1940 Act File No. 811-7408



                  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. 5...........................................         X
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                    CAPITAL APPRECIATION 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











Capital Appreciation Portfolio
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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.



Capital Appreciation 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 August
18, 1992. 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 long-term capital growth;
the production of any current income is secondary to this objective.

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 invests primarily in growth-oriented common stocks of
domestic corporations and, to a lesser extent, foreign corporations.
Bankers Trust Company ("Bankers Trust"), as the Portfolio's investment
adviser (the "Adviser"), employs a flexible investment program in
pursuit of the Portfolio's investment objective. The Portfolio is not
restricted to investments in specific market sectors. The Portfolio
may invest in any market sectors and in companies of any size and may
take advantage of any investment opportunity with attractive long-term
prospects. The Adviser takes advantage of its market access and the
research available to it to select investments in promising growth
companies that are involved in new technologies, new products, foreign
markets and special developments, such as research discoveries,
acquisitions, recapitalizations, liquidations or management changes,
and companies whose stock may be undervalued by the market. These
situations are only illustrative of the types of investment the
Portfolio may make. The Portfolio is free to invest in any common
stock which in the Adviser's judgment provides above average potential
for long-term growth of capital and income.

The Portfolio will generally invest a majority of its assets in
securities of medium-sized companies (companies with a market
capitalization of between $500 million and $2 billion), but may invest
in securities of companies having various levels of market
capitalization, including smaller companies whose securities may be
more volatile and less liquid than securities issued by larger
companies with higher levels of net worth. Investments will be in
companies in various industries. Industry and company fundamentals
along with key investment themes and various quantitative screens will
be used in the investment process. Criteria for selection of
individual securities include the issuer's competitive environment and
position, prospects for growth, managerial strength, earnings momentum
and quality, underlying asset value, relative market value and overall
marketability. The Portfolio will follow a disciplined selling process
to lessen market risks.

   
The Portfolio may also invest up to 25% of its assets in similar
securities of foreign issuers. For further information on foreign
investments and related hedging techniques, see "Risk Factors", the
Appendix and Part B to this Registration Statement.

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.    


Other Investments and Investment Techniques. The Portfolio may also
utilize the following investments and investment techniques and
practices: short-term instruments, options on stocks, options on stock
indices, foreign investments, futures contracts on stock indices,
options on futures contracts, foreign currency exchange transactions
and options on foreign currencies, Rule 144A securities, when-issued
and delayed delivery securities, and securities lending. See the
Appendix for further information.

Additional Investment Limitations. 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. These are fundamental
investment policies of the Portfolio which may not be changed without
investor approval. No more than 15% of the Portfolio's net assets may
be invested in: (i) securities for which resale is restricted under
U.S. Federal securities laws (other than Rule 144A securities); (ii)
illiquid or not readily marketable securities (including repurchase
agreements and time deposits maturing in more than seven days); and
(iii) securities of issuers which have been in operation for three
years or less. Additional investment policies of the Portfolio are
contained in Part B.

Risk Factors. By itself the Portfolio does not constitute a balanced
investment plan; the Portfolio seeks to provide long-term capital
growth, with the production of any current income being incidental to
this objective, by investments primarily in growth-oriented common
stocks of domestic corporations and, to a limited extent, foreign
corporations. The Portfolio is designed for those investors primarily
interested in capital growth from investments in medium-sized growth
companies. In view of the long-term capital growth objective of the
Portfolio and the smaller size of the companies, the risks of
investment in the Portfolio may be greater than the general equity
markets, and changes in domestic and foreign interest rates may also
affect the value of the Portfolio's investments, and rising interest
rates can be expected to reduce the Portfolio's net asset value. The
Appendix includes a description of a number of investments and
investment techniques available to the Portfolio, including foreign
investments and the use of options and futures, and sets out certain
risks associated with these investments and techniques.

Risks of Investing in Foreign Securities. In seeking its investment
objectives, the Portfolio may invest in securities of foreign issuers.
Foreign securities may involve a higher degree of risk and may be less
liquid or more volatile than domestic investments. Foreign securities
usually are denominated in foreign currencies, which means their value
will be affected by changes in the strength of foreign currencies
relative to the U.S. dollar as well as the other factors that affect
security prices. Foreign companies may not be subject to accounting
standards or governmental supervision comparable to U.S. companies,
and there often is less publicly available information about their
operations. Generally, there is less governmental regulation of
foreign securities markets, and security trading practices abroad may
offer less protection to investors such as the Portfolio. The value of
such investments may be adversely affected by changes in political or
social conditions, diplomatic relations, confiscatory taxation,
expropriation, nationalization, limitation on the removal of funds or
assets, or imposition of (or change in) exchange control or tax
regulations in those foreign countries. Additional risks of foreign
securities include settlement delays and costs, difficulties in
obtaining and enforcing judgments, and taxation of dividends at the
source of payment. The Portfolio will not invest more than 5% of the
value of its total assets in the securities of issuers based in
developing countries, including Eastern Europe.

Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, the value of the net assets of the
Portfolio as measured in U.S. dollars will be affected favorably or
unfavorably by changes in exchange rates. In order to protect against
uncertainty in the level of future foreign currency exchange rates,
the Portfolio is also authorized to enter into certain foreign
currency exchange transactions. Furthermore, the Portfolio's foreign
investments may be less liquid and their prices may be more volatile
than comparable investments in securities of U.S. companies. The
settlement periods for foreign securities, which are often longer than
those for securities of U.S. issuers, may affect portfolio liquidity.
Finally, there may be less government supervision and regulation of
securities exchanges, brokers and issuers in foreign countries than in
the United States.

Portfolio Turnover. The Portfolio intends to manage its holdings
actively to pursue its investment objective. Since the Portfolio has a
long-term investment perspective, it does not intend to respond to
short-term market fluctuations or to acquire securities for the
purpose of short-term trading; however, it may take advantage of
short-term trading opportunities that are consistent with its
objective. The portfolio turnover rate of the Portfolio may exceed
100%. For the fiscal year ended September 30, 1996, and for the period
from January 1, 1995 to September 30, 1995, the Portfolio's portfolio
turnover rates were 271% and 125%, respectively.

Derivatives. The Portfolio 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 in the Appendix.

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, as the Portfolio's administrator (the
"Administrator"), supervises the overall administration of the
Portfolio. Bankers Trust is also the Portfolio's fund accountant,
transfer agent, custodian and dividend paying agent.

The Portfolio has retained the services of Bankers Trust, as
investment adviser. Anthony Takazawa, CFA, Vice President of Bankers
Trust, has senior management responsibilities for the Capital
Appreciation Portfolio. Mr. Takazawa joined Bankers Trust in 1996. He
has eight years of investment and financial analysis experience.
Previously, he worked at Phoenix Mutual Life Insurance Company as an
investment analyst, portfolio manager and director of research.

Bankers Trust, a New York banking corporation with principal executive
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 markets. 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 is one of the
nation's largest and most experienced investment managers with
approximately $215 billion in assets under management globally.

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 that 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. 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 0.65% of the Portfolio's average daily net assets pursuant to
an investment advisory agreement.

Under an 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 0.10% 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.

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.

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 Investment Company Act of
1940 (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 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 calendar 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.



