties hereto. No waiver of any provision hereto shall be deemed a
continuing waiver unless it is so designated. No failure or delay on the
part of either party in exercising any power or right under this Agreement
operates as a waiver, nor does any single or partial exercise of any power
or right preclude any other or further exercise thereof or the exercise of
any other power or right.
20. Termination. This Agreement may be terminated by the Customer or
the Custodian by ninety (90) days' written notice to the other; provided
that notice by the Customer shall specify the names of the persons to whom
the Customer shall deliver the Securities in the Account and to whom the
Cash in the Account shall be paid. If notice of termination is given by
the Custodian, the Customer shall, within ninety (90) days following the
giving of such notice, deliver to the Custodian a written notice specifying
the names of the persons to whom the Custodian shall deliver the Securities
in the Account and to whom the Cash in the Account shall be paid. In
either case, the Custodian shall deliver such Securities and Cash to the
persons so specified, after deducting therefrom any amounts which the
Custodian determines to be owed to it under Sections 12, 17, and 22. In
addition, the Custodian may in its discretion withhold from such delivery
such Cash and Securities as may be necessary to settle transactions pending
at the time of such delivery. The Customer grants to the Custodian a lien
and right of setoff against the Account and all Property held therein from
time to time in the full amount of the foregoing obligations. If within
ninety (90) days following the giving of a notice of termination by the
Custodian, the Custodian does not receive from the Customer a written
notice specifying the names of the persons to whom the Custodian shall
deliver the Securities in the Account and to whom the Cash in the Account
shall be paid, the Custodian, at its election, may deliver such Securities
and pay such Cash to a bank or trust company doing business in the State of
New York to be held and disposed of pursuant to the provisions of this
Agreement, or may continue to hold such Securities and Cash until a written
notice as aforesaid is delivered to the Custodian, provided that the
Custodian's obligations shall be limited to safekeeping.
21. Notices. Except as otherwise provided in this Agreement, all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered to sent by
telex, cable, facsimile or other means of electronic communication agreed
upon by the parties hereto addressed, if to the Customer, to:
Cash Management Portfolio
Signature Financial
6 St. James Avenue
Boston, MA 02116
Attention: Thomas M. Lenz
Phone: (617) 423-0800
Fax: (617) 542-5815
with a copy to:
Bankers Trust Company
4 Albany Street, 2nd Floor
New York, NY 10006
Attention: William O'Dell
Phone: (212) 250-2838
Fax: (212) 250-4462
if to the Custodian, to:
Bankers Trust Company
16 Wall Street, 4th Floor
New York, NY 10005
Attention: Vince Fiordimondo
Phone: (212) 618-3602
Fax: (212) 618-3823
or in either case to such other address as shall have been furnished to the
receiving party pursuant to the provisions hereof and (b) shall be deemed
effective when received, or, in the case of a telex, when sent to the
proper number and acknowledged by a proper answerback.
22. Security for Payment. To secure payment of all obligations due
hereunder, the Customer hereby grants to Custodian a continuing security
interest in and right of setoff against the Account and all Property held
therein from time to time in the full amount of such obligations. Should
the Customer fail to pay promptly any amounts owed hereunder, Custodian
shall be entitled to use available Cash in the Account and to dispose of
Securities in the Account as is necessary. In any such case and without
limiting the foregoing, Custodian shall be entitled to take such other
action(s) or exercise such other options, powers and rights as Custodian
now or hereafter has a secured creditor under the New York Uniform
Commercial Code or any other applicable law.
23. Representations and Warranties.
(a) The Customer hereby represents and warrants to the Custodian that:
(i) the employment of the Custodian and the terms of this
Agreement do not violate any obligation by which the Customer is bound,
whether arising by contract, operation of law or otherwise;
(ii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon the Customer in
accordance with its terms; and
(iii) the Customer will deliver to the Custodian such
evidence of such authorization as the Custodian may reasonably require,
whether by way of a certified resolution or otherwise.
(b) The Custodian hereby represents and warrants to the Customer that:
(i) its employment as Custodian and the terms of this Agreement
do not violate any obligation by which the Custodian is bound, whether
arising by contract, operation of law or otherwise;
(ii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon the Custodian
in accordance with its terms;
(iii) the Custodian will deliver to the Customer such
evidence of such authorization as the Customer may reasonably require,
whether by way of a certified resolution or otherwise; and
(iv) Custodian is qualified as a custodian under Section 26(a) of
the 1940 Act and warrants that it will remain so qualified or upon ceasing
to be so qualified shall promptly notify the Customer in writing.
