MORGAN GRENFELL INVESTMENT TRUST
485BPOS, 1996-08-27
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     As filed with the Securities and Exchange Commission on August 27, 1996
    


                       1933 Act Registration No. 33-68704

                       1940 Act Registration No. 811-8006

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form N-1A

      REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933     /___/ 
                                                                        
                      Pre-Effective Amendment No.  ___            /___/ 

   
                      Post-Effective Amendment No.  11            / X /
                                                                  ----
    

                                     and/or

      REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT      
      OF 1940                                                     /___/
                                                                       
                                          
   
                      Amendment No.  13                           / X /
                                     ----------------------------------
    

                        (Check appropriate box or boxes)

                        MORGAN GRENFELL INVESTMENT TRUST
               (Exact name of registrant as specified in Charter)
                                885 Third Avenue
                            New York, New York 10022
                    (Address of Principal Executive Offices)

                         Registrant's Telephone Number,
                        including Area Code: 212-230-2600

                                                    Copy to:

James E. Minnick                                    Ernest V. Klein, Esq.
Morgan Grenfell Capital Management, Inc.            Hale and Dorr
885 Third Avenue                                    Sixty State Street
New York, New York  10022                           Boston, Massachusetts  02109
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

   
     X   on August 27, 1996 pursuant to paragraph (b) of Rule 485
   -----
    

Registrant has registered an indefinite  number of shares pursuant to Rule 24f-2
under the Investment  Company Act of 1940, as amended.  Registrant  filed a Rule
24f-2 Notice for its fiscal year ended October 31, 1995 on November 15, 1995.

<PAGE>


                              CROSS REFERENCE SHEET
                            (as required by Rule 495)

                        Morgan Grenfell Investment Trust

<TABLE>
<CAPTION>

N-1A Item No.                                                                         Location
- -------------                                                                         --------
<S>                     <C>                                                           <C>
Part A

Item 1.                 Cover Page                                                    Cover Page

Item 2.                 Synopsis                                                      Expense Information

Item 3.                 Condensed Financial Information                               Financial Highlights

Item 4.                 General Description of Registrant                             Cover Page; Investment Objectives and
                                                                                      Policies; Description of Securities and
                                                                                      Investment Techniques and Related
                                                                                      Risks; Additional Investment
                                                                                      Information; Organization and Shares of
                                                                                      the Trust

Item 5.                 Management of the Fund                                        Management of the Funds

Item 6.                 Capital Stock and Other Securities                            Dividends, Distributions and Taxes;
                                                                                      Organization and Shares of the Trust;
                                                                                      Purchase of Shares

Item 7.                 Purchase of Securities Being                                  Purchase of Shares; Net
                        Offered                                                       Asset Value

Item 8.                 Redemption or Repurchase                                      Redemption of Shares

Item 9.                 Pending Legal Proceedings                                     Not Applicable


Part B

Item 10.                Cover Page                                                    Cover Page

Item 11.                Table of Contents                                             Table of Contents

Item 12.                General Information and History                               Not Applicable

<PAGE>

N-1A Item No.                                                                         Location
- -------------                                                                         --------
Item 13.                Investment Objectives and Policies                            Additional Information on Fund
                                                                                      Investments and Strategies and Related
                                                                                      Risks; Investment Restrictions;
                                                                                      Investment Advisory and Other Services

Item 14.                Management of the Fund                                        Trustees and Officers

Item 15.                Control Persons and Principal                                 Trustees and Officers
                        Holders of Securities

Item 16.                Investment Advisory and                                       Investment Advisory and
                        Other Services                                                Other Services; Additional Information

Item 17.                Brokerage Allocation and Other                                Portfolio Transactions
                        Practices

Item 18.                Capital Stock and Other                                       General Information About
                        Securities                                                    the Trust

Item 19.                Purchase, Redemption and                                      Net Asset Value
                        Pricing of Securities Being
                        Offered

Item 20.                Tax Status                                                    Taxes

Item 21.                Underwriters                                                  Investment Advisory
                                                                                      and Other Services

Item 22.                Calculation of Performance Data                               Performance Information

Item 23.                Financial Statements                                          Financial Statements

Part C

</TABLE>


Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.

<PAGE>

                        MORGAN GRENFELL INVESTMENT TRUST
                             NO-LOAD OPEN-END FUNDS
                                885 THIRD AVENUE
                            NEW YORK, NEW YORK 10022

                                 August 27, 1996

         Morgan Grenfell Investment Trust (the "Trust") is an open-end
management investment company consisting of a number of investment portfolios.
This Prospectus offers the following diversified investment portfolios of the
Trust: Morgan Grenfell Fixed Income Fund, Morgan Grenfell Municipal Bond Fund,
Morgan Grenfell Short-Term Fixed Income Fund, Morgan Grenfell Short-Term
Municipal Bond Fund, Morgan Grenfell Smaller Companies Fund, Morgan Grenfell
Microcap Fund and Morgan Grenfell Large Cap Growth Fund (each a "Fund").
Information concerning investment portfolios of the Trust that focus on
international investments is contained in a separate prospectus that may be
obtained by calling 1-800-814-3401.

         The investment objective of Morgan Grenfell Fixed Income Fund and
Morgan Grenfell Short-Term Fixed Income Fund is to seek a high level of income
consistent with the preservation of capital. The investment objective of Morgan
Grenfell Municipal Bond Fund and Morgan Grenfell Short-Term Municipal Bond Fund
is to seek a high level of income exempt from federal income tax, consistent
with the preservation of capital. The primary investment objective of Morgan
Grenfell Smaller Companies Fund and Morgan Grenfell Large Cap Growth Fund is to
maximize capital appreciation. The sole objective of Morgan Grenfell Microcap
Fund is to maximize capital appreciation.

         Each Fund's primary investments are summarized below:

         MORGAN GRENFELL FIXED INCOME FUND invests primarily in U.S.
dollar-denominated debt securities, including U.S. and non-U.S. government
securities, corporate debt securities and debentures, mortgage-backed and
asset-backed securities and taxable municipal debt securities, and repurchase
agreements with respect to the foregoing. The Fund expects to maintain a dollar
weighted average portfolio maturity of between five and ten years.

         MORGAN GRENFELL MUNICIPAL BOND FUND invests primarily in municipal debt
securities that pay interest exempt from U.S. federal income tax. The Fund
expects to maintain a dollar weighted average portfolio maturity of between five
and ten years.

         MORGAN GRENFELL SHORT-TERM FIXED INCOME FUND invests in the same types
of securities as Morgan Grenfell Fixed Income Fund, but maintains a dollar
weighted average portfolio maturity of no longer than three years.

         MORGAN GRENFELL SHORT-TERM MUNICIPAL BOND FUND invests in the same
types of securities as Morgan Grenfell Municipal Bond Fund, but maintains a
dollar weighted average portfolio maturity of no longer than three years.

         MORGAN GRENFELL SMALLER COMPANIES FUND invests primarily in equity and
equity-related securities of small capitalization U.S. companies.

                                                        (continued on next page)

                                      -1-
<PAGE>

                                   [continued]


         MORGAN GRENFELL MICROCAP FUND invests primarily in equity and
equity-related securities of micro capitalization U.S. companies. Micro
capitalization or "microcap" companies are the smallest capitalization U.S.
companies.

         MORGAN GRENFELL LARGE CAP GROWTH FUND invests primarily in equity and
equity-related securities of large capitalization U.S. companies.

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


         This Prospectus provides information about the Trust and each of the
Funds that investors should know before investing in the Funds. Investors should
carefully read this Prospectus and retain it for future reference. For investors
seeking more detailed information, the Statement of Additional Information dated
August 27, 1996, as amended or supplemented from time to time, is available upon
request without charge by calling 1-800-814-3401 or by writing to SEI Financial
Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658. The
Statement of Additional Information, which is incorporated by reference into
this Prospectus, has been filed with the Securities and Exchange Commission. Not
all of the Funds are available in certain states. Please call 1-800-814-3401 to
determine availability in a particular state.

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


         SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY.

         THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

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

                                      -2-

<PAGE>


                                TABLE OF CONTENTS

   
                                                                          Page
                                                                          ----
Expense Information                                                         4
Financial Highlights                                                        6
Introduction to the Funds                                                   9
Risk Factors                                                               10
Investment Objectives and Policies                                         11
Description of Securities and Investment Techniques        
  and Related Risks                                                        17
Additional Investment Information                                          27
Management of the Funds                                                    29
Purchase of Shares                                                         32
Redemption of Shares                                                       34
Net Asset Value                                                            36
Dividends, Distributions and Taxes                                         37
Organization and Shares of the Trust                                       40
Performance Information                                                    41
Appendix A (Tax Certification Instructions)                                A-1

    


                                      -3-

<PAGE>

   

                              EXPENSE INFORMATION

<TABLE>
<CAPTION>
                                                                  Short-Term    Short-Term    Smaller                Large Cap
                                     Fixed Income   Municipal    Fixed Income   Municipal    Companies    Microcap     Growth
Shareholder Transaction Expenses         Fund       Bond Fund        Fund       Bond Fund       Fund       Fund *      Fund *
- --------------------------------     ------------   ---------    ------------   ----------   ---------    --------   ---------
<S>                                      <C>         <C>           <C>           <C>          <C>         <C>         <C>
Maximum Sales Charge
Imposed on Purchases ................    None          None          None          None         None        None        None

Maximum Sales Charge Imposed on
Reinvested Dividends ................    None          None          None          None         None        None        None

Deferred Sales Charge Imposed
on Redemptions + ....................    None          None          None          None         None        None        None

Exchange Fee ........................    None          None          None          None         None        None        None

- ------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average net assets)

Advisory fees .......................    0.40%         0.40%         0.40%         0.40%        1.00%       1.50%       0.75%
                                                    
Other Expenses ......................    0.23%         0.22%         0.73%         0.73%        0.66%       0.53%       0.48%
                                                    
Reduction of Advisory Fee and Expense               
Limitation by Adviser ** ............   (0.08)%       (0.07)%       (0.58)%       (0.58)%      (0.41)%     (0.28)%     (0.23)%
                                                    
Net Fund Operating Expenses (after                  
advisory fee reduction and expense                  
limitation)**........................    0.55%         0.55%         0.55%         0.55%        1.25%       1.75%       1.00%
                                                   
</TABLE>

*    Microcap Fund and Large Cap Growth Fund were not operational during the
     fiscal year ended October 31, 1995.


**   The Adviser has agreed to reduce its advisory fee and to make arrangements
     to limit certain other expenses to the extent necessary to limit Fund
     Operating Expenses of each Fund, on an annualized basis, to the specified
     percentages of each Fund's assets shown in the above table as Net Fund
     Operating Expenses. The above table and the following example reflect this
     voluntary agreement. In its sole discretion, the Adviser may terminate or
     modify this voluntary agreement at any time after October 31, 1996. The
     purpose of the voluntary agreement is to enhance a Fund's total return
     during the period when, because of its smaller size, fixed expenses have a
     more significant impact on total return. After giving effect to the
     Adviser's voluntary agreement, each Fund's advisory fee is as follows:
     Fixed Income Fund 0.32%, Municipal Bond Fund 0.33%, Short-Term Fixed Income
     Fund 0%, Short-Term Municipal Bond Fund 0%, Smaller Companies Fund 0.59%,
     Microcap Fund 1.22% and Large Cap Growth Fund 0.52%; and the Other Expenses
     of each of Short-Term Fixed Income Fund and Short-Term Municipal Bond Fund
     is 0.55%. If the Adviser's voluntary agreement was not in effect, the Fund
     Operating Expenses for each Fund would be as follows: Fixed Income Fund
     0.63%, Municipal Bond Fund 0.62%, Short-Term Fixed Income Fund 1.13%,
     Short-Term Municipal Bond Fund 1.13%, Smaller Companies Fund 1.66%,
     Microcap Fund 2.03% and Large Cap Growth Fund 1.23%.

+    A fee, currently $10, will be imposed on redemptions by wire.
    


                                      -4-

<PAGE>


EXAMPLE:

         Investors would pay the following expenses on a $1,000((1)) investment
assuming (1) a 5% annual return and (2) redemption at the end of each time
period: 

                                      1 Year   3 Years   5 Years   10 Years
                                      ------   -------   -------   --------
Morgan Grenfell Fixed Income Fund       $6       $18        $31       $69
Morgan Grenfell Municipal Bond Fund     $6       $18        $31       $69

                                                      1 Year        3 Years
                                                      ------        -------
Morgan Grenfell Short-Term Fixed Income Fund           $ 6            $18
Morgan Grenfell Short-Term Municipal Bond Fund         $ 6            $18
Morgan Grenfell Smaller Companies Fund                 $13            $40
Morgan Grenfell Microcap Fund                          $18            $55
Morgan Grenfell Large Cap Growth Fund                  $10            $32

((1))     The minimum initial investment required for each Fund is $250,000.
Exchanges may be made in amounts as low as $50,000. See "Purchase of
Shares--Exchange Privilege."

   
         The purpose of the Expense Information Table and Example is to assist
investors in understanding the various direct and indirect costs and expenses
that an investment in a Fund will bear. "Other Expenses" included in the Expense
Information Table and Example for Morgan Grenfell Fixed Income Fund and Morgan
Grenfell Municipal Bond Fund are based on expenses incurred by these two Funds
during the fiscal year ended October 31, 1995. "Other Expenses" for Morgan
Grenfell Large Cap Growth Fund, Morgan Grenfell Smaller Companies Fund, Morgan
Grenfell Microcap Fund, Morgan Grenfell Short-Term Fixed Income Fund and Morgan
Grenfell Short-Term Municipal Bond Fund are based on estimated average net
assets for the current fiscal year ending October 31, 1996. If the average net
assets of any of these Funds exceeds the corresponding estimate for such year,
then that Fund's "Other Expenses" (as a percentage of average net assets) will
be lower than the rate shown in the table. Conversely, if any of these Funds'
average net assets are lower than the corresponding estimate for such year, then
that Fund's "Other Expenses" (as a percentage of net assets) will be higher than
the rate shown in the table.
    

         The Example assumes reinvestment of all dividends and distributions and
that the percentage amounts listed in the Expense Information Table remain the
same each year. If the Adviser were to discontinue its voluntary fee reductions,
the expenses contained in the Example could increase.

   
     THE EXAMPLE IS DESIGNED FOR INFORMATION PURPOSES ONLY, AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF FUTURE EXPENSES OR RETURN FOR ANY FUND. ACTUAL
EXPENSES AND RETURN VARY FROM YEAR TO YEAR AND MAY BE HIGHER OR LOWER THAN THOSE
SHOWN. FOR FURTHER INFORMATION REGARDING ADVISORY FEES AND OTHER EXPENSES OF THE
FUNDS, SEE "MANAGEMENT OF THE FUNDS."
    

                                       -5-

<PAGE>


                              FINANCIAL HIGHLIGHTS


         Selected unaudited data for an outstanding share of each Fund other
than Morgan Grenfell Microcap Fund and Morgan Grenfell Large Cap Growth Fund
(which had not commenced operations prior to April 30, 1996) during the
six-month period ended April 30, 1996 is set forth on the next two pages. This
information should be read in conjunction with these Funds' unaudited semiannual
financial statements as of April 30, 1996 and the notes thereto, which appear in
the Funds' Statement of Additional Information.

         Selected audited data for an outstanding share of each of these Funds
is presented for periods prior to and ending October 31, 1995. This data,
insofar as it relates to the period ended October 31, 1995, has been audited by
Price Waterhouse LLP, the Funds' independent accountants. The data for periods
prior to and ending October 31, 1994 for Morgan Grenfell Fixed Income Fund and
Morgan Grenfell Municipal Bond Fund has been audited by Arthur Andersen LLP,
which previously served as the independent accountants of these two Funds. This
information should be read in conjunction with the Funds' audited financial
statements as of October 31, 1995 and the notes thereto, which appear in the
Funds' Statement of Additional Information. The Funds' annual report, which
contains additional performance information, and Statement of Additional
Information are available free of charge by calling 1-800-814-3401.

                                       -6-

<PAGE>

   
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
For a Share Outstanding Throughout Each Period Ended October 31

                                          Net
             Net Asset       Net       Realized    Distributions  Distributions
               Value     Investment       and         from Net    from Realized   Net Asset
             Beginning    Income /    Unrealized     Investment      Capital      Value End    Total
   Year      of Period     (Loss)   Gains/(Losses)     Income         Gains       of Period    Return
   ----      ---------   ----------  ------------  -------------  -------------   ---------    ------
<S>          <C>           <C>         <C>            <C>           <C>           <C>           <C>  
- -----------------------
Municipal Bond Fund
- -----------------------
1996 *       $  10.86      $  0.30     $ (0.04)       $ (0.30)          --        $  10.82       2.42%**
1995         $  10.37      $  0.61     $  0.49        $ (0.61)          --        $  10.86      10.90%
1994         $  11.36      $  0.60     $ (0.61)       $ (0.60)      $ (0.38)      $  10.37      (0.15)%
1993         $  10.56      $  0.67     $  0.84        $ (0.67)      $ (0.04)      $  11.36      14.68%
1992 (1)     $  10.00      $  0.60     $  0.56        $ (0.60)          --        $  10.56      13.42%
- -----------------------                                           
Fixed Income Fund                                                 
- -----------------------                                           
1996 *       $  10.62      $  0.34     $ (0.25)       $ (0.34)      $ (0.07)      $  10.30       0.78%**
1995         $   9.93      $  0.70     $  0.69        $ (0.70)          --        $  10.62      14.53%
1994         $  10.95      $  0.64     $ (0.91)       $ (0.64)      $ (0.11)      $   9.93      (2.58)%
1993         $   9.92      $  0.64     $  1.03        $ (0.64)          --        $  10.95      17.28%
1992 (2)     $  10.00      $  0.06     $ (0.08)       $ (0.06)          --        $   9.92      (1.61)% 

</TABLE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
                                                                                Ratio of Net
                                                                   Ratio of      Investment
                                                                   Expenses     Income(Loss)
                                                   Ratio of Net   to Average     to Average
                                        Ratio of    Investment    Net Assets     Net Assets
                         Net Assets   Expenses to  Income(Loss)   (Excluding     (Excluding   Portfolio
                           End of       Average     to Average      Expense       Expense     Turnover
   Year                 Period (000)   Net Assets   Net Assets   Limitations)   Limitations)    Rate
   ----                 ------------  -----------  ------------  ------------   ------------  ----------
<S>                     <C>               <C>          <C>           <C>            <C>         <C>
- -----------------------
Municipal Bond Fund
- -----------------------
1996 *                  $  225,240        0.55%        5.58%         0.61%          5.52%        29%
1995                    $  221,058        0.54%        5.75%         0.62%          5.67%        63%
1994                    $  165,677        0.54%        5.60%         0.67%          5.47%        94%
1993                    $  148,022        0.55%        5.94%         0.75%          5.74%       160%
1992 (1)                $   94,700        0.55%        6.31%         0.79%          6.07%       143%
- -----------------------
Fixed Income Fund
- -----------------------
1996 *                  $  596,099        0.55%        6.37%         0.60%          6.32%        70%
1995                    $  494,221        0.54%        6.81%         0.63%          6.72%       182%
1994                    $  239,556        0.54%        6.22%         0.66%          6.10%       251%
1993                    $  147,917        0.55%        6.01%         0.72%          5.84%       196%
1992 (2)                $   25,528        0.55%        5.24%         1.66%          4.13%       148%

</TABLE>

(END OF RESTUBBED TABLE)

*    Unaudited data for the six month period ended April 30, 1996.

**   Total return for the period indicated has not been annualized.

(1)  Municipal Bond Fund commenced operations on 12/13/91. All ratios for the
     period have been annualized.

(2)  Fixed Income Fund commenced operations on 9/18/92. All ratios for the
     period have been annualized.

(3)  Short-Term Municipal Bond Fund commenced operations on 3/6/95. All ratios
     for the period have been annualized.

(4)  Short-Term Fixed Income Fund commenced operations on 3/13/95. All ratios
     for the period have been annualized.

(5)  Smaller Companies Fund commenced operations on 6/30/95. All ratios for the
     period have been annualized.
    

                                       -7-

<PAGE>

                              FINANCIAL HIGHLIGHTS
   
For a Share Outstanding Throughout Each Period Ended October 31
<TABLE>
<CAPTION>
                                          Net
             Net Asset       Net       Realized    Distributions  Distributions
               Value     Investment       and         from Net    from Realized   Net Asset
             Beginning    Income /    Unrealized     Investment      Capital      Value End    Total
   Year      of Period     (Loss)   Gains/(Losses)      Income         Gains       of Period    Return
   ----      ---------   ----------  ------------  -------------  -------------   ---------    ------
<S>          <C>           <C>         <C>           <C>            <C>           <C>          <C>  
- -------------------------------------
Short-Term Municipal Bond Fund
- -------------------------------------
1996 *       $  10.13      $  0.28     $ (0.04)      $ (0.25)       $ (0.04)      $  10.08      2.47%**
1995 (3)     $  10.00      $  0.30     $  0.13       $ (0.30)          --         $  10.13      4.39%**
- -------------------------------------
Short-Term Fixed Income Fund
- -------------------------------------
1996 *       $  10.01      $  0.29     $ (0.04)      $ (0.29)          --         $   9.97      2.56%**
1995 (4)     $  10.00      $  0.37     $  0.01       $ (0.37)          --         $  10.01      3.82%**
- -------------------------------------
Smaller Companies Fund
- -------------------------------------
1996 *       $  10.55      $  --       $  2.53       $ (0.04)          --         $  13.04     24.01%**
1995 (5)     $  10.00      $  0.03     $  0.52          --             --         $  10.55      5.50%**

</TABLE>

(RESTUBBED TABLE)

<TABLE>
<CAPTION>
                                                                         Ratio of Net
                                                             Ratio of     Investment
                                                             Expenses    Income(Loss)
                                             Ratio of Net   to Average    to Average
                                 Ratio of     Investment    Net Assets    Net Assets
                  Net Assets   Expenses to   Income(Loss)   (Excluding    (Excluding   Portfolio
                    End of       Average      to Average      Expense       Expense     Turnover
    Year         Period (000)   Net Assets    Net Assets   Limitations)  Limitations)     Rate
    ----         ------------  -----------   ------------  ------------  ------------  ---------
<S>               <C>             <C>            <C>           <C>           <C>          <C>
- -------------------------------------------- 
Short-Term Municipal Bond Fund
- --------------------------------------------
1996 *            $  3,627        0.54%          5.50%         1.74%         4.30%        80%
1995 (3)          $  3,724        0.52%          4.60%         2.16%         2.96%        62%
- --------------------------------------------
Short-Term Fixed Income Fund
- --------------------------------------------
1996 *            $  9,318        0.52%          5.78%         1.25%         5.05%        51%
1995 (4)          $  4,140        0.52%          5.86%         2.84%         3.54%        90%
- -------------------------------
Smaller Companies Fund
- -------------------------------
1996 *            $  3,807        1.25%          0.03%         2.47%        (1.19)%       85%
1995 (5)          $  2,638        1.25%          0.94%         2.28%        (0.09)%       23%

</TABLE>

(END OF RESTUBBED TABLE)

*    Unaudited data for the six month period ended April 30, 1996.

**   Total return for the period indicated has not been annualized.

(1)  Municipal Bond Fund commenced operations on 12/13/91. All ratios for the
     period have been annualized.

(2)  Fixed Income Fund commenced operations on 9/18/92. All ratios for the
     period have been annualized.

(3)  Short-Term Municipal Bond Fund commenced operations on 3/6/95. All ratios
     for the period have been annualized.

(4)  Short-Term Fixed Income Fund commenced operations on 3/13/95. All ratios
     for the period have been annualized.

(5)  Smaller Companies Fund commenced operations on 6/30/95. All ratios for the
     period have been annualized.
    

                                       -8-

<PAGE>

                            INTRODUCTION TO THE FUNDS

         Morgan Grenfell Investment Trust (the "Trust") offers a number of
mutual funds, each of which is a separate series of the Trust. This Prospectus
offers shares of Morgan Grenfell Fixed Income Fund, Morgan Grenfell Municipal
Bond Fund, Morgan Grenfell Short-Term Fixed Income Fund, Morgan Grenfell
Short-Term Municipal Bond Fund, Morgan Grenfell Smaller Companies Fund, Morgan
Grenfell Microcap Fund and Morgan Grenfell Large Cap Growth Fund (each a
"Fund"). Information regarding the Trust's other mutual funds (the
"International Funds"), which invest primarily in non-U.S. securities, is
contained in a separate prospectus that may be obtained by calling
1-800-814-3401.

         Morgan Grenfell Capital Management, Inc. (the "Adviser" or "MGCM"),
with offices in Philadelphia and New York City, serves as investment adviser to
each of the Funds. The Adviser is a U.S. investment management subsidiary of
London-based Deutsche Morgan Grenfell Group plc. Together with the Adviser and
its other investment management subsidiaries, Deutsche Morgan Grenfell Group plc
now has over US$80 billion under management.

         Morgan Grenfell Smaller Companies Fund, Morgan Grenfell Microcap Fund,
Morgan Grenfell Short-Term Fixed Income Fund and Morgan Grenfell Short-Term
Municipal Bond Fund are newly organized funds that have limited operating
histories. As of the date of this Prospectus, Morgan Grenfell Large Cap Growth
Fund had not commenced operations and, therefore, had no operating history.
There can be no assurance that any Fund will be able to achieve its investment
objectives.

GENERAL PORTFOLIO MANAGEMENT STRATEGIES

         FIXED INCOME INVESTMENTS. In selecting fixed income investments
(including municipal securities) for Fixed Income Fund, Short-Term Fixed Income
Fund, Municipal Bond Fund and Short-Term Municipal Bond Fund, the Adviser seeks
to achieve these Funds' investment objectives by identifying fixed income
securities which it believes to be undervalued relative to the market rather
than forecasting changes in the interest rate environment. Fixed income
securities may be undervalued for a variety of reasons, such as market
inefficiencies relating to lack of market information about particular features
of such securities, supply and demand shifts and lack of market penetration by
some issues.

         EQUITY INVESTMENTS. In selecting equity investments for Large Cap
Growth Fund, Smaller Companies Fund and Microcap Fund (the "Equity Funds"), the
Adviser looks for companies whose earnings it believes will grow both faster
than inflation and faster than the economy in general. An Equity Fund may invest
in such a company if the Adviser believes that such growth is not yet fully
reflected in the market price of the company's securities. In managing the
Smaller Companies Fund and the 

                                      -9-

<PAGE>


Microcap Fund, the Adviser may also consider the fundamental value of a company,
and may invest in a company where it believes that value is not fully recognized
in the marketplace. Fundamental value is determined by taking into account
various factors including earnings per share, the ratio of book value to market
price, and the company's cash flow and dividend yield.

         In selecting equity investments, the Adviser considers a number of
company-specific factors, including quality of management, a leading or dominant
position in a major product line, a sound financial position, and a relatively
high rate of return on invested capital so that future growth can be financed
from internal sources. The Adviser also considers a company's record of dividend
payments and/or the likelihood that the Company will pay dividends in the
future. However, consistent with their investment objectives, each Equity Fund
may purchase securities of companies that are not expected to pay dividends in
the foreseeable future.

RISK FACTORS

         An investment in any of the Funds is neither insured nor guaranteed by
the U.S. Government, or any agency thereof or any other entity. The value of
each Fund's portfolio securities, and thus the net asset value of its shares
will fluctuate as a result of market factors, including interest rate and stock
market changes, such that the value of the shares, when redeemed, may be more or
less than their original cost.

         In addition, certain of the Funds may employ investment techniques,
including options and futures contracts and other investments that may be
considered derivative investments. These may entail special risks. For example,
there is no limit on the percentage of assets of an Equity Fund that may be at
risk with respect to futures and related options. See "Investment Objectives and
Policies" and "Description of Securities and Investment Techniques and Related
Risks."

                                      -10

<PAGE>


                       INVESTMENT OBJECTIVES AND POLICIES

FIXED INCOME FUND AND SHORT-TERM FIXED INCOME FUND

         The investment objective of the Fixed Income Fund and the Short-Term
Fixed Income Fund (the "Fixed Income Funds") is to seek a high level of income
consistent with the preservation of capital. The FIXED INCOME FUND expects to
maintain a dollar weighted average remaining portfolio maturity of 5 to 10
years. The SHORT-TERM FIXED INCOME FUND will maintain a dollar weighted average
remaining portfolio maturity of no more than 3 years. Because of its shorter
portfolio maturity, it is expected that the Short-Term Fixed Income Fund's per
share net asset value will be less volatile in response to changes in interest
rates. However, under normal conditions, it is expected that the Fixed Income
Fund will have a higher yield than the Short-Term Fixed Income Fund.