<PAGE>


Appendix
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Short-Term Instruments. The Portfolio intends to stay invested in the
securities described above to the extent practical in light of its
objective and long-term investment perspective. However, the
Portfolio's assets may be invested in short-term instruments with
remaining maturities of 397 days or less to meet anticipated
withdrawals and expenses or for day-to-day operating purposes and
when, in Bankers Trust's opinion, it is advisable to adopt a temporary
defensive position because of unusual and adverse conditions affecting
the equity markets. In addition, 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 are unavailable in sufficient quantities or at attractive
prices, the Portfolio may hold short-term investments for a limited
time pending availability of such equity securities. Short-term
instruments consist of foreign and 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 Moody's Investors
Service, Inc. ("Moody's") or AA or higher by Standard & Poor's Ratings
Group ("S&P") or, if unrated, of comparable quality in the opinion of
Bankers Trust; (iii) commercial paper; (iv) bank obligations,
including negotiable certificates of deposit, time deposits and
bankers' acceptances; and (v) repurchase agreements. At the time the
Portfolio invests in commercial paper, bank obligations or repurchase
agreements, the issuer or the issuer's parent must have outstanding
debt rated Aa or higher by Moody's or AA or higher by S&P or
outstanding commercial paper or bank obligations rated Prime-1 by
Moody's or A-1 by S&P; or, if no such ratings are available, the
instrument must be of comparable quality in the opinion of Bankers
Trust. These instruments may be denominated in U.S. dollars or in
foreign currencies.

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 ("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 the 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.

Securities Lending. The Portfolio is permitted to lend up to 30% of
the total value of its securities. These loans must be secured
continuously by cash or equivalent collateral or by a letter of credit
at least equal to the market value of the securities loaned plus
accrued income. By lending its securities, the Portfolio can increase
its income by continuing to receive income on the loaned securities as
well as by the opportunity to receive interest on the collateral. Any
gain or loss in the market price of the borrowed securities which
occurs during the term of the loan inures to the Portfolio and its
investors. In lending securities to brokers, dealers and other
organizations, the Portfolio is subject to risks which, like those
associated with other extensions of credit, include delays in recovery
and possible loss of rights in the collateral should the borrower fail
financially.

Repurchase Agreements. In a repurchase agreement the Portfolio buys a
security and simultaneously agrees to sell it back at a higher price.
In the event of the bankruptcy of the other party to either a
repurchase agreement or a securities loan, the Portfolio could
experience delays in recovering either its cash or the securities it
lent. To the extent that, in the meantime, the value of the securities
repurchased had decreased or the value of the securities lent had
increased, the Portfolio could experience a loss. In all cases,
Bankers Trust must find the creditworthiness of the other party to the
transaction satisfactory. A repurchase agreement is considered a
collateralized loan under the 1940 Act.

Foreign Investments. The Portfolio may invest in securities of foreign
issuers directly or in the form of American Depositary Receipts
("ADRs"), Global Depositary Receipts ("GDRs"), European Depositary
Receipts ("EDRs") or other similar securities representing securities
of foreign issuers. Designated for use in U.S., global and European
securities markets, respectively, ADRs, GDRs and EDRs are alternatives
to the purchase of the underlying securities in their national markets
and currencies. ADRs, GDRs and EDRs are subject to the same risks as
the foreign securities to which they relate.

With respect to certain countries in which capital markets are either
less developed or not easily accessed, investments by the Portfolio
may be made through investment in other investment companies that in
turn are authorized to invest in the securities of such countries.
Investment in other investment companies is limited in amount by the
1940 Act, will involve the indirect payment of a portion of the
expenses, including advisory fees, of such other investment companies
and may result in a duplication of fees and expenses.

Options on Stocks. The Portfolio may write and purchase put and call
options on stocks. A call option gives the purchaser of the option the
right to buy, and obligates the writer to sell, the underlying stock
at the exercise price at any time during the option period. Similarly,
a put option gives the purchaser of the option the right to sell, and
obligates the writer to buy, the underlying stock at the exercise
price at any time during the option period. A covered call option,
which is a call option with respect to which the Portfolio owns the
underlying stock, sold by the Portfolio exposes the Portfolio during
the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying stock or to
possible continued holding of a stock which might otherwise have been
sold to protect against depreciation in the market price of the stock.
A covered put option sold by the Portfolio exposes the Portfolio
during the term of the option to a decline in price of the underlying
stock. A put option sold by the Portfolio is covered when, among other
things, cash or liquid securities are placed in a segregated account
to fulfill the obligations undertaken.

To close out a position when writing covered options, the Portfolio
may make a "closing purchase transaction", which involves purchasing
an option on the same stock with the same exercise price and
expiration date as the option which it has previously written on the
stock. 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.

The Portfolio intends to treat over-the-counter options ("OTC
Options") purchased and the assets used to "cover" OTC Options written
as not readily marketable and therefore subject to the limitations
described in "Investment Restrictions" in Part B.

The Portfolio will write and purchase options only to the extent
permitted by the policies of state securities authorities in states
where shares of the investors in the Portfolio are qualified for offer
and sale.

Options on Stock Indices. The Portfolio may purchase and write put and
call options on stock indices listed on stock exchanges. A stock index
fluctuates with changes in the market values of the stocks included in
the index.

Options on stock indices are generally similar to options on stock
except that the delivery requirements are different. Instead of giving
the right to take or make delivery of stock at a specified price, an
option on a stock index gives the holder the right to receive a cash
"exercise settlement amount" equal to (a) the amount, if any, by which
the fixed exercise price of the option exceeds (in the case of a put)
or is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (b) a fixed
"index multiplier". Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being
greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. The amount of cash received
will be equal to such difference between the closing price of the
index and the exercise price of the option expressed in dollars times
a specified multiple. The writer of the option is obligated, in return
for the premium received, to make delivery of this amount. The writer
may offset its position in stock index options prior to expiration by
entering into a closing transaction on an exchange or the option may
expire unexercised.

Because the value of an index option depends upon movements in the
level of the index rather than the price of a particular stock,
whether the Portfolio will realize a gain or loss from the purchase or
writing of options on an index depends upon movements in the level of
stock prices in the stock market generally or, in the case of certain
indices, in an industry or market segment, rather than movements in
the price of a particular stock. Accordingly, successful use by the
Portfolio of options on stock indices will be subject to Bankers
Trust's ability to predict correctly movements in the direction of the
stock market generally or of a particular industry. This requires
different skills and techniques than predicting changes in the price
of individual stocks.

Futures Contracts on Stock Indices. The Portfolio may enter into
contracts providing for the making and acceptance of a cash settlement
based upon changes in the value of an index of securities ("Futures
Contracts"). This investment technique is designed only to hedge
against anticipated future change in general market prices which
otherwise might either adversely affect the value of securities held
by the Portfolio or adversely affect the prices of securities which
are intended to be purchased at a later date for the Portfolio. A
Futures Contract may also be entered into to close out or offset an
existing futures position.

In general, each transaction in Futures Contracts involves the
establishment of a position which will move in a direction opposite to
that of the investment being hedged. If these hedging transactions are
successful, the futures positions taken for the Portfolio will rise in
value by an amount which approximately offsets the decline in value of
the portion of the Portfolio's investments that are being hedged.
Should general market prices move in an unexpected manner, the full
anticipated benefits of Futures Contracts may not be achieved or a
loss may be realized.

Although Futures Contracts would be entered into for hedging purposes
only, such transactions do involve certain risks. These risks could
include a lack of correlation between the Futures Contract and the
equity market being hedged, a potential lack of liquidity in the
secondary market and incorrect assessments of market trends which may
result in poorer overall performance than if a Futures Contract had
not been entered into.

Brokerage costs will be incurred and "margin" will be required to be
posted and maintained as a good-faith deposit against performance of
obligations under Futures Contracts written for the Portfolio. The
Portfolio may not purchase or sell a Futures Contract if immediately
thereafter its margin deposits on its outstanding Futures Contracts
would exceed 5% of the market value of the Portfolio's total assets.