24. Governing Law and Successors and Assigns. This Agreement shall
be governed by the law of the State of New York and shall not be assignable
by either party, but shall bind the successors in interest of the Customer
and the Custodian.
25. Publicity. Customer shall furnish to Custodian at its office
referred to in Section 21 above, prior to any distribution thereof, copies
of any material prepared for distribution to any persons who are not
parties hereto that refer in any way to the Custodian, provided that the
Customer may refer in its prospectus and other documents to the Custodian
in the manner set forth in Exhibit D attached to this contract. Customer
shall not distribute or permit the distribution of such materials if
Custodian reasonably objects in writing within ten (10) business days of
receipt thereof (or such other time as may be mutually agreed) after
receipt thereof. The provisions of this Section shall survive the
termination of this Agreement.
26. Representative Capacity and Binding Obligation. Notice is hereby
given that this Agreement is not executed on behalf of the Trustees of the
Customer as individuals, and the obligations of this Agreement are not
binding upon any of the Trustees, officers or shareholders of the Customer
individually but are biding only upon the assets and property of the
Customer.
The Custodian agrees that no shareholder, trustee or officer of the
Customer may be held personally liable or responsible for any obligations
of the Customer arising out of this Agreement.
27. Affiliation Between Custodian and Adviser and Customer. It is
understood that the trustees, officers, employees, agents and shareholders
of the Customer, and the officers, directors, employees, agents and
shareholders of the Customer's Investment Adviser, Bankers Trust Company
(`Adviser''), are or may be interested in Custodian as directors,
officers, employees, agents, stockholders, or otherwise, and that the
directors, officers, employees, agents or stockholders of Custodian may be
interested in the Customer as trustees, officers, employees, agents,
shareholders, or otherwise, or in Adviser as officers, directors,
employees, agents, shareholders or otherwise.
(i) No trustee, officer, employee or agent of the Customer, and no
officer, director, employee or agent of the Adviser acting pursuant to
any provision of the Investment Advisory Agreement (the `Advisory
Agreement') between the Customer and Adviser, shall have physical
access to the assets of the Customer held by Custodian or be
authorized or permitted to withdraw any investments of the Customer,
nor shall Custodian deliver any assets of the Customer to any such
person. No officer, director, employee or agent of Custodian who
holds any similar position with the Customer or who performs duties
under the Advisory Agreement shall have access to the assets of the
Trust.
(ii) Subject to Section 14 hereof, nothing in this Section 27 shall
prohibit any officer, employee or agent of the Customer, or any
officer, employee or agent of the Adviser, from giving Instructions to
Custodian as long as no such Instruction results in delivery or of
access to assets of the Customer prohibited by subclause (i) of this
Section 27.
28. Submission to Jurisdiction. Any suit, action or proceeding
arising out of this Agreement may be instituted in any State or Federal
court sitting in the City of New York, State of New York, United States of
America, and the Customer irrevocably submits to the non-exclusive
jurisdiction of any such court in any such suit, action or proceeding and
waives, to the fullest extent permitted by law, any objection which it may
now or hereafter have to the laying of venue of any such suit, action or
proceeding brought in such a court and any claim that such suit, action or
proceeding was brought in an inconvenient forum.
29. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement
shall become effective when one or more counterparts have been signed and
delivered by each of the parties hereto.
30. Confidentiality. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all
information provided by each party to the other regarding its business and
operations. All confidential information provided by a party hereto shall
be used by any other party hereto solely for the purpose of rendering
services pursuant to this Agreement and, except as may be required in
carrying out this Agreement, shall not be disclosed to any third party
without the prior consent of such providing party. The foregoing shall not
be applicable to any information that is publicly available when provided
or thereafter becomes publicly available other than through a breach of
this Agreement, or that is required or requested to be disclosed by any
bank or other regulatory examiner of the Custodian, Customer, or any
Subcustodian, any auditor of the parties hereto, by judicial or
administrative process or otherwise by applicable law or regulation.
31. Severability. If any provision of this Agreement is determined
to be invalid or unenforceable, such determination shall not affect the
validity or enforceability of any other provision of this Agreement.
