1940 Act File No. 811-06700
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 6......................................... X
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INTERMEDIATE TAX FREE 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
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Intermediate Tax Free 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.
Intermediate Tax Free 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 seek a high level of
current income exempt from Federal income tax consistent with moderate
risk of capital. It seeks to achieve this objective by investing
primarily in high-grade municipal securities of intermediate maturity.
Additional information about the investment policies of the Portfolio
appears in Part B. There can be no assurance that the investment
objective of the Portfolio will be achieved.
The Portfolio intends to manage its holdings actively. Portfolio
transactions are undertaken principally to accomplish the Portfolio's
investment objective in relation to expected movements in the general
level of interest rates, but the Portfolio may also engage in
short-term trading consistent with its objective.
The Portfolio seeks to maintain a current yield that is greater than
that generally obtainable from a portfolio of short-term tax-exempt
obligations, subject to applicable quality restrictions. The Portfolio
seeks to increase yields by adjusting the average maturity of its
portfolio in light of prevailing market conditions and credit
considerations. The Portfolio will normally consist of a portfolio of
securities with a weighted average maturity of three to ten years. The
remaining maturity of securities generally will not exceed 20 years at
the time of investment. The Portfolio adjusts its holdings of
long-term and short-term debt securities to reflect its assessment of
prospective changes in interest rates, which may adversely affect
current income. The success of this strategy depends upon the ability
of Bankers Trust Company ("Bankers Trust"), as the investment adviser
(the "Adviser"), to forecast changes in interest rates.
The value of securities held by the Portfolio will generally fluctuate
inversely with changes in prevailing interest rates and will also be
affected by changes in the creditworthiness of issuers and other
market factors. The quality criteria applied in the selection of
Portfolio securities are intended to minimize adverse price changes
due to credit considerations. The value of municipal securities in the
Portfolio can also be affected by market reaction to legislative
consideration of various tax reform proposals. Although the value of
the assets of the Portfolio will fluctuate, the Portfolio attempts to
conserve the value of its assets to the extent consistent with its
objective. Subject to restrictions set forth under "Options and
Futures Contracts," the Portfolio may purchase or sell certain
financial instruments in order to attempt to moderate market risk and
minimize fluctuations in the value of its assets. For a discussion of
these transactions, see "Options and Futures Contracts."
Quality Information. The Portfolio will not purchase any municipal
obligation unless it is rated at least A, MIG-1 or Prime-1 by Moody's
Investors Service, Inc. or A, SP-1 or A-1 by Standard & Poor's Ratings
Group or it is unrated and in the Adviser's opinion it is of
comparable quality. These standards must be satisfied at the time an
investment is made. If the quality of the investment later declines,
the Portfolio may continue to hold the investment.
Taxable Investments. The Portfolio attempts to invest 100% of its
assets in tax-exempt municipal securities; however the Portfolio is
permitted to invest up to 20% (or greater while maintaining a
temporary defensive position) of the value of its total assets in
securities, the interest income on which is subject to Federal income
or alternative minimum tax. The Portfolio may make taxable investments
pending investment of proceeds of tax-exempt securities, pending
settlement of purchases of portfolio securities, to maintain liquidity
to meet redemptions or when it is advisable in Bankers Trust's opinion
because of adverse market conditions. The taxable investments
permitted for the Portfolio include obligations of the U.S. and its
agencies and instrumentalities, bank obligations, commercial paper and
repurchase agreements and other debt securities which meet the
Portfolio's quality requirements.
Municipal Securities. The Portfolio may invest in notes and bonds
issued by or on behalf of states, territories and possessions of the
United States and the District of Columbia and their political
subdivisions, agencies, authorities and instrumentalities. These
obligations may be general obligation instruments secured by the
issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest, or they may be revenue instruments
payable from specific revenue sources, but not generally backed by the
issuer's taxing power. These include industrial development bonds
where payment is the responsibility of the private industrial user of
the facility financed by the instruments.
Short-Term Municipal Investments. For temporary defensive purposes or
for purposes of liquidity, the assets of the Portfolio may be invested
in short-term municipal obligations. These short-term obligations
include municipal notes of various types, including notes issued in
anticipation of receipt of taxes, the proceeds of the sale of bonds,
other revenues or grant proceeds and project notes, as well as
municipal commercial paper and municipal demand obligations such as
variable rate demand notes and master demand obligations. The interest
rate on variable rate demand notes is adjustable at periodic intervals
as specified in the notes. Master demand obligations permit the
investment of fluctuating amounts at periodically adjusted interest
rates. Although master demand obligations are not marketable to third
parties, the Portfolio considers them to be liquid because they are
payable on demand. There is no specific percentage limitation on these
investments. The credit quality of variable rate demand notes and
other municipal obligations is frequently enhanced by various
arrangements with domestic or foreign financial institutions, such as
letters of credit, guarantees and insurance, and these arrangements
are considered when investment quality is evaluated. These obligations
will be of comparable quality to municipal bonds and will be purchased
in anticipation of a declining market and rising interest rates,
pending purchase of longer term investments or to maintain liquidity
to meet redemptions.
Puts. The Portfolio may purchase municipal bonds or notes together
with the right to resell them at an agreed price or yield within a
specified period prior to maturity. This right to resell is known as a
put. The aggregate price paid for securities with puts may be higher
than the price which otherwise would be paid. Consistent with the
investment objectives of the Portfolio and subject to the supervision
of the Board of Trustees, the purpose of this practice is to permit
the Portfolio to be fully invested in tax-exempt securities while
maintaining the necessary liquidity to purchase securities on a
when-issued basis, to meet unusually large redemptions, to purchase at
a later date securities other than those subject to the put and to
facilitate Bankers Trust's ability to manage the Portfolio actively.