         Each Fixed Income Fund will normally invest at least 80% of its assets
in fixed income securities of all types, including (i) U.S. Treasury
obligations; (ii) obligations issued or guaranteed as to principal and interest
by agencies and instrumentalities of the U.S. Government; (iii) custodial
receipts evidencing separately traded principal and interest components of U.S.
Government obligations; (iv) corporate bonds and debentures; (v) equipment lease
and trust certificates; (vi) mortgage-backed securities and asset-backed
securities; (vii) U.S. dollar denominated securities of the Government of Canada
and its provincial and local governments, U.S dollar denominated securities
issued or guaranteed by foreign governments, their political subdivisions,
agencies or instrumentalities and U.S. dollar denominated obligations of
supranational entities; (viii) taxable municipal securities, and state,
municipal or private activity bonds; and (ix) repurchase agreements involving
any of the foregoing. Certain of these securities may have floating or variable
rates of interest or include put features providing the Fund the right to sell
the security at face value prior to maturity. The existence in a Fund's
portfolio of floating and variable rate securities and securities with put
features will have the effect of shortening its dollar weighted average
maturity. Each Fixed Income Fund may purchase securities on a when-issued basis.
Neither Fixed Income Fund's investments in U.S. dollar denominated securities of
non-U.S. issuers will exceed 25% of its total assets.

         Subject to its portfolio maturity policy, a Fixed Income Fund may
purchase securities with any stated remaining maturity. In determining the
maturity of mortgage-backed securities, the Adviser will use the expected life
of such securities, which is based upon the anticipated prepayment patterns of
the underlying mortgages.

         Each Fixed  Income Fund invests  primarily  in fixed income  securities
that, at the time of purchase, are either rated in one of the

                                      -11-

<PAGE>


three highest rating categories assigned by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("Standard & Poor's"), Duff &
Phelps, Inc. ("Duff") or Fitch Investors Service, Inc. ("Fitch") or unrated
securities determined by the Adviser to be of comparable quality. However, each
Fixed Income Fund may also invest up to 15% of its assets in fixed income
securities that are, at the time of purchase, either rated within the fourth
highest rating category assigned by Moody's, Standard & Poor's , Duff or Fitch,
or unrated but determined by the Adviser to be of comparable quality. See
"Description of Securities and Investment Techniques and Related Risks--Fixed
Income Securities." In the event any security held by a Fixed Income Fund is
downgraded below the rating categories set forth above, the Adviser will review
the security and determine whether to retain or dispose of that security,
provided that neither Fixed Income Fund may hold, at any time, more than 5% of
its net assets in fixed income securities that are not investment grade. Fixed
income securities rated in one of the four highest ratings categories and
unrated securities determined by the Adviser to be of comparable quality are
referred to herein as "investment grade fixed income securities." Fixed income
securities in the lowest investment grade category are considered medium grade
securities. Such securities have speculative characteristics, involve greater
risk of loss than higher quality securities, and are more sensitive to changes
in the issuer's capacity to pay.

         Under normal conditions, each Fixed Income Fund may hold up to 20% of
its total assets in cash or money market instruments in order to maintain
liquidity, or in the event that the Adviser determines that securities meeting
the Fund's investment objective and policies are not otherwise readily available
for purchase. For a definition of money market instruments and the Fixed Income
Funds' policies on temporary defensive investments, see "Description of
Securities and Investment Techniques and Related Risks--Additional Investment
Techniques."

MUNICIPAL BOND FUND AND SHORT-TERM MUNICIPAL BOND FUND

         The investment objective of the Municipal Bond Fund and the Short-Term
Municipal Bond Fund (the "Municipal Funds") is to seek a high level of income
exempt from regular federal income tax (i.e., excluded from gross income for
federal income tax purposes), consistent with the preservation of capital.
However, there is no restriction on the percentage of either Municipal Fund's
assets that may be invested in obligations the interest on which is a preference
item for purposes of the federal alternative minimum tax. The MUNICIPAL BOND
FUND expects to maintain a dollar weighted average remaining portfolio maturity
of 5 to 10 years. The SHORT-TERM MUNICIPAL BOND FUND will maintain a dollar
weighted average remaining portfolio maturity of no more than 3 years. Because
of its shorter portfolio maturity, it is expected that the Short-Term Municipal
Bond Fund's per share net asset value will be less volatile in response to
changes in interest rates. However, under 

                                      -12-

<PAGE>

normal conditions, it is expected that the Municipal Bond Fund will have a
higher yield than the Short-Term Municipal Bond Fund.

         Under normal market conditions, each Municipal Fund invests at least
80% of its total assets in municipal securities the interest on which is exempt
from regular federal income tax, and invests at least 65% of its total assets in
municipal bonds. Municipal bonds consist of (i) debt obligations, including
municipal leases, issued by or on behalf of public authorities to obtain funds
to be used for various public facilities, for refunding outstanding obligations,
for general operating expenses and for lending such funds to other public
institutions and facilities, and (ii) certain private activity and industrial
development bonds issued by or on behalf of public authorities to obtain funds
to provide for the construction, equipment, repair or improvement of privately
operated facilities. The issuers of these municipal securities may be located in
all 50 U.S. states, the District of Columbia, Puerto Rico and other U.S.
territories and possessions. Certain of these securities may have variable and
floating rates of interest or include "put" features providing the Fund the
right to sell the securities at face value prior to maturity. The existence in a
Fund's portfolio of variable and floating rate securities and securities having
put features will have the effect of shortening its average dollar weighted
portfolio maturity. The Municipal Funds may purchase securities on a when-issued
basis.

         The Municipal Funds' investments in municipal notes may include, but
are not limited to, general obligation notes, tax anticipation notes (notes sold
to finance working capital needs of the issuers in anticipation of receiving
taxes on a future date), revenue anticipation notes (notes sold to provide
needed cash prior to receipt of expected non-tax revenues from a specific
source), bond anticipation notes, certificates of indebtedness, demand notes and
construction loan notes and participation rights therein. Investments in any of
the notes described above will be limited to those obligations that, at the time
of purchase, are rated MIG-1 or V-MIG-1 by Moody's, rated SP-1 by Standard &
Poor's, or are unrated but are determined by the Adviser to be of comparable
quality.

         The Municipal Funds' investments in municipal bonds may include, but
are not limited to, general obligation bonds, revenue or special obligation
bonds, and private activity and industrial development bonds. Each Municipal
Fund may invest 25% or more of its total assets in private activity and
industrial development bonds if the interest paid on them is exempt from regular
income tax. See "Description of Securities and Investment Techniques--Fixed
Income Securities."

         Except as noted below, municipal bonds in which a Municipal Fund
invests must be rated A or better by Moody's or by Standard & Poor's at the time
of investment or, if unrated, must be determined by the Adviser to be of
comparable quality. Each Municipal Fund may, however, invest up to 15% of its
assets in bonds that, at the time of purchase, are 

                                      -13-

<PAGE>

rated Baa by Moody's, rated BBB by Standard & Poor's, or unrated and determined
by the Adviser to be of comparable quality. Municipal securities in the lowest
investment grade category are considered medium grade securities. Such
securities have speculative characteristics, involve greater risk of loss than
higher quality securities, and are more sensitive to changes in the issuer's
capacity to pay.

         The Municipal Funds' investments in tax-exempt commercial paper will be
limited to obligations that, at the time of purchase, are rated at least A-1 by
Standard & Poor's or Prime-1 by Moody's, or that are unrated but are determined
by the Adviser to be of comparable quality. The Municipal Funds may purchase
other types of tax-exempt instruments as long as they are of a quality
equivalent to the long-term bond or commercial paper ratings stated above.

         In the event any security held by either Municipal Fund is downgraded
below the rating categories set forth above, the Adviser will review the
security and determine whether to retain or dispose of that security, provided
that neither Municipal Fund will hold, at any time, more than 5% of its net
assets in securities that are rated below investment grade.

         Under normal circumstances, each Municipal Fund may invest up to 20% of
its total assets in certain taxable securities in order to maintain liquidity.
In addition, for temporary defensive purposes during periods when the Adviser
determines that market conditions warrant, each Municipal Fund may invest
without limit in such taxable securities. Such taxable securities include: U.S.
Treasury obligations (including separately traded interest and principal
component parts of U.S. Treasury obligations, transferable through the federal
book-entry system and known as Separately Traded Registered Interest and
Principal Securities or "STRIPS"); other marketable obligations issued or
guaranteed as to principal and interest by agencies or instrumentalities of the
U.S. Government whether or not backed by the full faith and credit of the U.S.
Treasury; short-term instruments of U.S. commercial banks or savings and loan
institutions (not including foreign branches of U.S. banks or U.S. branches of
foreign banks) that are members of the Federal Reserve System or the Federal
Deposit Insurance Corporation and that have total assets of $1 billion or more
as shown on their last published financial statements at the time of investment;
repurchase agreements involving any of the foregoing obligations; and, to the
extent permitted by applicable law, shares of other investment companies
investing solely in the foregoing obligations.

         Distributions by a Fund that are derived from income from taxable
securities held by the Fund will generally be taxable to shareholders as
ordinary income.

                                      -14-

<PAGE>

SMALLER COMPANIES FUND

         The primary investment objective of the Smaller Companies Fund is to
maximize capital appreciation. The Fund seeks current income as its secondary
investment objective. Under normal market conditions, the Fund pursues these
objectives by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of small
capitalization U.S. companies. Equity securities in which the Fund may invest
include common stocks and preferred stocks, while equity-related securities
include warrants, purchased call options and other rights to acquire stocks. See
"Description of Securities and Investment Techniques and Related Risks."

         For purposes of the Fund's investment policies, small capitaliza-tion
companies are those ranked (at time of investment) according to market
capitalization in the bottom 20% of the Wilshire 5000 Index. The Adviser
believes that investments in equity and equity-related securities of many small
capitalization companies, although involving greater risk, provide the
opportunity for greater capital growth than investments in larger, better-known
companies. For a description of the risks associated with investing in small
capitalization companies, see "Description of Securities and Investment
Techniques and Related Risks--Small and Micro Capitalization Companies."

         Up to 35% of the Fund's total assets may be invested in investment
grade fixed income securities (see definition on page 11), cash equivalents and
equity and equity-related securities of medium and large capitalization
companies. In the event any fixed income security held by the Fund is downgraded
below investment grade, the Adviser will review the security and determine
whether to retain or dispose of it. In no event, however, will the Fund hold
more than 5% of its net assets in fixed income securities that are not
investment grade. Up to 5% of the Fund's net assets (measured at time of
investment) may be invested in the securities of non-U.S. issuers of all sizes.

MICROCAP FUND

         The investment objective of the Microcap Fund is to maximize capital
appreciation. Under normal market conditions, the Fund pursues this objective by
investing at least 65% of its total assets in common stocks of micro
capitalization U.S. companies and securities convertible into such stocks. For
purposes of the Fund's investment policies, micro capitalization companies are
those ranked (at the time of investment) according to market capitalization in
the bottom 5% of the U.S. equity market, including both listed and unlisted
companies.

         The Adviser believes that investments in many micro capitalization
companies, although involving greater risk, provide the opportunity for greater
capital growth than investments in larger, better-known 

                                      -15-

<PAGE>

companies. In particular, the Adviser believes that the inefficiencies in this
sector of the marketplace often provide opportunities for investment gains. The
Fund's investments in securities of U.S. micro capitalization companies will be
limited to securities traded on a U.S. exchange or in the over-the-counter
market. For a description of the risks associated with investing in micro
capitalization companies, see "Description of Securities and Investment
Techniques and Related Risks -- Small and Micro Capitalization Companies."

         Up to 25% of the Fund's total assets may be invested in securities of
non-U.S. companies with individual market capitalizations that would place them
in the bottom 5% of the U.S. equity market. For liquidity purposes, the Fund
will normally invest a portion of its assets (no more than 35%) in high quality
debt securities and money market instruments with remaining maturities of one
year or less, including repurchase agreements. In addition, the Fund may invest
up to 5% of its net assets in non-convertible bonds and preferred stocks that
are rated, at the time of purchase, Aaa or Aa by Moody's or AAA or AA by
Standard & Poor's or determined by the Adviser to be of comparable quality.

LARGE CAP GROWTH FUND

         The primary investment objective of the Large Cap Growth Fund is to
maximize capital appreciation. The Fund seeks current income as its secondary
investment objective. Under normal market conditions, the Fund pursues these
objectives by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of large
capitalization U.S. companies. The Fund may invest in the same types of equity
and equity-related securities as the Smaller Companies Fund (see above).

         For purposes of the Fund's investment policies, large capitaliza- tion
companies are those ranked (at time of investment) according to market
capitalization in the top 25% of the Wilshire 5000 Index, a broad-based index
that includes nearly all U.S. public companies. The Adviser believes that the
equity and equity-related securities of many large capitalization companies
offer significant potential for capital growth, but with less risk than
investments in smaller capitalization companies.

         Up to 35% of the Fund's total assets may be invested in investment
grade fixed income securities (see definition on page 11), cash equivalents and
equity and equity-related securities of small and medium capitalization
companies. In the event any fixed income security held by the Fund is downgraded
below investment grade, the Adviser will review the security and determine
whether to retain or dispose of it. In no event, however, will the Fund hold
more than 5% of its net assets in fixed income securities that are not
investment grade. Up to 5% of the Fund's net assets (measured at time of
investment) may be invested in the securities of non-U.S. issuers of all sizes.

                                      -16-

<PAGE>

      DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES AND RELATED RISKS

FIXED INCOME SECURITIES

         GENERAL. Each Fund may invest in fixed income securities. In periods of
declining interest rates, the yield (income from portfolio investments over a
stated period of time) of a Fund that invests in fixed income securities may
tend to be higher than prevailing market rates, and in periods of rising
interest rates, the yield of the Fund may tend to be lower. Also, when interest
rates are falling, the inflow of net new money to such a Fund will likely be
invested in portfolio instruments producing lower yields than the balance of the
Fund's portfolio, thereby reducing the yield of the Fund. In periods of rising
interest rates, the opposite can be true. The net asset value of a Fund
investing in fixed income securities can generally be expected to change as
general levels of interest rates fluctuate. The value of fixed income securities
in a Fund's portfolio generally varies inversely with changes in interest rates.
Prices of fixed income securities with longer effective maturities are more
sensitive to interest rate changes than those with shorter effective maturities.

         PRIVATE ACTIVITY AND INDUSTRIAL DEVELOPMENT BONDS. The Fixed Income
Funds and the Municipal Funds may invest in private activity and industrial
development bonds, which are obligations issued by or on behalf of public
authorities to raise money to finance various privately owned or operated
facilities for business and manufacturing, housing, sports and pollution
control. These bonds are also used to finance public facilities such as
airports, mass transit systems, ports, parking or sewage or solid waste disposal
facilities, as well as certain other categories. The payment of the principal
and interest on such bonds is generally dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of
real and personal property so financed as security for such payment.

         PUT BONDS. The Fixed Income Funds and the Municipal Funds may invest in
"put" bonds, which are tax exempt securities (including securities with variable
interest rates) that may be sold back to the issuer of the security at face
value at the option of the holder prior to their stated maturity. The Adviser
intends to purchase only those "put" bonds for which the put option is an
integral part of the security as originally issued. The option to "put" the bond
back to the issuer prior to the stated final maturity can cushion the price
decline of the bond in a rising interest rate environment. However, the premium
paid, if any, for an option to put will have the effect of reducing the yield
otherwise payable on the underlying security. For the purpose of determining the
"maturity" of securities purchased subject to an option to put, and for the
purpose of determining the dollar weighted average maturity of a Fund holding
such securities, the Fund will consider "maturity" to be the first date on which
it has the right to demand 

                                      -17-

<PAGE>

payment from the issuer of the put although the final maturity of the security
is later than such date.

         VARIABLE OR FLOATING RATE INSTRUMENTS AND VARIABLE RATE DEMAND
INSTRUMENTS. The Fixed Income Funds and the Municipal Funds may invest in
variable or floating rate instruments and variable rate demand instruments,
including variable amount master demand notes. These instruments will normally
involve industrial development or revenue bonds that provide that the rate of
interest is set as a specific percentage of a designated base rate (such as the
prime rate) at a major commercial bank. In addition, the interest rate on these
securities may be reset daily, weekly or on some other reset period and may have
a floor or ceiling on interest rate changes. A Fund holding such an instrument
can demand payment of the obligation at all times or at stipulated dates on
short notice (not to exceed 30 days) at par plus accrued interest.

         U.S. GOVERNMENT SECURITIES. The Funds may invest in obligations issued
or guaranteed as to both principal and interest by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises ("U.S. Government
securities"). Some U.S. Government securities, such as U.S. Treasury bills,
notes and bonds, are supported by the full faith and credit of the United
States. Others, such as obligations issued or guaranteed by U.S. Government
agencies or instrumentalities are supported either by (i) the full faith and
credit of the U.S. Government (such as securities of the Small Business
Administration), (ii) the right of the issuer to borrow from the U.S. Treasury
(such as securities of the Federal Home Loan Banks), (iii) the discretionary
authority of the U.S. Government to purchase the agency's obligations (such as
securities of the Federal National Mortgage Association, or (iv) only the credit
of the issuer. No assurance can be given that the U.S. Government will provide
financial support to U.S. Government agencies or instrumentalities in the
future.

         The Fixed Income Funds and the Municipal Funds may also invest in
separately traded principal and interest components of securities guaranteed or
issued by the U.S. Government or its agencies, instrumentalities or sponsored
enterprises if such components are traded independently under the Separate
Trading of Registered Interest and Principal of Securities program ("STRIPS") or
any similar program sponsored by the U.S. Government. However, no Fund may
actively trade these instruments. STRIPS are sold as zero coupon securities. See
"Zero Coupon Securities."

         CUSTODIAL RECEIPTS. Custodial receipts are interests in separately
traded interest and principal component parts of U.S. Government securities that
are issued by banks or brokerage firms and are created by depositing U.S.
Government securities into a special account at a custodian bank. The custodian
holds the interest and principal payments for the benefit of the registered
owners of the certificates or receipts. The custodian arranges for the issuance
of

                                      -18-

<PAGE>

the certificates or receipts evidencing ownership and maintains the register.
Custodial receipts include Treasury Receipts ("TRs"), Treasury Investment Growth
Receipts ("TIGRs"), and Certificates of Accrual on Treasury Securities ("CATS").
TIGRs and CATS are interests in private proprietary accounts while TRs and
STRIPS (see "U.S. Government Securities" above) are interests in accounts
sponsored by the U.S. Treasury. Receipts are sold as zero coupon securities; for
more information, see "Zero Coupon Securities."

         ZERO COUPON SECURITIES. STRIPS and custodial receipts (TRs, TIGRs and
CATS) are sold as zero coupon securities, that is, fixed income securities that
have been stripped of their unmatured interest coupons. Zero coupon securities
are sold at a (usually substantial) discount and redeemed at face value at their
maturity date without interim cash payments of interest or principal. The amount
of this discount is accreted over the life of the security, and the accretion
constitutes the income earned on the security for both accounting and tax
purposes. Because a Fund must distribute the accreted amounts in order to
qualify for favorable tax treatment, it may have to sell portfolio securities to
generate cash to satisfy the applicable distribution requirements. Because of
these features, the market prices of zero coupon securities are generally more
volatile than the market prices of securities that have similar maturity but
that pay interest periodically. Zero coupon securities are likely to respond to
a greater degree to interest rate changes than are non-zero coupon securities
with similar maturity and credit qualities.

SECURITIES OF FOREIGN ISSUERS

         Each Equity Fund and each Fixed Income Fund may invest to a limited
extent in securities of foreign issuers and supranational entities. Investments
in the securities of foreign issuers and supranational entities may subject the
Funds to investment risks that differ in some respects from those related to
investments in securities of U.S. issuers. Such risks include future adverse
political and economic developments, possible imposition of withholding taxes on
income, possible seizure, nationalization or expropriation of foreign deposits,
possible establishment of exchange controls or taxation at the source or
fluctuation in value due to changes in currency exchange rates. Foreign issuers
of securities often engage in business practices different from those of
domestic issuers of similar securities and there may be less information
publicly available about foreign issuers. In addition, foreign issuers are,
generally speaking, subject to less government supervision and regulation and
different accounting treatment than are those in the United States.

         To the extent that they invest in non-U.S. securities, the Equity Funds
may enter into forward currency exchange contracts ("forward contracts") and
currency options to hedge against currency exchange rate fluctuations. Forward
contracts and options may be considered derivative instruments.

                                      -19-

<PAGE>

         An Equity Fund may enter into forward contracts and currency options to
protect against an anticipated rise in the U.S. dollar price of securities that
it intends to purchase. In addition, an Equity Fund may enter into forward
contracts and currency options to protect against the decline in value of its
foreign currency denominated or quoted portfolio securities, or a decline in the
value of anticipated dividends from such securities, due to a decline in the
value of the foreign currency against the U.S. dollar. The forecasting of
currency market movements is extremely difficult and there can be no assurance
that currency hedging strategies will be successful. If the Adviser is incorrect
in its forecast, currency hedging strategies may result in investment
performance worse than if the strategies were not attempted. In addition,
forward contracts and over-the-counter currency options may be illiquid and are
subject to the risk that the counterparty will default on its obligations. For
more information on these instruments, see the Statement of Additional
Information.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES

         The Fixed Income Funds and, to a more limited extent, the Municipal
Funds may invest in mortgage-backed securities, which represent direct or
indirect participations in, or are collateralized by and payable from, mortgage
loans secured by real property. The Fixed Income Funds may also invest in
asset-backed securities, which represent participations in, or are secured by
and payable from, assets such as motor vehicle installment sales, installment
loan contracts, leases of various types of real and personal property and
receivables from revolving credit (credit card) agreements and other categories
of receivables. Such securities are generally issued by trusts and special
purpose corporations.

         Mortgage-backed and asset-backed securities are often subject to more
rapid repayment than their stated maturity date would indicate as a result of
the pass-through of prepayments of principal on the underlying loans. During
periods of declining interest rates, prepayment of loans underlying
mortgage-backed and asset-backed securities can be expected to accelerate, and
thus impair a Fund's ability to reinvest the returns of principal at comparable
yields. Accordingly, the market values of such securities will vary with changes
in market interest rates generally and in yield differentials among various
kinds of U.S. Government securities and other mortgage-backed and asset-backed
securities. Asset-backed securities present certain risks that are not presented
by mortgage-backed securities because asset-backed securities generally do not
have the benefit of a security interest in collateral that is comparable to
mortgage assets. In addition, there is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support payments on
these securities. Many mortgage and asset-backed securities may be considered
derivative instruments. No Fund will invest 25% or more of its total assets in

                                      -20-

<PAGE>

collateralized mortgage obligations or in asset-backed securities (in each case,
excluding U.S. Government Securities).

OPTIONS

         WRITTEN OPTIONS. Each Equity Fund may write (sell) covered put and call
options on equity and fixed income securities and enter into related closing
transactions. A Fund may receive fees (referred to as "premiums") for granting
the rights evidenced by the options. However, in return for the premium for a
written call option, the Fund assumes certain risks. For example, in the case of
a written call option, the Fund forfeits the right to any appreciation in the
underlying security while the option is outstanding. A put option gives to its
purchaser the right to compel the Fund to purchase an underlying security from
the option holder at the specified price at any time during the option period.
In contrast, a call option written by the Fund gives to its purchaser the right
to compel the Fund to sell an underlying security to the option holder at a
specified price at any time during the option period. Upon the exercise of a put
option written by a Fund, the Fund may suffer a loss equal to the difference
between the price at which the Fund is required to purchase the underlying
security and its market value at the time of the option exercise, less the
premium received for writing the option. All options written by a Fund are
covered. In the case of a call option, this means that the Fund will own the
securities subject to the option or an offsetting call option as long as the
written option is outstanding, or will have the absolute and immediate right to
acquire other securities that are the same as those subject to the written
option. In the case of a put option, this means that the Fund will deposit cash
or high grade liquid debt obligations in a segregated account with the custodian
with a value at least equal to the exercise price of the put option.

         PURCHASED OPTIONS. The Equity Funds may also purchase put and call
options on securities. A put option entitles a Fund to sell, and a call option
entitles a Fund to buy, a specified security at a specified price during the
term of the option. The advantage to the purchaser of a call option is that it
may hedge against an increase in the price of portfolio securities it ultimately
wishes to buy. The advantage to the purchaser of a put option is that it may
hedge against a decrease in the price of portfolio securities it ultimately
wishes to sell.

         Each Equity Fund may enter into closing transactions in order to offset
an open option position prior to exercise or expiration by selling an option it
has purchased or by entering into an offsetting option. If a Fund cannot effect
closing transactions, it may have to retain a security in its portfolio it would
otherwise sell, or deliver a security it would otherwise retain.

         The Funds may purchase and sell options traded on U.S. exchanges and,
to the extent permitted by law, options traded over-the-counter. The Funds will
treat purchased over-the-counter options as illiquid. 

                                      -21-

<PAGE>

There can be no assurance that a liquid secondary market will exist for any
particular option. Over-the-counter options also involve the risk that a
counterparty will fail to meet its obligation under the option.

STOCK INDEX OPTIONS

         The Equity Funds may purchase and write exchange-listed put and call
options on stock indices to hedge against risks of market-wide price movements.
A stock index measures the movement of a certain group of stocks by assigning
relative values to the common stocks included in the index. Examples of
well-known stock indices are the Standard & Poor's Index of 500 Common Stocks
and the Wilshire 5000 Index. Options on stock indices are similar to options on
securities. However, because options on stock indices do not involve the
delivery of an underlying security, the option represents the holder's right to
obtain from the writer in cash a fixed multiple of the amount by which the
exercise price 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 exercise date.

         When an Equity Fund writes an option on a stock index, it will cover
the option by depositing cash or high grade liquid debt obligations or a
combination of both in an amount equal to the market value of the option, in a
segregated account, which will be marked to market daily, with the Fund's
custodian, and will maintain the account while the option is open.
Alternatively, and only in the case of a written call option on a stock index,
the Fund may cover the written option by owning an offsetting call option.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

         When deemed advisable by the Adviser, each of the Equity Funds may
enter into futures contracts and purchase and write options on futures contracts
to hedge against changes in interest rates, securities prices or currency
exchange rates or for certain non-hedging purposes. The Funds may purchase and
sell financial futures contracts, including stock index futures, and purchase
and write related options. A Fund may engage in futures and related options
transactions for hedging and non-hedging purposes as defined in regulations of
the Commodity Futures Trading Commission. A Fund will not enter into futures
contracts or options thereon for non-hedging purposes, if immediately
thereafter, the aggregate initial margin and premiums required to establish
non-hedging positions in futures contracts and options on futures will exceed 5%
of the net asset value of the Fund's portfolio, after taking into account
unrealized profits and losses on any such positions and excluding the amount by
which such options were in-the-money at the time of purchase. Transactions in
futures contracts and options on futures involve brokerage costs, require margin
deposits and, in the case of contracts and options obligating the Funds to
purchase securities, require the Funds to segregate cash or high grade liquid
debt obligations with a value equal to the amount of the Fund's obligations.

                                      -22-

<PAGE>

LIMITATIONS AND RISKS ASSOCIATED WITH TRANSACTIONS IN OPTIONS, FUTURES 
CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

         Each Equity Fund's options and futures transactions involve (1)
liquidity risk that contractual positions cannot be easily closed out in the
event of market changes or generally in the absence of a liquid secondary
market, (2) correlation risk that changes in the value of hedging positions may
not match the securities market fluctuations intended to be hedged, and (3)
market risk that an incorrect prediction of securities prices by the Adviser may
cause a Fund to perform worse than if such positions had not been taken. The
ability to terminate over-the-counter options is more limited than with exchange
traded options and may involve the risk that the counterparty to the option will
not fulfill its obligations. In accordance with a position taken by the
Securities and Exchange Commission (the "Commission"), each Fund will limit its
investments in illiquid securities to 15% of the Fund's net assets. The Funds
will treat over-the-counter options and the assets used to cover such options as
illiquid securities subject to this limitation, except that, 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 the illiquid securities may be calculated with reference to the
formula price.

         Options and futures transactions are highly specialized activities
which involve investment techniques and risks that are different from those
associated with ordinary portfolio transactions. Gains and losses on investments
in options and futures depend on the Adviser's ability to predict the direction
of stock prices and other economic factors. The loss that may be incurred by a
Fund in entering into futures contracts and written options thereon is
potentially unlimited. There is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at times, render certain
facilities of an options clearing entity or other entity performing the
regulatory and liquidity functions of an options clearing entity inadequate, and
thereby result in the institution by an exchange of special procedures which may
interfere with the timely execution of customers' orders. Most futures exchanges
limit the amount of fluctuation permitted in a futures contract's prices during
a single trading day. Once the limit has been reached no further trades may be
made that day at a price beyond the limit. The price limit will not limit
potential losses, and may in fact prevent the prompt liquidation of futures
positions, ultimately resulting in further losses.