32. Headings. The heading of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
CASH MANAGEMENT PORTFOLIO
By: /s/ Thomas M. Lenz
Name: Thomas M. Lenz
Title: Secretary
BANKERS TRUST COMPANY
By: /s/ John P. Zori
Name: John P. Zori
Title: Vice President
EXHIBIT A
To Custodian Agreement dated as of July 1, 1996 between Bankers Trust
Company and Cash Management Portfolio
PROXY SERVICE
The following is a description of the Proxy Service referred to in
Section 10 of the above referred to Custodian Agreement. Terms used herein
as defined terms shall have the meanings ascribed to them therein unless
otherwise defined below.
The Custodian provides a service, described below, for the
transmission of corporate communications in connection with shareholder
meetings relating to Securities held in Argentina, Australia, Austria,
Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Indonesia,
Ireland, Italy, Japan, Korea, Malaysia, Mexico, Netherlands, New Zealand,
Pakistan, Poland, Singapore, South Africa, Spain, Sri Lanka, Sweden, United
Kingdom, United States, and Venezuela. For the United States and Canada,
the term `corporate communications'' means the proxy statements or meeting
agenda, proxy cards, annual reports and any other meeting materials
received by the Custodian. For countries other than the United States and
Canada, the term `corporate communications'' means the meeting agenda only
and does not include any meeting circulars, proxy statements or any other
corporate communications furnished by the issuer in connection with such
meeting. Non-meeting related corporate communications are not included in
the transmission service to be provided by the Custodian except upon
request as provided below.
The Custodian's process for transmitting and translating meeting
agendas will be as follows:
1) If the meeting agenda is not provided by the issuer in the
English language, and if the language of such agenda is in the
official language of the country in which the related security is
held, the Custodian will as soon as practicable after receipt of
the original meeting agenda by a Subcustodian provide an English
translation prepared by that Subcustodian.
2) If an English translation of the meeting agenda is furnished, the
local language agenda will not be furnished unless requested.
Translations will be free translations and neither the Custodian nor
any Subcustodian will be liable or held responsible for the accuracy
thereof or any direct or indirect consequences arising therefrom, including
without limitation arising out of any action taken or omitted to be taken
based thereon.
If requested, the Custodian will, on a reasonable efforts basis,
endeavor to obtain any additional corporate communication such as annual or
interim reports, proxy statements, meeting circulars, or local language
agenda, and provide them in the form obtained.
Timing in the voting process is important and, in that regard, upon
receipt by the Custodian of notice from a Subcustodian, the Custodian will
provide a notice to the Customer indicating the deadline for receipt of its
instructions to enable the voting process to take place effectively and
efficiently. As voting procedures will vary from market to market,
attention to any required procedures will be very important. Upon timely
receipt of voting instructions, the Custodian will promptly forward such
instructions to the applicable Subcustodian. If voting instructions are
not timely received, the Custodian shall have no liability or obligation to
take any action.
For Securities held in markets other than those set forth in the first
paragraph, the Custodian will not furnish the material described above or
seek voting instructions. However, if requested to exercise voting rights
at a specific meeting, the Custodian will endeavor to do so on a reasonable
efforts basis without any assurance that such rights will be so exercised
at such meeting.
If the Custodian or any Subcustodian incurs extraordinary expenses in
exercising voting rights related to any Securities pursuant to appropriate
instructions or directions (e.g., by way of illustration only and not by
way of limitation, physical presence is required at a meeting and/or travel
expenses are incurred), such expenses will be reimbursed out of the Account
unless other arrangements have been made for such reimbursement.
It is the intent of the Custodian to expand the Proxy Service to
include jurisdictions which are not currently included as set forth in the
second paragraph hereof. The Custodian will notify the Customer as to the
inclusion of additional countries or deletion of existing countries after
their inclusion or deletion and this Exhibit A will be deemed to be
automatically amended to include or delete such countries as the case may
be.
Dated as of: July 1, 1996 CASH MANAGEMENT PORTFOLIO
By: /s/ Thomas M. Lenz
Name: Thomas M. Lenz
Title: Secretary
BANKERS TRUST COMPANY
By: /s/ John P. Zori
Name: John P. Zori
Title: Vice President
EXHIBIT B
To Custodian Agreement dated as of July 1, 1996 between Bankers Trust
Company and Cash Management Portfolio.
CUSTODY FEE SCHEDULE
This Exhibit B shall be amended upon delivery by the Custodian of a new
Exhibit B to the Customer and acceptance thereof by the Customer and shall
be effective as of the date of acceptance by the Customer or a date agreed
upon between the Custodian and the Customer.