Options on Futures Contracts. The  Portfolio may invest in options on such
Futures Contracts for similar purposes.

Foreign Currency Exchange Transactions. Because the Portfolio may buy
and sell securities denominated in currencies other than the U.S.
dollar and receives interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Portfolio from time to time
may enter into foreign currency exchange transactions to convert to
and from different foreign currencies and to convert foreign
currencies to and from the U.S. dollar. The Portfolio either enters
into these transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or uses forward
contracts to purchase or sell foreign currencies.

A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract.
Forward foreign currency exchange contracts establish an exchange rate
at a future date. These contracts are transferable in the interbank
market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded
at a net price without commission. The Portfolio maintains with its
custodian a segregated account of high grade liquid assets in an
amount at least equal to its obligations under each forward foreign
currency exchange contract. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the
prices of the Portfolio's securities or in foreign exchange rates, or
prevent loss if the prices of these securities should decline.

The Portfolio may enter into foreign currency hedging transactions in
an attempt to protect against changes in foreign currency exchange
rates between the trade and settlement dates of specific securities
transactions or changes in foreign currency exchange rates that would
adversely affect a portfolio position or an anticipated investment
position. Since consideration of the prospect for currency parities
will be incorporated into Bankers Trust's long-term investment
decisions, the Portfolio will not routinely enter into foreign
currency hedging transactions with respect to security transactions;
however, Bankers Trust believes that it is important to have the
flexibility to enter into foreign currency hedging transactions when
it determines that the transactions would be in the Portfolio's best
interest. Although these transactions tend to minimize the risk of
loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized
should the value of the hedged currency increase. The precise matching
of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of
market movements in the value of such securities between the date the
forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and
the successful execution of a hedging strategy is highly uncertain.

Options on Foreign Currencies. The Portfolio may write covered put and
call options and purchase put and call options on foreign currencies
for the purpose of protecting against declines in the dollar value of
portfolio securities and against increases in the dollar cost of
securities to be acquired. The Portfolio may use options on currency
to cross-hedge, which involves writing or purchasing options on one
currency to hedge against changes in exchange rates for a different,
but related currency. As with other types of options, however, the
writing of an option on foreign currency will constitute only a
partial hedge up to the amount of the premium received, and the
Portfolio could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase
of an option on foreign currency may be used to hedge against
fluctuations in exchange rates although, in the event of exchange rate
movements adverse to the Portfolio's position, it may forfeit the
entire amount of the premium plus related transaction costs. In
addition, the Portfolio may purchase call options on currency when the
Adviser anticipates that the currency will appreciate in value.

There is no assurance that a liquid secondary market on an options
exchange will exist for any particular option, or at any particular
time. If the Portfolio is unable to effect a closing purchase
transaction with respect to covered options it has written, the
Portfolio will not be able to sell the underlying currency or dispose
of assets held in a segregated account until the options expire or are
exercised. Similarly, if the Portfolio is unable to effect a closing
sale transaction with respect to options it has purchased, it would
have to exercise the options in order to realize any profit and will
incur transaction costs upon the purchase or sale of underlying
currency. The Portfolio pays brokerage commissions or spreads in
connection with its options transactions.

As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and
credit risks which may not be present in the case of exchange-traded
currency options. The Portfolio's ability to terminate OTC Options
will be more limited than with exchange-traded options. It is also
possible that broker-dealers participating in OTC Options transactions
will not fulfill their obligations. Until such time as the staff of
the SEC changes its position, the Portfolio will treat purchased OTC
Options and assets used to cover written OTC Options as illiquid
securities. With respect to options written with primary dealers in
U.S. government securities pursuant to an agreement requiring a
closing purchase transaction at a formula price, the amount of
illiquid securities may be calculated with reference to the repurchase
formula.

All options that the Portfolio writes will be covered under applicable
requirements of the SEC. There can be no assurance that the use of
these portfolio strategies will be successful.

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.









Capital Appreciation Portfolio

PART B



Item 10. Cover Page.

Not applicable.

Item 11. Table of Contents.



General Information and History.............................................1

Investment Objective and Policies...........................................1

Management of the Portfolio.................................................11

Control Persons and Principal Holders of Securities.........................12

Investment Advisory and Other Services......................................12

Brokerage Allocation and Other Practices....................................13

Capital Stock and Other Securities..........................................14

Purchase, Redemption and Pricing of Securities..............................15

Tax Status..................................................................16

Underwriters................................................................17

Calculation of Performance Data.............................................17

Financial Statements........................................................17

Appendix: Bond and Commercial Paper Ratings.................................18

Item 12. General Information and History.



Not applicable.

Item 13. Investment Objective and Policies.



Part A contains additional information about the investment objective
and policies of Capital Appreciation Portfolio (the "Portfolio"). This
Part B should only be read in conjunction with Part A.

Certificates of Deposit and Bankers' Acceptances. Certificates of
deposit are receipts issued by a depository institution in exchange
for the deposit of funds. The issuer agrees to pay the amount
deposited plus interest to the bearer of the receipt on the date
specified on the certificate. The certificate usually can be traded in
the secondary market prior to maturity. Bankers' acceptances typically
arise from short-term credit arrangements designed to enable
businesses to obtain funds to finance commercial transactions.
Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for
specific merchandise. The draft is then "accepted" by a bank that, in
effect, unconditionally guarantees to pay the face value of the
instrument on its maturity date. The acceptance may then be held by
the accepting bank as an earning asset or it may be sold in the
secondary market at the going rate of discount for a specific
maturity. Although maturities for acceptances can be as long as 270
days, most acceptances have maturities of six months or less.

Commercial Paper. Commercial paper consists of short-term (usually
from 1 to 270 days) unsecured promissory notes issued by corporations
in order to finance their current operations. A variable amount master
demand note (which is a type of commercial paper) represents a direct
borrowing arrangement involving periodically fluctuating rates of
interest under a letter agreement between a commercial paper issuer
and an institutional lender pursuant to which the lender may determine
to invest varying amounts.

For a description of commercial paper ratings, see the Appendix.

Illiquid Securities. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of
1933, as amended (the "1933 Act"), securities which are otherwise not
readily marketable and repurchase agreements having a remaining
maturity of longer than seven calendar days. Securities which have not
been registered under the 1933 Act are referred to as private
placements or restricted securities and are purchased directly from
the issuer or in the secondary market. Mutual funds do not typically
hold a significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund
might also have to register such restricted securities in order to
dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.

In recent years, however, a large institutional market has developed
for certain securities that are not registered under the 1933 Act,
including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional
investors depend on an efficient institutional market in which the
unregistered security can be readily resold or on an issuer's ability
to honor a demand for repayment. The fact that there are contractual
or legal restrictions on resale of such investments to the general
public or to certain institutions may not be indicative of their
liquidity.

The Securities and Exchange Commission (the "SEC") has recently
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. Bankers Trust Company
("Bankers Trust"), as the Portfolio's investment adviser (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
"NASD").

The Adviser will monitor the liquidity of Rule 144A securities in the
Portfolio's portfolio securities under the supervision of the 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 wishing to purchase or sell 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).

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, each 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 & Poor's
Rating 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.