The principal risk of puts is that the put writer may default on its
obligation to repurchase. Bankers Trust will monitor each writer's
ability to meet its obligations under puts.
The amortized cost method is used by the Portfolio to value municipal
securities with maturities of less than 60 days; when these securities
are subject to puts separate from the underlying securities, no value
is assigned to the puts. The cost of any such put is carried as an
unrealized loss from the time of purchase until it is exercised or
expires.
Zero Coupon Municipal Securities. The Portfolio may invest in zero
coupon municipal securities which are debt securities issued or sold
at a discount from their face value which do not entitle the holder to
any periodic payment of interest prior to maturity or a specified
redemption date (or cash payment date). The amount of the discount
varies depending on the time remaining until maturity or cash payment
date, prevailing interest rates, liquidity of the security and
perceived credit quality of the issuer. Zero coupon securities also
may take the form of debt securities that have been stripped of their
unmatured interest coupons, the coupons themselves and receipts or
certificates representing interests in such stripped debt obligations
and coupons. The market prices of zero coupon securities generally are
more volatile than the market prices of interest-bearing securities
and are likely to respond to a greater degree to changes in interest
rates than interest-bearing securities having similar maturities and
credit qualities.
Repurchase Agreements. In a repurchase agreement the Portfolio buys a
security at one price and simultaneously agrees to sell it back at a
higher price at a future date. Delays or losses could result if the
other party to the agreement defaults or becomes insolvent. In the
event of the bankruptcy of the other party to a repurchase agreement,
the Portfolio could experience delays in recovering either its cash.
To the extent that, in the meantime, the value of the securities
repurchased had decreased, the Portfolio could experience a loss. In
all cases, Bankers Trust must find the creditworthiness of the other
party to the transaction satisfactory. A repurchase agreement is
considered a collateralized loan under the Investment Company Act of
1940 (the "1940 Act").
Rule 144A Securities. The Portfolio may purchase securities in the
United States that are not registered for sale under Federal
securities laws but which can be resold to institutions under the
Securities and Exchange Commission's ("SEC") Rule 144A. Provided that
a dealer or institutional trading market in such securities exists,
these restricted securities are treated as exempt from the Portfolio's
15% limit on illiquid securities. Under the supervision of the Board
of Trustees of the Portfolio, Bankers Trust determines the liquidity
of restricted securities and, through reports from Bankers Trust, the
Board will monitor trading activity in restricted securities. If
institutional trading in restricted securities were to decline, the
liquidity of the Portfolio could be adversely affected.
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 maintains with its custodian a segregated account
containing high grade 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 and Futures Contracts. The Portfolio may purchase and write
options and futures contracts to manage its exposure to changing
interest rates and security prices. Some options and futures
strategies, including selling futures, buying puts, and writing calls,
hedge the Portfolio's investments against price fluctuations. Other
strategies, including buying futures, writing puts and buying calls,
tend to increase market exposure. The Portfolio may invest in options
(including over-the-counter options) and futures contracts based on
any type of security or index related to its investments.
Options and futures can be volatile investments, and involve certain
risks. If Bankers Trust applies a hedge at an inappropriate time or
judges interest rates incorrectly, options and futures strategies may
lower the Portfolio's return. The costs of hedging are not reflected
in the Portfolio's yield but are reflected in the Portfolio's total
return. The Portfolio could also experience losses if its options and
futures positions were poorly correlated with its other investments,
or if it could not close out its positions because of an illiquid
secondary market. Each option written by the Portfolio will be covered
under applicable requirements of the SEC.
Asset Coverage. To assure that the Portfolio's use of futures and
related options, as well as when-issued and delayed delivery
securities are not used to achieve investment leverage, the Portfolio
will cover such transactions, as required under applicable
interpretations of the SEC, either by owning the underlying securities
or by establishing a segregated account with the Portfolio's custodian
containing high grade liquid debt securities in an amount at all times
equal to or exceeding the Portfolio's commitment with respect to these
instruments or contracts.
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. Under normal circumstances, at
least 80% of the Portfolio's assets will be invested in tax-exempt
municipal securities. As an operating policy, the Portfolio will
consider instruments subject to the Federal alternative minimum tax as
taxable securities for purposes of this 80% requirement. 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. As an operating
policy, 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 with remaining maturities of more than
seven calendar days). Additional investment policies of the Portfolio
are contained in Part B. The investment objective of the Portfolio is
also not a fundamental policy.
Risk Factors. Because the Portfolio invests in high-grade tax-exempt
instruments with short to intermediate maturities, its net asset value
should be more stable than that of a long-term bond fund, although it
may be less stable than that of a short-term bond fund. Generally,
short to intermediate-term instruments are less sensitive to interest
rate fluctuations or changes in an issuer's credit standing than
longer-term bonds. At the same time, the Portfolio may not offer the
same growth potential as a long-term bond fund. Bond funds generally
offer greater price stability than stock funds, although the potential
rewards of bonds are not as great.
The Portfolio's net asset value will tend to decrease when interest
rates rise, and increase when interest rates fall.
Portfolio Turnover. Bankers Trust may engage in short-term trading
when it believes it is consistent with the Portfolio's investment
objective. Also, a security may be sold and another of comparable
quality simultaneously purchased to take advantage of what Bankers
Trust believes to be a temporary disparity in the normal yield
relationship between the two securities. The frequency of portfolio
transactions--the Portfolio's turnover rate--will vary from year to
year depending on market conditions. Bankers Trust intends to manage
the Portfolio actively in pursuit of its investment objective. Because
a high turnover rate increases transaction costs and may increase
taxable capital gains, Bankers Trust carefully weighs the anticipated
benefits of short-term investment against these consequences. The
Portfolio's portfolio turnover rates for the period from January 1,
1996 to September 30, 1996, and for the fiscal year ended December 31,
1995 were 130% and 95%, respectively.