EXHIBIT C
To Custodian Agreement dated as of July 1, 1996 between Bankers Trust
Company and Cash Management Portfolio.
TAX RECLAIMS
Pursuant to Section 18 of the above referred to Custodian Agreement,
the Custodian shall perform the following services with respect to
withholding taxes imposed or which may be imposed on income from Property
in the Account. Terms used herein as defined terms shall unless otherwise
defined have the meanings ascribed to them in the above referred to
Custodian Agreement.
When withholding tax has been deducted with respect to income from any
Property in an Account, the Customer will actively pursue on a reasonable
efforts basis the reclaim process, provided that the Custodian shall not be
required to institute any legal or administrative proceeding against any
Subcustodian or other person. The Custodian will provide fully detailed
advices/vouchers to support reclaims submitted to the local authorities by
the Custodian or its designee. In all cases of withholding, the Custodian
will provide full details to the Customer. If exemption from withholding
at the source can be obtained in the future, the Custodian will notify the
Customer and advise what documentation, if any, is required to obtain the
exemption. Upon receipt of such documentation from the Customer, the
Custodian will file for exemption on the Customer's behalf and notify the
Customer when it has been obtained.
In connection with providing the foregoing service, the Custodian
shall be entitled to apply categorical treatment of the Customer according
to the Customer's nationality, the particulars of its organization and
other relevant details that shall be supplied by the Customer. It shall be
the duty of the Customer to inform the Customer of any change in the
organization, domicile or other relevant fact concerning tax treatment of
the Customer and further to inform the Custodian if the customer is or
becomes the beneficiary of any special ruling or treatment not applicable
to the general nationality and category or entity of which the Customer is
a part under general laws and treaty provisions. The Custodian may rely on
any such information provided by the Customer.
In connection with providing the foregoing service, the Custodian may
also rely on professional tax services published by a major international
accounting firm and/or advice received from a Subcustodian in the
jurisdictions in question. In addition, the Custodian may seek the advice
of counsel or other professional tax advisers in such jurisdictions. The
Custodian is entitled to rely, and may act, on information set forth in
such services and on advice received from a Subcustodian, counsel or other
professional tax advisers and shall be without liability to the Customer
for any action reasonably taken or omitted pursuant to information
contained in such services or such advice.
Dated as of: July 1, 1996CASH MANAGEMENT PORTFOLIO
By: /s/ Thomas M. Lenz
Name: Thomas M. Lenz
Title: Secretary
BANKERS TRUST COMPANY
By: /s/ John P. Zori
Name: John P. Zori
Title: Vice President
EXHIBIT D
To Custodian Agreement dated as of July 1, 1996 between Bankers Trust
Company and Cash Management Portfolio.
APPROVED REFERENCE TO CUSTODIAN
`Bankers Trust acts as Custodian of the assets of the Trust and the
Portfolio...'
Exhibit 9(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
September 30, 1996
Edgewood Services, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ladies and Gentlemen:
Re: EXCLUSIVE PLACEMENT AGENT AGREEMENT
This is to confirm that, in consideration of the agreements
hereinafter contained, the undersigned open-end management investment
companies (collectively, the `Trusts'') registered under the Investment
Company Act of 1940, as amended (the `1940 Act''), each organized as a
business trust under the laws of the State of New York, has agreed that
Edgewood Services, Inc., a New York corporation (`ESI''), shall be the
exclusive placement agent (the `Exclusive Placement Agent'') of beneficial
interests (`Trust Interests'') of each series of the Trusts.
1. Services as Exclusive Placement Agent.
1.1 ESI will act as Exclusive Placement Agent of the Trust
Interests. In acting as Exclusive Placement Agent under this Exclusive
Placement Agent Agreement, neither ESI nor its employees or any agents
thereof shall make any offer or sale of Trust Interests in a manner which
would require the Trust Interests to be registered under the Securities Act
of 1933, as amended (the `1933 Act'').
1.2 All activities by ESI and its agents and employees as
Exclusive Placement Agent of Trust Interests shall comply with all
applicable laws, rules and regulations, including, without limitation, all
rules and regulations adopted pursuant to the 1940 Act by the Securities
and Exchange Commission (the `Commission'').
1.3 Nothing herein shall be construed to require a Trust to
accept any offer to purchase any Trust Interests, all of which shall be
subject to approval by the Trust's Board of Trustees.