         Except as set forth above under "Futures Contracts and Options on
Futures Contracts", there is no limit on the percentage of an Equity Fund's
assets that may be at risk with respect to futures contracts and related
options. A Fund may not invest more than 25% of its total assets in purchased
protective put options nor more than 5% of its total assets in purchased options
other than protective put options. A Fund's transactions in options, futures
contracts and options on futures 

                                      -23-

<PAGE>

contracts may be limited by the requirements for qualification of the Fund as a
regulated investment company for tax purposes. See "Taxes" in the Statement of
Additional Information. Options, futures contracts and options on futures
contracts are derivative instruments.

SMALL AND MICRO CAPITALIZATION COMPANIES

         Smaller Companies Fund and Microcap Fund invest a significant portion
of their assets in smaller, lesser-known companies which the Adviser believes
offer greater growth potential than larger, more mature, better-known companies.
Investing in the securities of these companies, however, also involves greater
risk and the possibility of greater portfolio price volatility. Among the
reasons for the greater price volatility of these small companies and unseasoned
stocks are the less certain growth prospects of smaller firms, the lower degree
of liquidity in the markets for such stocks and the greater sensitivity of small
companies to changing economic conditions in their geographic region. For
example, securities of these companies involve higher investment risk than that
normally associated with larger firms due to the greater business risks of small
size and limited product lines, markets, distribution channels and financial and
managerial resources.

         Many smaller capitalization companies in which Smaller Companies Fund
and Microcap Fund may invest are not well-known to the investing public, do not
have significant institutional ownership and are followed by relatively few
securities analysts. As a result, there may be less publicly available
information concerning these companies than exists for larger capitalization
companies. Also, the securities of smaller capitalization companies traded on
the over-the-counter market may have fewer market makers, wider spreads between
their quoted bid and asked prices and lower trading volumes, resulting in
comparatively greater price volatility and less liquidity than exists for
securities of larger capitalization companies.

CONVERTIBLE SECURITIES AND PREFERRED STOCKS

         Subject to its investment objectives and policies, each Equity Fund may
invest in convertible securities, which are ordinarily preferred stock or
long-term debt obligations of an issuer convertible at a stated exchange rate
into common stock of the issuer. The market value of convertible securities
tends to decline as interest rates increase and, conversely, to increase as
interest rates decline. Convertible securities generally offer lower interest or
dividend yields than non-convertible securities of similar quality. However,
when the market price of the common stock underlying a convertible security
exceeds the conversion price, the price of the convertible security tends to
reflect the value of the underlying common stock. As the market price of the
underlying common stock declines, the convertible security tends to trade
increasingly on a yield basis, and thus may not depreciate to the same extent as
the underlying common stock. Convertible securities generally rank senior to
common stocks in an 

                                      -24-

<PAGE>

issuer's capital structure and are consequently of higher quality and entail
less risk than the issuer's common stock. However, the extent to which such risk
is reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed income security. In evaluating a
convertible security, the Adviser will give primary emphasis to the
attractiveness of the underlying common stock. The convertible debt securities
in which each Fund may invest are subject to the same rating criteria and
downgrade policy as the Fund's investments in fixed income securities.

DIVERSIFICATION AND CONCENTRATION OF INVESTMENTS

         Each Fund is "diversified" under the 1940 Act and is also subject to
issuer diversification requirements imposed on regulated investment companies by
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). See
"Investment Restrictions" and "Taxes" in the Funds' Statement of Additional
Information. In addition, as a matter of fundamental policy, no Fund may invest
25% or more of its total assets in the securities of one or more issuers
conducting their principal business activities in the same industry (except U.S.
Government securities).

         Currently, it is not anticipated that either Municipal Fund will invest
25% or more of its total assets (at market value at the time of purchase) in:
(a) securities of one or more issuers conducting their principal activities in
the same state; or (b) securities the principal and interest of which is paid
from revenues of projects with similar characteristics, except that 25% or more
of either Municipal Fund's total assets may be invested in single family and
multi-family housing obligations. To the extent a Municipal Fund concentrates
its investments in single family and multi-family housing obligations, the Fund
will be subject to the peculiar risks associated with investments in such
obligations, including prepayment risks and the risks of default on housing
loans, which may be affected by economic conditions and other factors relating
to such obligations.

ADDITIONAL INVESTMENT TECHNIQUES

         WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may purchase
securities on a when-issued, delayed delivery or forward commitment basis. When
these transactions are negotiated, the price of the securities is fixed at the
time of the commitment, but delivery and payment may take place up to 90 days
after the date of the commitment to purchase for equity securities, and up to 45
days after such date for fixed income securities. When-issued securities or
forward commitments involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date. When a Fund purchases
securities on a forward commitment or when-issued basis, the Fund's custodian
will maintain in a segregated account cash or liquid high grade debt obligations
having a value (determined daily) at least equal to the amount of the Fund's
purchase commitment. Although each Fund will 

                                      -25-

<PAGE>

purchase securities on a when-issued basis only with the intention of actually
acquiring securities for its portfolio, a Fund may dispose of a when-issued
security prior to settlement if the Adviser deems it appropriate to do so.

         REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements.
In a repurchase agreement, a Fund buys a security subject to the right and
obligation to sell it back to the other party at the same price plus accrued
interest. The Fund's custodian will hold the security as collateral for the
repurchase agreement. Collateral must be maintained at a value at least equal to
102% of the repurchase price, but repurchase agreements involve some credit risk
to a Fund if the other party defaults on its obligation and the Fund is delayed
in or prevented from liquidating the collateral. A Fund will enter into
repurchase agreements only with financial institutions deemed to present minimal
risk of bankruptcy during the term of the agreement based on guidelines
established and periodically reviewed by the Trust's Board of Trustees.

         ILLIQUID SECURITIES. Each Equity Fund, each Fixed Income Fund and the
Short-Term Municipal Bond Fund will not invest more than 15% of its net assets
in illiquid securities. Municipal Bond Fund will not invest more than 10% of its
total assets in illiquid securities. Illiquid securities include repurchase
agreements and fixed time deposits maturing in more than seven days and
securities that are not readily marketable.

         RESTRICTED SECURITIES. Each Equity Fund and each Fixed Income Fund may
invest to a limited extent in restricted securities. Restricted securities are
securities that may not be sold freely to the public without prior registration
under federal securities laws or an exemption from registration. Restricted
securities will be considered illiquid unless they are restricted securities
offered and sold to "qualified institutional buyers" under Rule 144A under the
Securities Act of 1933 and the Board of Trustees determines that these
securities are liquid based upon a review of the trading markets for the
specific securities.

         WARRANTS. Each Equity Fund may invest in warrants. Warrants generally
entitle the holder to buy a specified number of shares of common stock at a
specified price, which is often higher than the market price at the time of
issuance, for a period of years or in perpetuity. Warrants may be issued in
units with other securities or separately, and may be freely transferrable and
traded on exchanges. While the market value of a warrant tends to be more
volatile than that of the securities underlying the warrant, the market value of
a warrant may not necessarily change with that of the underlying security. A
warrant ceases to have value if it is not exercised prior to any expiration date
to which the warrant is subject.

         LENDING SECURITIES. For the purpose of realizing income, the Morgan
Grenfell Short-Term Fixed Income Fund, the Morgan Grenfell Short-

                                      -26-
<PAGE>

Term Municipal Bond Fund and each Equity Fund may lend to broker-dealers
portfolio securities amounting to not more than 33 1/3% of its total assets
taken at current value. These transactions must be fully collateralized by cash,
cash equivalents or U.S. Government securities at all times. They nevertheless
involve some credit risk to a Fund if the other party should default on its
obligation and the Fund is delayed in or prevented from recovering the
collateral. Voting rights with respect to a portfolio security pass to the
borrower when the security is loaned by a Fund, but the Adviser is required to
call the loan if necessary to vote on a material event affecting the Fund's
investment in the loaned security.

         OTHER INVESTMENT COMPANIES. Each Fund may invest in the aggregate no
more than 10% of its total assets, calculated at the time of purchase, in the
securities of other investment companies. In addition, a Fund may not invest
more than 5% of its total assets in the securities of any one investment company
or acquire more than 3% of the voting securities of any other investment
company. A Fund will indirectly bear its proportionate share of any management
or other fees paid by investment companies in which it invests, in addition to
its own fees.

         TEMPORARY DEFENSIVE INVESTMENTS. For temporary defensive purposes
during periods when the Adviser determines that conditions warrant, each Equity
Fund and each Fixed Income Fund may invest up to 100% of its assets in cash and
money market instruments, including securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; certificates of deposit, time
deposits, and bankers' acceptances issued by banks or savings and loans
associations having net assets of at least $500 million as of the end of their
most recent fiscal year; commercial paper rated at the time of purchase at least
A-1 by Standard & Poor's or P-1 by Moody's, or unrated commercial paper
determined by the Adviser to be of comparable quality; repurchase agreements
involving any of the foregoing; and, to the extent permitted by applicable law,
shares of other investment companies investing solely in money market
instruments. For a description of the Municipal Funds' policy with respect to
temporary defensive investments, see "Investment Objectives and
Policies--Municipal Bond Fund and Short-Term Municipal Bond Fund."


                        ADDITIONAL INVESTMENT INFORMATION

INVESTMENT RESTRICTIONS

         Each Fund has adopted certain fundamental investment restrictions which
are described in detail in the Statement of Additional Information. Those
investment restrictions designated as fundamental in the Statement of Additional
Information can be changed only with shareholder approval. Each Fund's
investment objective and all other investment restrictions and policies are
nonfundamental and can be changed by the Board of Trustees of the Trust at any
time without shareholder approval. Each Fund's shareholders will, however, be
given 

                                      -27-

<PAGE>

30 days' advance written notice of any change in a Fund's investment objective.

         Each Fund has fundamental investment restrictions with respect to
borrowing, lending, diversification of investments, senior securities, pledging
of assets, underwriting, real estate investments and commodities. See
"Investment Restrictions" in the Statement of Additional Information.

PORTFOLIO TRANSACTIONS

         The Adviser is responsible for making specific decisions to buy and
sell portfolio securities for the Funds. The Adviser is also responsible for
selecting brokers and dealers to effect these transactions and negotiating, if
possible, brokerage commissions and dealers' charges. Securities traded in the
over-the-counter markets and fixed income securities generally are traded on a
net basis with the dealers acting as principal for their own accounts without a
stated commission.

         The primary consideration in selecting broker-dealers to execute
portfolio security transactions is the execution of such portfolio transactions
at the most favorable prices. Consideration may also be given to the
broker-dealer's sale of shares of the Funds. Subject to the most favorable price
requirement and the provisions of Section 28(e) of the Securities Exchange Act
of 1934, as amended, securities may be bought from or sold to broker-dealers who
have furnished statistical, research and other information or services to the
Adviser. Higher commissions may be paid to broker-dealers that provide research
services. See "Portfolio Transactions and Brokerage Commissions" in the
Statement of Additional Information for a more detailed discussion of portfolio
transactions. The Trustees will periodically review each Fund's portfolio
transactions.

         Pursuant to procedures established by the Trustees, subject to
applicable regulations and consistent with the above policy of obtaining the
most favorable overall price, the Adviser may place securities transactions with
SEI Financial Services Company, the Funds' distributor (the "Distributor"), and
brokers with whom the Adviser or the Distributor is affiliated. No Fund will
effect principal transactions with an affiliated broker.

PORTFOLIO TURNOVER

         It  is  estimated  that,  under  normal  circumstances,  the  portfolio
turnover  rate of each of the Equity Funds will not exceed 150%. It is estimated
that,  under normal  circumstances,  the portfolio  turnover rate of each of the
Fixed Income  Funds and the  Municipal  Funds will not exceed  175%.  The higher
portfolio  turnover rates of the Fixed Income Funds and the Municipal  Funds may
result from their respective portfolio management  strategies.  The Fixed Income
Funds and the Municipal Funds 

                                      -28-

<PAGE>

may sell securities held for a short time in order to take advantage of what the
Adviser believes to be temporary disparities in normal yield relationships
between securities. A high rate of portfolio turnover (i.e., 100% or higher)
will result in correspondingly higher transaction costs to a Fund, particularly
if the Fund's primary investments are equity securities. A high rate of
portfolio turnover will also increase the likelihood of short-term gains
(distributions of which are taxable to shareholders as ordinary income) and,
under some circumstances, make it more difficult for the Fund to qualify as a
regulated investment company under the Code (see "Portfolio Transactions" and
"Dividends, Distributions and Taxes"). See "Financial Highlights" for each
Fund's portfolio turnover for the fiscal period ended October 31, 1995.


                             MANAGEMENT OF THE FUNDS

         The Board of Trustees of the Trust is responsible for the overall
supervision and management of the Funds. The day-to-day operations of the Funds,
including investment decisions, have been delegated to the Adviser. The
Statement of Additional Information contains general background information
regarding each Trustee and executive officer of the Trust.

THE ADVISER

         MGCM, 885 Third Avenue, New York, New York, acts as investment adviser
to each Fund pursuant to the terms of investment advisory contracts between the
Trust, on behalf of the Funds, and MGCM (the "Advisory Contracts"). MGCM is
registered as an investment adviser with the Commission and provides a full
range of investment advisory services to institutional clients. All of the
outstanding voting stock of MGCM is owned by Morgan Grenfell Asset Management,
Ltd. ("MGAM"), which is a wholly-owned subsidiary of Deutsche Morgan Grenfell
Group plc. Deutsche Morgan Grenfell Group plc is an indirect wholly-owned
subsidiary of Deutsche Bank AG, an international commercial and investment
banking group. As of December 31, 1995, MGCM managed approximately $8 billion in
assets.

Under its Advisory Contracts with the Trust, the Adviser manages each Fund's
business and investment affairs. For these services, the Adviser is entitled to
a monthly fee at an annual rate of each Fund's average daily net assets as
follows: 

                                                Annual Rate
                                                -----------
Morgan Grenfell Fixed Income Fund                  0.40%
Morgan Grenfell Municipal Bond Fund                0.40%
Morgan Grenfell Short-Term Fixed Income Fund       0.40%
Morgan Grenfell Short-Term Municipal Bond Fund     0.40%
Morgan Grenfell Smaller Companies Fund             1.00%
Morgan Grenfell Microcap Fund                      1.50%
Morgan Grenfell Large Cap Growth Fund              0.75%

                                      -29-
<PAGE>

         The advisory fees to which the Advisor is entitled for Large Cap Growth
Fund, Smaller Companies Fund and Microcap Fund are higher than the fees paid by
most funds but the Adviser believes they are comparable to the fees paid by
funds having similar investment objectives. As described in "Expense
Information," the Adviser has voluntarily agreed to reduce its advisory fee and
to make arrangements to limit certain other expenses to the extent necessary to
limit each Fund's operating expenses to a specified level. For the fiscal period
ended October 31, 1995, this voluntary agreement was in effect for each Fund
(other than Morgan Grenfell Large Cap Growth Fund and Morgan Grenfell Microcap
Fund, which were not in operation during such period). During this period,
Morgan Grenfell Fixed Income Fund, Morgan Grenfell Municipal Bond Fund, Morgan
Grenfell Short-Term Fixed Income Fund, Morgan Grenfell Short-Term Municipal Bond
Fund and Morgan Grenfell Smaller Companies Fund paid advisory fees equal to
0.31%, 0.32%, 0.00%, 0.00%, and 0.00% of their respective average daily net
assets.

         Each FIXED INCOME FUND and MUNICIPAL FUND is managed by David W. Baldt,
Executive Vice President and Fixed Income Manager of the Adviser. Mr. Baldt has
been in the investment advisory business since 1973 (with the Adviser since
1989) and has managed fixed income investments since 1973.

         SMALLER COMPANIES FUND and MICROCAP FUND are each managed by Robert
Kern, Executive Vice President of the Adviser, and his team which includes two
other experienced portfolio managers, Audrey M.T. Jones and David A. Baratta.
Mr. Kern has been in the investment advisory business since 1965 (with the
Adviser since 1986) and has managed investments in small capitalization
companies since 1970. Ms. Jones has been employed by the Adviser as a portfolio
manager since 1986. Prior to joining the Adviser in 1993, Mr. Baratta worked as
a portfolio manager for AIG Global Investors and Shearson Lehman Asset
Management.

         The LARGE CAP GROWTH FUND is managed by a committee consisting of
investment professionals employed by the Adviser. This committee makes
investment decisions for the Fund.

         The Trust, on behalf of each Fund, is responsible for all of the Fund's
expenses other than those expressly assumed by the Adviser under the terms of
the Advisory Contracts. The expenses borne by each Fund include the Fund's
advisory fee, transfer agent fee and taxes and its proportionate share of
custodian fees, expenses of issuing reports to shareholders, legal fees,
auditing and tax fees, blue sky fees, fees of the Commission, insurance expenses
and disinterested Trustees' fees. The Adviser has temporarily agreed, under
certain circumstances, to reduce or not impose its management fee as described
under "Expense Information." In the event that a Fund's expenses for any fiscal
year exceed the limits established by certain state securities administrators,
the Adviser will reduce its fee payable on behalf of 

                                      -30-

<PAGE>

such Fund by the amount of such excess, but only to the extent of the Fund's 
advisory fee.

ADMINISTRATOR AND DISTRIBUTOR

         The Trust has entered into Administration Agreements with SEI Financial
Management Corporation ("SEI Financial Management" or the "Administrator"), 680
East Swedesford Road, Wayne, Pennsylvania 19087-1658, pursuant to which SEI
Financial Management receives from all series of the Trust (i.e., the Funds and
the International Funds) an aggregate monthly fee at the following annual rates
of the aggregate average daily net assets ("aggregate assets") of such series:

         0.15% of aggregate assets under $300 million  
         0.12% of Next $200 million of aggregate assets 
         0.10% of next $500 million of aggregate assets 
         0.08% of aggregate assets exceeding $1 billion

         Each Fund that offers its shares pays the Administrator a minimum
annual fee of $50,000. For the fiscal period ended October 31, 1995, the
Administrator received fees from the Fixed Income Fund, the Municipal Bond Fund,
the Short-Term Fixed Income Fund, the Short-Term Municipal Bond Fund and the
Smaller Companies Fund equal to 0.12%, 0.12%, 0.93%, 0.64% and 0.49% of their
respective average daily net assets.

         The Administrator generally assists in all matters relating to the
administration of the Funds, including the coordination and monitoring of any
third parties furnishing services to the Funds, the preparation and maintenance
of financial and accounting records, and the provision of the necessary office
space, equipment and personnel to perform administrative and clerical functions.

         SEI Financial Services Company (the "Distributor"), 680 East Swedesford
Road, Wayne, Pennsylvania 19087-1658, serves as the distributor of shares of the
Funds pursuant to a Distribution Agreement with the Trust and assists in the
sale of shares of the Funds.

CUSTODIANS AND TRANSFER AGENT

         The Trust has entered into a Custodian Agreement with CoreStates Bank,
N.A. ("CoreStates"), pursuant to which CoreStates serves as custodian of the
assets of Morgan Grenfell Fixed Income Fund and Morgan Grenfell Municipal Bond
Fund.

         The Trust has entered into a Custodian Agreement with The Northern
Trust Company ("Northern"), pursuant to which Northern serves as custodian of
the assets of the Equity Funds, Morgan Grenfell Short-Term Fixed Income Fund and
Morgan Grenfell Short-Term Municipal Bond Fund.

         DST Systems, Inc. (the "Transfer Agent"), 210 W. 10th Street, Kansas
City, Missouri 64105, serves as the transfer agent of the Funds.

                                      -31-

<PAGE>

The Transfer Agent maintains the records of each shareholder's account,
processes purchases and redemptions of the Funds' shares, acts as dividend and
distribution disbursing agent and performs other shareholder servicing
functions.

         Additional information regarding the services performed by the
Administrator, the Distributor, the Custodian and the Transfer Agent is provided
in the Statement of Additional Information.

                               PURCHASE OF SHARES

         Shares of any Fund may be purchased on any Business Day at the net
asset value next determined after receipt of the order in good order by the
Transfer Agent. A "Business Day" means any day on which the New York Stock
Exchange (the "NYSE") is open. Shareholders will be entitled to dividends
payable with respect to their shares of a Fund if they are shareholders of the
Fund on the record date for such dividend. There is no sales charge in
connection with purchases of shares. The Trust reserves the right, in its sole
discretion, to reject any purchase offer and to suspend the offering of shares.

         The minimum initial investment for any record shareholder account with
a Fund is $250,000 and subsequent investments will be accepted in any amount.
The Trust reserves the right to vary the initial investment minimum and to
establish minimums for additional investments at any time. In addition, the
Trust may waive the minimum initial investment requirement for any investor. The
Trust does not issue share certificates.

PURCHASES BY MAIL

         Shares may be purchased initially by completing the Account Application
accompanying this Prospectus and mailing it, together with a check in the amount
of $250,000 or more drawn on a U.S. bank payable to the appropriate Fund for
each account an investor wishes to open, to:

By Regular Mail:                            By Overnight Mail:
- ----------------                            ------------------
Morgan Grenfell Investment Trust            Morgan Grenfell Investment Trust
P.O Box 419165                              c/o DST Systems, Inc.
Kansas City, MO 64141-6165                  (SEI Division CT-7)
                                            210 W. 10th Street
                                            Kansas City, MO 64105

         Subsequent investments in an existing account in any Fund may be made
at any time by sending to the Transfer Agent, at the above address, a check
payable to the appropriate Fund, along with either (i) a subsequent order form
which may be obtained from the Transfer Agent or (ii) a letter stating the
amount of the investment, the name of the Fund and the account number in which
the investment is to be made. Investors

                                      -32-

<PAGE>

should indicate the name of the appropriate Fund and account number on all
correspondence.

PURCHASES BY WIRE

         Investors having an account with a commercial bank that is a member of
the Federal Reserve System may purchase shares of any Fund by requesting their
bank to transmit funds by wire to:

         United Missouri Bank of Kansas City, N.A.
         ABA No. 10-10-00695
         For:  Account Number 98-7052-395-7
         Further Credit:  [appropriate Fund name]

The investor's name and account number must be specified in the wire. In
addition, investors should be aware that some banks may charge wire fees.

         Initial Purchases: Before making an initial investment by wire, an
investor must first telephone 1-800-407-7301 to be assigned a wire account
number. The investor may then transmit funds by wire through the wire procedures
described above. The investor's name, account number, social security or other
taxpayer identification number, and address must be specified in the wire. In
addition, investors making initial investments by wire must promptly complete
the Account Application accompanying this Prospectus and forward it to the
Transfer Agent at:

By Regular Mail:                            By Overnight Mail:
- ----------------                            ------------------
Morgan Grenfell Investment Trust            Morgan Grenfell Investment Trust
P.O Box 419165                              c/o DST Systems, Inc.
Kansas City, MO 64141-6165                  (SEI Division CT-7)
                                            210 W. 10th Street
                                            Kansas City, MO 64105

         Subsequent Purchases: Additional investments may be made at any time
through the wire procedures described above, which must include the investor's
name and account number.

REPORTS TO SHAREHOLDERS AND CONFIRMATIONS

         Shareholders of each Fund receive an annual report containing audited
financial statements and a semiannual report. All transactions in shares of a
Fund and dividends and distributions paid by a Fund are reflected in
confirmations issued by the Transfer Agent at the time of the transaction and/or
in monthly statements issued by the Transfer Agent. A year-to-date statement
will be provided by the Transfer Agent. Shareholders with inquiries regarding a
Fund may call Morgan Grenfell Investment Trust at 1-800-814-3401 or write to
Morgan Grenfell Investment Trust at P.O. Box 419165, Kansas City, MO 64141-6165.

                                      -33-

<PAGE>

EXCHANGE PRIVILEGE

         The Funds provide a telephone exchange privilege and a written exchange
privilege. Shares of a Fund may be exchanged in amounts as low as $50,000 for
shares of any other Fund or any International Fund. A shareholder should obtain
and read the prospectus relating to an International Fund and consider its
investment objective, policies and fees before making an exchange into that
fund. Exchanges will be permitted only in those states in which the relevant
fund is available for sale.

         If a shareholder elects the telephone exchange privilege on the Account
Application, the shareholder will be able to effect the exchange of shares in
its account by telephone, as long as all accounts are identically registered. A
shareholder can exchange shares by telephone by calling 1-800-407-7301 before
4:00 p.m., Eastern time, on any Business Day. Shares exchanged will be valued at
their respective net asset values next determined after the telephone exchange
request is received. Neither the Funds nor their agents will be liable for any
loss incurred by a shareholder as a result of following instructions
communicated by telephone that they reasonably believe to be genuine. To confirm
that telephone exchange requests are genuine, the Funds will employ reasonable
procedures such as providing written confirmation of telephone exchange
transactions and tape recording of telephone exchange requests. If a Fund does
not employ such reasonable procedures, it may be liable for any loss incurred by
a shareholder due to a fraudulent or other unauthorized telephone exchange
request. The Funds reserve the right to refuse any request made by any
shareholder. Investors will receive 60 days written notice prior to any change
in a Fund's telephone exchange procedures.

         In addition to using the telephone exchange privilege, shareholders in
any of the Funds may exchange their shares for shares in any other Fund by
submitting a written request, in proper form, to the Transfer Agent. Shares
exchanged in this manner will be valued at their respective net asset values
next determined after the receipt of the written exchange request.

         An exchange is treated as a sale of the shares exchanged and,
therefore, may produce a gain or loss to the shareholder that is recognizable
for tax purposes. Investors will receive 60 days' written notice prior to any
change in a Fund's exchange procedures.


                              REDEMPTION OF SHARES

HOW TO REDEEM

         Shareholders may redeem shares of a Fund without charge upon request on
any Business Day by placing redemption requests with the 

                                      -34-

<PAGE>

Transfer Agent prior to 4:00 p.m., Eastern Time. Shares are redeemed at the net
asset value next determined after receipt of the redemption request by the
Transfer Agent. Shares subject to a redemption request will earn any dividends
for which the record date is the day the request is received.

         Redemption requests may be made by telephoning Morgan Grenfell
Investment Trust at 1-800-407-7301 or by a written request addressed to the
Transfer Agent in accordance with the procedures set forth below. A written
request must specify the number of shares to be redeemed, the Fund from which
shares are being redeemed, the account number, payment instructions and the
exact registration on the account. Signatures must be guaranteed in accordance
with the procedures set forth below under "Payment of Redemption Proceeds." A
shareholder may request redemptions by telephone if the optional telephone
redemption privilege is elected on the Account Application. In order to verify
the authenticity of telephone redemption requests, the Transfer Agent's
telephone representatives will request that the caller provide certain
information unique to the account. If the caller is unable to provide this
information, telephone redemption requests will not be processed and the
redemption will have to be completed by mail. As long as the Transfer Agent's
telephone representatives comply with the procedures described above, neither
the Trust nor the Transfer Agent will be liable for any losses due to fraudulent
or unauthorized transactions. Finally, it may be difficult to implement
telephone redemptions in times of drastic economic or market changes.

PAYMENT OF REDEMPTION PROCEEDS

   
         Redemption proceeds ordinarily will be wired to the bank account
designated on the Account Application, unless payment by check has been
requested. For redemption requests received by the Transfer Agent by 4:00 p.m.,
Eastern time, redemption proceeds often will be wired the next Business Day.
Normally, redemption proceeds will be wired within seven days after the Transfer
Agent receives the appropriate redemption request documents, including any
additional documentation that may be required by the Transfer Agent in order to
establish that a redemption request has been properly authorized. In addition,
the payment of redemption proceeds for shares of a Fund recently purchased by
check may be delayed for up to 15 calendar days or until the check clears,
whichever occurs first. After a wire has been initiated by the Transfer Agent,
neither the Transfer Agent nor the Trust assumes any further responsibility for
the performance of intermediaries or the shareholder's bank in the transfer
process. If a problem with such performance arises, the shareholder should deal
directly with such intermediaries or bank.
    

         Shareholders may request that redemption payments be made by Federal
Reserve wire or Automated Clearing House (ACH) wire. The Custodian may deduct a
wire charge (currently $10) from redemption payments made by Federal Reserve
wire. Shareholders cannot redeem 

                                      -35-
<PAGE>

shares of any Fund by Federal Reserve wire on Federal holidays restricting wire
transfers. There is no charge for ACH wire transactions; however, such
transactions will not be posted to a shareholder's bank account until the second
Business Day following the transaction.

         A shareholder may change the bank designated to receive redemption
proceeds by providing written notice to the Transfer Agent which has been signed
by the shareholder or its authorized representative. This signature must be
guaranteed by a bank, a securities broker or dealer, a credit union having
authority to issue signature guarantees, a savings and loan association, a
building and loan association, a cooperative bank, a federal savings bank or
association, a national securities exchange, a registered securities association
or a clearing agency, provided that such institution satisfies standards
established by the Transfer Agent. The Transfer Agent may also require
additional documentation in connection with a request to change a designated
bank.