Lending of Portfolio Securities. The Portfolio has the authority to
lend portfolio securities to brokers, dealers and other financial
organizations. The Portfolio will not lend securities to Bankers
Trust, Edgewood Services, Inc. ("Edgewood") or their affiliates. By
lending its securities, the Portfolio can increase its income by
continuing to receive interest on the loaned securities as well as by
either investing the cash collateral in short-term securities or
obtaining yield in the form of interest paid by the borrower when U.S.
government obligations are used as collateral. There may be risks of
delay in receiving additional collateral or risks of delay in recovery
of the securities or even loss of rights in the collateral should the
borrower of the securities fail financially. The Portfolio will adhere
to the following conditions whenever its securities are loaned: (i)
the Portfolio must receive at least 100% cash collateral or equivalent
securities from the borrower; (ii) the borrower must increase this
collateral whenever the market value of the securities including
accrued interest rises above the level of the collateral; (iii) the
Portfolio must be able to terminate the loan at any time; (iv) the
Portfolio must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities,
and any increase in market value; (v) the Portfolio may pay only
reasonable custodian fees in connection with the loan; and (vi) voting
rights on the loaned securities may pass to the borrower; provided,
however, that if a material event adversely affecting the investment
occurs, the Board of Trustees must terminate the loan and regain the
right to vote the securities.

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,
foreign currencies, or contracts based on financial indices including
any index of U.S. government securities, foreign 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 ("CFTC"), and must be
executed through a futures commission merchant, or brokerage firm,
which is a member of the relevant contract market. Futures contracts
trade on a number of exchange markets, and, through their clearing
corporations, the exchanges guarantee performance of the contracts 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, Government National
Mortgage Association 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 intends to 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 of the Portfolio has also adopted a restriction 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 (other than those entered into for bona fide hedging
purposes) would exceed 5% of the market value of the total assets of
the Portfolio.

Options on Foreign Currencies. The Portfolio may purchase and write
options on foreign currencies for hedging purposes in a manner similar
to that in which futures contracts on foreign currencies, or forward
contracts, will be utilized. For example, a decline in the dollar
value of a foreign currency in which portfolio securities are
denominated will reduce the dollar value of such securities, even if
their value in the foreign currency remains constant. In order to
protect against such diminutions in the value of portfolio securities,
the Portfolio may purchase put options on the foreign currency. If the
value of the currency does decline, the Portfolio will have the right
to sell such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on its portfolio which
otherwise would have resulted.

Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby
increasing the cost of such securities, the Portfolio may purchase
call options thereon. The purchase of such options could offset, at
least partially, the effects of the adverse movements in exchange
rates. As in the case of other types of options, however, the benefit
to the Portfolio deriving from purchases of foreign currency options
will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Portfolio could sustain
losses on transactions in foreign currency options which would require
it to forego a portion or all of the benefits of advantageous changes
in such rates.

The Portfolio may write options on foreign currencies for the same
types of hedging purposes. For example, where the Portfolio
anticipates a decline in the dollar value of foreign currency
denominated securities due to adverse fluctuations in exchange rates
it could, instead of purchasing a put option, write a call option on
the relevant currency. If the expected decline occurs, the options
will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium
received.

Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired,
the Portfolio could write a put option on the relevant currency which,
if rates move in the manner projected, will expire unexercised and
allow the Portfolio to hedge such increased cost up to the amount of
the premium. As in the case of other types of options, however, the
writing of a foreign currency option will constitute only a partial
hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be
exercised and the Portfolio would be required to purchase or sell the
underlying currency at a loss which may not be offset by the amount of
the premium. Through the writing of options on foreign currencies, the
Portfolio also may be required to forego all or a portion of the
benefits which might otherwise have been obtained from favorable
movements in exchange rates.

The Portfolio intends to write covered call options on foreign
currencies. A call option written on a foreign currency by the
Portfolio is "covered" if the Portfolio owns the underlying foreign
currency covered by the call or has an absolute and immediate right to
acquire that foreign currency without additional cash consideration
(or for additional cash consideration held in a segregated account by
its custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if the Portfolio
has a call on the same foreign currency and in the same principal
amount as the call written where the exercise price of the call held
(a) is equal to or less than the exercise price of the call written or
(b) is greater than the exercise price of the call written if the
difference is maintained by the Portfolio in cash, U.S. government
securities and other high quality liquid debt securities in a
segregated account with its custodian.

The Portfolio also intends to write call options on foreign currencies
that are not covered for cross-hedging purposes. A call option on a
foreign currency is for cross-hedging purposes if it is not covered,
but is designed to provide a hedge against a decline in the U.S.
dollar value of a security which the Portfolio owns or has the right
to acquire and which is denominated in the currency underlying the
option due to an adverse change in the exchange rate. In such
circumstances, the Portfolio collateralizes the option by maintaining
in a segregated account with its custodian, cash or U.S. government
securities or other high quality liquid debt securities in an amount
not less than the value of the underlying foreign currency in U.S.
dollars marked to market daily.

Additional Risks of Options on Futures Contracts, Forward Contracts
and Options on Foreign Currencies. Unlike transactions entered into by
the Portfolio in futures contracts, options on foreign currencies and
forward contracts are not traded on contract markets regulated by the
CFTC or (with the exception of certain foreign currency options) by
the SEC. To the contrary, such instruments are traded through
financial institutions acting as market-makers, although foreign
currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago
Board Options Exchange, subject to SEC regulation. Similarly, options
on currencies may be traded over-the-counter. In an over-the-counter
trading environment, many of the protections afforded to exchange
participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore
continue to an unlimited extent over a period of time. Although the
purchaser of an option cannot lose more than the amount of the premium
plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could
lose amounts substantially in excess of their initial investments, due
to the margin and collateral requirements associated with such
positions.

Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded
on such exchanges. As a result, many of the protections provided to
traders on organized exchanges will be available with respect to such
transactions. In particular, all foreign currency option positions
entered into on a national securities exchange are cleared and
guaranteed by the Options Clearing Corporation ("OCC"), thereby
reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more
readily available than in the over-the-counter market, potentially
permitting the Portfolio to liquidate open positions at a profit prior
to exercise or expiration, or to limit losses in the event of adverse
market movements.

The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid
secondary market described above, as well as the risks regarding
adverse market movements, margining of options written, the nature of
the foreign currency market, possible intervention by governmental
authorities and the effects of other political and economic events. In
addition, exchange-traded options on foreign currencies involve
certain risks not presented by the over-the-counter market. For
example, exercise and settlement of such options must be made
exclusively through the OCC, which has established banking
relationships in applicable foreign countries for this purpose. As a
result, the OCC may, if it determines that foreign governmental
restrictions or taxes would prevent the orderly settlement of foreign
currency option exercises, or would result in undue burdens on the OCC
or its clearing member, impose special procedures on exercise and
settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on
exercise.

As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and
credit risks which may not be present in the case of exchange-traded
currency options. The Portfolio's ability to terminate
over-the-counter options will be more limited than with
exchange-traded options. It is also possible that broker-dealers
participating in over-the-counter options transactions will not
fulfill their obligations. Until such time as the staff of the SEC
changes its position, the Portfolio will treat purchased
over-the-counter options and assets used to cover written
over-the-counter options as illiquid securities. With respect to
options written with primary dealers in U.S. government securities
pursuant to an agreement requiring a closing purchase transaction at a
formula price, the amount of illiquid securities may be calculated
with reference to the repurchase formula.

In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign
exchanges. Such transactions are subject to the risk of governmental
actions affecting trading in or the prices of foreign currencies or
securities. The value of such positions also could be adversely
affected by: (i) other complex foreign political and economic factors;
(ii) lesser availability than in the United States of data on which to
make trading decisions; (iii) delays in the Portfolio's ability to act
upon economic events occurring in foreign markets during nonbusiness
hours in the United States; (iv) the imposition of different exercise
and settlement terms and procedures and margin requirements than in
the United States; and (v) lesser trading volume.

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, 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, as amended (the
"Code"), 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.

The 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.