1.4 The Trusts shall furnish from time to time for use in
connection with the sale of Trust Interests such information with respect
to the Trust and Trust Interests as ESI may reasonably request. The Trusts
shall also furnish ESI upon request with: (a) unaudited semiannual
statements of the Trust's books and accounts prepared by the Trust, and (b)
from time to time such additional information regarding the Trust's
financial or regulatory condition as ESI may reasonably request.
1.5 Each Trust represents to ESI that all registration
statements filed by the Trust with the Commission under the 1940 Act with
respect to Trust Interests have been prepared in conformity with the
requirements of such statute and the rules and regulations of the
Commission thereunder. As used in this Agreement the term `registration
statement''shall mean any registration statement filed with the
Commission, as modified by any amendments thereto that at any time shall
have been filed with the Commission by or on behalf of a Trust. Each Trust
2
represents and warrants to ESI that any registration statement will contain
all statements required to be stated therein in conformity with both such
statute and the rules and regulations of the Commission; that all
statements of fact contained in any registration statement will be true and
correct in all material respects at the time of filing of such registration
statement or amendment thereto; and that no registration statement will
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading to a purchaser of Trust Interests. The Trusts may
but shall not be obligated to propose from time to time such amendment to
any registration statement as in the light of future developments may, in
the opinion of the Trust's counsel, be necessary or advisable. If a Trust
shall not propose such amendment and/or supplement within fifteen days
after receipt by the Trust of a written request from ESI to do so, ESI may,
at its option, terminate this Agreement. The Trusts shall not file any
amendment to any registration statement without giving ESI reasonable
notice thereof in advance; provided, however, that nothing contained in
this Agreement shall in any way limit a Trust's right to file at any time
such amendment to any registration statement as the Trust may deem
advisable, such right being in all respects absolute and unconditional.
1.6 Each Trust severally agrees to indemnify, defend and hold ESI,
its several officers and directors, and any person who controls ESI within
the meaning of Section 15 of the 1933 Act or Section 20 of the Securities
Exchange Act of 1934 (the `1934 Act'') (for purposes of this paragraph
1.6, collectively, the ``overed Persons'') free and harmless from and
against any and all claims, demands, liabilities and expenses (including
the cost of investigating or defending such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which any Covered
3
Person may incur under the 1933 Act, the 1934 Act, common law, or
otherwise, but only to the extent that such liability or expense incurred
by a Covered Person resulting from such claims or demands shall arise out
of or be based on (i) any untrue statement of a material fact contained in
any registration statement, private placement memorandum or other offering
material (``ffering Material'') or (ii) any omission to state a material
fact required to be stated in any Offering Material or necessary to make
the statements in any Offering Material not misleading; provided, however,
that each Trust's agreement to indemnify Covered Persons shall not be
deemed to cover any claims, demands, liabilities or expenses arising out of
any financial and other statements as are furnished in writing to the Trust
by ESI in its capacity as Exclusive Placement Agent for use in the answers
to any items of any registration statement or in any statements made in any
Offering Material, or arising out of or based on any omission or alleged
omission to state a material fact in connection with the giving of such
information required to be stated in such answers or necessary to make the
answers not misleading; and further provided that each Trust's agreement to
indemnify ESI and each Trust's representation and warranties hereinbefore
set forth in paragraph 1.5 shall not be deemed to cover any liability to
the Trust or its investors to which a Covered Person would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties, or by reason of a Covered Person's reckless
disregard of its obligations and duties under this Agreement. A Trust
shall be notified of any action brought against a Covered Person, such
notification to be given by letter or by telegram addressed to the Trust,
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779,
Attention: Secretary, with a copy to Burton M. Leibert, Esq., Willkie Farr
& Gallagher, One Citicorp Center, 153 East 53rd Street, New York, NY 10022,
promptly after the summons or other first legal process shall have been
4
duly and completely served upon such Covered Person. The failure to so
notify a Trust of any such action shall not relieve the Trust (i) from any
liability except to the extent the Trust shall have been prejudiced by such
failure, or (ii) from any liability that the Trust may have to the Covered
Person against whom such action is brought by reason of any such untrue or
alleged untrue statement, or omission or alleged omission, otherwise than
on account of the Trust's indemnity agreement contained in this paragraph.