         If the Board of Trustees determines that it is appropriate in order to
protect the best interests of a Fund and its shareholders, the Fund, under the
limited circumstances described below, may satisfy all or part of a redemption
request by delivering portfolio securities to a redeeming investor. However, the
Trust, on behalf of each Fund, has elected, pursuant to Rule 18f-1 under the
1940 Act, to redeem its shares solely in cash up to the lesser of $250,000 or 1%
of the net asset value of the Fund during any 90-day period for any one
shareholder. Only redemptions in excess of this limit may be paid in kind.
In-kind payments would not have to constitute a cross-section of a Fund's
portfolio. Investors receiving redemption payment in portfolio securities will
not have eliminated their investment exposure by their redemption as would
investors receiving their redemption payment in cash. Instead these investors
will be subject to risks inherent in owning such securities, including market
value and currency fluctuations, difficulties in selling securities in
particular markets and repatriating the sales proceeds, and the political and
other risks described under "Description of Securities and Investment Techniques
and Related Risks - Foreign Securities." In addition, a shareholder generally
will incur additional expenses, such as brokerage commissions and, in the case
of foreign currency denominated securities, currency conversion fees or
expenses, on the sale or other disposition of securities received from a Fund.
Any portfolio securities paid or distributed to a redeeming shareholder would be
valued as described under "Net Asset Value."


                                 NET ASSET VALUE

         The net asset value per share of each Fund is normally calculated as of
the close of regular trading on the NYSE, currently 4:00 p.m. Eastern time, on
each Business Day. The net asset value of each Fund's shares is determined by
adding the value of all securities, cash and

                                      -36-

<PAGE>

other assets of the Fund, subtracting liabilities (including accrued expenses
and dividends payable) and dividing the result by the total number of
outstanding shares of the Fund.

         For purposes of calculating each Fund's net asset value per share,
equity securities traded on a recognized securities exchange are valued at their
last sale price on the principal exchange on which they are traded on the
valuation day or, if no sale occurs, at the bid price. Unlisted equity
securities for which current market quotations are readily available are valued
at their most recent bid price. Debt securities and other fixed-income
investments owned by the Funds are valued at prices supplied by independent
pricing agents, which prices reflect broker-dealer supplied valuations and
electronic data processing techniques. Short-term obligations maturing in sixty
days or less may be valued at amortized cost, which does not take into account
unrealized gains or losses on portfolio securities. Amortized cost valuation
involves initially valuing a security at its cost, and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the security's market value. While this
method provides certainty in valuation, it may result in periods in which the
value of the security, as determined by the amortized cost method, may be higher
or lower than the price a Fund would receive if the Fund sold the security.
Other assets and assets whose market value does not, in the opinion of the
Adviser, reflect fair value are valued at fair value using methods determined in
good faith by the Board of Trustees.

         Certain portfolio securities held by the Equity Funds and the Fixed
Income Funds may be listed on foreign exchanges which trade on days when the
NYSE is closed. As a result, the net asset value of each such Fund may be
significantly affected by such trading on days when shareholders have no ability
to redeem shares of the Fund.


                       DIVIDENDS, DISTRIBUTIONS AND TAXES

         Each Equity Fund declares and pays dividends from net investment
income, if any, and distributes net short-term capital gain, if any, at least
annually. Each Fixed Income Fund and each Municipal Fund distributes
substantially all of its net investment income in the form of dividends declared
daily and paid monthly. Each Fund also distributes at least annually
substantially all of the realized net long-term capital gain, if any, which it
realizes for each taxable year and may make distributions at any other times
when necessary to satisfy applicable tax requirements. Capital losses, including
any capital loss carryovers from prior years, are taken into account in
determining the amounts of short-term and long-term capital gains to be
distributed.

         From time to time, a portion of a Fund's distributions may constitute a
return of capital for tax purposes. Dividends and distributions are made in
additional shares of the same Fund or, at the

                                      -37-

<PAGE>

shareholder's election, in cash. The election to reinvest dividends and
distributions or receive them in cash may be changed at any time upon written
notice to the Transfer Agent. If no election is made, all dividends and capital
gain distributions will be reinvested.

TAXES

         Each Fund is treated as a separate entity for federal income tax
purposes and has elected or intends to elect to be treated as a regulated
investment company under Subchapter M of the Code. Each Fund intends to qualify
for such treatment for each taxable year. To qualify as a regulated investment
company, each Fund must satisfy certain requirements relating to the sources of
its income, diversification of its assets and distribution of its income to
shareholders. As a regulated investment company, a Fund will not be subject to
federal income or excise tax on any net investment income or net realized
capital gain that is distributed to its shareholders in accordance with certain
timing requirements of the Code.

         Dividends paid by a Fund from its net investment income (except for
tax-exempt interest earned by the Municipal Funds), certain net realized foreign
exchange gains, the excess of net short-term capital gain over net long-term
capital loss and original issue discount (except for such discount on the
Municipal Funds' tax-exempt obligations) or market discount income will be
taxable to shareholders as ordinary income. Dividends paid by a Fund from any
excess of net long-term capital gain over net short-term capital loss will be
taxable to a shareholder as long-term capital gain regardless of how long the
shareholder has held its shares. These tax consequences will apply regardless of
whether distributions are received in cash or reinvested in shares. A portion of
the dividends paid to corporate shareholders by the Equity Funds from dividends
they receive from U.S. domestic corporations may qualify for the
dividends-received deduction for corporate shareholders, subject to holding
period requirements and debt-financing limitations under the Code. Certain
distributions declared in October, November or December and paid in January of
the following year are taxable to shareholders as if received on December 31 of
the year in which they are declared. Shareholders will be informed annually
about the amount and character of distributions received from a Fund for federal
income tax purposes.

         Each Municipal Fund intends to satisfy certain requirements of the Code
so that it may distribute the tax-exempt interest it receives as
"exempt-interest dividends," as defined in the Code. Distributions of a
Municipal Fund that are attributable to interest on tax-exempt obligations and
that the Municipal Fund designates as exempt-interest dividends will be excluded
from gross income for federal income tax purposes, although all or a portion of
such a distribution may increase a shareholder's liability (if any) for the
federal alternative minimum tax and the entire distribution may be includable in
the tax base for determining taxability of social security or railroad
retirement 

                                      -38-

<PAGE>

benefits. Distributions by a Municipal Fund from sources other than tax-exempt
interest will generally be taxable as described in the preceding paragraph.
Persons who are "substantial users" (or related persons to such substantial
users) of facilities financed by industrial development or certain private
activity bonds should consult their own tax advisers before purchasing shares of
a Municipal Fund. Interest on indebtedness incurred or continued to purchase or
carry shares of a Municipal Fund is not deductible to the extent attributable to
such Fund's distributions that are exempt-interest dividends.

         Individuals and certain other classes of shareholders may be subject to
31% backup withholding of federal income tax on dividends (other than
exempt-interest dividends), redemptions and exchanges if they fail to furnish
their correct taxpayer identification number and certain certifications or if
they are otherwise subject to back-up withholding. Individuals, corporations and
other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to non-resident alien withholding at the
rate of 30% (or a lower rate provided by an applicable tax treaty) on amounts
treated as ordinary dividends from a Fund and, unless a current IRS Form W-8 or
acceptable substitute is on file, to back-up witholding on certain other
payments from a Fund.

         Investors should consider the tax implications of buying shares
immediately prior to a distribution. Investors who purchase shares shortly
before the record date for a distribution will pay a per share price that
includes the value of the anticipated distribution and will be taxed on any
taxable distribution even though the distribution represents a return of a
portion of the purchase price.

         Redemptions and exchanges of shares are taxable events on which a
shareholder may recognize a gain or loss.

         In addition to federal taxes, a shareholder may be subject to state,
local or foreign taxes on dividends, capital gain distributions, or the proceeds
of redemptions or exchanges. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the extent a Fund's
distributions are derived from interest on (or, in the case of intangibles
taxes, the value of its assets is attributable to) certain U.S. Government
obligations and/or municipal obligations of certain issuers located in the state
or locality imposing the applicable taxes. In some states, such an exemption may
be available only if certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Funds may not satisfy such
requirements in some states or localities. Shareholders should consult their tax
advisors regarding specific questions about federal, state, local or foreign
taxes and special rules that may be applicable to certain classes of investors,
such as retirement plans, financial institutions, tax-exempt entities, insurance
companies and non-U.S. persons.

                                      -39-

<PAGE>

                      ORGANIZATION AND SHARES OF THE TRUST

         The Trust was formed as a business trust under the laws of the State of
Delaware on September 13, 1993, and commenced investment operations on January
3, 1994. The Board of Trustees of the Trust is responsible for the overall
management and supervision of the affairs of the Trust. The Declaration of Trust
authorizes the Board of Trustees to create separate investment series or
portfolios of shares. As of the date hereof, the Trustees have established the
Funds described in this Prospectus and eleven additional series. Until December
28, 1994, the Fixed Income Fund and the Municipal Bond Fund were series of The
Advisors' Inner Circle Fund, a business trust organized under the laws of The
Commonwealth of Massachusetts on July 18, 1991. The Declaration of Trust further
authorizes the Trust to classify or reclassify any series or portfolio of shares
into one or more classes.

         Each share of a Fund represents an equal proportionate interest in the
assets belonging to that Fund. When issued, shares of the Funds are fully paid
and nonassessable. In the event of liquidation, shareholders are entitled to
share pro rata in the net assets of the applicable Fund available for
distribution to shareholders. Shares of the Funds entitle their holders to one
vote per share, are freely transferable and have no preemptive, subscription or
conversion rights.

         Shares of a Fund will be voted separately with respect to matters
pertaining to that Fund except for the election of Trustees and the ratification
of independent accountants. For example, shareholders of each Fund are required
to approve the adoption of any investment advisory agreement relating to such
Fund and any change in the fundamental investment restrictions of such Fund.
Approval by the shareholders of one Fund is effective only as to that Fund. The
Trust does not intend to hold shareholder meetings, except as may be required by
the 1940 Act. The Trust's Declaration of Trust provides that special meetings of
shareholders shall be called for any purpose, including the removal of a
Trustee, upon written request of shareholders entitled to vote at least 10% of
the outstanding shares of the Trust, or Fund, as the case may be. In addition,
if ten or more shareholders of record who have held shares for at least six
months and who hold in the aggregate either shares having a net asset value of
$25,000 or 1% of the outstanding shares, whichever is less, seek to call a
meeting for the purpose of removing a Trustee, the Trust has agreed to provide
certain information to such shareholders and generally to assist their efforts.

         Certain of the Trustees and officers of the Trust reside outside the
United States, and substantially all the assets of these persons are located
outside the United States. It may not be possible, therefore, for investors to
effect service of process within the United States upon these persons or to
enforce against them, in United States courts or foreign courts, judgments
obtained in United States courts predicated upon the civil liability provisions
of the federal securities laws of the United States or the laws of

                                      -40-

<PAGE>

the State of Delaware. In addition, it is not certain that a foreign court would
enforce, in original actions or in actions to enforce judgments obtained in the
United States, liabilities against these Trustees and officers predicated solely
upon the federal securities laws. See "Trustees and Officers" in the Statement
of Additional Information.

   
         As of July 31, 1996, Batrus & Co. owned 44.13% of the outstanding
shares of the Short-Term Fixed Income Fund, 48.57% of the outstanding shares of
the Municipal Bond Fund and the Adviser owned 82.36% of the outstanding shares
of the Smaller Companies Fund.
    


                             PERFORMANCE INFORMATION

         From time to time, performance information, such as total return and
yield for a Fund, may be quoted in advertisements or in communications to
shareholders. A Fund's total return may be calculated on an annualized and
aggregate basis for various periods (which periods will be stated in the
advertisement). Average annual return reflects the average percentage change per
year in value of an investment in a Fund. Aggregate total return reflects the
total percentage change over the stated period. In calculating total return,
dividends and capital gain distributions made by the Fund during the period are
assumed to be reinvested in the Fund's shares. A Fund's yield reflects a Fund's
overall rate of income on portfolio investments as a percentage of the share
price. Yield is computed by annualizing the result of dividing the net
investment income per share over a 30-day period by the net asset value per
share on the last day of that period.

         For the Municipal Funds, tax-equivalent yield may also be quoted.
Tax-equivalent yield is calculated by determining the rate of return that would
have to be achieved on a fully taxable investment to produce the after tax
equivalent of a Municipal Fund's yield, assuming certain tax brackets for a
shareholder.

         To help investors better evaluate how an investment in a Fund might
satisfy their investment objective, advertisements regarding the Fund may
discuss performance as reported by various financial publications. The
performance of a Fund may be compared in publications to the performance of
various indices and investments for which reliable performance data is
available. In addition, the performance of a Fund may be compared in
publications to averages, performance rankings or other information prepared by
recognized mutual fund statistical services.

         Performance quotations of a Fund represent the Fund's past performance
and, consequently, should not be considered representative of the future
performance of the Fund. The value of Fund shares, when redeemed, may be more or
less than the original cost. Any fees charged by banks or other institutional
investors directly to their customer

                                      -41-

<PAGE>

accounts in connection with investments in shares of a Fund are not at the
direction or within the control of the Funds and will not be included in the
Funds' calculations of total return.

                                      -42-

<PAGE>


                        MORGAN GRENFELL INVESTMENT TRUST
                                885 Third Avenue
                            New York, New York 10022

                               INVESTMENT ADVISER
                    Morgan Grenfell Capital Management, Inc.
                                885 Third Avenue
                            New York, New York 10022

                          ADMINISTRATOR AND SHAREHOLDER
                                 SERVICING AGENT
                      SEI Financial Management Corporation
                            680 East Swedesford Road
                         Wayne, Pennsylvania 19087-1658

                                   DISTRIBUTOR
                         SEI Financial Services Company
                            680 East Swedesford Road
                         Wayne, Pennsylvania 19087-1658

                                   CUSTODIANS
                           The Northern Trust Company
                           Fifty South LaSalle Street
                             Chicago, Illinois 60675

                              CoreStates Bank, N.A.
                                  P.O. Box 7618
                           Broad and Chestnut Streets
                        Philadelphia, Pennsylvania 19101

                                 TRANSFER AGENT
                                DST Systems, Inc.
                                SEI Division CT-7
                               210 W. 10th Street
                           Kansas City, Missouri 64105

                             INDEPENDENT ACCOUNTANTS
                              Price Waterhouse LLP
                           1177 Avenue of the Americas
                            New York, New York 10036

                                  LEGAL COUNSEL
                                  Hale and Dorr
                                 60 State Street
                           Boston, Massachusetts 02109

                               SERVICE INFORMATION
                 Existing accounts, new accounts, prospectuses,
                      statements of additional information,
                applications, and service forms - 1-800-814-3401
                      Telephone Exchanges - 1-800-407-7301
                           Share Price and Performance
                          Information - 1-800-814-3401

<PAGE>


                        MORGAN GRENFELL INVESTMENT TRUST
                             NO-LOAD OPEN-END FUNDS
                                885 THIRD AVENUE
                            NEW YORK, NEW YORK 10022

                       STATEMENT OF ADDITIONAL INFORMATION

                                 August 27, 1996

         Morgan Grenfell Investment Trust (the "Trust") is an open-end,
management investment company consisting of eighteen investment portfolios, each
having separate and distinct investment objectives and policies. This Statement
of Additional Information provides supplementary information pertaining to the
following investment portfolios of the Trust (each, a "Fund"):


         (bullet) Morgan Grenfell Fixed Income Fund

         (bullet) Morgan Grenfell Municipal Bond Fund

         (bullet) Morgan Grenfell Short-Term Fixed Income Fund

         (bullet) Morgan Grenfell Short-Term Municipal Bond Fund

         (bullet) Morgan Grenfell Smaller Companies Fund

         (bullet) Morgan Grenfell Microcap Fund

         (bullet) Morgan Grenfell Large Cap Growth Fund


         This Statement of Additional Information is not a prospectus, and
should be read only in conjunction with the Funds' Prospectus dated August 27,
1996, as amended or supplemented from time to time (the "Prospectus"). A copy of
the Prospectus may be obtained without charge from SEI Financial Services
Company, the Trust's Distributor, by calling 1-800-814-3401 or writing to 680
East Swedesford Road, Wayne, Pennsylvania 19087-1658.

                                      -2-

<PAGE>


                                TABLE OF CONTENTS

                                                                     Page
                                                                     ----
Introduction.....................................................      3

Additional Information on Fund Investments
  and Strategies and Related Risks...............................      4

Investment Restrictions..........................................     30

Trustees and Officers............................................     37

Investment Advisory and Other Services...........................     41

Portfolio Transactions ..........................................     47

Net Asset Value..................................................     50

Performance Information..........................................     51

Taxes............................................................     55

General Information About the Trust..............................     64

Additional Information...........................................     68

Financial Statements.............................................     69

Appendix A -- Description of Ratings.............................    A-1

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

         No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information or in
the Prospectus in connection with the offering made by the Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Trust or its Distributor. The Prospectus does not
constitute an offering by the Trust or by the Distributor in any jurisdiction in
which such offering may not lawfully be made. Shares of the Funds are not
available in certain states. Please call 1-800-814-3401 to determine
availability in your state.

                                      -2-

<PAGE>

                                  INTRODUCTION

         The Trust is an open-end, management investment company that currently
consists of eighteen separate investment portfolios. This Statement of
Additional Information relates to the following six separate investment
portfolios of the Trust (the "Funds"):

         Morgan Grenfell Smaller Companies Fund
         Morgan Grenfell Microcap Fund
         Morgan Grenfell Large Cap Growth Fund
            (collectively, the "Equity Funds")

         Morgan Grenfell Fixed Income Fund
         Morgan Grenfell Short-Term Fixed Income Fund
            (collectively, the "Fixed Income Funds")

         Morgan Grenfell Municipal Bond Fund
         Morgan Grenfell Short-Term Municipal Bond Fund
            (collectively, the "Municipal Funds")

         The Funds are classified as "diversified" within the meaning of the
Investment Company Act of 1940 (the "1940 Act").

         Morgan Grenfell Capital Management, Inc. (the "Adviser" or "MGCM")
serves as investment adviser to the Funds. SEI Financial Services Company (the
"Distributor") serves as the Funds' principal underwriter and distributor. SEI
Financial Management Corporation serves as the Funds' administrator.

         The information contained in this Statement of Additional Information
generally supplements the information contained in the Prospectus. No investor
should invest in a Fund without first reading the Prospectus. Capitalized terms
used herein and not otherwise defined have the same meaning ascribed to them in
the Prospectus.

                                      -3-

<PAGE>

                   ADDITIONAL INFORMATION ON FUND INVESTMENTS
                        AND STRATEGIES AND RELATED RISKS

         The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of each Fund.

FIXED INCOME SECURITIES

         VARIABLE AND FLOATING RATE INSTRUMENTS. Debt instruments purchased by a
Fund may be structured to have variable or floating interest rates. These
instruments may include variable amount master demand notes that permit the
indebtedness to vary in addition to providing for periodic adjustments in the
interest rates. The Adviser will consider the earning power, cash flows and
other liquidity ratios of the issuers and guarantors of such instruments and, if
the instrument is subject to a demand feature, will continuously monitor their
financial ability to meet payment on demand. Where necessary to ensure that a
variable or floating rate instrument is equivalent to the quality standards
applicable to a Fund's fixed income investments, the issuer's obligation to pay
the principal of the instrument will be backed by an unconditional bank letter
or line of credit, guarantee or commitment to lend. Any bank providing such a
bank letter, line of credit, guarantee or loan commitment will meet the Fund's
investment quality standards relating to investments in bank obligations. A Fund
will invest in variable and floating rate instruments only when the Adviser
deems the investment to involve minimal credit risk. The Adviser will also
continuously monitor the creditworthiness of issuers of such instruments to
determine whether a Fund should continue to hold the investments.

         The absence of an active secondary market for certain variable and
floating rate notes could make it difficult to dispose of the instruments, and a
Fund could suffer a loss if the issuer defaults or during periods in which a
Fund is not entitled to exercise its demand rights.

         Variable and floating rate instruments held by a Fund will be subject
to the Fund's limitation on investments in illiquid securities when a reliable
trading market for the instruments does not exist and the Fund may not demand
payment of the principal amount of such instruments within seven days.

         YIELDS AND RATINGS. The yields on certain obligations, including the
money market instruments in which each Fund may invest (such as commercial paper
and bank obligations), are dependent on a variety of factors, including general
money market conditions, conditions in the particular market for the 

                                      -4-

<PAGE>

obligation, the financial condition of the issuer, the size of the offering, the
maturity of the obligation and the ratings of the issue. The ratings of Standard
and Poors Ratings Group ("Standard & Poor's"), Moody's Investor Service, Inc.
("Moody's") and other recognized rating organizations represent their respective
opinions as to the quality of the obligations they undertake to rate. Ratings,
however, are general and are not absolute standards of quality or value.
Consequently, obligations with the same rating, maturity and interest rate may
have different market prices. See Appendix A for a description of the ratings
provided by Standard & Poor's, Moody's and certain other recognized rating
organizations.

         Subsequent to its purchase by a Fund, a rated security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Trustees or the Adviser, pursuant to
guidelines established by the Board of Trustees, will consider such an event in
determining whether the Fund should continue to hold the security in accordance
with the interests of the Fund and applicable regulations of the Securities and
Exchange Commission (the "Commission"). In no event, however, will a Fund hold
more than 5% of its net assets in fixed income securities that are not
investment grade.

         CUSTODIAL RECEIPTS. Each of the Fixed Income Funds may acquire U.S.
Government Securities and their unmatured interest coupons that have been
separated ("stripped") by their holder, typically a custodian bank or investment
brokerage firm. Having separated the interest coupons from the underlying
principal of the U.S. Government Securities, the holder will resell the stripped
securities in custodial receipt programs with a number of different names,
including "Treasury Income Growth Receipts" ("TIGRs") and "Certificate of
Accrual on Treasury Securities" ("CATS"). The stripped coupons are sold
separately from the underlying principal, which is usually sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. The underlying U.S. Treasury bonds and notes themselves are
generally held in book-entry form at a Federal Reserve Bank. Counsel to the
underwriters of these certificates or other evidences of ownership of U.S.
Treasury securities have stated that, in their opinion, purchasers of the
stripped securities most likely will be deemed the beneficial holders of the
underlying U.S. Government Securities for federal tax and securities purposes.
In the case of CATS and TIGRS, the Internal Revenue Service ( the "IRS") has
reached this conclusion for the purpose of applying the tax diversification
requirements applicable to regulated investment companies such as the Funds.
CATS and TIGRS are not considered U.S. Government Securities by the staff of the
Commission. Further, the IRS

                                      -5-

<PAGE>

conclusion noted above is contained only in a general counsel memorandum, which
is an internal document of no precedential value or binding effect, and a
private letter ruling, which also may not be relied upon by the Funds. The Trust
is not aware of any binding legislative, judicial or administrative authority on
this issue.

PREFERRED STOCK

         Each of the Equity Funds, subject to its investment objectives, may
purchase preferred stock. Preferred stocks are equity securities, but possess
certain attributes of debt securities and are generally considered fixed income
securities. Holders of preferred stocks normally have the right to receive
dividends at a fixed rate when and as declared by the issuer's board of
directors, but do not participate in other amounts available for distribution by
the issuing corporation. Dividends on the preferred stock may be cumulative, and
in such cases all cumulative dividends usually must be paid prior to dividend
payments to common stockholders. Because of this preference, preferred stocks
generally entail less risk than common stocks. Upon liquidation, preferred
stocks are entitled to a specified liquidation preference, which is generally
the same as the par or stated value, and are senior in right of payment to
common stocks. However, preferred stocks are equity securities in that they do
not represent a liability of the issuer and therefore do not offer as great a
degree of protection of capital or assurance of continued income as investments
in corporate debt securities. In addition, preferred stocks are subordinated in
right of payment to all debt obligations and creditors of the issuer, and
convertible preferred stocks may be subordinated to other preferred stock of the
same issuer. See "Convertible Securities and Preferred Stocks" in the Prospectus
for a description of certain characteristics of convertible preferred stock.

WARRANTS

         As stated in the Prospectus, each of the Equity Funds may purchase
warrants, which are privileges issued by corporations enabling the owners to
subscribe to and purchase a specified number of shares of the corporation at a
specified price during a specified period of time. The purchase of warrants
involves a risk that a Fund could lose the purchase value of a warrant if the
right to subscribe to additional shares is not exercised prior to the warrant's
expiration. Also, the purchase of warrants involves the risk that the effective
price paid for the warrant added to the subscription price of the related
security may exceed the value of the subscribed security's market price such as
when there is no movement in the level of the underlying security. A Fund will
not invest more than 5% of its net assets, taken at market value, in warrants,
or more than 2% of its net assets, taken at market value, in warrants not listed
on a recognized securities exchange. 

                                      -6-

<PAGE>

Warrants acquired by a Fund in units or attached to other securities shall not
be included in determining compliance with these percentage limitations. See
"Investment Restrictions."

MUNICIPAL SECURITIES

         As stated in the Prospectus, the Municipal Funds and, to a more limited
extent, the Fixed Income Funds may invest in municipal securities. Municipal
securities consist of bonds, notes and other instruments issued by or on behalf
of states, territories and possessions of the United States (including the
District of Columbia) and their political subdivisions, agencies or
instrumentalities, the interest on which is exempt from regular federal income
tax (i.e., excluded from gross income for federal income tax purposes but not
necessarily exempt from the federal alternative minimum tax or from state and
local taxes). Municipal securities may also be issued on a taxable basis (i.e.,
the interest on such securities is not exempt from regular federal income tax).

         Municipal securities are often issued to obtain funds for various
public purposes, including the construction of a wide range of public facilities
such as bridges, highways, housing, hospitals, mass transportation, schools,
streets and water and sewer works. Other public purposes for which municipal
securities may be issued include refunding outstanding obligations, obtaining
funds for general operating expenses, and obtaining funds to lend to other
public institutions and facilities. Municipal securities also include "private
activity" or industrial development bonds, which are issued by or on behalf of
public authorities to provide financing aid to acquire sites or construct or
equip facilities within a municipality for privately or publicly owned
corporations.

         The two principal classifications of municipal securities are "general
obligations" and "revenue obligations." General obligations are secured by the
issuer's pledge of its full faith and credit for the payment of principal and
interest although the characteristics and enforcement of general obligations may
vary according to the law applicable to the particular issuer. Revenue
obligations, which include, but are not limited to, private activity bonds,
resource recovery bonds, certificates of participation and certain municipal
notes, are not backed by the credit and taxing authority of the issuer and are
payable solely from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. Nevertheless, the obligations of the issuer may also be
backed by a letter of credit, guarantee or insurance. General obligations and
revenue obligations

                                      -7-

<PAGE>

may be issued in a variety of forms, including commercial paper, fixed, variable
and floating rate securities, tender option bonds, auction rate bonds and
capital appreciation bonds.

         In addition to general obligations and revenue obligations, there is a
variety of hybrid and special types of municipal securities. There are also
numerous differences in the credit backing of municipal securities both within
and between these two principal classifications.

         For the purpose of applying a Fund's investment restrictions, the
identification of the issuer of a municipal security which is not a general
obligation is made by the Adviser based on the characteristics of the municipal
security, the most important of which is the source of funds for the payment of
principal and interest on such securities.

         An entire issue of municipal securities may be purchased by one or a
small number of institutional investors such as a Fund. Thus, the issue may not
be said to be publicly offered. Unlike some securities that are not publicly
offered, a secondary market exists for many municipal securities that were not
publicly offered initially and such securities can be readily marketable.

         The obligations of an issuer to pay the principal of and interest on a
municipal security are subject to the provisions of bankruptcy, insolvency and
other laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Act, and laws, if any, that may be enacted by Congress or state
legislatures extending the time for payment of principal or interest or imposing
other constraints upon the enforcement of such obligations. There is also the
possibility that, as a result of litigation or other conditions, the power or
ability of the issuer to pay when due principal of or interest on a municipal
security may be materially affected.

         MUNICIPAL LEASES, CERTIFICATES OF PARTICIPATION AND OTHER PARTICIPATION
INTERESTS. A municipal lease is an obligation in the form of a lease or
installment purchase contract which is issued by a state or local government to
acquire equipment and facilities. Income from such obligations is generally
exempt from state and local taxes in the state of issuance (as well as regular
Federal income tax). Municipal leases frequently involve special risks not
normally associated with general obligation or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of 

                                      -8-

<PAGE>

"non-appropriation" clauses that relieve the governmental issuer of any
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. Thus, a Fund's investment in municipal leases will be
subject to the special risk that the governmental issuer may not appropriate
funds for lease payments.

         In addition, such leases or contracts may be subject to the temporary
abatement of payments in the event the issuer is prevented from maintaining
occupancy of the leased premises or utilizing the leased equipment. Although the
obligations may be secured by the leased equipment or facilities, the
disposition of the property in the event of nonappropriation or foreclosure
might prove difficult, time consuming and costly, and result in an
unsatisfactory or delayed recoupment of a Fund's original investment.