Forward Foreign Currency Exchange Contracts. Because the Portfolio
buys and sells securities denominated in currencies other than the
U.S. dollar and receives interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Portfolio from time to time
may enter into foreign currency exchange transactions to convert to
and from different foreign currencies and to convert foreign
currencies to and from the U.S. dollar. The Portfolio either enters
into these transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or uses forward
contracts to purchase or sell foreign currencies.

A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract.
Forward foreign currency exchange contracts establish an exchange rate
at a future date. These contracts are transferable in the interbank
market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded
at a net price without commission. The Portfolio maintains with its
custodian a segregated account of high grade liquid assets in an
amount at least equal to its obligations under each forward foreign
currency exchange contract. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the
prices of the Portfolio's securities or in foreign exchange rates, or
prevent loss if the prices of these securities should decline.

The Portfolio may enter into foreign currency hedging transactions in
an attempt to protect against changes in foreign currency exchange
rates between the trade and settlement dates of specific securities
transactions or changes in foreign currency exchange rates that would
adversely affect a portfolio position or an anticipated investment
position. Since consideration of the prospect for currency parities
will be incorporated into Bankers Trust's long-term investment
decisions, the Portfolio will not routinely enter into foreign
currency hedging transactions with respect to security transactions;
however, Bankers Trust believes that it is important to have the
flexibility to enter into foreign currency hedging transactions when
it determines that the transactions would be in the Portfolio's best
interest. Although these transactions tend to minimize the risk of
loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized
should the value of the hedged currency increase. The precise matching
of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of
market movements in the value of such securities between the date the
forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and
the successful execution of a hedging strategy is highly uncertain.

While these contracts are not presently regulated by the CFTC, the
CFTC may in the future assert authority to regulate forward contracts.
In such event the Portfolio's ability to utilize forward contracts in
the manner set forth in Part A to this Registration Statement may be
restricted. Forward contracts may reduce the potential gain from a
positive change in the relationship between the U.S. dollar and
foreign currencies. Unanticipated changes in currency prices may
result in poorer overall performance for the Portfolio than if it had
not entered into such contracts. The use of foreign currency forward
contracts may not eliminate fluctuations in the underlying U.S. dollar
equivalent value of the prices of or rates of return on the
Portfolio's foreign currency denominated portfolio securities and the
use of such techniques will subject the Portfolio to certain risks.

The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency
denominated asset that is the subject of the hedge generally will not
be precise. In addition, the Portfolio may not always be able to enter
into foreign currency forward contracts at attractive prices and this
will limit the Portfolio's ability to use such contract to hedge or
cross-hedge its assets. Also, with regard to the Portfolio's use of
cross-hedges, there can be no assurance that historical correlations
between the movement of certain foreign currencies relative to the
U.S. dollar will continue. Thus, at any time poor correlation may
exist between movements in the exchange rates of the foreign
currencies underlying the Portfolio's cross-hedges and the movements
in the exchange rates of the foreign currencies in which the
Portfolio's assets that are the subject of such cross-hedges are
denominated.

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 1933
Act in selling a portfolio security;

(3) make loans to other persons except (a) through the lending of the
Portfolio's portfolio securities and provided that any such loans not
exceed 30% of the Portfolio's total assets (taken at market value),
(b) through the use of repurchase agreements or the purchase of
short-term obligations or (c) by purchasing a portion of an issue of
debt securities of types distributed publicly or privately;

(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or
commodity contracts (except futures and option contracts) in the
ordinary course of business (the Portfolio may hold and sell, for the
Portfolio's portfolio, real estate acquired as a result of the
Portfolio's ownership of securities);

(5) concentrate  its  investments in any  particular  industry
(excluding U.S. government securities), but if it is deemed
appropriate for the achievement of the Portfolio's investment objective, up
to 25% of its total assets may be invested in any
one industry; and

(6) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act or
the rules and regulations promulgated thereunder, provided that
collateral arrangements with respect to options and futures, including
deposits of initial deposit and variation margin, are not considered
to be the issuance of a senior security for purposes of this
restriction.

Additional Restrictions. In order to comply with certain statutes and policies
the Portfolio will not as a matter of operating
policy:

(i) borrow money (including through reverse repurchase or forward roll
transactions) for any purpose in excess of 5% of the Portfolio's total
assets (taken at cost), except that the Portfolio may borrow for
temporary or emergency purposes up to 1/3 of its total assets;

(ii) pledge, mortgage or hypothecate for any purpose in excess of 10%
of the Portfolio's total assets (taken at market value), provided that
collateral arrangements with respect to options and futures, including
deposits of initial deposit and variation margin, and reverse
repurchase agreements are not considered a pledge of assets for
purposes of this restriction;

(iii) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the
clearance of purchases and sales of securities may be obtained and
except that deposits of initial deposit and variation margin may be
made in connection with the purchase, ownership, holding or sale of
futures;

(iv) sell securities it does not own such that the dollar amount of
such short sales at any one time exceeds 25% of the net equity of the
Portfolio, and the value of securities of any one issuer in which the
Portfolio is short exceeds the lesser of 2.0% of the value of the
Portfolio's net assets or 2.0% of the securities of any class of any
U.S. issuer, and provided that short sales may be made only in those
securities which are fully listed on a national securities exchange or
a foreign exchange (This provision does not include the sale of
securities the Portfolio contemporaneously owns or where the Portfolio
has the right to obtain securities equivalent in kind and amount to
those sold, i.e., short sales against the box.) (The Portfolio has no
current intention to engage in short selling.);

(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 (1) the Portfolio's investment
adviser waives the investment advisory fee with respect to assets
invested in other open-end investment companies and (2) the Portfolio
incurs no sales charge in connection with the investment;

(vii) invest more than 10% of the Portfolio's total assets (taken at
the greater of cost or market value) in securities (excluding Rule
144A securities) that are restricted as to resale under the 1933 Act;

(viii) invest more than 15% of the Portfolio's total assets (taken at
the greater of cost or market value) in (a) securities (excluding Rule
144A securities) that are restricted as to resale under the 1933 Act,
and (b) securities that are issued by issuers which (including
predecessors) have been in operation less than three years (other than
U.S. government securities), provided, however, that 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;

(ix) 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 (excluding Rule 144A securities deemed by the
Board of Trustees of the Portfolio to be liquid);

(x) 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;

(xi) invest in 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 director 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;

(xii) invest in warrants (other than warrants acquired by the
Portfolio as part of a unit or attached to securities at the time of
purchase) if, as a result, the investments (valued at the lower of
cost or market) would exceed 5% of the value of the Portfolio's net
assets or if, as a result, more than 2% of the Portfolio's net assets
would be invested in warrants not listed on a recognized United States
or foreign stock exchange, to the extent permitted by applicable state
securities laws;

(xiii) 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 OCC, 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 5% 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

(xiv) 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 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 Trustees and officers of the Portfolio, their birthdates,
and their principal occupations during the past five years are set
forth below. Their titles may have varied during that period. Unless
otherwise indicated 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) -- 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) -- President
of the Portfolio; 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) -- Retired; Director,
Coutts Group, Coutts Trust Holdings Limited and Coutts (U.S.A.)
International; 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) -- 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
orEdgewood, 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.
The Portfolio and Cash Management, Treasury Money, Tax Free Money, NY
Tax Free Money, International Equity, Utility, Equity 500 Index,
Short/Intermediate U.S. Government Securities, Intermediate Tax Free,
Asset Management and BT Investment Portfolios (the "Fund Complex")
collectively pay each Trustee who is not a director, officer or
employee of the Adviser, the Administrator or any of their affiliates
an annual fee of $10,000, respectively, per annum plus $1,250,
respectively, per meeting attended and reimburses them for travel and
out-of-pocket expenses.