Derivatives. The Portfolios may invest in various instruments that 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. 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. However, some
derivatives are used for leverage, which tends to magnify the effects
of an instrument's price changes as market conditions change. Leverage
involves the use of a small amount of money to control a large amount
of financial assets and can, in some circumstances, lead to
significant losses. The Adviser will use derivatives only in
circumstances where the Adviser believes they offer the most economic
means of improving the risk/reward profile of the Portfolio.
Derivatives will not be used to increase portfolio risk above the
level that could be achieved using 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. The use
of derivatives for non-hedging purposes may be considered speculative.
A description of the derivatives that the Portfolio may use and some
of their associated risks is found above.
Item 5. Management of the Trust.
The Board of Trustees provides broad supervision over the affairs of
the Portfolio. Bankers Trust is the Portfolio's investment adviser. A
majority of the Portfolio's Trustees are not affiliated with the
Adviser. Bankers Trust, the Portfolio's administrator, supervises the
overall administration of the Portfolio. The Portfolio's fund
accountant, transfer agent, custodian and dividend paying agent is
also Bankers Trust.
Mr. Gary Pollack is responsible for the day-to-day management of
the Portfolio. Mr. Pollack has been employed by Bankers Trust since
1989 and has managed the Portfolio's assets since the Portfolio's
commencement of operations.
Bankers Trust investment personnel may invest in securities of their
own account pursuant to a code of ethics that establishes procedures
for personal investing and restricts certain transactions.
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 June 30, 1996, Bankers Trust
New York Corporation was the seventh largest bank holding company in
the United States with total assets of approximately $115 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 1930. 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 has assets
under management globally of approximately $215 billion.
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. Now, the BT Family of Funds brings Bankers
Trust's extensive investment management expertise, once available to
only the largest institutions in the U.S., to individual investors.
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 an investment 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. As
compensation for its investment advisory services, the Portfolio will
pay Bankers Trust a fee computed daily and paid monthly at the annual
rate of 0.40% of the average daily net assets of the Portfolio
pursuant to an investment advisory agreement.
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. 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.
Under the administration and services agreement with the Portfolio
(the "Administration and Services Agreement,") 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 at Bankers Trust's expense.
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. Under the Declaration of Trust, the Trustees are authorized
to issue beneficial interests in the Portfolio. Each investor is
entitled to a vote in proportion to the amount of its investment in
the Portfolio. Investments in the Portfolio may not be transferred,
but an investor may withdraw all or any portion of its investment at
any time at net asset value. 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 New York Stock Exchange, Inc. ("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 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 or, in
the event that the NYSE closes early, at the time of such early
closing) (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 the 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 and its affiliates 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.
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Intermediate Tax Free Portfolio
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PART B
Item 10. Cover Page.
Not applicable.
Item 11. Table of Contents.
General Information and History...........................................1
Investment Objectives and Policies........................................1
Management of the Fund....................................................9
Control Persons and Principal Holders of Securities of Securities.........11
Investment Advisory and Other Services....................................11
Brokerage Allocation and Other Practices..................................12
Capital Stock and Other Securities........................................13
Purchase, Redemption and Pricing of Securities............................14
Tax Status................................................................14
Underwriters..............................................................14
Calculation of Performance Data...........................................14
Financial Statements......................................................14
Appendix 16
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 Intermediate Tax Free 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.
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 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.
The Securities and Exchange Commission the (the "SEC") has adopted
Rule 144A, which allows a broader institutional trading market for
securities otherwise subject to restriction on their resale to the
general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the 1933 Act of resales of certain
securities to qualified institutional buyers. The Adviser anticipates
that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and the development of automated systems for the trading,
clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc.
The Bankers Trust, the Portfolio's investment Adviser (the "Adviser")
will monitor the liquidity of Rule 144A securities in each Portfolio's
holdings under the supervision of the Portfolio's Board of Trustees.
In reaching liquidity decisions, the Adviser will consider, among
other things, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers and other potential
purchasers or sellers of the security; (3) dealer undertakings to make
a market in the security and (4) the nature of the security and of the
marketplace trades (e.g., the time needed to dispose of the security,
the method of soliciting offers and the mechanics of the transfer).
Futures Contracts and Options on Futures Contracts
General. The successful use of such instruments draws upon the
Adviser's skill and experience with respect to such instruments and
usually depends on the Adviser's ability to forecast interest rate and
currency exchange rate movements correctly. Should interest or
exchange rates move in an unexpected manner, the Portfolio may not
achieve the anticipated benefits of futures contracts or options on
futures contracts or may realize losses and thus will be in a worse
position than if such strategies had not been used. In addition, the
correlation between movements in the price of futures contracts or
options on futures contracts and movements in the price of the
securities and currencies hedged or used for cover will not be perfect
and could produce unanticipated losses.
Futures Contracts. The Portfolio may enter into contracts for the
purchase or sale for future delivery of fixed-income securities,
contracts based on financial indices including any index of U.S.
government securities or corporate debt securities. U.S. futures
contracts have been designed by exchanges which have been designated
"contracts markets" by the Commodity Futures Trading Commission, 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 as between the clearing members of the exchange. The
Portfolio may enter into futures contracts which are based on debt
securities that are backed by the full faith and credit of the U.S.
government, such as long-term U.S. Treasury bonds, Treasury notes,
GNMA modified pass-through mortgage-backed securities and three-month
U.S. Treasury bills. The Portfolio may also enter into futures
contracts which are based on bonds issued by entities other than the
U.S. government.
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.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from
the delivery of securities with a different interest rate from that
specified in the contract. In some (but not many) cases, securities
called for by a futures contract may not have been issued when the
contract was written.