         Certificates of participation represent undivided interests in
municipal leases, installment purchase contracts or other instruments. The
certificates are typically issued by a trust or other entity which has received
an assignment of the payments to be made by the state or political subdivision
under such leases or installment purchase contracts.

         Certain municipal lease obligations and certificates of participation
may be deemed illiquid for the purpose of the Funds' respective limitations on
investments in illiquid securities. Other municipal lease obligations and
certificates of participation acquired by a Fund may be determined by the
Adviser, pursuant to guidelines adopted by the Trustees of the Trust, to be
liquid securities for the purpose of such Fund's limitation on investments in
illiquid securities. In determining the liquidity of municipal lease obligations
and certificates of participation, the Adviser will consider a variety of
factors including: (1) the willingness of dealers to bid for the security; (2)
the number of dealers willing to purchase or sell the obligation and the number
of other potential buyers; (3) the frequency of trades or quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Adviser will consider factors unique to particular lease obligations and
certificates of participation affecting the marketability thereof. These include
the general creditworthiness of the issuer, the importance to the issuer of the
property covered by the lease and the likelihood that the marketability of the
obligation will be maintained throughout the time the obligation is held by a
Fund. No Fund may invest more than 5% of its net assets in municipal leases.

         Each Municipal Fund and each Fixed Income Fund may purchase
participations in municipal securities held by a commercial bank or other

                                      -9-

<PAGE>

financial institution. Such participations provide a Fund with the right to a
pro rata undivided interest in the underlying municipal securities. In addition,
such participations generally provide a Fund with the right to demand payment,
on not more than seven days notice, of all or any part of the Fund's
participation interest in the underlying municipal security, plus accrued
interest.

         MUNICIPAL NOTES. Municipal securities in the form of notes generally
are used to provide for short-term capital needs, in anticipation of an issuer's
receipt of other revenues or financing, and typically have maturities of up to
three years. Such instruments may include Tax Anticipation Notes, Revenue
Anticipation Notes, Bond Anticipation Notes, Tax and Revenue Anticipation Notes
and Construction Loan Notes. Tax Anticipation Notes are issued to finance the
working capital needs of governments. Generally, they are issued in anticipation
of various tax revenues, such as income, sales, property, use and business
taxes, and are payable from these specific future taxes. Revenue Anticipation
Notes are issued in expectation of receipt of other kinds of revenue, such as
federal revenues available under federal revenue sharing programs. Bond
Anticipation Notes are issued to provide interim financing until long-term bond
financing can be arranged. In most cases, the long-term bonds then provide the
funds needed for repayment of the notes. Tax and Revenue Anticipation Notes
combine the funding sources of both Tax Anticipation Notes and Revenue
Anticipation Notes. Construction Loan Notes are sold to provide construction
financing. These notes are secured by mortgage notes insured by the Federal
Housing Authority; however, the proceeds from the insurance may be less than the
economic equivalent of the payment of principal and interest on the mortgage
note if there has been a default. The obligations of an issuer of municipal
notes are generally secured by the anticipated revenues from taxes, grants or
bond financing. An investment in such instruments, however, presents a risk that
the anticipated revenues will not be received or that such revenues will be
insufficient to satisfy the issuer's payment obligations under the notes or that
refinancing will be otherwise unavailable.

         TAX-EXEMPT COMMERCIAL PAPER. Issues of tax-exempt commercial paper
typically represent short-term, unsecured, negotiable promissory notes. These
obligations are issued by state and local governments and their agencies to
finance working capital needs of municipalities or to provide interim
construction financing and are paid from general revenues of municipalities or
are refinanced with long-term debt. In most cases, tax-exempt commercial paper
is backed by letters of credit, lending agreements, note repurchase agreements
or other credit facility agreements offered by banks or other institutions.

                                      -10-

<PAGE>

         PRE-REFUNDED MUNICIPAL SECURITIES. The principal of and interest on
municipal securities that have been pre-refunded are no longer paid from the
original revenue source for the securities. Instead, after pre-refunding the
source of such payments is typically an escrow fund consisting of obligations
issued or guaranteed by the U.S. Government. The assets in the escrow fund are
derived from the proceeds of refunding bonds issued by the same issuer as the
pre-refunded municipal securities. Issuers of municipal securities use this
advance refunding technique to obtain more favorable terms with respect to
securities that are not yet subject to call or redemption by the issuer. For
example, advance refunding enables an issuer to refinance debt at lower market
interest rates, restructure debt to improve cash flow or eliminate restrictive
covenants in the indenture or other governing instrument for the pre-refunded
municipal securities. However, except for a change in the revenue source from
which principal and interest payments are made, the pre-refunded municipal
securities remain outstanding on their original terms until they mature or are
redeemed by the issuer. Pre-refunded municipal securities are usually purchased
at a price which represents a premium over their face value.

         TENDER OPTION BONDS. A tender option bond is a municipal security
(generally held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially higher than
prevailing short-term tax-exempt rates. The bond is typically issued in
conjunction with the agreement of a third party, such as a bank, broker-dealer
or other financial institution, pursuant to which such institution grants the
security holders the option, at periodic intervals, to tender their securities
to the institution and receive the face value thereof.

         As consideration for providing the option, the financial institution
receives periodic fees equal to the difference between the bond's fixed coupon
rate and the rate, as determined by a remarketing or similar agent at or near
the commencement of such period, that would cause the securities, coupled with
the tender option, to trade at par on the date of such determination. Thus,
after payment of this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt rate.
However, an institution will not be obligated to accept tendered bonds in the
event of certain defaults or a significant downgrade in the credit rating
assigned to the issuer of the bond. The liquidity of a tender option bond is a
function of the credit quality of both the bond issuer and the financial
institution providing liquidity. Tender option bonds are deemed to be liquid
unless, in the opinion of the Adviser, the credit quality of the bond issuer and
the financial institution is 

                                      -11-

<PAGE>

deemed, in light of the Fund's credit quality requirements, to be inadequate.
Each Municipal Fund intends to invest only in tender option bonds the interest
on which will, in the opinion of bond counsel, counsel for the issuer of
interests therein or counsel selected by the Adviser, be exempt from regular
federal income tax. However, because there can be no assurance that the IRS will
agree with such counsel's opinion in any particular case, there is a risk that a
Municipal Fund will not be considered the owner of such tender option bonds and
thus will not be entitled to treat such interest as exempt from such tax.
Additionally, the federal income tax treatment of certain other aspects of these
investments, including the proper tax treatment of tender option bonds and the
associated fees, in relation to various regulated investment company tax
provisions is unclear. Each Municipal Fund intends to manage its portfolio in a
manner designed to eliminate or minimize any adverse impact from the tax rules
applicable to these investments.

         AUCTION RATE SECURITIES. Auction rate securities consist of auction
rate municipal securities and auction rate preferred securities issued by
closed-end investment companies that invest primarily in municipal securities.
Provided that the auction mechanism is successful, auction rate securities
usually permit the holder to sell the securities in an auction at par value at
specified intervals. The dividend is reset by "Dutch" auction in which bids are
made by broker-dealers and other institutions for a certain amount of securities
at a specified minimum yield. The dividend rate set by the auction is the lowest
interest or dividend rate that covers all securities offered for sale. While
this process is designed to permit auction rate securities to be traded at par
value, there is the risk that an auction will fail due to insufficient demand
for the securities.

         Dividends on auction rate preferred securities issued by a closed-end
fund may be designated as exempt from federal income tax to the extent they are
attributable to exempt income earned by the fund on the securities in its
portfolio and distributed to holders of the preferred securities, provided that
the preferred securities are treated as equity securities for federal income tax
purposes and the closed-end fund complies with certain tests under the Internal
Revenue Code of 1986, as amended (the "Code"). For purposes of complying with
the 20% limitation on each Municipal Fund's investments in taxable investments,
auction rate preferred securities will be treated as taxable investments unless
substantially all of the dividends on such securities are expected to be exempt
from regular federal income taxes.

         Each Fund's investments in auction rate preferred securities of
closed-end funds are subject to limitations on investments in other investment
companies, which limitations are prescribed by the 1940 Act and certain state
securities regulations. These limitations include a 

                                      -12-

<PAGE>

prohibition against acquiring more than 3% of the voting securities of any other
investment company, and investing more than 5% of the Fund's assets in
securities of any one investment company or more than 10% of its assets in
securities of all investment companies. A Fund will indirectly bear its
proportionate share of any management fees paid by such closed-end funds in
addition to the advisory fee payable directly by the Fund.

         PRIVATE  ACTIVITY  BONDS.   Certain  types  of  municipal   securities,
generally  referred to as  industrial  development  bonds (and referred to under
current tax law as private activity bonds), are issued by or on behalf of public
authorities to obtain funds for privately-operated housing facilities,  airport,
mass  transit or port  facilities,  sewage  disposal,  solid  waste  disposal or
hazardous  waste treatment or disposal  facilities and certain local  facilities
for water supply,  gas or  electricity.  Other types of  industrial  development
bonds, the proceeds of which are used for the construction, equipment, repair or
improvement  of privately  operated  industrial  or commercial  facilities,  may
constitute  municipal  securities,  although the current  federal tax laws place
substantial  limitations  on the size of such issues.  The interest from certain
private   activity  bonds  owned  by  a  Fund  (including  a  Municipal   Fund's
distributions  attributable  to such  interest)  may be a  preference  item  for
purposes of the alternative minimum tax.

MORTGAGE-BACKED SECURITIES

         As stated in the Prospectus, the Fixed Income Funds and the Municipal
Funds may invest in mortgage-backed securities, including derivative
instruments. Mortgage-backed securities represent direct or indirect
participations in or obligations collateralized by and payable from mortgage
loans secured by real property. Each Fixed Income Fund and each Municipal Fund
may invest in mortgage-backed securities issued or guaranteed by U.S. Government
agencies or instrumentalities such as the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"). Obligations of GNMA are backed
by the full faith and credit of the U.S. Government. Obligations of FNMA and
FHLMC are not backed by the full faith and credit of the U.S. Government but are
considered to be of high quality since they are considered to be
instrumentalities of the United States. The market value and yield of these
mortgage-backed securities can vary due to market interest rate fluctuations and
early prepayments of underlying mortgages. These securities represent ownership
in a pool of Federally insured mortgage loans with a maximum maturity of 30
years. The scheduled monthly interest and principal payments relating to
mortgages in the pool 

                                      -13-

<PAGE>

will be "passed through" to investors. Government mortgage-backed securities
differ from conventional bonds in that principal is paid back to the certificate
holders over the life of the loan rather than at maturity. As a result, there
will be monthly scheduled payments of principal and interest.

         Only the Fixed Income Funds may invest in mortgage-backed securities
issued by non-governmental entities including collateralized mortgage
obligations ("CMOs") and real estate mortgage investment conduits ("REMICs").
CMOs are securities collateralized by mortgages, mortgage pass-throughs,
mortgage pay-through bonds (bonds representing an interest in a pool of
mortgages where the cash flow generated from the mortgage collateral pool is
dedicated to bond repayment), and mortgage-backed bonds (general obligations of
the issuers payable out of the issuers' general funds and additionally secured
by a first lien on a pool of single family detached properties). Many CMOs are
issued with a number of classes or series which have different maturities and
are retired in sequence. Investors purchasing such CMOs in the shortest
maturities receive or are credited with their pro rata portion of the
unscheduled prepayments of principal up to a predetermined portion of the total
CMO obligation. Until that portion of such CMO obligation is repaid, investors
in the longer maturities receive interest only. Accordingly, the CMOs in the
longer maturity series are less likely than other mortgage pass-throughs to be
prepaid prior to their stated maturity. Although some of the mortgages
underlying CMOs may be supported by various types of insurance, and some CMOs
may be backed by GNMA certificates or other mortgage pass-throughs issued or
guaranteed by U.S. Government agencies or instrumentalities, the CMOs themselves
are not generally guaranteed.

         REMICs are private entities formed for the purpose of holding a fixed
pool of mortgages secured by an interest in real property. REMICs are similar to
CMOs in that they issue multiple classes of securities, including "regular"
interests and "residual" interests. The Funds do not intend to acquire residual
interests in REMICs under current tax law, due to certain disadvantages for
regulated investment companies that acquire such interests.

         Mortgage-backed securities are subject to unscheduled principal
payments representing prepayments on the underlying mortgages. Although these
securities may offer yields higher than those available from other types of
securities, mortgage-backed securities may be less effective than other types of
securities as a means of "locking in" attractive long-term rates because of the
prepayment feature. For instance, when interest rates decline, the value of
these securities likely will not rise as much as comparable debt securities due
to the prepayment feature. In addition, these prepayments can cause the price of
a mortgage-backed security originally purchased at a premium to decline in price
to its par value, which may result in a loss.

                                      -14-
<PAGE>

         Due to prepayments of the underlying mortgage instruments,
mortgage-backed securities do not have a known actual maturity. In the absence
of a known maturity, market participants generally refer to an estimated average
life. The Adviser believes that the estimated average life is the most
appropriate measure of the maturity of a mortgage-backed security. Accordingly,
in order to determine whether such security is a permissible investment, it will
be deemed to have a remaining maturity of three years or less if the average
life, as estimated by the Adviser, is three years or less at the time of
purchase of the security by a Fund. An average life estimate is a function of an
assumption regarding anticipated prepayment patterns. The assumption is based
upon current interest rates, current conditions in the relevant housing markets
and other factors. The assumption is necessarily subjective, and thus different
market participants could produce somewhat different average life estimates with
regard to the same security. Although the Adviser will monitor the average life
of the portfolio securities of each Fixed Income Fund and Municipal Fund and
make needed adjustments to comply with the Funds' policy as to average dollar
weighted portfolio maturity, there can be no assurance that the average life of
portfolio securities as estimated by the Adviser will be the actual average life
of such securities.

         As stated in the Prospectus, no Fund will invest 25% or more of its
total assets in CMOs (other than U.S. Government Securities).

ASSET-BACKED SECURITIES

         As stated in the Prospectus, the Fixed Income Funds may invest in
asset-backed securities, which represent participations in, or are secured by
and payable from, pools of assets including company receivables, truck and auto
loans, leases and credit card receivables. The asset pools that back
asset-backed securities are securitized through the use of privately-formed
trusts or special purpose corporations. Payments or distributions of principal
and interest may be guaranteed up to certain amounts and for a certain time
period by a letter of credit or a pool insurance policy issued by a financial
institution unaffiliated with the trust or corporation, or other credit
enhancements may be present. Certain asset backed securities may be considered
derivative instruments. As stated in the Prospectus, no Fund will invest 25% or
more of its total assets in asset-backed securities.

FOREIGN SECURITIES

         Subject to their  respective  investment  objectives and policies,  the
Equity  Funds and the Fixed  Income  Funds may invest in  securities  of foreign

                                      -15-

<PAGE>

issuers. While the Equity Funds' non-U.S. investments may be denominated in any
currency, the Fixed Income Funds' investments in foreign securities may be
denominated only in the U.S. dollar. Foreign securities may offer investment
opportunities not available in the United States, but such investments also
involve significant risks not typically associated with investing in domestic
securities. In many foreign countries, there is less publicly available
information about foreign issuers, and there is less government regulation and
supervision of foreign stock exchanges, brokers and listed companies. Also, in
many foreign countries, companies are not subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
domestic issuers. Security trading practices differ and there may be difficulty
in enforcing legal rights outside the United States. Settlement of transactions
in some foreign markets may be delayed or may be less frequent than in the
United States, which could affect the liquidity of the Funds' portfolios.
Additionally, in some foreign countries, there is the possibility of
expropriation or confiscatory taxation, limitations on the removal of
securities, property, or other Fund assets, political or social instability or
diplomatic developments which could affect investments in foreign securities.

         To the extent the Equity Funds' investments are denominated in foreign
currencies, the net asset values of such Funds may be affected favorably or
unfavorably by fluctuations in currency exchange rates and by changes in
exchange control regulations. For example, if the Adviser increases an Equity
Fund's exposure to a foreign currency, and that currency's value subsequently
falls, the Adviser's currency management may result in increased losses to the
Fund. Similarly, if the Adviser hedges an Equity Fund's exposure to a foreign
currency, and that currency's value rises, the Fund will lose the opportunity to
participate in the currency's appreciation. The Equity Funds will incur
transaction costs in connection with conversions between currencies.

         FOREIGN GOVERNMENT SECURITIES. The foreign government securities in
which the Fixed Income Funds and the Equity Funds may invest generally consist
of debt obligations issued or guaranteed by national, state or provincial
governments or similar political subdivisions. The Fixed Income Funds and the
Equity Funds may invest in foreign government securities in the form of American
Depositary Receipts. Foreign government securities also include debt securities
of supranational entities. Currently, each Fixed Income Fund intends to invest
only in obligations issues or guaranteed by the Asian Development Bank, the
Inter-American Development Bank, the International Bank for Reconstruction and
Development (the "World Bank"), the African Development Bank, the European Coal
and Steel Community, the European Economic Community, the European Investment
Bank and the Nordic Investment Bank. Foreign government securities also include
mortgage-related

                                      -16-

<PAGE>

securities issued or guaranteed by national, state or provincial governmental
instrumentalities, including quasi-governmental agencies.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

         Each of the Equity Funds may exchange currencies in the normal course
of managing its investments in foreign securities and may incur costs in doing
so because a foreign exchange dealer will charge a fee for conversion. An Equity
Fund may conduct foreign currency exchange transactions on a "spot" basis (i.e.,
for prompt delivery and settlement) at the prevailing spot rate for purchasing
or selling currency in the foreign currency exchange market. An Equity Fund also
may enter into forward foreign currency exchange contracts ("forward currency
contracts") or other contracts to purchase and sell currencies for settlement at
a future date. A foreign exchange dealer, in that situation, will expect to
realize a profit based on the difference between the price at which a foreign
currency is sold to the Equity Fund and the price at which the dealer will cover
the purchase in the foreign currency market. Foreign exchange transactions are
entered into at prices quoted by dealers, which may include a mark-up over the
price that the dealer must pay for the currency.

         A forward currency contract involves an obligation 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 agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are generally charged at any stage for trades.

         At the maturity of a forward contract, an Equity Fund may either accept
or make delivery of the currency specified in the contract or, at or prior to
maturity, enter into a closing purchase transaction involving the purchase or
sale of an offsetting contract. Closing purchase transactions with respect to
forward contracts are usually effected with the currency trader who is a party
to the original forward contract.

         The Equity Funds may enter into forward currency contracts only for the
following hedging purposes. First, when an Equity Fund enters into a contract
for the purchase or sale of a security denominated in a foreign currency, or
when an Equity Fund anticipates the receipt in a foreign currency of dividend or
interest payments on such a security which it holds, the Fund may desire to
"lock in" the U.S. dollar price of the security or the 

                                      -17-

<PAGE>

U.S. dollar equivalent of such dividend or interest payment, as the case may be.
By entering into a forward contract for the purchase or sale, for a fixed amount
of U.S. dollars, of the amount of foreign currency involved in the underlying
transactions, the Fund will attempt to protect itself against an adverse change
in the relationship between the U.S. dollar and the subject foreign currency
during the period between the date on which the security is purchased or sold,
or on which the dividend or interest payment is declared, and the date on which
such payments are made or received.

         Additionally, when management of an Equity Fund believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, it may cause the Fund to enter into a forward contract
to sell, for a fixed amount of U.S. dollars, the amount of foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency. 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 those securities
between the date on which the contract is entered into and the date it matures.
Using forward currency contracts in an attempt to protect the value of a Fund's
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which a Fund can achieve at some future point in
time. The precise projection of short-term currency market movements is not
possible, and short-term hedging provides a means of fixing the dollar value of
only a portion of a Fund's foreign assets.

         A Fund's custodian will place cash or liquid, high grade debt
securities ("High Grade Debt Securities") (i.e., securities rated in one of the
top three ratings categories by Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("Standard & Poor's"), or a comparable rating
agency, or, if unrated, deemed by the Adviser to be of comparable credit
quality) into a segregated account of the Fund in an amount equal to the value
of the Fund's total assets committed to the consummation of forward currency
contracts requiring the Fund to purchase foreign currencies. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of a Fund's commitments with respect to such
contracts. The segregated account will be marked-to-market on a daily basis.
Although forward currency contracts are not presently regulated by the Commodity
Futures Trading Commission (the "CFTC"), the CFTC may in the future assert
authority to regulate these contracts. In such event, the Funds' ability to
utilize forward currency contracts may be restricted. In addition, a particular
forward currency 

                                      -18-

<PAGE>

contract and assets used to cover such contract may be illiquid.

         The Equity Funds generally will not enter into a forward currency
contract with a term of greater than one year.

         While the Equity Funds will enter into forward currency contracts to
reduce currency exchange rate risks, transactions in such contracts involve
certain other risks. Thus, while the Equity Funds may benefit from currency
transactions, unanticipated changes in currency prices may result in a poorer
overall performance for a Fund than if it had not engaged in any such
transactions. Moreover, there may be an imperfect correlation between a Fund's
portfolio holdings of securities denominated in a particular currency and
forward contracts entered into by the Fund. Such imperfect correlation may cause
a Fund to sustain losses which will prevent the Fund from achieving a complete
hedge or expose the Fund to risk of foreign currency exchange loss. Forward
currency contracts may be considered derivative instruments.

         Each Equity Fund's activities in forward currency exchange contracts,
currency futures contracts and related options and currency options (see below)
may be limited by the requirements of subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), for qualification as a regulated investment
company.

OPTIONS ON SECURITIES, SECURITIES INDICES AND FOREIGN CURRENCIES

         Each of the Equity Funds may write covered put and call options and
purchase put and call options. Such options may relate to particular securities,
to various stock indices, or to currencies. The Funds may write call and put
options which are issued by the Options Clearing Corporation (the "OCC") or
which are traded on U.S. and non-U.S. exchanges and over-the-counter. These
instruments may be considered derivative instruments. See "Description of
Securities and Investment Techniques and Related Risks -- Options" in the
Prospectus.

         A call option on a securities index provides the holder with the right
to receive a cash payment upon exercise of the option if the market value of the
underlying index exceeds the option's exercise price. Conversely, a put option
on a securities index provides the holder with the right to receive a cash
payment upon exercise of the option if the market value of the underlying index
is less than the option's exercise price. The amount of any payment to the
option holder will be equal to the difference between the closing price of the
index at the time of exercise and the exercise price of the option expressed in
U.S. dollars or a foreign currency, times a specified 

                                      -19-

<PAGE>

multiple. A put option on a currency gives its holder the right to sell an
amount (specified in units of the underlying currency) of the underlying
currency at the stated exercise price at any time prior to the option's
expiration. Conversely, a call option on a currency gives its holder the right
to purchase an amount (specified in units of the underlying currency) of the
underlying currency at the stated exercise price at any time prior to the
option's expiration.

         The Funds will engage in over-the-counter ("OTC") options only with
broker-dealers deemed creditworthy by the Adviser. Closing transactions in
certain options are usually effected directly with the same broker-dealer that
effected the original option transaction. A Fund bears the risk that the
broker-dealer may fail to meet its obligations. There is no assurance that a
Fund will be able to close an unlisted option position. Furthermore, unlisted
options are not subject to the protections afforded purchasers of listed options
by the OCC, which performs the obligations of its members who fail to do so in
connection with the purchase or sale of options. OTC options and the assets used
to cover such options will be deemed illiquid for purposes of each Equity Fund's
15% limitation on investments in illiquid securities, except that 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 a formula
approved by the staff of the Commission.

         An Equity Fund will write call options only if they are "covered." In
the case of a call option on a security, the option is "covered" if the Fund
owns the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, cash or High Grade Debt Securities in such
amount are held in a segregated account by the Fund's custodian) upon conversion
or exchange of other securities held by it. For a call option on an index, the
option is covered if the Fund maintains with the Fund's custodian cash or cash
equivalents equal to the contract value. A call option on a security or an index
is also covered if the Fund holds a call on the same security or index as the
call written by the Fund where the exercise price of the call held is (i) equal
to or less than the exercise price of the call written, or (ii) greater than the
exercise price of the call written provided the difference is maintained by the
Fund in cash or High Grade Debt Securities in a segregated account with the
Fund's custodian. A call option on currency written by a Fund is covered if the
Fund owns an equal amount of the underlying currency.

         When a Fund purchases a put option, the premium paid by it is recorded
as an asset of the Fund. When the Fund writes an option, an amount equal to

                                      -20-

<PAGE>

the net premium (the premium less the commission paid by the Fund) received by
the Fund is included in the liability section of the Fund's statement of assets
and liabilities as a deferred credit. The amount of this asset or deferred
credit will be marked-to-market on an ongoing basis to reflect the current value
of the option purchased or written. The current value of a traded option is the
last sale price or, in the absence of a sale, the average of the closing bid and
asked prices. If an option purchased by the Fund expires unexercised, the Fund
realizes a loss equal to the premium paid. If the Fund enters into a closing
sale transaction on an option purchased by it, the Fund will realize a gain if
the premium received by the Fund on the closing transaction is more than the
premium paid to purchase the option, or a loss if it is less. If an option
written by the Fund expires on the stipulated expiration date or if the Fund
enters into a closing purchase transaction, it will realize a gain (or loss if
the cost of a closing purchase transaction exceeds the net premium received when
the option is sold) and the deferred credit related to such option will be
eliminated. If an option written by the Fund is exercised, the proceeds to the
Fund from the exercise will be increased by the net premium originally received,
and the Fund will realize a gain or loss.

         There are several risks associated with transactions in options on
securities, securities indices and currencies. For example, there are
significant differences between the securities markets, currency markets and the
corresponding options markets that could result in imperfect correlations,
causing a given option transaction not to achieve its objectives. In addition, a
liquid secondary market for particular options, whether traded OTC or on a U.S.
or non-U.S. securities exchange may be absent for reasons which include the
following: there may be insufficient trading interest in certain options;
restrictions may be imposed by an exchange on opening transactions or closing
transactions or both; trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of options or underlying
securities; unusual or unforeseen circumstances may interrupt normal operations
on an exchange; the facilities of an exchange or the OCC may not at all times be
adequate to handle current trading volume; or one or more exchanges could, for
economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that exchange (or in that class or series
of options) would cease to exist, although outstanding options that had been
issued by the OCC as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.

         The hours of trading for options may not conform to the hours during

                                      -21-

<PAGE>

which the underlying securities and currencies are traded. To the extent that
the options markets close before the markets for the underlying securities and
currencies, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the options markets. The purchase
of options is a highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio securities
transactions. The risks described above also apply to options on futures, which
are discussed below.

FUTURES CONTRACTS AND RELATED OPTIONS

         To hedge against changes in interest rates or securities prices and for
certain non-hedging purposes, the Equity Funds may purchase and sell various
kinds of futures contracts, and purchase and write call and put options on any
of such futures contracts. The Equity Funds may also enter into closing purchase
and sale transactions with respect to any of such contracts and options. The
futures contracts may be based on various securities (such as U.S. Government
securities), indices, currencies and other financial instruments. The Equity
Funds will engage in futures and related options transactions only for bona fide
hedging or other non-hedging purposes as defined in regulations promulgated by
the CFTC. All futures contracts entered into by the Equity Funds are traded on
U.S. exchanges or boards of trade that are licensed and regulated by the CFTC or
on foreign exchanges approved by the CFTC.

         FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell a particular financial instrument
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
Futures contracts obligate the long or short holder to take or make delivery of
a specified quantity of a commodity or financial instrument, such as a security
or the cash value of a securities index, during a specified future period at a
specified price.

         When interest rates are rising or securities prices are falling, an
Equity Fund can seek to offset a decline in the value of its current portfolio
securities through the sale of futures contracts. When interest rates are
falling or securities prices are rising, an Equity Fund, through the purchase of
futures contracts, can attempt to secure better rates or prices than might later
be available in the market when it effects anticipated purchases.

         Positions taken in the futures markets are not normally held to
maturity but are instead liquidated through offsetting transactions which may
result

                                      -22-

<PAGE>

in a profit or a loss. While futures contracts on securities will usually be
liquidated in this manner, the Equity Funds may instead make, or take, delivery
of the underlying securities whenever it appears economically advantageous to do
so. A clearing corporation associated with the exchange on which futures on
securities are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.

         HEDGING STRATEGIES. Hedging, by use of futures contracts, seeks to
establish with more certainty the effective price and rate of return on
portfolio securities and securities that a Fund proposes to acquire. The Equity
Funds may, for example, take a "short" position in the futures market by selling
futures contracts in order to hedge against an anticipated rise in interest
rates or a decline in market prices that would adversely affect the value of a
Fund's portfolio securities. Such futures contracts may include contracts for
the future delivery of securities held by a Fund or securities with
characteristics similar to those of the Fund's portfolio securities. If, in the
opinion of the Adviser, there is a sufficient degree of correlation between
price trends for an Equity Fund's portfolio securities and futures contracts
based on other financial instruments, securities indices or other indices, the
Fund may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in a Fund's portfolio may
be more or less volatile than prices of such futures contracts, the Adviser will
attempt to estimate the extent of this volatility difference based on historical
patterns and compensate for any such differential by having the Fund enter into
a greater or lesser number of futures contracts or by attempting to achieve only
a partial hedge against price changes affecting a Fund's securities portfolio.
When hedging of this character is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of a Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.