For the fiscal year ended September 30, 1996, the period from January
1, 1995 to September 30, 1995, and the fiscal year ended December 31,
1994, the Portfolio accrued Trustees fees equal to $2,628, $1,107, and
$1,231, respectively. Bankers Trust reimbursed the Portfolio for a
portion of its Trustees fees for the period above. See "Investment
Advisory and Other Services" below.



<PAGE>


The Trustees of the Portfolio received the following remuneration from
the Portfolio for the fiscal year ended September 30, 1996:

Trustees Compensation Table

<TABLE>
<CAPTION>

Name,                         Aggregate                          Total

Position With                 Compensation                       Compensation From

Trust/Portfolio               From Portfolio                     Fund Complex*

- --------------------------------------------------------------------
<S>                          <C>                                 <C>
   
    

Philip W. Coolidge                  none                               none

Trustee of Trust

and Portfolio

Charles P. Biggar                   none                               none

Trustee of Portfolio

   
S. Leland Dill                      none                               $23,000
    

Trustee of Portfolio

   
Philip Saunders, Jr.                none                               $23,000

Trustee of the Portfolio    

</TABLE>

* 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, Capital Appreciation Fund, a Fund in the BT
Investment Funds, International Money Market Fund, a Fund in BT
Pyramid Mutual Funds, and Institutional Cash Management Fund and
Institutional Cash Reserves Fund, funds in the BT Institutional Funds,
together owned approximately 100% of the value of the outstanding
interests in the Portfolio.

Each Fund has informed the Portfolio that whenever it is requested to
vote on matters pertaining to the fundamental policies of the
Portfolio, the Fund will hold a meeting of shareholders and will cast
its votes as instructed by the Fund's shareholders. It is anticipated
that other registered investment companies investing in the Portfolio
will follow the same or a similar practice.

Item 16. Investment Advisory and Other Services.



Bankers Trust manages the assets of the Portfolio pursuant to an
investment advisory agreement (the "Advisory Agreement"). 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;
(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 fiscal year ended September 30, 1996, the period from January
1, 1995 to September 30, 1995, and the fiscal year ended December 31,
1994, Bankers Trust accrued $1,225,764, $482,453, and $329,399,
respectively, in compensation for investment advisory services
provided to the Portfolio. During the same periods, Bankers Trust
reimbursed $319,524, $131,702, and $114,930, 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
(which may be in Bankers Trust's own offices), statistical and
research data, data processing services, clerical, accounting,
bookkeeping and recordkeeping services (including without limitation
the maintenance of such books and records as are required under the
1940 Act and the rules thereunder, except as maintained by other
agents 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
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 shall also provide fund accounting, transfer agency and
custodian services to the Portfolio pursuant to the Administration
Agreement.

For the fiscal year ended September 30, 1996, the period from January
1, 1995 to September 30, 1995, and the fiscal year ended December 31,
1994, Bankers Trust received $188,579, $74,224, and $50,677,
respectively, in compensation for administrative and other services
provided to the Portfolio.

Coopers & Lybrand L.L.P. are the Independent Accountants for the
Portfolio, providing audit services, tax return preparation, and
assistance and consultation with respect to the preparation of filings
with the SEC. The principal business address of Coopers & Lybrand
L.L.P. is 1100 Main Street, Suite 900, Kansas City, Missouri 64105.

Item 17. Brokerage Allocation and Other Practices.



The Adviser is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for the
Portfolio, the selection of brokers, dealers and futures commission
merchants to effect transactions and the negotiation of brokerage
commissions, if any. Broker-dealers may receive brokerage commissions
on portfolio transactions, including options, futures and options on
futures transactions and the purchase and sale of underlying
securities upon the exercise of options. Orders may be directed to any
broker-dealer or futures commission merchant, including to the extent
and in the manner permitted by applicable law, Bankers Trust or its
subsidiaries or affiliates. Purchases and sales of certain portfolio
securities on behalf of the Portfolio are frequently placed by the
Adviser with the issuer or a primary or secondary market-maker for
these securities on a net basis, without any brokerage commission
being paid by the Portfolio. Trading does, however, involve
transaction costs. Transactions with dealers serving as market-makers
reflect the spread between the bid and asked prices. Transaction costs
may also include fees paid to third parties for information as to
potential purchasers or sellers of securities. Purchases of
underwritten issues may be made which will include an underwriting fee
paid to the underwriter.

The Adviser seeks to evaluate the overall reasonableness of the
brokerage commissions paid (to the extent applicable) in placing
orders for the purchase and sale of securities for the Portfolio
taking into account such factors as price, commission (negotiable in
the case of national securities exchange transactions), if any, size
of order, difficulty of execution and skill required of the executing
broker-dealer through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by
the Portfolio to reported commissions paid by others. The Adviser
reviews on a routine basis commission rates, execution and settlement
services performed, making internal and external comparisons.

The Adviser is authorized, consistent with Section 28(e) of the
Securities Exchange Act of 1934, as amended, when placing portfolio
transactions for the Portfolio with a broker to pay a brokerage
commission (to the extent applicable) in excess of that which another
broker might have charged for effecting the same transaction on
account of the receipt of research, market or statistical information.
The term "research, market or statistical information" includes advice
as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or
purchasers or sellers of securities; and furnishing analyses and
reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy and the performance of accounts.

Consistent with the policy stated above, the Rules of Fair Practice of
the NASD and such other policies as the Portfolio's Trustees may
determine, the Adviser may consider sales of securities of other
investment company clients of Bankers Trust as a factor in the
selection of broker-dealers to execute portfolio transactions. Bankers
Trust will make such allocations if commissions are comparable to
those charged by nonaffiliated, qualified broker-dealers for similar
services.

Higher commissions may be paid to firms that provide research services
to the extent permitted by law. Bankers Trust may use this research
information in managing the Portfolio's assets, as well as the assets
of other clients.

Except for implementing the policies stated above, there is no
intention to place portfolio transactions with particular brokers or
dealers or groups thereof. In effecting transactions in
over-the-counter securities, orders are placed with the principal
market-makers for the security being traded unless, after exercising
care, it appears that more favorable results are available otherwise.

Although certain research, market and statistical information from
brokers and dealers can be useful to the Portfolio and to the Adviser,
it is the opinion of the management of the Portfolio that such
information is only supplementary to the Adviser's own research
effort, since the information must still be analyzed, weighed and
reviewed by the Adviser's staff. Such information may be useful to the
Adviser in providing services to clients other than the Portfolio, and
not all such information is used by the Adviser in connection with the
Portfolio. Conversely, such information provided to the Adviser by
brokers and dealers through whom other clients of the Adviser effect
securities transactions may be useful to the Adviser in providing
services to the Portfolio.

In certain instances there may be securities which are suitable for
the Portfolio as well as for one or more of the Adviser's other
clients. Investment decisions for the Portfolio and for the Adviser's
other clients are made with a view to achieving their respective
investment objectives. It may develop that a particular security is
bought or sold for only one client even though it might be held by, or
bought or sold for, other clients. Likewise, a particular security may
be bought for one or more clients when one or more clients are selling
that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment
adviser, particularly when the same security is suitable for the
investment objectives of more than one client. When two or more
clients are simultaneously engaged in the purchase or sale of the same
security, the securities are allocated among clients in a manner
believed to be equitable to each. It is recognized that in some cases
this system could have a detrimental effect on the price or volume of
the security as far as the Portfolio in concerned. However, it is
believed that the ability of the Portfolio to participate in volume
transactions will produce better executions for the Portfolio.