Each Trust will be entitled to assume the defense of any suit brought to
enforce any such claim, demand or liability, but in such case such defense
shall be conducted by counsel of good standing chosen by the Trust and
approved by ESI, which approval shall not be unreasonably withheld. In the
event a Trust elects to assume the defense in any such suit and retain
counsel of good standing approved by ESI, the defendant or defendants in
such suit shall bear the fees and expenses of any additional counsel
retained by any of them; but in case a Trust does not elect to assume the
defense of any such suit, or in case ESI reasonably does not approve of
counsel chosen by the Trust, the Trust will reimburse the Covered Person
named as defendant in such suit, for the fees and expenses of any counsel
retained by ESI or the Covered Persons. Each Trust's indemnification
agreement contained in this paragraph and each Trust's representations and
warranties in this Agreement shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of Covered
Persons, and shall survive the delivery of any Trust Interests. This
agreement of indemnity will inure exclusively to Covered Persons and their
successors. Each Trust agrees to notify ESI promptly of the commencement
of any litigation or proceedings against the Trust or any of its officers
or Trustees in connection with the issue and sale of any Trust Interests.
5
1.7 ESI agrees to indemnify, defend and hold each Trust, its
several officers and trustees, and any person who controls a Trust within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
(for purposes of this paragraph 1.7, collectively, the ``overed Persons'')
free and harmless from and against any and all claims, demands, liabilities
and expenses (including the costs of investigating or defending such
claims, demands, liabilities and any counsel fees incurred in connection
therewith) that Covered Persons may incur under the 1933 Act, the 1934 Act,
common law, or otherwise, but only to the extent that such liability or
expense incurred by a Covered Person resulting from such claims or demands
shall arise out of or be based on (i) any untrue statement of a material
fact contained in information furnished in writing by ESI in its capacity
as Exclusive Placement Agent to the Trusts for use in the answers to any of
the items of any registration statement or in any statements in any other
Offering Material, or (ii) any omission to state a material fact in
connection with such information furnished in writing by ESI to a Trust
required to be stated in such answers or necessary to make such information
not misleading. ESI shall be notified of any action brought against a
Covered Person, such notification to be given by letter or telegram
addressed to ESI at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, Attention: Secretary, promptly after the
summons or other first legal process shall have been duly and completely
served upon such Covered Person. The failure to so notify ESI of any such
action shall not relieve ESI (i) from any liability except to the extent a
Trust shall have been prejudiced by such failure, or (ii) from any
liability that ESI may have to the Covered Person against whom such action
is brought by reason of any such untrue or alleged untrue statement, or
omission or alleged omission, otherwise than on account of ESI's indemnity
agreement contained in this paragraph. ESI will be entitled to assume the
6
defense of any suit brought to enforce any such claim, demand or liability,
but in such case such defense shall be conducted by counsel of good
standing chosen by ESI and approved by the Trust, which approval shall not
be unreasonably withheld. In the event that ESI elects to assume the
defense in any such suit and retain counsel of good standing approved by a
Trust, the defendant or defendants in such suit shall bear the fees and
expenses of any additional counsel retained by any of them; but in case ESI
does not elect to assume the defense of any such suit, or in case a Trust
reasonably does not approve of counsel chosen by ESI, ESI will reimburse
the Covered Person named as defendant in such suit, for the fees and
expenses of any counsel retained by the Trust or the Covered Persons.
ESI's indemnification agreement contained in this paragraph and ESI's
representations and warranties in this Agreement shall remain operative and
in full force and effect regardless of any investigation made by or on
behalf of Covered Persons, and shall survive the delivery of any Trust
Interests. This agreement of indemnity will inure exclusively to Covered
Persons and their successors. ESI agrees to notify each Trust promptly of
the commencement of any litigation or proceedings against ESI or any of its
officers or directors in connection with the issue and sale of any Trust
Interests.
1.8 No Trust Interests shall be offered by either ESI or the
Trusts under any of the provisions of this Agreement and no orders for the
purchase or sale of Trust Interests hereunder shall be accepted by the
Trusts if and so long as the effectiveness of the registration statement or
any necessary amendments thereto shall be suspended under any of the
provisions of the 1940 Act; provided, however, that nothing contained in
this paragraph shall in any way restrict or have an application to or
7
bearing on a Trust's obligation to redeem Trust Interests from any investor
in accordance with the provisions of the Trust's registration statement or
Declaration of Trust, as amended from time to time. Each Trust shall
notify ESI promptly of the suspension of its registration statement or any
necessary amendments thereto, such notification to be given by letter or
telegram addressed to ESI at Federated Investors Tower, 1001 Liberty
Avenue, Pittsburgh, PA 15222-3779, Attention: Secretary.