         On other occasions, the Equity Funds may take a "long" position by
purchasing futures contracts. This would be done, for example, when a Fund
anticipates the subsequent purchase of particular securities when it has the
necessary cash, but expects the prices then available in the applicable market
to be less favorable than prices that are currently available.

         OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options
on futures contracts will give the Equity Funds the right (but not the
obligation) for a specified price to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the

                                      -23-

<PAGE>

purchaser of an option on a futures contract, a Fund obtains the benefit of the
futures position if prices move in a favorable direction but limits its risk of
loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.

         The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of a Fund's assets. By writing
a call option, a Fund becomes obligated, in exchange for the premium, to sell a
futures contract (if the option is exercised), which may have a value higher
than the exercise price. Conversely, the writing of a put option on a futures
contract generates a premium which may partially offset an increase in the price
of securities that a Fund intends to purchase. However, a Fund becomes obligated
to purchase a futures contract (if the option is exercised) which may have a
value lower than the exercise price. Thus, the loss incurred by a Fund in
writing options on futures is potentially unlimited and may exceed the amount of
the premium received. The Funds will incur transaction costs in connection with
the writing of options on futures.

         The holder or writer of an option on a futures contract may terminate
its position by selling or purchasing an offsetting option on the same series.
There is no guarantee that such closing transactions can be effected. The Equity
Funds' ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid market.

         The Equity Funds may use options on futures contracts solely for bona
fide hedging or other non-hedging purposes as described below.

         OTHER CONSIDERATIONS. The Equity Funds will engage in futures and
related options transactions only for bona fide hedging or non-hedging purposes
as permitted by CFTC regulations which permit principals of an investment
company registered under the 1940 Act to engage in such transactions without
registering as commodity pool operators. Each Equity Fund will determine that
the price fluctuations in the futures contracts and options on futures used by
it for hedging purposes are substantially related to price fluctuations in
securities or instruments held by the Fund or securities or instruments which it
expects to purchase. Except as stated below, the Equity Funds' futures
transactions will be entered into for traditional hedging purposes--i.e.,
futures contracts will be sold to protect against a decline in the price of
securities (or the currency in which they are denominated) that a Fund owns or
futures contracts will be purchased to protect a Fund against an increase in the
price of securities (or the currency in which they are denominated) that a Fund
intends to purchase. As evidence of this hedging intent, each Equity Fund
expects that, on 75% or

                                      -24-

<PAGE>

more of the occasions on which it takes a long futures or option position
(involving the purchase of futures contracts), the Fund will have purchased, or
will be in the process of purchasing, equivalent amounts of related securities
(or assets denominated in the related currency) in the cash market at the time
when the futures or option position is closed out. However, in particular cases,
when it is economically advantageous for a Fund to do so, a long futures
position may be terminated or an option may expire without the corresponding
purchase of securities or other assets.

         As an alternative to compliance with the bona fide hedging definition,
a CFTC regulation now permits a Fund to elect to comply with a different test
under which the aggregate initial margin and premiums required to establish
non-hedging positions in futures contracts and options on futures will not
exceed 5% of the net asset value of a Fund's portfolio, after taking into
account unrealized profits and losses on any such positions and excluding the
amount by which such options were in-the-money at the time of purchase. A Fund
will engage in transactions in futures contracts and related options only to the
extent such transactions are consistent with the requirements of the Code for
maintaining its qualification as a regulated investment company for federal
income tax purposes. See "Taxes."

         Each Equity Fund will be required, in connection with transactions in
futures contracts and the writing of options on futures contracts, to make
margin deposits, which will be held by its custodian for the benefit of the
futures commission merchant through whom the Fund engages in such futures and
option transactions. These transactions involve brokerage costs, require margin
deposits and, in the case of futures contracts and options obligating a Fund to
purchase securities, require a Fund to segregate cash or High Grade Debt
Securities in an account maintained with its custodian to cover such contracts
and options.

         While transactions in futures contracts and options on futures may
reduce certain risks, such transactions themselves entail certain other risks.
Thus, unanticipated changes in interest rates or securities prices may result in
a poorer overall performance for a Fund than if it had not entered into any
futures contracts or options transactions. The other risks associated with the
use of futures contracts and options thereon are (i) imperfect correlation
between the change in market value of the securities held by a Fund and the
prices of the futures and options and (ii) the possible absence of a liquid
secondary market for a futures contract or option and the resulting inability to
close a futures position prior to its maturity date.

                                      -25-

<PAGE>

         In the event of an imperfect correlation between a futures position and
portfolio position which is intended to be protected, the desired protection may
not be obtained and an Equity Fund may be exposed to risk of loss. The risk of
imperfect correlation may be minimized by investing in contracts whose price
behavior is expected to resemble that of the Fund's underlying securities. The
Funds will attempt to minimize the risk that they will be unable to close out
futures positions by entering into such transactions on a national exchange with
an active and liquid secondary market.

COMMERCIAL PAPER

         Commercial paper is a short-term,  unsecured negotiable promissory note
of a U.S or non-U.S issuer.  Each of the Funds may purchase  commercial paper as
described in the  Prospectus.  Each Fund may also invest in variable rate master
demand notes which typically are issued by large  corporate  borrowers and which
provide for variable amounts of principal  indebtedness and periodic adjustments
in the interest  rate.  Demand notes are direct lending  arrangements  between a
Fund and an issuer,  and are not normally traded in a secondary  market. A Fund,
however,  may demand  payment of principal and accrued  interest at any time. In
addition, while demand notes generally are not rated, their issuers must satisfy
the same  criteria  as those  that apply to issuers  of  commercial  paper.  The
Adviser will consider the earning power, cash flow and other liquidity ratios of
issuers of demand notes and continually will monitor their financial  ability to
meet  payment  on demand.  See also  "Fixed  Income  Securities  --Variable  and
Floating Rate Instruments."

 BANK OBLIGATIONS

         As stated in the Prospectus, each Fund's investments in money market
instruments may include certificates of deposit, time deposits and bankers'
acceptances. Certificates of Deposit ("CDs") are short-term negotiable
obligations of commercial banks. Time Deposits ("TDs") are non-negotiable
deposits maintained in banking institutions for specified periods of time at
stated interest rates. Bankers' acceptances are time drafts drawn on commercial
banks by borrowers usually in connection with international transactions.

         U.S. commercial banks organized under federal law are supervised and
examined by the Comptroller of the Currency and are required to be members of
the Federal Reserve System and to be insured by the Federal Deposit Insurance
Corporation (the "FDIC"). U.S. banks organized under state law are supervised
and examined by state banking authorities but are members of the Federal Reserve
System only if they elect to join. Most state banks are insured by the FDIC
(although such insurance may not be of material benefit to a Fund, depending
upon the principal amount of CDs of each bank held by 

                                      -26-

<PAGE>

the Fund) and are subject to federal examination and to a substantial body of
federal law and regulation. As a result of governmental regulations, U.S.
branches of U.S. banks, among other things, generally are required to maintain
specified levels of reserves, and are subject to other supervision and
regulation designed to promote financial soundness.

         U.S. savings and loan associations, the CDs of which may be purchased
by the Funds, are supervised and subject to examination by the Office of Thrift
Supervision. U.S. savings and loan associations are insured by the Savings
Association Insurance Fund which is administered by the FDIC and backed by the
full faith and credit of the U.S. Government.

REPURCHASE AGREEMENTS

         Each of the Funds may enter into repurchase agreements as described in
the Prospectus.

         For purposes of the 1940 Act and, generally for tax purposes, a
repurchase agreement is considered to be a loan from the Fund to the seller of
the obligation. For other purposes, it is not clear whether a court would
consider such an obligation as being owned by the Fund or as being collateral
for a loan by the Fund to the seller. In the event of the commencement of
bankruptcy or insolvency proceedings with respect to the seller of the
obligation before its repurchase, under the repurchase agreement, the Fund may
encounter delay and incur costs before being able to sell the security. Such
delays may result in a loss of interest or decline in price of the obligation.
If the court characterizes the transaction as a loan and the Fund has not
perfected a security interest in the obligation, the Fund may be treated as an
unsecured creditor of the seller and required to return the obligation to the
seller's estate. As an unsecured creditor, the Fund would be at risk of losing
some or all of the principal and income involved in the transaction. As with any
unsecured debt instrument purchased for the Funds, the Adviser seeks to minimize
the risk of loss from repurchase agreements by analyzing the creditworthiness of
the obligor, in this case, the seller of the obligation. In addition to the risk
of bankruptcy or insolvency proceedings, there is the risk that the seller may
fail to repurchase the security. However, if the market value of the obligation
falls below an amount equal to 102% of the repurchase price (including accrued
interest), the seller of the obligation will be required to deliver additional
securities so that the market value of all securities subject to the repurchase
agreement equals or exceeds the repurchase price.

                                      -27-

<PAGE>

"WHEN-ISSUED" PURCHASES AND FORWARD COMMITMENTS (DELAYED DELIVERY)

         These transactions, which involve a commitment by a Fund to purchase or
sell particular securities with payment and delivery taking place at a future
date (perhaps one or two months later), permit the Fund to lock in a price or
yield on a security, regardless of future changes in interest rates. A Fund will
purchase securities on a "when-issued" or forward commitment basis only with the
intention of completing the transaction and actually purchasing the securities.
If deemed appropriate by the Adviser, however, a Fund may dispose of or
renegotiate a commitment after it is entered into, and may sell securities it
has committed to purchase before those securities are delivered to the Fund on
the settlement date. In these cases the Fund may realize a gain or loss, and
distributions attributable to any such gain would be taxable to shareholders.

         When a Fund agrees to purchase securities on a "when-issued" or forward
commitment basis, the Fund's custodian will set aside cash or liquid High Grade
Debt Securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case the Fund may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitments. The
market value of a Fund's net assets will generally fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase commitments than
when it sets aside cash. Because a Fund's liquidity and ability to manage its
portfolio might be affected when it sets aside cash or portfolio securities to
cover such purchase commitments, each Fund expects that its commitments to
purchase when-issued securities and forward commitments will not exceed 33% of
the value of its total assets. When a Fund engages in "when-issued" and forward
commitment transactions, it relies on the other party to the transaction to
consummate the trade. Failure of such party to do so may result in the Fund
incurring a loss or missing an opportunity to obtain a price considered to be
advantageous.

         The market value of the securities underlying a "when-issued" purchase
or a forward commitment to purchase securities, and any subsequent fluctuations
in their market value, are taken into account when determining the market value
of a Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest or dividends on the securities it has committed to
purchase until the settlement date.

BORROWING

         Each Fund may borrow for temporary or emergency purposes, although

                                      -28-

<PAGE>

borrowings by the Fixed Income Fund and the Municipal Bond Fund may not exceed
10% of the value of their respective net assets. This borrowing may be
unsecured. The 1940 Act requires a Fund to maintain continuous asset coverage
(that is, total assets including borrowings, less liabilities exclusive of
borrowings) of 300% of the amount borrowed. If the asset coverage should decline
below 300% as a result of market fluctuations or for other reasons, a Fund will
be required to sell some of its portfolio securities within three days to reduce
its borrowings and restore the 300% asset coverage, even though it may be
disadvantageous from an investment standpoint to sell securities at that time.
To limit the potential leveraging effects of a Fund's borrowings, each Equity
Fund, the Short-Term Fixed Income Fund and the Short-Term Municipal Bond Fund
will not make investments while borrowings are in excess of 5% of total assets.
The Fixed Income Fund and the Municipal Bond Fund may not make additional
investments while they have any borrowings outstanding. Borrowing generally will
exaggerate the effect on net asset value of any increase or decrease in the
market value of the portfolio. Money borrowed will be subject to interest costs
which may or may not be recovered by appreciation of the securities purchased. A
Fund also may be required to maintain minimum average balances in connection
with such borrowing or to pay a commitment or other fee to maintain a line of
credit; either of these requirements would increase the cost of borrowing over
the stated interest rate. See "Investment Restrictions."

LENDING PORTFOLIO SECURITIES

         Each Fund, other than Fixed Income Fund and Municipal Bond Fund, may
lend portfolio securities to brokers, dealers and other financial organizations.
These loans, if and when made by a Fund, may not exceed 33 1/3% of the value of
the Fund's total assets. A Fund's loans of securities will be collateralized by
cash, cash equivalents or U.S. Government securities. The cash or instruments
collateralizing the Fund's loans of securities will be maintained at all times
in a segregated account with the Fund's custodian, in an amount at least equal
to the current market value of the loaned securities. From time to time, a Fund
may pay a part of the interest earned from the investment of collateral received
for securities loaned to the borrower and/or a third party that is unaffiliated
with the Fund and is acting as a "placing broker". No fee will be paid to
affiliated persons of the Fund. The Board of Trustees will make a determination
that the fee paid to the placing broker is reasonable.

         By lending portfolio securities, a Fund can increase its income by
continuing to receive amounts equal to the interest or dividends on the 

                                      -29-

<PAGE>

loaned securities as well as by either investing the cash collateral in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. Government securities are used as collateral. A Fund will
comply with the following conditions whenever it loans securities: (i) the Fund
must receive at least 100% cash collateral or equivalent securities from the
borrower; (ii) the borrower must increase the collateral whenever the market
value of the securities loaned rises above the level of the collateral; (iii)
the Fund must be able to terminate the loan at any time; (iv) the Fund must
receive reasonable interest on the loan, as well as amounts equal to the
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (v) the Fund may pay only reasonable custodian fees in
connection with the loan; and (vi) voting rights on the loaned securities may
pass to the borrower except that, if a material event will occur affecting the
investment in the loaned securities, the Fund must terminate the loan in time to
vote the securities on such event.


                             INVESTMENT RESTRICTIONS

         The fundamental investment restrictions set forth below may not be
changed with respect to a Fund without the approval of a "majority" (as defined
in the 1940 Act) of the outstanding shares of that Fund. For the purposes of the
1940 Act, "majority" means the lesser of (a) 67% or more of the shares of the
Fund present at a meeting, if the holders of more than 50% of the outstanding
shares of the Fund are present or represented by proxy or (b) more than 50% of
the shares of the Fund.

         Investment restrictions that involve a maximum percentage of securities
or assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings by or on behalf of, a Fund
with the exception of borrowings permitted by fundamental investment restriction
(2) listed below for Short-Term Fixed Income Fund, Short-Term Municipal Bond
Fund and the Equity Funds and fundamental investment restriction (3) listed
below for Fixed Income Fund and Municipal Bond Fund.

         The nonfundamental investment restrictions set forth below may be
changed or amended by the Trust's Board of Trustees without shareholder
approval.

INVESTMENT RESTRICTIONS THAT APPLY TO SHORT-TERM FIXED INCOME FUND, SHORT-TERM
MUNICIPAL BOND FUND AND THE EQUITY FUNDS

         FUNDAMENTAL INVESTMENT RESTRICTIONS. The Trust may not, on behalf of a
Fund:

                                      -30-

<PAGE>

         (1) Issue senior securities, except as permitted by paragraphs (2), (6)
and (7) below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the purchase or sale of
options, futures contracts and options on futures contracts, forward
commitments, forward foreign exchange contracts, repurchase agreements and
reverse repurchase agreements entered into in accordance with the Fund's
investment policy, and the pledge, mortgage or hypothecation of the Fund's
assets within the meaning of paragraph (3) below are not deemed to be senior
securities, if appropriately covered.

         (2) Borrow money (i) except from banks as a temporary measure for
extraordinary emergency purposes and (ii) except that the Fund may enter into
reverse repurchase agreements and dollar rolls, if appropriately covered, with
banks, broker-dealers and other parties; provided that, in each case, the Fund
is required to maintain asset coverage of at least 300% for all borrowings. For
the purposes of this investment restriction, short sales, transactions in
currency, forward contracts, swaps, options, futures contracts and options on
futures contracts, and forward commitment transactions shall not constitute
borrowing.

         (3) Pledge, mortgage, or hypothecate its assets, except to secure
indebtedness permitted by paragraph (2) above and to the extent related to the
segregation of assets in connection with the writing of covered put and call
options and the purchase of securities or currencies on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to forward contracts, options, futures contracts and
options on futures contracts.

         (4) Act as an underwriter, except to the extent that, in connection
with the disposition of Fund securities, the Fund may be deemed to be an
underwriter for purposes of the Securities Act of 1933.

         (5) Purchase or sell real estate, or any interest therein, and real
estate mortgage loans, except that the Fund may invest in securities of
corporate or governmental entities secured by real estate or marketable
interests therein or securities issued by companies (other than real estate
limited partnerships) that invest in real estate or interests therein.

         (6) Make loans, except that the Fund may lend Fund securities in
accordance with the Fund's investment policies and may purchase or invest in
repurchase agreements, bank certificates of deposit, all or a portion of an
issue of bonds, bank loan participation agreements, bankers' acceptances,

                                      -31-

<PAGE>

debentures or other securities, whether or not the purchase is made upon the
original issuance of the securities.

         (7) Invest in commodities or commodity contracts or in puts, calls, or
combinations of both, except interest rate futures contracts, options on
securities, securities indices, currency and other financial instruments,
futures contracts on securities, securities indices, currency and other
financial instruments and options on such futures contracts, forward foreign
currency exchange contracts, forward commitments, securities index put or call
warrants and repurchase agreements entered into in accordance with the Fund's
investment policies.

         (8) Invest 25% or more of the value of the Fund's total assets in the
securities of one or more issuers conducting their principal business activities
in the same industry or group of industries. This restriction does not apply to
investments in obligations of the U.S. Government or any of its agencies or
instrumentalities.

             In addition, each Fund will adhere to the following fundamental
investment restriction:

             With respect to 75% of its total assets, a Fund may not purchase
securities of an issuer (other than the U.S. Government, or any of its agencies
or instrumentalities, or other investment companies), if

             (a) such purchase would cause more than 5% of the Fund's total
         assets taken at market value to be invested in the  securities  of such
         issuer, or

             (b) such purchase would at the time result in more than 10% of the
         outstanding  voting  securities of such issuer being held by the Fund.

         NONFUNDAMENTAL INVESTMENT RESTRICTIONS. The Trust may not, on behalf of
a Fund:

         (a) Participate on a joint-and-several basis in any securities trading
account. The "bunching" of orders for the sale or purchase of marketable Fund
securities with other accounts under the management of the Adviser to save
commissions or to average prices among them is not deemed to result in a
securities trading account.

         (b) Purchase securities on margin or make short sales unless by virtue
of its ownership of other securities, the Fund has the right to obtain, without
payment of additional consideration, securities equivalent in kind and amount to
the securities sold and, if the right is conditional, the sale 

                                      -32-

<PAGE>

is made upon the same conditions, except that a Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities and in connection with transactions involving forward foreign
currency exchange transactions, options, futures and options on futures.

         (c) Purchase securities of other investment companies, except in the
open market where no commission or profit to a sponsor or dealer results from
the purchase other than the customary broker's commission and as permitted by
the Investment Company Act of 1940 and the rules and regulations thereunder.

         (d) Purchase securities of any issuer which, together with any
predecessor, has a record of less than three years' continuous operations prior
to the purchase if such purchase would cause investments of the Fund in all such
issuers to exceed 5% of the value of the total assets of the Fund.

         (e) Invest for the purpose of exercising control over or management of
any company.

         (f) Purchase warrants of any issuer, if, as a result of such purchases,
more than 2% of the value of the Fund's net assets would be invested in warrants
which are not listed on the New York Stock Exchange or the American Stock
Exchange or more than 5% of the value of the net assets of the Fund would be
invested in warrants generally, whether or not so listed. For these purposes,
warrants are to be valued at the lesser of cost or market, but warrants acquired
by the Fund in units with or attached to debt securities shall be deemed to be
without value.

         (g) Purchase or retain securities of an issuer if one or more of the
Trustees or officers of the Trust or directors or officers of the Adviser or any
investment management subsidiary of the Adviser individually owns beneficially
more than 0.5% and together own beneficially more than 5% of the securities of
such issuer.

         (h) Purchase interests in oil, gas or other mineral leases or
exploration programs; however, this policy will not prohibit the acquisition of
securities of companies engaged in the production or transmission of oil, gas or
other minerals.

         (i) Purchase any security, including any repurchase agreement maturing
in more than seven days, which is illiquid, if more than 15% of the net assets
of the Fund, taken at market value, would be invested in such securities.

                                      -33-

<PAGE>

         (j) Invest more than 5% of its total assets in restricted securities,
excluding restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933; provided, however, that no more than 15% of the
Fund's total assets may be invested in restricted securities including
restricted securities eligible for resale under Rule 144A.

         (k) Write covered calls or put options with respect to more than 25% of
the value of its total assets or invest more than 5% of its total assets in
puts, calls, spreads, or straddles, other than protective put options.

         The staff of the Commission has taken the position that fixed time
deposits maturing in more than seven days that cannot be traded on a secondary
market and participation interests in loans are illiquid. Until such time (if
any) as this position changes, the Trust, on behalf of each Fund, will include
such investments in determining compliance with the 15% limitation on
investments in illiquid securities. Restricted securities (including commercial
paper issued pursuant to Section 4(2) of the Securities Act of 1933 which the
Board of Trustees has determined are readily marketable will not be deemed to be
illiquid for purposes of such restriction.

         "Value" for the purposes of the foregoing investment restrictions shall
mean the market value used in determining each Fund's net asset value.

INVESTMENT RESTRICTIONS THAT APPLY TO THE FIXED INCOME FUND AND THE MUNICIPAL
BOND FUND

         FUNDAMENTAL INVESTMENT RESTRICTIONS. The Trust may not, on behalf of
the Fixed Income Fund or the Municipal Bond Fund:

         (1) Acquire more than 10% of the voting securities of any one issuer.

         (2) Invest in companies for the purpose of exercising control.

         (3) Borrow money except for temporary or emergency purposes and then
only in an amount not exceeding 10% of the value of its total assets. Any
borrowing will be done from a bank and to the extent that such borrowing exceeds
5% of the value of a Fund's assets, asset coverage of at least 300% is required.
In the event that such asset coverage shall at any time fall below 300%, a Fund
shall, within three days thereafter or such longer period as the Securities and
Exchange Commission may prescribe by rules and regulations, reduce the amount of
its borrowings to such an extent that the asset coverage of such borrowings
shall be at least 300%. This borrowing provision is included for temporary
liquidity or emergency purposes. All borrowings will be repaid before making
investments and any interest paid on such borrowings will reduce income.

                                      -34-

<PAGE>

         (4) Make loans, except that a Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and a Fund
may enter into repurchase agreements.

         (5) Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to exceed 10% of
total assets taken at current value at the time of the incurrence of such loan.

         (6) Purchase or sell real estate, real estate limited partnership
interests, futures contracts, commodities or commodities contracts and interests
in a pool of securities that are secured by interests in real estate. However,
subject to the permitted investments of the Fund, a Fund may invest in municipal
securities or other obligations secured by real estate or interests therein.

         (7) Make short sales of securities, maintain a short position or
purchase securities on margin, except that a Fund may obtain short-term credits
as necessary for the clearance of security transactions.

         (8) Act as an underwriter of securities of other issuers except as it
may be deemed an underwriter in selling a portfolio security.

         (9) Purchase securities of other investment companies except as
permitted by the Investment Company Act of 1940 and the rules and regulations
thereunder.

         (10) Issue senior securities (as defined in the Investment Company Act
of 1940) except in connection with permitted borrowings as described above or as
permitted by rule, regulation or order of the Securities and Exchange
Commission.

         (11) Purchase or retain securities of an issuer if an officer, trustee,
partner or director of the Fund or any investment adviser of the Fund owns
beneficially more than 1/2 of 1% of the shares or securities of such issuer and
all such officers, trustees, partners and directors owning more than 1/2 of 1%
of such shares or securities together own more than 5% of such shares or
securities.

         (12) Invest in interests in oil, gas or other mineral exploration or
development programs and oil, gas or mineral leases.

                                      -35-

<PAGE>

         (13) Write or purchase puts, calls, options or combinations thereof or
invest in warrants, except that a Fund may purchase "put" bonds as described in
the Prospectus.

         NONFUNDAMENTAL INVESTMENT RESTRICTIONS.

         (1) A Fund may not invest in illiquid securities in an amount
exceeding, in the aggregate, 10% of the Municipal Bond Fund's total assets and
15% of the Fixed Income Fund's net assets. An illiquid security is a security
that cannot be disposed of promptly (within seven days) and in the usual course
of business without a loss, and includes repurchase agreements maturing in
excess of seven days, time deposits with a withdrawal penalty, non-negotiable
instruments and instruments for which no market exists.

         (2) A Fund may not purchase securities of any issuer which, together
with any predecessor, has a record of less than three years' continuous
operations prior to the purchase if such purchase would cause investments of the
Fund in all such issuers to exceed 15% of the value of the total assets of the
Fund and the Fund may not invest more than 5% of its total assets in restricted
securities, excluding restricted securities eligible for resale pursuant to Rule
144A under the Securities Act of 1933; provided, however, that no more than 15%
of the Fund's total assets may be invested in restricted securities including
restricted securities eligible for resale under Rule 144A.

         (3) A Fund may not purchase securities of other investment companies
except in the open market where no commission or profit to a sponsor or dealer
results from the purchase other than the customary broker's commission and as
permitted by the Investment Company Act of 1940 and the rules and regulations
thereunder.

                                      -36-

<PAGE>

                              TRUSTEES AND OFFICERS


         Information pertaining to the Trustees and officers of the Trust is set
forth below. An asterisk (*) indicates those Trustees deemed to be "interested
persons" of the Trust for purposes of the 1940 Act.


<TABLE>
<CAPTION>

                                      Positions               Principal Occupation
Name and Address                      With Trust              During Past Five Years
- ------------------------              ----------------        ----------------------
<S>                                   <C>                     <C>
James E. Minnick(1)*                  President, Chief        President, Secretary and
885 Third Avenue                      Executive               Treasurer, MGCM (since 1990).
New York, NY  10022                   Officer, and
(age 48)                              Trustee

Patrick W. W. Disney(1)*              Senior Vice             Director, Morgan Grenfell
20 Finsbury Circus                    President and           Investment Services Limited
London EC2M 1NB                       Trustee                 ("MGIS")(since 1988).
ENGLAND
(age 40)

Paul K. Freeman(2)                    Trustee                 Chief Executive Officer,
3941 South Bellaire                                           The Eric Group, Inc.
Englewood, CO 80110                                           (environmental insurance)
(age 46)                                                      (since 1986).

Graham E. Jones(2)                    Trustee                 Senior Vice President, BGK
330 Garfield Street                                           Realty Inc. (since 1995);
Santa Fe, NM 87501                                            Financial Manager, Practice
(age 63)                                                      Management Systems (medical
                                                              information services)(1988-95);
                                                              Director, 12 closed-end funds
                                                              managed by Morgan Stanley 
                                                              Asset Management; Trustee, 10
                                                              open-end mutual funds managed
                                                              by Weiss, Peck & Greer.

William N. Searcy(2)                  Trustee                 Pension & Savings Trust
5100 Foxridge Drive #2011                                     Officer, Sprint Corporation
Mission, KS 66202                                             (telecommunications) (since

                                      -37-

<PAGE>

(age 49)                                                      1989).


Hugh G. Lynch                         Trustee                 Director, International
767 Fifth Avenue                                              Investments, General Motors
New York, NY 10153                                            Investment Management
(age 58)                                                      Corporation (since
                                                              September 1990).

Edward T. Tokar*                      Trustee                 Vice President--Investments,
101 Columbia Road                                             Allied Signal Inc. (advanced
Morristown, NJ 07962                                          technology and manufacturer)
(age 49)                                                      (since 1985).

Jeffrey A. Cohen                      Treasurer,              Controller, Mutual Fund
680 East Swedesford Road              Principal               Accounting, SEI Corporation
Wayne, PA  19087-1658                 Accounting              (since May 1994); Director,
(age 35)                              Officer, Chief          Mutual Fund Accounting, SEI
                                      Financial Officer       Corporation (1991-1994); Audit Manager, 
                                                              Price Waterhouse (1989-1991).

Neil P. Jenkins(3)                    Vice President          Director, MGCM (since
885 Third Avenue                                              1991), Morgan Grenfell
New York, NY 10022                                            International Funds Management,
(age 36)                                                      (since 1995), and Morgan Grenfell 
                                                              & Co., Ltd. (since 1985).