For the fiscal year ended September 30, 1996, the period from January
1, 1995 to September 30, 1995, and the fiscal year ended December 31,
1994, the Portfolio paid brokerage commissions in the amounts of
$648,897, $247,868, and $162,941, respectively.

Item 18. Capital Stock and Other Securities.



Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Investors are entitled to
participate pro rata in distributions of taxable income, loss, gain
and credit of the Portfolio. Upon liquidation or dissolution of the
Portfolio, investors are entitled to share pro rata in the Portfolio's
net assets available for distribution to its investors. Investments in
the Portfolio have no preference, preemptive, conversion or similar
rights and are fully paid and nonassessable, except as set forth
below. Investments in the Portfolio may not be transferred.
Certificates representing an investor's beneficial interest in the
Portfolio are issued only upon the written request of an investor.

Each investor is entitled to a vote in proportion to the amount of its
investment in the Portfolio. Investors in the Portfolio do not have
cumulative voting rights, and investors holding more than 50% of the
aggregate beneficial interest in the Portfolio may elect all of the
Trustees if they choose to do so and in such event the other investors
in the Portfolio would not be able to elect any Trustee. The Portfolio
is not required and has no current intention to hold annual meetings
of investors but the Portfolio will hold special meetings of investors
when in the judgment of the Portfolio's Trustees it is necessary or
desirable to submit matters for an investor vote. No material
amendment may be made to the Portfolio's Declaration of Trust without
the affirmative majority vote of investors (with the vote of each
being in proportion to the amount of its investment).

The Portfolio may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by the vote of two thirds
of its investors (with the vote of each being in proportion to its
percentage of the beneficial interests in the Portfolio), except that
if the Trustees recommend such sale of assets, the approval by vote of
a majority of the investors (with the vote of each being in proportion
to its percentage of the beneficial interests of the Portfolio) will
be sufficient. The Portfolio may also be terminated (i) upon
liquidation and distribution of its assets if approved by the vote of
two thirds of its investors (with the vote of each being in proportion
to the amount of its investment) or (ii) by the Trustees by written
notice to its investors.

The Portfolio is organized as a trust under the laws of the State of
New York. Investors in the Portfolio will be held personally liable
for its obligations and liabilities, subject, however, to
indemnification by the Portfolio in the event that there is imposed
upon an investor a greater portion of the liabilities and obligations
of the Portfolio than its proportionate beneficial interest in the
Portfolio. The Declaration of Trust also provides that the Portfolio
shall maintain appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection of the
Portfolio, its investors, Trustees, officers, employees and agents
covering possible tort and other liabilities. Thus, the risk of an
investor incurring financial loss on account of investor liability is
limited to circumstances in which both inadequate insurance existed
and the Portfolio itself was unable to meet its obligations.

The Declaration of 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
New York Stock Exchange, Inc. (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 or earlier should the NYSE close earlier) (the "Valuation
Time") by dividing the value of the Portfolio's net assets (i.e., the
value of its securities and other assets less its liabilities,
including expenses payable or accrued) by the value of the investment
of the investors in the Portfolio at the time the determination is
made. As of the date of this Registration Statement, the NYSE and New
York chartered banks are both open for trading every weekday except
for (a) the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas; and (b) the preceding Friday or 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.

Securities for which market quotations are not readily available are
valued by Bankers Trust pursuant to procedures adopted by the Board of
Trustees. It is generally agreed that securities for which market
quotations are not readily available should not be valued at the same
value as that carried by an equivalent security which is readily
marketable.

The problems inherent in making a good faith determination of value
are recognized in the codification effected by SEC Financial Reporting
Release No. 1 ("FRR 1" (formerly Accounting Series Release No. 113))
which concludes that there is "no automatic formula" for calculating
the value of restricted securities. It recommends that the best method
simply is to consider all relevant factors before making any
calculation. According to FRR 1, such factors would include
consideration of the:

         type of security involved, financial statements, cost at date
         of purchase, size of holding, discount from market value of
         unrestricted securities of the same class at the time of
         purchase, special reports prepared by analysts, information
         as to any transactions or offers with respect to the
         security, existence of merger proposals or tender offers
         affecting the security, price and extent of public trading in
         similar securities of the issuer or comparable companies, and
         other relevant matters.



To the extent that the Portfolio purchases securities which are
restricted as to resale or for which current market quotations are not
readily available, the Adviser will value such securities based upon
all relevant factors as outlined in FRR 1.

The Portfolio reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or
withdrawal by making payment in whole or in part in readily marketable
securities chosen by the Portfolio and valued as they are for purposes
of computing the Portfolio's net asset value (a redemption in kind).
The Portfolio has elected, however, to be governed by Rule 18f-1 under
the 1940 Act as a result of which the Portfolio is obligated to redeem
beneficial interests with respect to any one investor during any
90-day period, solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Portfolio at the beginning of the period.

The Portfolio has agreed to make a redemption in kind to a Fund which
invests its assets in the Portfolio whenever such Fund wishes to make
a redemption in kind and therefore shareholders of that Fund that
receive redemptions in kind will receive portfolio securities of the
Portfolio and in no case will they receive a security issued by the
Portfolio. The Portfolio will not redeem in kind except in
circumstances in which such Fund is permitted to redeem in kind or
unless requested by that Fund.

Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each day the Portfolio determines its net asset
value. At the close of 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, which represents that investor's share of the
aggregate beneficial interests in the Portfolio. Any additions or
withdrawals which are to be effected as of the close of business on
that day will then be effected. The investor's percentage of the
aggregate beneficial interests in the Portfolio will then be
recomputed 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 close of business on such day plus or minus, as the case may
be, the amount of net additions to or withdrawals from the investor's
investment in the Portfolio effected as of the close of business on
such day, and (ii) the denominator of which is the aggregate net asset
value of the Portfolio as of the close of business on such day plus or
minus, as the case may be, the amount of 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 the close of business on the following business day.

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 Code and regulations promulgated thereunder.

The Portfolio's taxable year-end is September 30. Although, as
described above, the Portfolio will not be subject to Federal income
tax, it will file appropriate income tax returns.

It is intended that the Portfolio's assets, income and distributions
will be managed in such a way that an investor in the Portfolio will
be able to satisfy the requirements of Subchapter M of the Code,
assuming that the investor invested all of its assets in the
Portfolio.

There are certain tax issues that will be relevant to only certain of
the investors, specifically investors that are segregated asset
accounts and investors who contribute assets rather than cash to the
Portfolio. It is intended that such segregated asset accounts will be
able to satisfy diversification requirements applicable to them and
that such contributions of assets will not be taxable provided certain
requirements are met. Such investors are advised to consult their own
tax advisors as to the tax consequences of an investment in the
Portfolio.

Foreign Securities. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. It is impossible to
determine the effective rate of foreign tax in advance since the
amount of the Portfolio's assets to be invested in various countries
will vary.

If the Portfolio is liable for foreign taxes, and if more than 50% of
the value of the Portfolio's total assets at the close of its taxable
year consists of stocks or securities of foreign corporations, it may
make an election pursuant to which certain foreign taxes paid by it
would be treated as having been paid directly by its investors.
Pursuant to such election, the amount of foreign taxes paid will be
included in the income of the Portfolio's investors, and such
investors (except tax-exempt investors) may, subject to certain
limitations, claim either a credit or deduction for the taxes. Each
such investor will be notified after the close of the Portfolio's
taxable year whether the foreign taxes paid will "pass through" for
that year and, if so, such notification will designate (a) the
investor's portion of the foreign taxes paid to each such country and
(b) the portion which represents income derived from sources within
each such country.