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 purpose of the acquisition or sale of a futures contract, when the
Portfolio holds or intends to acquire fixed-income securities, is to
attempt to protect the Portfolio from fluctuations in interest or
foreign exchange rates without actually buying or selling fixed-income
securities or foreign currencies. For example, if interest rates were
expected to increase, the Portfolio might enter into futures contracts
for the sale of debt securities. Such a sale would have much the same
effect as selling an equivalent value of the debt securities owned by
the Portfolio. If interest rates did increase, the value of the debt
security in the Portfolio would decline, but the value of the futures
contracts to the Portfolio would increase at approximately the same
rate, thereby keeping the net asset value of the Portfolio from
declining as much as it otherwise would have. The Portfolio could
accomplish similar results by selling debt securities and investing in
bonds with short maturities when interest rates are expected to
increase. However, since the futures market is more liquid than the
cash market, the use of futures contracts as an investment technique
allows the Portfolio to maintain a defensive position without having
to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline,
futures contracts may be purchased to attempt to hedge against
anticipated purchases of debt securities at higher prices. Since the
fluctuations in the value of futures contracts should be similar to
those of debt securities, the Portfolio could take advantage of the
anticipated rise in the value of debt securities without actually
buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Portfolio could then buy debt
securities on the cash market. To the extent the Portfolio enters into
futures contracts for this purpose, the assets in the segregated asset
account maintained to cover the Portfolio's obligations with respect
to such futures contracts will consist of cash, cash equivalents or
high quality liquid debt securities from its portfolio in an amount
equal to the difference between the fluctuating market value of such
futures contracts and the aggregate value of the initial and variation
margin payments made by the Portfolio with respect to such 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 interest
rates 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 an increase in
interest rates which would adversely affect the price of debt
securities held in its portfolio and interest rates decrease instead,
the Portfolio will lose part or all of the benefit of the increased
value of its debt 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 debt securities from its portfolio to meet daily variation margin
requirements. Such sales of bonds 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 Futures Contracts. The Portfolio may purchase and write
options on futures contracts for hedging purposes. The purchase of a
call option on a futures contract is similar in some respects to the
purchase of a call option on an individual security. 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 debt securities. As with the purchase
of futures contracts, when the Portfolio is not fully invested it may
purchase a call option on a futures contract to hedge against a market
advance due to declining interest rates.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign
currency which is 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 portfolio holdings. The writing of a put
option on a futures contract constitutes a partial hedge against
increasing prices of the security or foreign currency which is
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 is similar in some
respects to the purchase of protective put options on portfolio
securities. For example, the Portfolio may purchase a put option on a
futures contract to hedge its portfolio against the risk of rising
interest rates.
The amount of risk the Portfolio assumes when it purchases an option
on a futures contract 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 has adopted the requirement that futures
contracts and options on futures contracts be used only as a hedge and
not for speculation. In addition to this requirement, the Board of
Trustees has also adopted two percentage restrictions on the use of
futures contracts. The first restriction is that 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. The Portfolio may write (sell) covered call and
put options to a limited extent on its portfolio securities ("covered
options") in an attempt to increase income. However, the Portfolio may
forgo the benefits of appreciation on securities sold or may pay more
than the market price on securities acquired pursuant to call and put
options written by the Portfolio.
When the Portfolio writes a covered call option, it gives the
purchaser of the option the right to buy the underlying security at
the price specified in the option (the "exercise price") by exercising
the option at any time during the option period. If the option expires
unexercised, the Portfolio will realize income in an amount equal to
the premium received for writing the option. If the option is
exercised, a decision over which the Portfolio has no control, the
Portfolio must sell the underlying security to the option holder at
the exercise price. 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 underlying security above the
exercise price.
When the Portfolio writes a covered put option, it gives the purchaser
of the option the right to sell the underlying security to the
Portfolio at the specified exercise price at any time during the
option period. If the option expires unexercised, the Portfolio will
realize income in the amount of the premium received for writing the
option. If the put option is exercised, a decision over which the
Portfolio has no control, the Portfolio must purchase the underlying
security from the option holder at 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
underlying security below the exercise price. The Portfolio will only
write put options involving securities for which a determination is
made at the time the option is written that the Portfolio wishes to
acquire the securities at 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. This transaction is
called a "closing purchase transaction." The Portfolio will realize a
profit or loss for a closing purchase transaction if the amount paid
to purchase an option is less or more, as the case may be, than the
amount received from the sale thereof. To close out a position as a
purchaser of an option, the Portfolio, may make a "closing sale
transaction" which involves liquidating the Portfolio's position by
selling the option previously purchased. Where the Portfolio cannot
effect a closing purchase transaction, it may be forced to incur
brokerage commissions or dealer spreads in selling securities it
receives or it may be forced to hold underlying securities until an
option is exercised or expires.
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 any securities in
which it may invest. The Portfolio would normally purchase a call
option in anticipation of an increase in the market value of such
securities. The purchase of a call option would entitle the Portfolio,
in exchange for the premium paid, to purchase a security 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 securities in its portfolio
("protective puts") or securities of the type in which it is permitted
to invest. The purchase of a put option would entitle the Portfolio,
in exchange for the premium paid, to sell a security, which may or may
not be held in the Portfolio's portfolio 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 Portfolio's portfolio securities. Put options also may be
purchased by the Portfolio for the purpose of affirmatively benefiting
from a decline in the price of securities which the Portfolio does not
own. The Portfolio would ordinarily recognize a gain if the value of
the securities decreased below the exercise price sufficiently to
cover the premium and would recognize a loss if the value of the
securities 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 underlying portfolio
securities.
The Portfolio has adopted certain other nonfundamental policies
concerning option transactions which are discussed below. The
Portfolio's activities in options may also be restricted by the
requirements of the Internal Revenue Code of 1986, for qualification
as a regulated investment company.