1.9 Each Trust agree to advise ESI as soon as reasonably
practical by a notice in writing delivered to ESI or its counsel:
(a) of any request by the Commission for amendments to the
registration statement then in effect or for additional information;
(b) in the event of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement then in
effect or the initiation by service of process on a Trust of any proceeding
for that purpose;
(c) of the happening of any event that makes untrue any
statements of a material fact made in the registration statement then in
effect or that requires the making of a change in such registration
statement in order to make the statements therein not misleading; and
(d) of all action of the Commission with respect to any
amendment to any registration statement that may from time to time be filed
with the Commission.
8
For purposes of this paragraph 1.9, informal requests by or acts
of the Staff of the Commission shall not be deemed actions of or requests
by the Commission.
1.10 ESI agrees on behalf of itself and its employees to treat
confidentially and as proprietary information of the Trusts all records and
other information not otherwise publicly available relative to the Trusts
and their respective prior, present or potential investors and not to use
such records and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification to
and approval in writing by a Trust, which approval shall not be
unreasonably withheld and may not be withheld where ESI may be exposed to
civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or
when so requested by a Trust.
1.11 In addition to ESI's duties as Exclusive Placement Agent,
the Trusts understand that ESI may, in its discretion, perform additional
functions in connection with transactions in Trust Interests.
The processing of Trust Interest transactions may include, but is
not limited to, compilation of all transactions from ESI's various offices;
creation of a transaction tape and timely delivery of it to the Trusts'
transfer agent for processing; reconciliation of all transactions delivered
to the Trusts' transfer agent; and the recording and reporting of these
transactions executed by the Trusts' transfer agent in customer statements;
rendering of periodic customer statements; and the reporting of IRS Form
1099 information at year end if required.
9
ESI may also provide other investor services, such as
communicating with Trust investors and other functions in administering
customer accounts for Trust investors.
ESI understands that these services may result in cost savings to
the Trusts or to the Trusts' investment manager and neither the Trusts nor
the Trusts' investment manager will compensate ESI for all or a portion of
the costs incurred in performing functions in connection with transactions
in Trust Interests. Nothing herein is intended, nor shall be construed, as
requiring ESI to perform any of the foregoing functions.
1.12 Except as set forth in paragraph 1.6 of this Agreement, the
Trusts shall not be liable to ESI or any Covered Persons as defined in
paragraph 1.6 for any error of judgment or mistake of law or for any loss
suffered by ESI in connection with the matters to which this Agreement
relates, except a loss resulting from the willful misfeasance, bad faith or
gross negligence on the part of a Trust in the performance of its duties or
from reckless disregard by a Trust of its obligations and duties under this
Agreement.
1.13 Except as set forth in paragraph 1.7 of this Agreement, ESI
shall not be liable to any Trust or any Covered Persons as defined in
paragraph 1.7 for any error of judgment or mistake of law or for any loss
suffered by a Trust in connection with the matters to which this Agreement
relates, except a loss resulting from the willful misfeasance, bad faith or
gross negligence on the part of ESI in the performance of its duties or
from reckless disregard by ESI of its obligations and duties under this
Agreement.
10
2. Term.
This Agreement shall become effective on the date first written
above and, unless sooner terminated as provided herein, shall continue
until one year from the date first written above, and thereafter shall
continue automatically for successive annual periods, provided such
continuance is specifically approved at least annually with respect to each
Trust by (i) each Trust's Board of Trustees or (ii) by a vote of a majority
(as defined in the 1940 Act) of each Trust's outstanding voting securities,
provided that in either event the continuance is also approved by the
majority of the Trust's Trustees who are not interested persons (as defined
in the 1940 Act) of the Trust and who have no direct or indirect financial
interest in this Agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval. This Agreement is terminable
without penalty, on not less than 60 days' notice, by a Board, by a vote of
a majority (as defined in the 1940 Act) of a Trust's outstanding voting
securities, or by ESI. This Agreement will also terminate automatically in
the event of its assignment (as defined in the 1940 Act and the rules
thereunder).
3. Representations and Warranties.
ESI and each Trust each hereby represents and warrants to the
other that it has all requisite authority to enter into, execute, deliver
and perform its obligations under this Agreement and that, with respect to
it, this Agreement is legal, valid and binding, and enforceable in
accordance with its terms.
4. Concerning Applicable Provisions of Law, etc.
11
This Agreement shall be subject to all applicable provisions of
law, including the applicable provisions of the 1940 Act and to the extent
that any provisions herein contained conflict with any such applicable
provisions of law, the latter shall control.