The amount of foreign taxes for which an investor may claim a credit
in any year will generally be subject to a separate limitation for
"passive income", which includes, among other items of income,
dividends, interest and certain foreign currency gains. Because
capital gains realized by the Portfolio on the sale of foreign
securities will be treated as U.S.-source income, the available credit
of foreign taxes paid with respect to such gains may be restricted by
this limitation.

Item 21. Underwriters.



The placement agent for the Portfolio is 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, contained in the Annual Report of
the BT Investment Funds dated September 30, 1996, (File No. 811-04760)
for the fiscal year ended September 30, 1996, are incorporated by
reference into this Part B:

         Statement of Assets and Liabilities, September 30, 1996

         Statement of Operations for the fiscal year ended September 30, 1996

         Statement of Changes in Net Assets for the fiscal year ended
         September 30, 1996, and for the period from January 1, 1995
         to September 30, 1995

         Financial Highlights: Selected ratios and supplemental data for the
         periods indicated

         Schedule of Portfolio Investments, September 30, 1996

         Notes to Financial Statements

         Report of Independent Accountants



<PAGE>


Appendix: Bond and Commercial Paper Ratings.

Set forth below are descriptions of the ratings of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P"),
which represent their opinions as to the quality of the securities
which they undertake to rate. It should be emphasized, however, that
ratings are relative and subjective and are not absolute standards of
quality.

S&P's Bond Ratings



An S&P corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation.
Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong. Debt rated "AA"
has a very strong capacity to pay interest and to repay principal and
differs from the highest rated issues only in small degree.

The rating "AA" may be modified by the addition of a plus or minus
sign to show relative standing within such category.

Moody's Bond Ratings



Excerpts from Moody's description of its corporate bond ratings:
Aaa--judged to be the best quality, carry the smallest degree of
investment risk; Aa--judged to be of high quality by all standards.

Fitch Investors Service Bond Ratings



AAA. Securities of this rating are regarded as strictly high-grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions, and liable to but slight market fluctuation other than
through changes in the money rate. The factor last named is of
importance varying with the length of maturity. Such securities are
mainly senior issues of strong companies, and are most numerous in the
railway and public utility fields, though some industrial obligations
have this rating. The prime feature of an AAA rating is showing of
earnings several times or many times interest requirements with such
stability of applicable earnings that safety is beyond reasonable
question whatever changes occur in conditions. Other features may
enter in, such as a wide margin of protection through collateral
security or direct lien on specific property as in the case of high
class equipment certificates or bonds that are first mortgages on
valuable real estate. Sinking funds or voluntary reduction of the debt
by call or purchase are often factors, while guarantee or assumption
by parties other than the original debtor may also influence the
rating.

AA. Securities in this group are of safety virtually beyond question,
and as a class are readily salable while many are highly active. Their
merits are not greatly unlike those of the AAA class, but a security
so rated may be of junior though strong lien--in many cases directly
following an AAA security--or the margin of safety is less strikingly
broad. The issue may be the obligation of a small company, strongly
secured but influenced as to ratings by the lesser financial power of
the enterprise and more local type of market.

S&P's Commercial Paper Ratings



A is the highest commercial paper rating category utilized by S&P,
which uses the numbers 1+, 1, 2 and 3 to denote relative strength
within its A classification. Commercial paper issues rated A by S&P
have the following characteristics: Liquidity ratios are better than
industry average. Long-term debt rating is A or better. The issuer has
access to at least two additional channels of borrowing. Basic
earnings and cash flow are in an upward trend. Typically, the issuer
is a strong company in a well-established industry and has superior
management.

Moody's Commercial Paper Ratings



Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well-established
industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established
access to a range of financial markets and assured sources of
alternate liquidity.

Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory
obligations. The effect of industry characteristics and market
composition may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt protection
measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.

Fitch Investors Service and Duff & Phelps Commercial Paper Ratings



Commercial paper rated "Fitch-1" is considered to be the highest grade
paper and is regarded as having the strongest degree of assurance for
timely payment. "Fitch-2" is considered very good grade paper and
reflects an assurance of timely payment only slightly less in degree
than the strongest issue.

Commercial paper issues rated "Duff 1" by Duff & Phelps, Inc. have the
following characteristics: very high certainty of timely payment,
excellent liquidity factors supported by strong fundamental protection
factors, and risk factors which are very small. Issues rated "Duff 2"
have a good certainty of timely payment, sound liquidity factors and
company fundamentals, small risk factors, and good access to capital
markets.









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 the
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) Not applicable;

     (12) Not applicable;

     (13) Investment representation letters of initial investors; (1)

     (14) Not applicable;

     (15) Not applicable;

     (16) Not applicable;

     (17) Copy of Financial Data Schedule; (3)

     (18) Not applicable;

     (19) Conformed copy of Power of Attorney. (3)



- --------------------

     +   All exhibits been filed electronically.



1.   Previously filed on December 31, 1992.



2.   Response is incorporated by reference to Registrant's
Amendment No. 3 on Form N-1A filed January 29, 1996.



3.   Response is incorporated by reference to Registrant's Amendment
No. 4 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                                 3



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. 3 on
Form N-1A filed January 29, 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.



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

<S>                                            <C>                                    <C>

 Business Address                                 With Distributor                        With Registrant

Lawrence Caracciolo                            Director, President,                              --

Federated Investors Tower                      Edgewood Services, Inc.

Pittsburgh, PA 15222-3779



Arthur L. Cherry                               Director,                                         --

Federated Investors Tower                      Edgewood Services, Inc.

Pittsburgh, PA 15222-3779



J. Christopher Donahue                         Director,                                         --

Federated Investors Tower                      Edgewood Services, Inc.

Pittsburgh, PA 15222-3779



Ronald M. Petnuch                              Vice President,                           President and Treasurer

Federated Investors Tower                      Edgewood Services, Inc.

Pittsburgh, PA 15222-3779





<PAGE>


Thomas P. Schmitt                              Vice President,                                   --

Federated Investors Tower                      Edgewood Services, Inc.

Pittsburgh, PA 15222-3779





Ernest L. Linane                               Assistant Vice President,                         --

Federated Investors Tower                      Edgewood Services, Inc.

Pittsburgh, PA 15222-3779



S. Elliott Cohan                               Secretary,                            Assistant Secretary

Federated Investors Tower                      Edgewood Services, Inc.

Pittsburgh, PA 15222-3779



Thomas J. Ward                                 Assistant Secretary,                              --

Federated Investors Tower                      Edgewood Services, Inc.

Pittsburgh, PA 15222-3779



Kenneth W. Pegher, Jr.                         Treasurer,                                        --

Federated Investors Tower                      Edgewood Services, Inc.

Pittsburgh, PA 15222-3779



(c)      None



ITEM 30. Location of Accounts and Records:



Registrant:                                          Federated Investors Tower

                                                     Pittsburgh, Pennsylvania 15222-3779

</TABLE>

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, CAPITAL APPRECIATION PORTFOLIO, has duly caused this
Amendment No. 5 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 2nd day
of June, 1997.



                    CAPITAL APPRECIATION PORTFOLIO





                                    By: /s/ Jay S. Neuman

                                    Jay S. Neuman, Secretary

                                    June 2, 1997













Exhibit 8 under Form N-1A

Exhibit 10 uner 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 CAPITAL APPRECIATION 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:



                           Capital Appreciation 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.



                                         CAPITAL APPRECIATION 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 Capital Appreciation 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      CAPITAL APPRECIATION 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 Capital Appreciation 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 Capital Appreciation 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        CAPITAL APPRECIATION 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 Capital Appreciation 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







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