The hours of trading for options on securities 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.
The Portfolio may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present,
approximately ten broker-dealers, including several of the largest
primary dealers in U.S. government securities, make these markets. The
ability to terminate over-the-counter option positions is more limited
than with exchange-traded option positions because the predominant
market is the issuing broker rather than an exchange, and may involve
the risk that broker-dealers participating in such transactions will
not fulfill their obligations. To reduce this risk, the Portfolio will
purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank
of New York and who agree to (and are expected to be capable of)
entering into closing transactions, although there can be no guarantee
that any such option will be liquidated at a favorable price prior to
expiration. The Adviser will monitor the creditworthiness of dealers
with whom the Portfolio enters into such options transactions under
the general supervision of the Portfolio's Trustees.
Options on Securities Indices. In addition to options on securities,
the Portfolio may also purchase and write (sell) call and put options
on securities indices. 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. Such
options will be used for the purposes described above under "Options
on Securities."
Options on securities indices entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to
close out options positions on securities indices is more likely to
occur, although the Portfolio generally will only purchase or write
such an option if the Adviser believes the option can be closed out.
Use of options on securities indices also entails the risk that
trading in such options may be interrupted if trading in certain
securities included in the index is interrupted. The Portfolio will
not purchase such options unless the Adviser believes the market is
sufficiently developed such that the risk of trading in such options
is no greater than the risk of trading in options on securities.
Price movements in the Portfolio's portfolio securities may not
correlate precisely with movements in the level of an index and,
therefore, the use of options on indices cannot serve as a complete
hedge. Because options on securities indices require settlement in
cash, the Adviser may be forced to liquidate portfolio securities to
meet settlement obligations.
Short-Term Instruments. When the Portfolio experiences large cash
inflows through the sale of securities and desirable equity
securities, that are consistent with the Portfolio's investment
objective, which are unavailable in sufficient quantities or at
attractive prices, the Portfolio may invest in short-term instruments
for a limited time pending availability of such portfolio securities.
Short-term instruments consist of foreign or domestic: (i) short-term
obligations of sovereign governments, their agencies,
instrumentalities, authorities or political subdivisions; (ii) other
short-term debt securities rated AA or higher by Standard and Poor's
Ratings Group ("S&P) or Aa or higher by Moody's Investors Services,
Inc. ("Moody's") 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
banker's acceptances; and (v) repurchase agreements. At the time the
Portfolio invests in commercial paper, bank obligations or repurchase
agreements, the issuer of the issuer's parent must have outstanding
debt rated AA or higher by S&P or Aa or higher by Moody's or
outstanding commercial paper or bank obligations rated A-1 by S&P or
Prime-1 by Moody's; or, if no such ratings are available, the
instrument must be of comparable quality in the opinion of Bankers
Trust. These instruments may be denominated in U.S. dollars or in
foreign currencies.
Municipal Bonds. Municipal bonds generally fund longer-term capital
needs than municipal notes and have maturities exceeding one year when
issued. The Portfolio may invest in municipal bonds. Municipal bonds
include:
General Obligation Bonds. Issuers of general obligation bonds include
states, counties, cities, towns and regional districts. The proceeds
of these obligations are used to fund a wide range of public projects,
including construction or improvement of schools, highways and roads,
and water and sewer systems. The basic security behind general
obligation bonds is the issuer's pledge of its full faith and credit
and taxing power for the payment of principal and interest. The taxes
that can be levied for the payment of debt service may be limited or
unlimited as to the rate or amount of special assessments.
Revenue Bonds. The principal security for a revenue bond is generally
the net revenues derived from a particular facility, group of
facilities or, in some cases, the proceeds of a special excise tax or
other specific revenue source. Revenue bonds are issued to finance a
wide variety of capital projects, including electric, gas, water and
sewer systems; highways, bridges, and tunnels; port and airport
facilities; colleges and universities; and hospitals. Although the
principal security behind these bonds may vary, many provide
additional security in the form of a debt service reserve fund that
may be used to make principal and interest payments on the issuer's
obligations. Housing finance authorities have a wide range of
security, including partially or fully insured mortgages, rent
subsidized and/or collateralized mortgages, certificates of deposit
and/or the net revenues from housing or other public projects. Some
authorities provide further security in the form of a state's ability
(without obligation) to make up deficiencies in the debt service
reserve fund.
Private Activity Bonds. Private activity bonds, which are considered
municipal obligations if the interest paid thereon is excluded from
gross income for Federal income tax purposes but is a specific tax
preference item for Federal individual and corporate alternative
minimum tax purposes, are issued by or on behalf of public authorities
to raise money to finance various privately-operated facilities such
as manufacturing facilities, certain hospital and university
facilities and housing projects. These bonds are also used to finance
public facilities such as airports, mass transit systems and ports.
The payment of the principal and interest on these bonds is dependent
solely on the ability of the facility's user to meet its financial
obligations and generally the pledge, if any, of real and personal
property so financed as security for payment.
Municipal Notes. Municipal notes generally fund short-term capital needs.
The Portfolio may invest in municipal notes, which include:
Tax Anticipation Notes. Tax anticipation notes are issued to finance
working capital needs of municipalities. Generally, they are issued in
anticipation of various seasonal tax revenue, such as income, sales,
use and business taxes, and are payable from these specific future
taxes.
Revenue Anticipation Notes. Revenue anticipation notes are issued in
expectation of receipt of other types of revenue, such as Federal
revenues available under Federal revenue sharing programs.
Bond Anticipation Notes. Bond anticipation notes are issued to provide
interim financing until long-term financing can be arranged. In most
cases, the long-term bonds provide funds for the repayment of these
notes.