David W. Baldt                        Vice President          Executive Vice President and 
1435 Walnut Street                                            Director of Fixed Income
Philadelphia, PA 19102                                        Investments, MGCM (since 1989).
(age 47)

Ian D. Kelson                         Vice President          Director, MGIS (since 1988);
20 Finsbury Circus                                            Chief Investment Officer,
London  EC2M 1NB                                              Fixed Income, MGIS (since 1989).
England
(age 40)

James H. Grifo                        Vice President          Senior Vice President and
1435 Walnut Street                                            Director, MGCM (since 1996);
Philadelphia, PA 19102                                        Senior Vice President, GT
(age 45)                                                      Global Financial (since 1990).

                                      -38-

<PAGE>

Mark G. Arthus                        Secretary and           Director, Compliance and
885 Third Avenue                      Compliance              Financial Control, MGCM
New York, NY  10022                   Officer                 (since 1992); Vice President,
(age 40)                                                      Senior Compliance Officer
                                                              and other positions,
                                                              Citibank, N.A. (to 1992)
</TABLE>

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

1  Member of the Trust's Valuation and Dividend Committees.
2  Member of the Trust's Audit Committee.
3  Member of the Trust's Dividend Committee

         Certain of the Trustees and officers of the Trust reside outside the
United States, and substantially all the assets of these persons are located
outside the United States. It may not be possible, therefore, for investors to
effect service of process within the United States upon these persons or to
enforce against them, in United States courts or foreign courts, judgments
obtained in United States courts predicated upon the civil liability provisions
of the federal securities laws of the United States or the laws of the State of
Delaware. In addition, it is not certain that a foreign court would enforce, in
original actions or in actions to enforce judgments obtained in the United
States, liabilities against these Trustees and officers predicated solely upon
the federal securities laws.

         Messrs. Jones, Freeman and Searcy are members of the Audit Committee of
the Board of Trustees. The Audit Committee's functions include making
recommendations to the Trustees regarding the selection of independent
accountants, and reviewing with such accountants and the Treasurer of the Trust
matters relating to accounting and auditing practices and procedures, accounting
records, internal accounting controls and the functions performed by the Trust's
custodian, administrator and transfer agent.

   
         As of July 31, 1996, the Trustees and officers of the Trust owned, as a
group, less than one percent of the outstanding shares of each Fund other than
Morgan Grenfell Short-Term Municipal Bond Fund. On such date, the Trustees and
officers of the Trust owned, as a group, 27.24% of the outstanding shares of
Morgan Grenfell Short-Term Municipal Bond Fund.
    

                                      -39-

<PAGE>

COMPENSATION OF TRUSTEES

         The Trust pays each Trustee who is not affiliated with the Adviser an
annual fee of $15,000 provided that they attend each regular Board meeting
during the year. Members of the Audit Committee also receive $1,000 for each
Audit Committee meeting attended. The Chairman of the Audit Committee receives
an additional $1,000 per year. The Trustees are also reimbursed for
out-of-pocket expenses incurred by them in connection with their duties as
Trustees.

         The following table sets forth the compensation paid by the Trust to
the Trustees for the fiscal year of the Trust ended October 31, 1995:

                           Pension or
                           Retirement Benefits       Aggregate
                           Accrued as Part of        Compensation from
Name of Trustees           Fund Expenses             the Trust / Complex *
- ----------------           -------------             ---------------------
James E. Minnick           $    0                    $    0
Patrick W. Disney          $    0                    $    0
Paul K. Freeman            $    0                    $ 14,500
Graham E. Jones            $    0                    $ 14,500
William N. Searcy          $    0                    $ 15,500
Hugh G. Lynch              $    0                    $ 13,500
Edward T. Tokar            $    0                    $    0


         * The Trustees listed above do not serve on the Board of any other
investment company that may be considered to belong to the same complex as the
Trust.

         The above figures reflect the Board of Trustees' adoption of a new
Trustee compensation schedule, effective as of May 20, 1995, as well as the old
compensation schedule, which was in effect prior to May 20, 1995. Trustees'
compensation figures for fiscal years after October 31, 1995 will be higher than
these figures because Trustee compensation during such years will be paid solely
in accordance with the new schedule.

                                      -40-

<PAGE>

                     INVESTMENT ADVISORY AND OTHER SERVICES

THE ADVISER

   
         MGCM, 885 Third Avenue, New York, New York, acts as the investment
adviser to each Fund other than Microcap Fund pursuant to the terms of two
Management Contracts, each dated December 28, 1994. MGCM acts as the investment
adviser to Microcap Fund pursuant to the terms of a Management Contract dated
August 23, 1996 (referred to collectively herein with the Management Contracts
referred to in the preceding sentence as the "Management Contracts"). Pursuant
to the Management Contracts, the Adviser supervises and assists in the
management of the assets of each Fund and furnishes each Fund with research,
statistical, advisory and managerial services. The Adviser pays the ordinary
office expenses of the Trust and the compensation, if any, of all officers and
employees of the Trust and all Trustees who are "interested persons" (as defined
in the 1940 Act) of the Adviser.
    

         Under the Management Contracts, the Trust, on behalf of each Fund is
obligated to pay the Adviser a monthly fee at an annual rate of each Fund's
average daily net assets as follows: 
                                                                  Annual Rate
                                                                  -----------
Morgan Grenfell Large Cap Growth Fund............................    0.75%
Morgan Grenfell Smaller Companies Fund...........................    1.00%
Morgan Grenfell Microcap Fund ...................................    1.50%
Morgan Grenfell Fixed Income Fund................................    0.40%
Morgan Grenfell Short-Term Fixed Income Fund.....................    0.40%
Morgan Grenfell Municipal Bond Fund..............................    0.40%
Morgan Grenfell Short-Term Municipal Bond Fund...................    0.40%

         Each Fund's advisory fees are paid monthly and will be prorated if the
Adviser shall not have acted as the Fund's investment adviser during the entire
monthly period. The Adviser has temporarily agreed, under certain circumstances,
to reduce or not impose its management fee and to make arrangements to limit
certain other expenses as described in the Prospectus under "Expense
Information." In the event that a Fund's expenses for any fiscal year exceed the
limits established by certain state securities administrators, the Adviser will
reduce its fee payable on behalf of such Fund by the amount of such excess, but
only to the extent of the Fund's advisory fee.

                                      -41-

<PAGE>

         For the fiscal years ended October 31, 1995, 1994 and 1993, Morgan
Grenfell Fixed Income Fund paid the Adviser net advisory fees of $1,150,707,
$532,189 and $159,535, respectively. For the same years, Morgan Grenfell
Municipal Bond Fund paid the Adviser net advisory fees of $595,795, $444,910,
and $307,859, respectively. For the fiscal period ended October 31, 1995, Morgan
Grenfell Short-Term Fixed Income Fund, Morgan Grenfell Short-Term Municipal Bond
Fund and Morgan Grenfell Smaller Companies Fund paid no advisory fees to the
Adviser. The foregoing advisory fee payments and non-payments reflect expense
limitations that were in effect during the indicated periods. Morgan Grenfell
Large Cap Growth Fund and Morgan Grenfell Microcap Fund were not in operation
during any of the indicated periods and, accordingly, paid no advisory fees
during such periods.

         The Management Contract between MGCM and the Trust, on behalf of the
Equity Funds, the Short-Term Fixed Income Fund and the Short-Term Municipal Bond
Fund, was most recently approved on November 17, 1995 by a vote of the Trust's
Board of Trustees, including a majority of those Trustees who were not parties
to such Management Contract or "interested persons" of any such parties. The
Management Contract between MGCM and the Trust, on behalf of the Fixed Income
Fund and the Municipal Bond Fund, was approved on November 17, 1995 by a vote of
the Trust's Board of Trustees, including a majority of those Trustees who were
not parties to such Management Contract or "interested persons" of any such
parties.

         The Management Contract between MGCM and the Trust, on behalf of
Microcap Fund, was approved on May 16, 1996 by a vote of the Trust's Board of
Trustees, including a majority of those Trustees who were not parties to such
Management Contract or "interested persons" of any such parties.

         The Management Contracts will remain in effect until November 30, 1996
(August 7, 1998, in the case of the Management Contract for Microcap Fund), and
will continue in effect thereafter, with respect to each Fund, only if such
continuance is specifically approved annually by the Trustees, including a
majority of the Trustees who are not parties to the Management Contracts or
"interested persons" of any such parties, or by a vote of a majority of the
outstanding shares of each Fund. The Management Contracts are terminable by vote
of the Board of Trustees, or, with respect to a Fund, by the holders of a
majority of the outstanding shares of the Fund, at any time without penalty on
60 days' written notice to the Adviser. Termination of a Management Contract
with respect to a Fund will not terminate or otherwise invalidate any provision
of either Management Contract with respect to any other Fund. The Adviser may
terminate any Management Contract at any time without penalty on 60 days'
written notice to the Trust. Each Management Contract terminates automatically
in the event of its "assignment" (as such term is defined in the 1940 Act).

                                      -42-

<PAGE>

         Each Management Contract provides that the Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Trust or any Fund in connection with the performance of the Adviser's
obligations under the Management Contract with the Trust, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its duties or from reckless disregard of its
duties and obligations thereunder.

         In the management of the Funds and its other accounts, the Adviser
allocates investment opportunities to all accounts for which they are
appropriate subject to the availability of cash in any particular account and
the final decision of the individual or individuals in charge of such accounts.
Where market supply is inadequate for a distribution to all such accounts,
securities are allocated based on a Fund's pro rata portion of the amount
ordered. In some cases this procedure may have an adverse effect on the price or
volume of the security as far as a Fund is concerned. However, it is the
judgment of the Board that the desirability of continuing the Trust's advisory
arrangements with the Adviser outweighs any disadvantages that may result from
contemporaneous transactions. See "Portfolio Brokerage."

         MGCM is registered with the Commission as an investment adviser and
provides a full range of investment advisory services to institutional clients.
MGCM is a direct wholly-owned subsidiary of Morgan Grenfell Asset Management,
Ltd., which is a wholly-owned subsidiary of Deutsche Morgan Grenfell Group plc.
Deutsche Morgan Grenfell Group plc is an indirect wholly-owned subsidiary of
Deutsche Bank AG, an international commercial and investment banking group. As
of April 30, 1996, MGCM managed approximately $8.05 billion in assets for
various individual and institutional accounts, including the Morgan Grenfell
SMALLCap Fund, Inc., a registered, closed-end investment company for which it
acts as investment adviser.

PORTFOLIO TURNOVER

         Each Fund's portfolio turnover rate is calculated by dividing the
lesser of the dollar amount of sales or purchases of portfolio securities by the
average monthly value of a Fund's portfolio securities, excluding securities
having a maturity at the date of purchase of one year or less. For the fiscal
periods ended October 31, 1995 and 1994, the portfolio turnover rates for Morgan
Grenfell Fixed Income Fund were 182% and 251%, respectively. For the same
periods, the portfolio turnover rates for Morgan Grenfell Municipal Bond Fund
were 63% and 94%, respectively. The significant difference between

                                      -43-
 
<PAGE>

Morgan Grenfell Fixed Income Fund's turnover rates for these two periods was
attributable to the fact that abnormal bond market events in 1994 caused the
Fund to readjust the composition of its investment portfolio more than it would
have in a normal year. For the fiscal period ended October 31, 1995, the
portfolio turnover rates for Morgan Grenfell Short-Term Fixed Income Fund,
Morgan Grenfell Short-Term Municipal Bond Fund and Morgan Grenfell Smaller
Companies Fund were 90%, 62% and 23%, respectively.

THE ADMINISTRATOR

         As described in the Prospectus, SEI Financial Management Corporation
(the "Administrator") serves as the Trust's administrator pursuant to an
administration agreement between the Administrator and the Trust, on behalf of
the Funds (the "Administration Agreement"). Pursuant to the Administration
Agreement, the Administrator has agreed to furnish statistical and research
data, clerical services, and stationery and office supplies; prepare and file
various reports with the appropriate regulatory agencies including the
Commission and state securities commissions; and provide accounting and
bookkeeping services for the Funds, including the computation of each Fund's net
asset value, net investment income and net realized capital gains, if any.

         For its services under the Administration Agreement, the Administrator
receives from all series of the Trust an aggregate monthly fee at the following
annual rates of the aggregate average daily net assets ("aggregate assets") of
such series:

         0.15% of aggregate assets under $300 million
         0.12% of next $200 million of aggregate assets
         0.10% of next $500 million of aggregate assets
         0.08% of aggregate assets exceeding $1 billion

         For the fiscal years ended October 31, 1995, 1994 and 1993, Morgan
Grenfell Fixed Income Fund paid the Administrator administration fees of
$455,614, $259,094 and $104,526, respectively. For the same years, Morgan
Grenfell Municipal Bond Fund paid the Administrator administration fees of
$227,872, $231,957 and $217,109, respectively. The administration fee paid by
Morgan Grenfell Municipal Bond Fund for the year ended October 31, 1993 reflects
an expense limitation that was in effect during that year. For the fiscal period
ended October 31, 1995, Morgan Grenfell Short-Term Fixed Income Fund, Morgan
Grenfell Short-Term Municipal Bond Fund and Morgan Grenfell Smaller Companies
Fund paid the Administrator administration fees of $12,500, $12,500 and $4,167,
respectively. Morgan Grenfell Large Cap Growth Fund and Morgan Grenfell Microcap
Fund were not in operation during any of the periods described in this paragraph
and, accordingly, paid no administration fees for 

                                      -44-

<PAGE>

such periods.

         The Administration Agreement provides that the Administrator shall not
be liable under the Administration Agreement except for bad faith or gross
negligence in the performance of its duties or from the reckless disregard by it
of its duties and obligations thereunder.

EXPENSES OF THE TRUST

         The Trust pays: (i) fees and expenses of any investment adviser and any
administrator of the Funds; (ii) fees and expenses incurred by the Funds in
connection with membership in investment company organizations; (iii) brokers'
commissions; (iv) payment for portfolio pricing services to a pricing agent, if
any; (v) legal expenses (including an allocable portion of the cost of its
employees rendering legal services to the Funds); (vi) interest, insurance
premiums, taxes or governmental fees; (vii) the fees and expenses of the
transfer agent of the Funds; (viii) clerical expenses of issue, redemption or
repurchase of shares of the Funds; (ix) the expenses of and fees for registering
or qualifying shares of the Funds for sale and of maintaining the registration
of the Funds and registering the Funds as a broker or a dealer; (x) the fees and
expenses of Trustees who are not affiliated with the Adviser; (xi) the cost of
preparing and distributing reports and notices to shareholders, the Commission
and other regulatory authorities; (xii) the fees or disbursements of custodians
of the Fund's assets, including expenses incurred in the performance of any
obligations enumerated by the Declaration of Trust or By-Laws of the Trust
insofar as they govern agreements with any such custodian; (xiii) costs in
connection with annual or special meetings of shareholders, including proxy
material preparation, printing and mailing; (xiv) charges and expenses of the
Trust's auditor; (xv) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Trust's
business; and (xvi) expenses of an extraordinary and nonrecurring nature.

 TRANSFER AGENT

         DST Systems, Inc., 210 W. 10th Street, Kansas City, Missouri 64105 (the
"Transfer Agent") serves as the transfer and dividend disbursing agent for the
Funds pursuant to a transfer agency agreement (the "Transfer Agency Agreement"),
under which the Transfer Agent (i) maintains shareholder accounts, and (ii)
makes periodic reports to the Trust's Board of Trustees concerning the
operations of each Fund.

THE DISTRIBUTOR

                                      -45-

<PAGE>

         The Trust, on behalf of the Funds, has entered into a distribution
agreement (the "Distribution Agreement") pursuant to which SEI Financial
Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087 (the
"Distributor"), as agent, serves as principal underwriter for the continuous
offering of shares of each Fund. The Distributor has agreed to use its best
efforts to solicit orders for the purchase of shares of each Fund, although it
is not obligated to sell any particular amount of shares. Shares of the Funds
are not subject to sales loads or distribution fees. The Adviser, and not the
Trust, is responsible for payment of any expenses or fees incurred in the
marketing and distribution of shares of the Funds.

   
         The Distribution Agreement will remain in effect for one year from its
effective date and will continue in effect thereafter only if such continuance
is specifically approved annually by the Trustees, including a majority of the
Trustees who are not parties to the Distribution Agreement or "interested
persons" of such parties. The Distribution Agreement was approved by the initial
shareholder of each Fund other than Microcap Fund on December 28, 1994. The
Distribution Agreement was approved by the initial shareholder of Microcap Fund
on August 23, 1996. The Distribution Agreement was most recently approved on
November 17, 1995 by a vote of the Trust's Board of Trustees, including a
majority of those Trustees who were not parties to the Distribution Agreement or
"interested persons" of any such parties. The Distribution Agreement is
terminable, as to a Fund, by vote of the Board of Trustees, or by the holders of
a majority of the outstanding shares of the Fund, at any time without penalty on
60 days' written notice to the Trust and Adviser. The Distributor may terminate
the Distribution Agreement at any time without penalty on 90 days' written
notice to the Trust.
    

CUSTODIAN

         As described in the Prospectus, CoreStates Bank, N.A. ("CoreStates"),
whose principal business address is Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, PA 19101 maintains custody of the assets of Morgan Grenfell Fixed
Income Fund and Morgan Grenfell Municipal Bond Fund. As described in the
Prospectus, The Northern Trust Company ("Northern"), whose principal business
address is Fifty South LaSalle Street, Chicago, Illinois 60675, maintains
custody of the assets of the other Funds.

         Under their custody agreements with the Trust, CoreStates and Northern
(i) maintain separate accounts in the name of each Fund, (ii) hold and transfer
portfolio securities on account of each Fund, (iii) accept receipts and make
disbursements of money on behalf of each Fund, (iv) collect and receive all
income and other payments and distributions on account of each

                                      -46-

<PAGE>

Fund's portfolio securities and (v) make periodic reports to the Trust's Board
of Trustees concerning each Fund's operations. CoreStates and Northern are
authorized to select one or more foreign or domestic banks or companies to serve
as sub-custodian on behalf of the Funds.


                             PORTFOLIO TRANSACTIONS

         Subject to the general supervision of the Board of Trustees, the
Adviser makes decisions with respect to and places orders for all purchases and
sales of portfolio securities for the Funds. In executing portfolio
transactions, the Adviser seeks to obtain the best net results for the Funds,
taking into account such factors as price (including the applicable brokerage
commission or dealer spread), size of the order, difficulty of execution and
operational facilities of the firm involved. Commission rates, being a component
of price, are considered together with such factors. Where transactions are
effected on a foreign securities exchange, the Funds employ brokers, generally
at fixed commission rates. Commissions on transactions on U.S. securities
exchanges are subject to negotiation. Where transactions are effected in the
over-the-counter market or third market, the Funds deal with the primary market
makers unless a more favorable result is obtainable elsewhere. Fixed income
securities purchased or sold on behalf of the Funds normally will be traded in
the over-the-counter market on a net basis (i.e. without a commission) through
dealers acting for their own account and not as brokers or otherwise through
transactions directly with the issuer of the instrument. Some fixed income
securities are purchased and sold on an exchange or in over-the-counter
transactions conducted on an agency basis involving a commission.

         Pursuant to the Management Contracts, the Adviser agrees to select
broker-dealers in accordance with guidelines established by the Trust's Board of
Trustees from time to time and in accordance with Section 28(e) of the
Securities Exchange Act of 1934, as amended. In assessing the terms available
for any transaction, the Adviser shall consider all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker-dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. In addition, the Management Contracts authorize the
Adviser, subject to the periodic review of the Trust's Board of Trustees, to
cause a Fund to pay a broker-dealer which furnishes brokerage and research
services a higher commission than that which might be charged by another
broker-dealer for effecting the same transaction, provided that the Adviser
determines in good faith that such commission is 

                                      -47-

<PAGE>

reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either the particular
transaction or the overall responsibilities of the Adviser to the Fund. Such
brokerage and research services may consist of pricing information, reports and
statistics on specific companies or industries, general summaries of groups of
bonds and their comparative earnings and yields, or broad overviews of the
securities markets and the economy.

         Supplemental research information utilized by the Adviser is in
addition to, and not in lieu of, services required to be performed by the
Adviser and does not reduce the advisory fees payable to the Adviser. The
Trustees will periodically review the commissions paid by the Funds to consider
whether the commissions paid over representative periods of time appear to be
reasonable in relation to the benefits inuring to the Funds. It is possible that
certain of the supplemental research or other services received will primarily
benefit one or more other investment companies or other accounts of the Adviser
for which investment discretion is exercised. Conversely, a Fund may be the
primary beneficiary of the research or services received as a result of
portfolio transactions effected for such other account or investment company.
During the fiscal period ended October 31, 1995, the Adviser did not, pursuant
to any agreement or understanding with a broker or otherwise through an internal
allocation procedure, direct any Fund's brokerage transactions to a broker
because of research services provided by such broker.

         Investment decisions for each Fund and for other investment accounts
managed by the Adviser are made independently of each other in the light of
differing conditions. However, the same investment decision may be made for two
or more of such accounts. In such cases, simultaneous transactions are
inevitable. Purchases or sales are then averaged as to price and allocated as to
amount in a manner deemed equitable to each such account. While in some cases
this practice could have a detrimental effect on the price or value of the
security as far as a Fund is concerned, in other cases it is believed to be
beneficial to a Fund. To the extent permitted by law, the Adviser may aggregate
the securities to be sold or purchased for a Fund with those to be sold or
purchased for other investment companies or accounts in executing transactions.

         Pursuant to procedures determined by the Trustees and subject to the
general policies of the Funds and Section 17(e) of the 1940 Act, the Adviser may
place securities transactions with brokers with whom it is affiliated
("Affiliated Brokers").

         Section 17(e) of the 1940 Act limits to "the usual and customary
broker's commission" the amount which can be paid by the Funds to an

                                      -48-

<PAGE>

Affiliated Broker acting as broker in connection with transactions effected on a
securities exchange. The Board, including a majority of the Trustees who are not
"interested persons" of the Trust or the Adviser, has adopted procedures
designed to comply with the requirements of Section 17(e) of the 1940 Act and
Rule 17e-1 promulgated thereunder to ensure that the broker's commission is
"reasonable and fair compared to the commission, fee or other remuneration
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time...."

         A transaction would not be placed with an Affiliated Broker if a Fund
would have to pay a commission rate less favorable than their contemporaneous
charges for comparable transactions for their other most favored, but
unaffiliated, customers except for accounts for which they act as a clearing
broker, and any of their customers determined, by a majority of the Trustees who
are not "interested persons" of the Fund or the Adviser, not to be comparable to
the Fund. With regard to comparable customers, in isolated situations, subject
to the approval of a majority of the Trustees who are not "interested persons"
of the Trust or the Adviser, exceptions may be made. Since the Adviser, as
investment adviser to the Funds, has the obligation to provide management, which
includes elements of research and related skills, such research and related
skills will not be used by them as a basis for negotiating commissions at a rate
higher than that determined in accordance with the above criteria. The Funds
will not engage in principal transactions with Affiliated Brokers. When
appropriate, however, orders for the account of the Funds placed by Affiliated
Brokers are combined with orders of their respective clients, in order to obtain
a more favorable commission rate. When the same security is purchased for two or
more funds or customers on the same day, each fund or customer pays the average
price and commissions paid are allocated in direct proportion to the number of
shares purchased.

         Affiliated Brokers furnish to the Trust at least annually a statement
setting forth the total amount of all compensation retained by them or any
associated person of them in connection with effecting transactions for the
account of the Funds, and the Board reviews and approves all the Funds'
portfolio transactions on a quarterly basis and the compensation received by
Affiliated Brokers in connection therewith. During the fiscal years ended
October 31, 1993, 1994 and 1995, neither the Fixed Income Fund nor the Municipal
Bond Fund paid any brokerage commissions to any Affiliated Broker. During the
fiscal period ended October 31, 1995, neither Short-Term Fixed Income Fund,
Short-Term Municipal Bond Fund nor Smaller Companies Fund paid any brokerage
commissions to any affiliated broker.

                                      -49-

<PAGE>

         Affiliated Brokers do not knowingly participate in commissions paid by
the Funds to other brokers or dealers and do not seek or knowingly receive any
reciprocal business as the result of the payment of such commissions. In the
event that an Affiliated Broker learns at any time that it has knowingly
received reciprocal business, it will so inform the Board.

         For the fiscal years ended October 31, 1995, 1994 and 1993, Morgan
Grenfell Fixed Income Fund and Morgan Grenfell Municipal Bond Fund paid no
brokerage commissions. For fiscal year ended October 31, 1995, Morgan Grenfell
Short-Term Fixed Income Fund and Morgan Grenfell Short-Term Municipal Bond Fund
paid no brokerage commissions. For the fiscal period ended October 31, 1995,
Morgan Grenfell Smaller Companies Fund paid aggregate brokerage commissions of
$3,778.


                                 NET ASSET VALUE

         Under the 1940 Act, the Board of Trustees of the Trust is responsible
for determining in good faith the fair value of the securities of each Fund. In
accordance with procedures adopted by the Board of Trustees, the net asset value
per share of each Fund is calculated by determining the net worth of the Fund
(assets, including securities at value, minus liabilities) divided by the number
of shares outstanding. Each Fund computes its net asset value at the close of
such regular trading, which is normally 4:00 p.m. Eastern time, on each day on
which the New York Stock Exchange ("NYSE") is open (a "Business Day"). The NYSE
is closed on Saturdays and Sundays as well as the following holidays: New Year's
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.

         For purposes of calculating each Fund's net asset value per share,
equity securities traded on a recognized U.S. or foreign securities exchange or
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") are valued at their last sale price on the principal exchange on
which they are traded or NASDAQ (if NASDAQ is the principal market for such
securities) on the valuation day or, if no sale occurs, at the bid price.
Unlisted equity securities for which market quotations are readily available are
valued at the most recent bid price.

         Debt securities and other fixed income investments of the Funds are
valued at prices supplied by independent pricing agents, which prices reflect
broker-dealer supplied valuations and electronic data processing techniques.
Short-term obligations maturing in sixty days or less may be valued at amortized
cost, which method does not take into account unrealized gains or losses on such
portfolio securities. Amortized cost valuation involves initially valuing a
security at its cost, and thereafter, assuming a constant 

                                      -50-

<PAGE>

amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods in which the
value of the security, as determined by amortized cost, may be higher or lower
than the price the Fund would receive if the Fund sold the security.

         Other assets and assets in which market quotations are not readily
available are valued at fair value using methods determined in good faith by the
Board of Trustees.

         Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the 4:00 P.M.
(Eastern Time) close of business on each Business Day. In addition, European or
Far Eastern securities trading generally or in a particular country or countries
may not take place on all Business Days. Furthermore, trading takes place in
Japanese markets on certain Saturdays and in various foreign markets on days
which are not Business Days and on which the Funds' net asset values are not
calculated. Such calculation may not take place contemporaneously with the
determination of the prices of certain portfolio securities used in such
calculation. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of the regular
trading on the NYSE will not be reflected in the Funds' calculation of net asset
values unless the Adviser deems that the particular event would materially
affect net asset value, in which case an adjustment will be made.


                             PERFORMANCE INFORMATION

YIELD

         From time to time, each Fixed Income Fund and each Municipal Fund may
advertise its yield and (in the case of the Municipal Funds) its tax-equivalent
yield. The yield of a Fund refers to the annualized income generated by an
investment in the Fund over a specified 30-day period. The yield is calculated
by assuming that the income generated by the investment during that period is
generated for each like period over one year and is shown as a percentage of the
investment. In particular, yield will be calculated according to the following
formula:

                                      -51-

<PAGE>

                         YIELD = 2 [(a - b +1)6 - 1]
                                    ------ 
                                      cd

         Where:   a =    dividends and interest earned by the
                         Fund during the period;

                  b =    net expenses accrued for the period;

                  c =    average daily number of shares out-standing during the
                         period entitled to receive dividends; and

                  d =    maximum offering price per share on
                         the last day of the period.

         Tax-equivalent yield is computed by dividing the portion of the yield
that is tax exempt by one minus a stated income tax rate and adding the product
to that portion, if any, of the yield that is not tax exempt.

         Actual yields will depend on such variables as asset quality, average
asset maturity, the type of instruments a Fund invests in, changes in interest
rates on money market instruments, changes in the expenses of the Fund and other
factors.

         Yields are one basis upon which investors may compare the Funds with
other mutual funds; however, yields of other mutual funds and other investment
vehicles may not be comparable because of the factors set forth above and
differences in the methods used in valuing portfolio instruments.