The laws of the State of New York shall, except to the extent
that any applicable provisions of Federal law shall be controlling, govern
the construction, validity and effect of this Agreement, without reference
to principles of conflicts of law.
The undersigned officer of each Trust has executed this Agreement
not individually, but as President under each Trust's Declaration of Trust,
as amended. Pursuant to the Declaration of Trust, the obligations of this
Agreement are not binding upon any of the Trustees or investors of the
Trust individually, but bind only the trust estate.
If the contract set forth herein is acceptable to you, please so
indicate by executing the enclosed copy of this Agreement and returning the
same to the undersigned, whereupon this Agreement shall constitute a
binding contract between the parties hereto effective at the closing of
business on the date hereof.
Very truly yours,
Charles L. Davis, Jr.
12
By:/s/ Charles L. Davis, Jr.
Vice President, on behalf of the Trusts listed
on Exhibit A, attached hereto:
Accepted:
EDGEWOOD SERVICES, INC..
By:/s/ R. Jeffrey Niss
EXHIBIT A
TO
EXCLUSIVE PLACEMENT AGENT AGREEMENT
Pursuant to the Exclusive Placement Agreement, ESI shall be Exclusive
Placement Agent with respect to the following Trusts, effective as of the
date indicated below:
Name of Trust Date
BT Investment Portfolios:
Liquid Assets Portfolio September 30, 1996
Asset Management Portfolio II September 30, 1996
Asset Management Portfolio III September 30, 1996
13
Global High Yield Securities PortfolioSeptember 30, 1996
Latin American Equity Portfolio September 30, 1996
Small Cap Portfolio September 30, 1996
Pacific Basin Equity Portfolio September 30, 1996
European Equity Portfolio September 30, 1996
International Bond Portfolio September 30, 1996
100% Treasury Portfolio September 30, 1996
Growth and Income Portfolio September 30, 1996
U.S. Bond Index Portfolio September 30, 1996
Equity 500 Equal Weighted Index Portfolio September 30, 1996
Small Cap Index Portfolio September 30, 1996
EAFE Equity Index Portfolio September 30, 1996
Cash Management Portfolio September 30, 1996
Treasury Money Portfolio September 30, 1996
Tax Free Money Portfolio September 30, 1996
International Equity Portfolio September 30, 1996
Utility Portfolio September 30, 1996
Equity 500 Index Portfolio September 30, 1996
Short/Intermediate U.S. Government Securities PortfolioSeptember 30, 1996
Asset Management Portfolio September 30, 1996
Capital Appreciation Portfolio September 30, 1996
Intermediate Tax Free Portfolio September 30, 1996
093096
14
093096
Exhibit 9(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
EXHIBIT A
TO
EXCLUSIVE PLACEMENT AGENT AGREEMENT
AS LAST AMENDED: DECEMBER 11, 1996
Pursuant to the Exclusive Placement Agreement, ESI shall be Exclusive
Placement Agent with respect to the following Trusts, effective as of the
date indicated below:
Name of Trust Date
BT Investment Portfolios:
Liquid Assets Portfolio September 30, 1996
Asset Management Portfolio II September 30, 1996
Asset Management Portfolio III September 30, 1996
Global High Yield Securities PortfolioSeptember 30, 1996
Latin American Equity Portfolio September 30, 1996
Small Cap Portfolio September 30, 1996
Pacific Basin Equity Portfolio September 30, 1996
European Equity Portfolio September 30, 1996
International Bond Portfolio September 30, 1996
100% Treasury Portfolio September 30, 1996
Growth and Income Portfolio September 30, 1996
U.S. Bond Index Portfolio September 30, 1996
Equity 500 Equal Weighted Index Portfolio September 30, 1996
Small Cap Index Portfolio September 30, 1996
EAFE Equity Index Portfolio September 30, 1996
BT RetirementPlus Portfolio December 11, 1996
Cash Management Portfolio September 30, 1996
Treasury Money Portfolio September 30, 1996
Tax Free Money Portfolio September 30, 1996
International Equity Portfolio September 30, 1996
Utility Portfolio September 30, 1996
Equity 500 Index Portfolio September 30, 1996
Short/Intermediate U.S. Government Securities PortfolioSeptember 30, 1996
Asset Management Portfolio September 30, 1996
Capital Appreciation Portfolio September 30, 1996
Intermediate Tax Free Portfolio September 30, 1996
121196