Miscellaneous, Temporary and Anticipatory Instruments. These
instruments may include notes issued to obtain interim financing
pending entering into alternate financial arrangements, such as
receipt of anticipated Federal, state or other grants or aid, passage
of increased legislative authority to issue longer-term instruments or
obtaining other refinancing.
Construction Loan Notes. Construction loan notes are sold to provide
construction financing. Permanent financing, the proceeds of which are
applied to the payment of construction loan notes, is sometimes
provided by a commitment of the Government National Mortgage
Association ("GNMA") to purchase the loan, accompanied by a commitment
by the Federal Housing Administration to insure mortgage advances
thereunder. In other instances, permanent financing is provided by
commitments of banks to purchase the loan. The Portfolio will only
purchase construction loan notes that are subject to permanent GNMA or
bank purchase commitments.
Tax-Exempt Commercial Paper. The Portfolio may invest in tax-exempt
commercial paper. Tax-exempt commercial paper is a short-term
obligation with a stated maturity of 365 days or less. It is issued by
agencies of state and local governments to finance seasonal working
capital needs or as short-term financing in anticipation of
longer-term financing.
Standby Commitments. The Portfolio may acquire standby commitments or
"puts" solely to facilitate portfolio liquidity; the Portfolio intends
to exercise its rights thereunder for trading purposes. The maturity
of a municipal obligation is not to be considered shortened by any
standby commitment to which the obligation is subject. Thus, standby
commitments do not affect the dollar-weighted average maturity of the
Portfolio.
When municipal obligations are subject to puts separate from the
underlying securities, no value is assigned to the put. Because of the
difficulty of evaluating the likelihood of exercise or the potential
benefit of a put, the Board of Trustees has determined that puts shall
have a fair market value of zero, regardless of whether any direct or
indirect consideration was paid.
Since the value of the put is partly dependent on the ability of the
put writer to meet its obligation to repurchase, the Portfolio's
policy is to enter into put transactions only with put writers who are
approved by Bankers Trust. It is the Portfolio's general policy to
enter into put transactions only with those put writers which are
determined to present minimal credit risks. In connection with this
determination, the Board of Trustees will review regularly Bankers
Trust's list of approved put writers, taking into consideration, among
other things, the ratings, if available, of their equity and debt
securities, their reputation in the municipal securities markets,
their net worth, their efficiency in consummating transactions and any
collateral arrangements, such as letters of credit securing the puts
written by them. Commercial banks normally will be members of the
Federal Reserve System, and other dealers will be members of the
National Association of Securities Dealers, Inc. or members of a
national securities exchange. Other put writers will have outstanding
debt rated Aa or better by Moody's Investors Services, Inc.
("Moody's") or AA or better by Standard & Poor's Ratings Group
("S&P"), or will be of comparable quality in Bankers Trust's opinion,
or such put writers' obligations will be collateralized and of
comparable quality in Bankers Trust's opinion. The Board of Trustees
has directed Bankers Trust not to enter into put transactions with any
put writer that, in the judgment of Bankers Trust using the
above-described criteria, is or becomes a recognizable credit risk.
The Trust is unable to predict whether all or any portion of any loss
sustained could subsequently be recovered from a put writer in the
event that a put writer should default on its obligation to repurchase
an underlying security.
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 the Appendix.
Investment Restrictions
The Portfolio has adopted its investment objective and the following
investment restrictions as "fundamental policies," which may not be
changed without approval by holders of a "majority of the outstanding
shares" of the Portfolio, which as used in this Registration Statement
means the vote of the lesser of (i) 67% or more of the outstanding
"voting securities" of the Portfolio present at a meeting, if the
holders of more than 50% of the outstanding "voting securities" of the
Portfolio are present or represented by proxy, or (ii) more than 50%
of the outstanding "voting securities" of the Portfolio. The term
"voting securities" as used in this paragraph has the same meaning as
in the Investment Company Act of 1940 (the "1940 Act").
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
Securities Act of 1933, as amended (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 (under
current regulations, the Portfolio's fundamental policy with respect
to 20% risk weighing for financial institutions prevent the Portfolio
from engaging in securities lending);
(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 securities, 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 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; provided further that, except in the case of a merger or
consolidation, the Portfolio shall not purchase any securities of any
open-end investment company unless the Portfolio (1) waives the
investment advisory fee with respect to assets invested in other
open-ended 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 New York Stock Exchange,
Inc. ("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 Portfolio.
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 and their principal
occupations during the past five years are set forth below. Their
titles may have varied during that period. Unless otherwise indicated
below, 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 and
President; Chairman, Chief Executive Officer and President, Signature
Financial Group, Inc. ("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)
of the Portfolio.
Officers
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 Services, Inc. ("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 or Trustee of the Portfolio.
For the period from January 1, 1996 to September 30, 1996, the
Portfolio incurred Trustees fees equal to $1,866. Bankers Trust
reimbursed the Portfolio for a portion of its Trustees fees for the
periods above. See "Investment Advisory and Other Services" below.
The Trustees of the Portfolio received the following remuneration from
the Portfolio for the period from January 1, 1996 to September 30,
1996:
Trustees Compensation Table
Aggregate Total Compensation
Name of Person, Compensation from Fund Complex*
Position from Portfolio Paid to Trustees
S. Leland Dill, none $23,000
Philip Saunders, Jr, none $23,000
Philip W. Coolidge, none none
Charles P. Biggar, none none
* 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.
The Portfolio's Declaration of Trust provides that it will indemnify
its Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved because of
their offices with the Portfolio, unless, as to liability to the
Portfolio or its investors, it is finally adjudicated that they
engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in their offices, or unless
with respect to any other matter it is finally adjudicated that they
did not act in good faith in the reasonable belief that their actions
were in the best interests of the Portfolio. In the case of
settlement, such indemnification will not be provided unless it has
been determined by a court or other body approving the settlement or
other disposition, or by a reasonable determination, based upon a
review of readily available facts, by vote of a majority of
disinterested Trustees or in a written opinion of independent counsel,
that such officers or Trustees have not engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
Item 15. Control Persons and Principal Holders of Securities.
As of December 31, 1996, Intermediate Tax-Free Fund, a Fund in the
series of BT Pyramid Mutual Funds, owned approximately 100% of the
value of the outstanding interests in the Portfolio.
The 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 such policies as the Board of Trustees may
determine, the Adviser makes investment decisions for the Portfolio.
Bankers Trust will: (i) act in strict conformity with the Portfolio's
Declaration of Trust, the 1940 Act and the Investment Advisors Act of
1940, as the same may from time to time be amended; (ii) manage the
Portfolio in accordance with the Portfolio's investment objectives,
restrictions and policies as stated herein; (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.
The Adviser furnishes at its own expense all services, facilities and
personnel necessary in connection with managing the Portfolio's
investments and effecting securities transactions for the Portfolio.
The Advisory Agreement will continue in effect if such continuance is
specifically approved at least annually by the Board of Trustees or by
a majority vote of the investors in the Portfolio (with the vote of
each being in proportion to the amount of its investment) and, in
either case, by a majority of the Portfolio's Trustees who are not
parties to the Advisory Agreement or interested persons of any such
party, at a meeting called for the purpose of voting on the Advisory
Agreement.
The Advisory Agreement is terminable without penalty on 60 days'
written notice by the Portfolio when authorized either by majority
vote of the investors in the Portfolio (with the vote of each being in
proportion to the amount of its investment) or by a vote of a majority
of its Board of Trustees, or by the Adviser, and will automatically
terminate in the event of its assignment. The Advisory Agreement
provides that neither the Adviser nor its personnel shall be liable
for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the execution of
security transactions for the Portfolio, except for willful
misfeasance, bad faith or gross negligence or of reckless disregard of
its or their obligations and duties under the Advisory Agreement.
For the period from January 1, 1996 to September 30, 1996, and for the
fiscal years ended December 31, 1995 and 1994, Bankers Trust earned
$67,313, $96,572, and $117,549, respectively, in compensation for
investment advisory services provided to the Portfolio. During the
same periods, Bankers Trust reimbursed $23,842, $18,572, and $41,555,
respectively, to the Portfolio to cover expenses.
Pursuant to an administration and services agreement (the
"Administration Agreement"), Bankers Trust provides administration
services to the Portfolio. Under the Administration Agreement, Bankers
Trust is obligated on a continuous basis to provide such
administrative services as the Board of Trustees reasonably deems
necessary for the proper administration of the Portfolio. Bankers
Trust will generally assist in all aspects of the Portfolio's
operations; supply and maintain the Portfolio with office facilities,
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 of the Portfolio), internal auditing, executive and
administrative services, and stationery and office supplies; prepare
reports to investors; prepare and file tax returns; supply financial
information and supporting data for reports to and filings with the
Securities and Exchange Commission (the "SEC"); supply supporting
documentation for meetings of the Board of Trustees; provide
monitoring reports and assistance regarding compliance with the
Portfolio's Declaration of Trust, By-Laws, investment objective and
policies and with Federal and state securities laws; arrange for
appropriate insurance coverage; calculate the net asset value, net
income and realized capital gains or losses of the Portfolio; and
negotiate arrangements with, and supervise and coordinate the
activities of, agents and others retained by the Portfolio to supply
services to the Portfolio and/or its investors.
Pursuant to a sub-administration agreement (the "Sub-Administration
Agreement"), FSC performs such sub-administration duties for 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.
Bankers Trust also provides fund accounting, transfer agency and
custodian services to the Portfolio pursuant to the Administration
Agreement.
For the period from January 1, 1996 to September 30, 1996, and for the
fiscal years ended December 31, 1995 and 1994, Bankers Trust earned
$8,414, $12,072, and $14,693, respectively, in compensation for
administrative and other services provided to the Portfolio. Bankers
Trust reimbursed the Portfolio for a portion of its administrative and
services fees for the periods above.
See "Investment Advisory and Other Services" above.
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.
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 1301 Avenue of the Americas, New York, New York 10019.
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 NASD and such other policies as the Portfolio's Trustees may
determine, the Adviser may consider sales 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 period from January 1, 1996 to September 30, 1996, and for the
fiscal years ended December 31, 1995 and 1994, the Portfolio did not
incur brokerage commissions.
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 Trust 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.
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 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 is 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.
Item 21. Underwriters.
The placement agent for the Portfolio is Edgewood, 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 following financial statements of the Portfolio dated September
30, 1996 have been filed with the SEC pursuant to Section 30(b) of the
1940 Act and Rule 30b2-1 thereunder and are hereby incorporated herein
by reference.
Statement of Assets and Liabilities, September 30, 1996.
Statement of Operations for the period ended September 30,
1996.
Statements of Changes in Net Assets for the period from
January 1, 1996 to September 30, 1996, and for the fiscal
year ended December 31, 1995.
Financial Highlights: Selected ratios and supplemental data for each
of the periods presented.
Schedule of Portfolio Investments, September 30, 1996.
Notes to Financial Statements.
Report of Independent Accountants.
<PAGE>
Appendix: Municipal Bond and Note Ratings.
Set forth below are descriptions of the ratings of Moody's and S&P,
which represent their opinions as to the quality of the Municipal
Obligations which they undertake to rate. It should be emphasized,
however, that ratings are relative and subjective and are not absolute
standards of quality.
Description of S&P Municipal Bond Ratings:
AAA - Prime - These are obligations of the highest quality. They have
the strongest capacity for timely payment of debt service.
General Obligation Bonds - In a period of economic stress, the issuers
will suffer the smallest declines in income and will be least
susceptible to autonomous decline. Debt burden is moderate. A strong
revenue structure appears more than adequate to meet future
expenditure requirements. Quality of management appears superior.
Revenue Bonds - Debt service coverage has been, and is expected to
remain, substantial, stability of the pledged revenues is also
exceptionally strong due to the competitive position of the municipal
enterprise or to the nature of the revenues. Basic security provisions
(including rate covenant, earnings test for issuance of additional
bonds and debt service reserve requirements) are rigorous. There is
evidence of superior management.
AA - High Grade - The investment characteristics of bonds in this
group are only slightly less marked than those of the prime quality
issues. Bonds rated AA have the second strongest capacity for payment
of debt service.
A - Good Grade - Principal and interest payments on bonds in this
category are regarded as safe although the bonds are somewhat more
susceptible to the adverse effects of changes in circumstances and
economic conditions than bonds in higher rated categories. This rating
describes the third strongest capacity for payment of debt service.
Regarding municipal bonds, the rating differs from the two higher
ratings because:
General Obligation Bonds - There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and
expenditures, or in quality of management. Under certain adverse
circumstances, any one such weakness might impair the ability of the
issuer to meet debt obligations at some future date.
Revenue Bonds - Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because
of increased competition or economic influences on revenues. Basic
security provisions, while satisfactory, are less stringent.
Management performance appearance appears adequate.
S&P's letter ratings may be modified by the addition of a plus or a
minus sign, which is used to show relative standing within the major
rating categories, except in the AAA rating category.
Description of Moody's Municipal Bond Ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities, or fluctuation of protective elements may be of greater
amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future.
Moody's may apply the numerical modifier in each generic rating
classification from Aa through B. The modifier 1 indicates that the
security within its generic rating classification possesses the
strongest investment attributes.
Description of S&P Municipal Note Ratings:
Municipal notes with maturities of three years or less are usually
given note ratings (designated SP-1, or -2) to distinguish more
clearly the credit quality of notes as compared to bonds. Notes rated
SP-1 have a very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics are given the designation of SP-1+. Notes rated SP-2
have a satisfactory capacity to pay principal and interest.
Description of Moody's Municipal Note Ratings:
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG) and for variable
rate demand obligations are designated Variable Moody's Investment
Grade (VMIG). This distinction recognizes the differences between
short-term credit risk and long-term risk. Loans bearing the
designation MIG-1/VMIG-1 are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing,
or both. Loans bearing the designation MIG-2/VMIG-2 are of high
quality, with ample margins of protection, although not as large as
the preceding group.
<PAGE>
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 BT Investment
Funds dated September 30, 1996, pursuant to Rule 411 under Securities
Act of 1933. (File Nos. 33-62103 and 811-7347)
(b) Exhibits:
(1) Conformed copy of Declaration of Trust of the Registrant; (2)
(2) Copy of By-Laws of the Registrant; (2)
(3) Not applicable;
(4) Not applicable;
(5) Conformed copy of 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) Conformed copy of 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) Consent of Independent Public Accountants; 3
(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. Previously filed on June 15, 1992.
2. Response is incorporated by reference to Registrant's Amendment No. 4 on
Form N-1A filed April 24, 1996.
3. Response is incorporated by reference to Registrant's Amendment No. 5 on
Form N-1A filed January 29, 1997.
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of May 1, 1997
- -------------- -----------------
Beneficial Interests 1
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 24, 1996.
<PAGE>
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.
<PAGE>
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)
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
<S> <C> <C>
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
</TABLE>
<PAGE>
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940,
the Registrant, INTERMEDIATE TAX FREE PORTFOLIO, has duly caused this
Amendment No. 6 to its Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereto duly authorized, in
the City of Pittsburgh and Commonwealth of Pennsylvania on the 30th
day of May, 1997.
INTERMEDIATE TAX FREE PORTFOLIO
By: /s/ Jay S. Neuman
Jay S. Neuman, Secretary
May 30, 1997
Exhibit 8 under Form N-1A
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 INTERMEDIATE TAX FREE 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 to the 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:
Intermediate Tax Free 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.
INTERMEDIATE TAX FREE 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
<PAGE>
EXHIBIT A
To Custodian Agreement dated as of July 1, 1996 between Bankers
Trust Company and Intermediate Tax Free 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
INTERMEDIATE TAX FREE 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
<PAGE>
EXHIBIT B
To Custodian Agreement dated as of July 1, 1996 between
Bankers Trust Company and Intermediate Tax Free 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.
<PAGE>
EXHIBIT C
To Custodian Agreement dated as of July 1, 1996 between
Bankers Trust Company and Intermediate Tax Free 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.
<PAGE>
Dated as of: July 1, 1996 INTERMEDIATE TAX FREE 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
<PAGE>
EXHIBIT D
To Custodian Agreement dated as of July 1, 1996 between
Bankers Trust Company and Intermediate Tax Free Portfolio.
APPROVED REFERENCE TO CUSTODIAN
"Bankers Trust acts as Custodian of the assets of the Trust and the PortfolioO"
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 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 "Covered 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 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 ("Offering 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 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.
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
"Covered 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
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 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.
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.
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.
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.
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.
<PAGE>
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.
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
<PAGE>
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
Global High Yield Securities Portfolio September 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(R)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 Portfolio September 30, 1996
Asset Management Portfolio September 30, 1996
Capital Appreciation Portfolio September 30, 1996
Intermediate Tax Free Portfolio September 30, 1996
093096
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 Portfolio September 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(R)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 Portfolio September 30, 1996
Asset Management Portfolio September 30, 1996
Capital Appreciation Portfolio September 30, 1996
Intermediate Tax Free Portfolio September 30, 1996
121196