         For the 30-day period ended October 31, 1995, the yields of the Fixed
Income Fund, the Municipal Bond Fund, the Short-Term Fixed Income Fund and the
Short-Term Municipal Bond Fund were 6.32%, 5.40%, 5.73% and 4.84%, respectively.
If the expense limitations described in the Prospectus for these Funds had not
been in effect during this period, the yields of these Funds would have been
6.24%, 5.33%, 3.44% and 3.23%, respectively. For the same period, the
tax-equivalent yields of the Municipal Bond Fund and the Short-Term Municipal
Bond Fund were 8.94% and 8.01%, respectively, assuming the highest Federal
Income Tax bracket for individuals (39.6%). If the expense limitations described
in the Prospectus for these Funds had not been in effect during this period, the
tax-equivalent yields of these Funds would have been 8.82% and 5.35%,
respectively, assuming the same Federal Income Tax bracket.

                                      -52-

<PAGE>

TOTAL RETURN

         Each Fund that advertises its "average annual total return" computes
such return by determining the average annual compounded rate of return during
specified periods that equates the initial amount invested to the ending
redeemable value of such investment according to the following formula: 

                                  ERV 
                           T = [(-----) 1/n - 1]
                                   P

         Where:   T =      average annual total return,

                  ERV =    ending redeemable value of a hypothetical $1,000
                           payment made at the beginning of the
                           1, 5 or 10 year (or  other)  periods
                           at the end of the applicable  period
                           (or a fractional portion thereof);

                  P =      hypothetical initial payment of
                           $1,000; and

                  n =      period covered by the computation,
                           expressed in years.

         Each Fund that advertises its "aggregate total return" computes such
returns by determining the aggregate compounded rates of return during specified
periods that likewise equate the initial amount invested to the ending
redeemable value of such investment. The formula for calculating aggregate total
return is as follows:

                                   ERV
Aggregate Total Return =        [(-----) - 1]
                                    P

         The above calculations are made assuming that (1) all dividends and
capital gain distributions are reinvested on the reinvestment dates at the price
per share existing on the reinvestment date, (2) all recurring fees charged to
all shareholder accounts are included, and (3) for any account fees that vary
with the size of the account, a mean (or median) account size

                                      -53-

<PAGE>

in the Fund during the periods is reflected. The ending redeemable value
(variable "ERV" in the formula) is determined by assuming complete redemption of
the hypothetical investment after deduction of all nonrecurring charges at the
end of the measuring period. For the fiscal year ended October 31, 1995 and for
the period from December 13, 1991 (commencement of the Municipal Bond Fund's
operations) through October 31, 1995, the total return for such Fund was 10.90%
and 9.46%, respectively. For their respective periods from commencement of
operations to October 31, 1995, the average annual total returns of Morgan
Grenfell Short-Term Fixed Income Fund, Morgan Grenfell Short-Term Municipal Bond
Fund and Morgan Grenfell Smaller Companies Fund were 3.82%, 4.39% and 5.50%,
respectively. For the fiscal year ended October 31, 1995 and for the period from
September 18, 1992 (commencement of the Fixed Income Fund's operations) through
October 31, 1995, the total return for such Fund was 14.53% and 8.94%,
respectively. If the expense limitations described in the Prospectus for the
above Funds had not been in effect during the indicated periods, the total
returns of these Funds for such periods would have been lower than the total
return figures shown in this paragraph.

         The Funds may from time to time advertise comparative performance as
measured by various independent sources, including, but not limited to,
Barron's, The Wall Street Journal, Weisenberger Investment Companies Service,
Business Week, Changing Times, Financial World, Forbes, Fortune and Money. In
addition, the Funds may from time to time advertise their performance relative
to certain indices and benchmark investments, including: (a) the Lipper
Analytical Services, Inc. Mutual Fund Performance Analysis, Fixed Income
Analysis and Mutual Fund Indices (which measure total return and average current
yield for the mutual fund industry and rank mutual fund performance); (b) the
CDA Mutual Fund Report published by CDA Investment Technologies, Inc. (which
analyzes price, risk and various measures of return for the mutual fund
industry); (c) the Consumer Price Index published by the U.S. Bureau of Labor
Statistics (which measures changes in the price of goods and services); (d)
Stocks, Bonds, Bills and Inflation published by Ibbotson Associates (which
provides historical performance figures for stocks, government securities and
inflation); (e) the Shearson Lehman Brothers Aggregate Bond Index or its
component indices (the Aggregate Bond Index measures the performance of
Treasury, U.S. Government agency, corporate, mortgage and Yankee bonds); (f) the
Standard & Poor's Bond Indices (which measure yield and price of corporate,
municipal and U.S. Government bonds); and (g) historical investment data
supplied by the research departments of Goldman Sachs, Shearson Lehman Hutton,
First Boston Corporation, Morgan Stanley, Salomon Brothers, Merrill Lynch,
Donaldson Lufkin and Jenrette or other providers of such data. The composition
of the investments in such indices and the characteristics of such benchmark
investments are not identical to, and in some cases are very different from,
those of the Funds' 

                                      -54-

<PAGE>

portfolios. These indices and averages are generally unmanaged and the items
included in the calculations of such indices and averages may not be identical
to the formulas used by the Funds to calculate their performance figures.


                                     TAXES

         The following is a summary of the principal U.S. federal income, and
certain state and local, tax considerations regarding the purchase, ownership
and disposition of shares in the Funds. This summary does not address special
tax rules applicable to certain classes of investors, such as tax-exempt
entities, insurance companies and financial institutions. Each prospective
shareholder is urged to consult his own tax adviser with respect to the specific
federal, state, local and foreign tax consequences of investing in the Funds.
The summary is based on the laws in effect on the date of this Statement of
Additional Information, which are subject to change.

GENERAL

         Each Fund is a separate taxable entity. Each Fund has elected or
intends to elect to be treated, and intends to qualify for each taxable year, as
a regulated investment company under Subchapter M of the Code.

         Qualification of any Fund as a regulated investment company under the
Code requires, among other things, that (a) the Fund derive at least 90% of its
annual gross income (including tax-exempt interest) from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of stocks or securities or foreign currencies, or other income
(including but not limited to gains from options, futures, and forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% gross income test"); (b) the Fund derive less
than 30% of its annual gross income from the sale or other disposition of any of
the following which was held for less than three months: (i) stock or
securities; (ii) options, futures or forward contracts (other than options,
futures or forward contracts on foreign currencies); and (iii) foreign
currencies and foreign currency options, futures and forward contracts that are
not directly related to the Fund's principal business of investing in stock or
securities or options and futures with respect to stocks or securities (the
"short-short test"); and (c) the Fund diversify its holdings so that, at the
close of each quarter of its taxable year, (i) at least 50% of the market value
of its total (gross) assets is comprised of 

                                      -55-

<PAGE>

cash, cash items, United States Government securities, securities of other
regulated investment companies and other securities limited in respect of any
one issuer to an amount not greater in value than 5% of the value of the Fund's
total assets and to not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than United States
Government securities and securities of other regulated investment companies) or
two or more issuers controlled by the Fund and engaged in the same, similar or
related trades or businesses. Gains from the sale or other disposition of
foreign currencies (or options, futures or forward contracts on foreign
currencies) that are not directly related to a Fund's principal business of
investing in stock or securities or options and futures with respect to stock or
securities will be treated as gains from the disposition of investments held for
less than three months under the short-short test (even though characterized as
ordinary income for some purposes) if such currencies or instruments were held
for less than three months. In addition, future Treasury regulations could
provide that qualifying income under the 90% gross income test will not include
gains from foreign currency transactions that are not directly related to a
Fund's principal business of investing in stock or securities or options and
futures with respect to stock or securities. Using foreign currency positions or
entering into foreign currency options, futures or forward contracts for
purposes other than hedging currency risk with respect to securities in a Fund's
portfolio or anticipated to be acquired may not qualify as "directly-related"
under these tests.

         If a Fund complies with such provisions, then in any taxable year in
which the Fund distributes at least 90% of the sum of (i) its "investment
company taxable income" (which includes dividends, taxable interest, taxable
accrued original issue discount, accrued, realized market discount, income from
securities lending, any net short-term capital gain in excess of net long-term
capital loss and certain net realized foreign exchange gains and is reduced by
deductible expenses) and (ii) the excess of its gross tax-exempt interest, if
any, over certain disallowed deductions ("net tax-exempt interest"), the Fund
(but not its shareholders) will be relieved of federal income tax on any income
of the Fund, including long-term capital gains, distributed to shareholders.
However, if a Fund retains any investment company taxable income or net capital
gain (the excess of net long-term capital gain over net short-term capital
loss), it will be subject to a tax at regular corporate rates on the amount
retained.

         If a Fund retains any net capital gain, the Fund may designate the
retained amount as undistributed capital gains in a notice to its shareholders
who, if subject to U.S. federal income tax on long-term capital gains, (i) will
be required to include in income for federal income tax

                                      -56-

<PAGE>

purposes, as long-term capital gain, their shares of such undistributed amount,
and (ii) will be entitled to credit their proportionate shares of the tax paid
by the Fund against their U.S. federal income tax liabilities, if any, and to
claim refunds to the extent the credit exceeds such liabilities.

         For U.S. federal income tax purposes, the tax basis of shares owned by
a shareholder of a Fund will be increased by an amount equal under current law
to 65% of the amount of undistributed net capital gains included in the
shareholder's gross income. Each Fund intends to distribute at least annually to
its shareholders all or substantially all of its investment company taxable
income, net tax-exempt interest, and net capital gain. If for any taxable year a
Fund does not qualify as a regulated investment company, it will be taxed on all
of its investment company taxable income and net capital gain at corporate
rates, and any net tax-exempt interest may be subject to alternative minimum
tax.

         In order to avoid a 4% federal excise tax, each Fund must distribute
(or be deemed to have distributed) by December 31 of each calendar year at least
98% of its taxable ordinary income for such year, at least 98% of the excess of
its capital gains over its capital losses (generally computed on the basis of
the one-year period ending on October 31 of such year), and all taxable ordinary
income and the excess of capital gains over capital losses for the previous year
that were not distributed in such year and on which no federal income tax was
paid by the Fund. For federal income tax purposes, dividends declared by a Fund
in October, November or December to shareholders of record on a specified date
in such a month and paid during January of the following year are treated as
distributed by the Fund and are taxable to such shareholders as if received on
December 31 of the year declared.

         Gains and losses on the sale, lapse, or other termination of options
and futures contracts, options thereon and certain forward contracts (except
certain foreign currency options, forward contracts and futures contracts)
entered into by the Equity Funds will generally be treated as capital gains and
losses. Certain of the futures contracts, forward contracts and options held by
the Funds will be required to be "marked-to-market" for federal income tax
purposes, that is, treated as having been sold at their fair market value on the
last day of the Funds' taxable year. Any gain or loss recognized on actual or
deemed sales of these futures contracts, forward contracts, or options (except
for certain foreign currency options, forward contracts, and futures contracts)
will be treated as 60% long-term capital gain or loss and 40% short-term capital
gain or loss. As a result of certain hedging transactions entered into by a
Fund, such Fund may be required to defer the recognition of losses on futures or
forward contracts and options 

                                      -57-

<PAGE>

or underlying securities or foreign currencies to the extent of any unrecognized
gains on related positions and the characterization of gains or losses as
long-term or short-term may be changed. The tax provisions described above
applicable to options, futures and forward contracts may affect the amount,
timing and character of a Fund's distributions to shareholders. The short-short
test described above may limit a Fund's ability to use options, futures and
forward transactions as well as its ability to engage in short sales. Certain
tax elections may be available to the Funds to mitigate some of the unfavorable
consequences described in this paragraph.

         Section 988 of the Code contains special tax rules applicable to
certain foreign currency transactions and instruments that may affect the
amount, timing and character of income, gain or loss recognized by the Equity
Funds. Under these rules, foreign exchange gain or loss realized with respect to
foreign currencies and certain futures and options thereon, foreign
currency-denominated debt instruments, foreign currency forward contracts, and
foreign currency-denominated payables and receivables will generally be treated
as ordinary income or loss although in some cases elections may be available
that would alter this treatment.

         If an Equity Fund or a Fixed Income Fund acquires stock in certain
non-U.S. corporations that receive at least 75% of their annual gross income
from passive sources (such as interest, dividends, rents, royalties or capital
gain) or hold at least 50% of their assets in investments producing such passive
income ("passive foreign investment companies"), the Fund could be subject to
federal income tax and additional interest charges on "excess distributions"
received from such companies or gain from the sale of stock in such companies,
even if all income or gain actually received by the Fund is timely distributed
to its shareholders. The Fund would not be able to pass through to its
shareholders any credit or deduction for such a tax. Certain elections may, if
available, ameliorate these adverse tax consequences, but any such election
could require the Fund to recognize taxable income or gain without the
concurrent receipt of cash. The applicable Funds may limit and/or manage their
holdings in passive foreign investment companies to minimize their tax liability
or maximize their return from these investments. 

         A Fund that invests in foreign securities may be subject to foreign
withholding or other foreign taxes on certain income (possibly including, in
some cases, capital gains) from such securities. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. The Funds will not be
entitled to pass through such foreign taxes to their shareholders, who
consequently will not be entitled to any U.S. tax credits or deductions for such
taxes.

                                      -58-

<PAGE>

         Each Fund's investments in zero coupon securities or other securities
bearing original issue discount or, if the Fund elects to include market
discount in income currently, market discount will generally cause it to realize
income prior to the receipt of cash payments with respect to these securities.
Options, futures or forward contracts subject to the mark to market rules
described above may have the same result if recognized mark to market gains
exceed recognized mark to market losses. In order to obtain cash to distribute
this income or gain, maintain its qualification as a regulated investment
company, and avoid federal income or excise taxes, a Fund may be required to
liquidate portfolio securities that it might otherwise have continued to hold.

         Each Municipal Fund purchases tax-exempt municipal securities which are
generally accompanied by an opinion of bond counsel to the effect that interest
on such securities is not included in gross income for federal income tax
purposes. It is not economically feasible to, and the Municipal Funds therefore
do not, make any additional independent inquiry into whether such securities are
in fact tax-exempt. Bond counsels' opinions will generally be based in part upon
covenants by the issuers and related parties regarding continuing compliance
with federal tax requirements. Tax laws, especially those enacted during the
last decade, not only had the effect of limiting the purposes for which
tax-exempt bonds could be issued and reducing the supply of such bonds, but also
increased the number and complexity of requirements that must be satisfied on a
continuing basis in order for bonds to be and remain tax-exempt. If the issuer
of a bond or a user of a bond-financed facility fails to comply with such
requirements at any time, interest on the bond could become taxable, retroactive
to the date the obligation was issued. In that event, a portion of a Municipal
Fund's distributions attributable to interest such Fund received on such bond
for the current year and for prior years could be characterized or
recharacterized as taxable income.

         Each Fixed Income Fund and each Municipal Fund may purchase municipal
securities together with the right to resell the securities to the seller at an
agreed upon price or yield within a specified period prior to the maturity date
of the securities. Such a right to resell is commonly known as a "put" and is
also referred to as a "standby commitment." A Fund may pay for a standby
commitment either separately, in cash, or in the form of a higher price for the
securities which are acquired subject to the standby commitment, thus increasing
the cost of securities and reducing the yield otherwise available. Additionally,
a Fund may purchase beneficial interests in municipal securities held by trusts,
custodial arrangements or partnerships and/or combined with third-party puts or
other types of features 

                                      -59-

<PAGE>

such as interest rate swaps; those investments may require the Fund to pay
"tender fees" or other fees for the various features provided.

         The IRS has issued a revenue ruling to the effect that, under specified
circumstances, a registered investment company will be the owner of tax-exempt
municipal obligations acquired subject to a put option. The IRS has also issued
private letter rulings to certain taxpayers (which do not serve as precedent for
other taxpayers) to the effect that tax-exempt interest received by a regulated
investment company with respect to such obligations will be tax-exempt in the
hands of the company and may be distributed to its shareholders as
exempt-interest dividends. The IRS has subsequently announced that it will not
ordinarily issue advance ruling letters as to the identity of the true owner of
property in cases involving the sale of securities or participation interests
therein if the purchaser has the right to cause the security, or the
participation interest therein, to be purchased by either the seller or a third
party. Each Fund intends to take the position that it is the owner of any
municipal obligations acquired subject to a standby commitment or other third
party put and that tax-exempt interest earned with respect to such municipal
obligations will be tax-exempt in its hands. There is no assurance that the IRS
will agree with such position in any particular case. Additionally, the federal
income tax treatment of certain other aspects of these investments, including
the treatment of tender fees paid by the Fund, in relation to various regulated
investment company tax provisions is unclear. However, the Adviser intends to
manage each Fund's portfolio in a manner designed to minimize any adverse impact
from the tax rules applicable to these investments.

         For federal income tax purposes, each Fund is permitted to carry
forward a net capital loss in any year to offset its own capital gains, if any,
during the eight years following the year of the loss. To the extent subsequent
years' capital gains are offset by such losses, they would not result in federal
income tax liability to the applicable Fund and, accordingly, would generally
not be distributed to shareholders. At October 31, 1995, Municipal Bond Fund had
capital loss carryforwards of approximately $1,556,000 and Smaller Companies
Fund had capital loss carryforwards of approximately $6,000, in each case
expiring (if not previously used) in the fiscal year ended October 31, 2003.

U.S. SHAREHOLDERS -- DISTRIBUTIONS

         A Municipal Fund's distributions from the tax-exempt interest it
receives will generally be exempt from federal income tax, provided that such
Fund qualifies as a regulated investment company, at least 50% of the value of
the Fund's total assets at the close of each quarter of its taxable year
consists of obligations that pay interest excluded from gross income 

                                      -60-

<PAGE>

under Section 103(a) of the Code, and the Fund properly designates such
distributions as "exempt-interest dividends." The portions of such
exempt-interest dividends, if any, derived from interest on certain private
activity bonds will constitute tax preference items and may give rise to, or
increase liability under, the federal alternative minimum tax for particular
shareholders. In addition, all exempt-interest dividends may increase a
corporate shareholder's liability, if any, for the corporate alternative minimum
tax and will be taken into account in determining the portion, if any, of a
shareholder's social security benefits or certain railroad retirement benefits
that is subject to tax.

         For U.S. federal income tax purposes, distributions by the Funds other
than the Municipal Funds, whether reinvested in additional shares or paid in
cash, generally will be taxable to shareholders who are subject to tax.
Shareholders receiving a distribution in the form of newly issued shares will be
treated for U.S. federal income tax purposes as receiving a distribution in an
amount equal to the amount of cash they would have received had they elected to
receive cash and will have a cost basis in each share received equal to such
amount divided by the number of shares received. Distributions from investment
company taxable income of any Fund, including the Municipal Funds, for the year
will be taxable as ordinary income. Investment company taxable income includes,
among other things, income from repurchase agreements and securities loans;
accrued, recognized market discount; a portion of the discount on certain
stripped tax-exempt obligations and their coupons; and net short-term capital
gain (in excess of net long-term capital loss) from the sale of investments or
options or futures transactions or the disposition of rights to when-issued
securities prior to issuance. Distributions to corporate shareholders designated
as derived from dividend income received by a Fund, if any, that would be
eligible for the dividends received deduction if the Fund were not a regulated
investment company will be eligible, subject to certain holding period and
debt-financing restrictions, for the 70% dividends received deduction for
corporations. Because eligible dividends are limited to those received by a Fund
from U.S. domestic corporations all dividends paid by the Municipal Funds, and
all or a substantial portion of the dividends paid by the Fixed Income Funds,
will generally not qualify for the dividends received deduction. The entire
dividend, including the deducted amount, is considered in determining the
excess, if any, of a corporate shareholder's adjusted current earnings over its
alternative minimum taxable income, which may increase its liability for the
federal alternative minimum tax, and the dividend may, if it is treated as an
"extraordinary dividend" under the Code, reduce such shareholder's tax basis in
its shares of a Fund. Capital gain dividends (i.e., dividends from net capital
gain) paid by any Fund, including the Municipal Funds, if 

                                      -61-

<PAGE>

designated as such in a written notice to shareholders mailed not later than 60
days after a Fund's taxable year closes, will be taxed to shareholders as
long-term capital gain regardless of how long shares have been held by
shareholders, but are not eligible for the dividends received deduction for
corporations.

         Interest on indebtedness incurred directly or indirectly to purchase or
carry shares of a Municipal Fund will not be deductible to the extent it is
deemed related to exempt-interest dividends paid by such Fund.

         A Municipal Fund may not be an appropriate investment for persons who
are, or are related to, substantial users of facilities financed by industrial
development or private activity bonds.

         Shareholders are required to report tax-exempt income, including
exempt-interest dividends, on their federal income tax returns. Each Municipal
Fund will inform shareholders of the federal income tax status of its
distributions after the end of each calendar year, including the amounts that
qualify as exempt-interest dividends and any portions of such amounts that
constitute tax preference items under the federal alternative minimum tax.
Shareholders who have not held shares of a Municipal Fund for a full taxable
year may have designated as tax-exempt or as a tax preference item a percentage
of their distributions which is not exactly equal to a proportionate share of
the amount of tax-exempt interest or tax preference income earned during the
period of their investment in the Fund.

         Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions, and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.

U.S. SHAREHOLDERS -- SALE OF SHARES

         When a shareholder's shares are sold, redeemed or otherwise disposed
of, the shareholder will generally recognize gain or loss equal to the
difference between the shareholder's adjusted tax basis in the shares and the
cash, or fair market value of any property, received. Assuming the shareholder
holds the shares as a capital asset at the time of such sale or other
disposition, such gain or loss should be capital in character, and long-term if
the shareholder has held the shares for more than one year, otherwise
short-term. However, any loss realized on the sale, redemption or other
disposition of shares with a tax holding period of six months or less will be
treated as a long-term capital loss to the extent of any capital gain dividend
received with respect to such shares and will be disallowed to the extent of any

                                      -62-

<PAGE>

exempt-interest dividends received with respect to such shares. Additionally,
any loss realized on a sale, redemption or other disposition of shares of a Fund
will be disallowed to the extent the shares disposed of are replaced with shares
of the same Fund within a period of 61 days beginning 30 days before and ending
30 days after the shares are disposed of, such as pursuant to a dividend
reinvestment in shares of the Fund. If disallowed, the loss will be reflected in
an adjustment to the basis of the shares acquired.

         The Funds may be required to withhold, as "backup withholding," federal
income tax at a rate of 31% from taxable dividends (including distributions from
a Fund's net long-term capital gains) and share redemption and exchange proceeds
to individuals and other non-exempt shareholders who fail to furnish the Funds
with a correct taxpayer identification number ("TIN") certified under penalties
of perjury, or if the Internal Revenue Service or a broker notifies the Funds
that the payee has failed to properly report interest or dividend income to the
IRS or that the TIN furnished by the payee to the Funds is incorrect, or if
(when required to do so) the payee fails to certify under penalties of perjury
that it is not subject to backup withholding. Any amounts withheld may be
credited against a shareholder's United States federal income tax liability.
Distributions by a Municipal Fund will not be subject to backup withholding,
however, for any year such Fund reasonably estimates that at least 95% of its
dividends will be exempt-interest dividends.

NON-U.S. SHAREHOLDERS

         Shareholders who, as to the United States, are nonresident aliens,
foreign corporations, fiduciaries of foreign trusts or estates, foreign
partnerships or other non-U.S. investors generally will be subject to U.S.
withholding tax at the rate of 30% on distributions treated as ordinary income
unless the tax is reduced or eliminated pursuant to a tax treaty or the
dividends are effectively connected with a U.S. trade or business of the
shareholder. In the latter case the dividends will be subject to tax on a net
income basis at the graduated rates applicable to U.S. individuals or domestic
corporations. Distributions of net capital gain, including amounts retained by a
Fund which are designated as undistributed capital gains, to a non-U.S.
shareholder will not be subject to U.S. income or withholding tax unless the
distributions are effectively connected with the shareholder's trade or business
in the United States or, in the case of a shareholder who is a nonresident alien
individual, the shareholder is present in the United States for 183 days or more
during the taxable year and certain other conditions are met.

                                      -63-

<PAGE>

         Any gain realized by a non-U.S. shareholder upon a sale or redemption
of shares of a Fund will not be subject to U.S. federal income or withholding
tax unless the gain is effectively connected with the shareholder's trade or
business in the United States, or in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the United States
for 183 days or more during the taxable year and certain other conditions are
met. Non-U.S. investors should consult their tax advisers about the
applicability of U.S. federal income or withholding taxes to certain
distributions received by them.

STATE AND LOCAL

         The Funds may be subject to state or local taxes in jurisdictions in
which the Funds may be deemed to be doing business. In addition, in those states
or localities which have income tax laws, the treatment of a Fund and its
shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in the Fund may have tax consequences for
shareholders different from those of a direct investment in the Fund's portfolio
securities. Shareholders should consult their own tax advisers concerning these
matters.


                       GENERAL INFORMATION ABOUT THE TRUST
GENERAL

         The Trust is an open-end investment company organized as a Delaware
business trust on September 13, 1993. The Trust commenced operations on January
3, 1994. Until December 30, 1994, the Fixed Income Fund and the Municipal Bond
Fund were series of The Advisors' Inner Circle Fund, a Massachusetts business
trust organized under the laws of the Commonwealth of Massachusetts on July 18,
1991.

         In the event of a liquidation or dissolution of the Trust or an
individual Fund, shareholders of a particular Fund would be entitled to receive
the assets available for distribution belonging to such Fund. Shareholders of a
Fund are entitled to participate in the net distributable assets of the
particular Fund involved on liquidation, based on the number of shares of the
Fund that are held by each shareholder.

         Shares entitle their holders to one vote per share; however, separate
votes will be taken by each Fund on matters affecting an individual Fund. Shares
are freely transferable and have no preemptive, subscription or conversion
rights. The Trust does not expect to hold shareholder meetings except as
required by the 1940 Act or the Agreement and Declaration of Trust (the
"Declaration of Trust"). See "Organization and Shares of the Trust" in 

                                      -64-

<PAGE>

the Prospectus.

   
         As of July 31, 1996, the following shareholders owned the following
respective percentages of the outstanding shares of the Fixed Income Fund, the
Municipal Bond Fund, The Short-Term Municipal Bond Fund, the Short-Term Fixed
Income Fund and The Smaller Companies Fund:
    

Fixed Income Fund:
- ------------------
SEI Trust Company                                                   11.17%
680 E. Swedesford Road
Wayne, PA  19087

BATRUS & Co.                                                         6.59%
c/o Bankers Trust Company
PO Box 9005
Church Street Station
New York, NY 10006

San Mateo County Employees                                           8.51%
Retirement Association
2317 Broadway St., Suite 115
Redwood City, CA 94063

Municipal Bond Fund:
- --------------------
SEI Trust Company                                                   11.89%
680 E. Swedesford Road
Wayne, PA  19087

Batrus & Co., (New York Corporation)                                48.57%
c/o Bankers Trust Co.
PO Box 9005, Church Street Station
New York, NY 10006

INFID & Co.                                                          7.60%
c/o Bankers Trust Co.
PO Box 9005, Church Street Station
New York, NY 10006

                                      -65-

<PAGE>

Short-Term Municipal Bond Fund:
- -------------------------------
   
SEI Trust Company                                                   17.89%
680 E. Swedesford Road
Wayne, PA 19087
    

James E. Minnick & Nancy Minnick JTTEN                               6.62%
3421 St. Davids Road
Newtown Square, PA 19073

Phyllis Kingsbury                                                    6.42%
27 Inverness Ct.
Short Hills, NJ 07078

Emily Kingsbury                                                      9.72%
610 New Albany Road
Moorestown, NJ 08057

Neil Patrick Jenkins                                                 5.22%
420 E. 81st Street Apt 3
New York, NY 10028

Wilmington Trust Co FBO David Baldt                                 13.04%
1100 N. Market Street
Wilmington, DE 19890

National Financial Services Corp                                     8.66%
200 Liberty St.
1 World Financial Center
New York, NY 10281

Short-Term Fixed Income Fund:
- -----------------------------
BATRUS & Co., (New York Corporation)                                44.13%
c/o Bankers Trust
PO Box 9005 Church Street Station
New York, NY 10006

SEI Trust Company                                                   20.68%
680 E. Swedesford Road
Wayne, PA 19087

                                      -66-

<PAGE>

   
Infid & Co.                                                          9.37%
c/o Bankers Trust Co.
PO Box 9005, Church Street Station
New York, NY 10006
    

JAD Multiple Trust Fund                                             11.08%
770 South Rte 73
West Berlin, NJ 08091

Harris Bank                                                          7.61%
FBO National Sporting Goods Association
111 W. Monroe St.
Chicago, IL 60603

Smaller Companies Fund:
- -----------------------
Morgan Grenfell Capital Management, Inc.                            82.36%
(Delaware Corporation)
885 Third Avenue Suite 3200
New York, NY 10022

Deutsche Morgan Grenfell                                            16.69%
1290 Avenue of the Americas
New York, NY 10104

         It is expected that, on the date of this Statement of Additional
Information, SEI Financial Corporation will be the beneficial and record owner
of 100% of the outstanding shares of the Microcap Fund.


SHAREHOLDER AND TRUSTEE LIABILITY

         The Trust is organized as a Delaware business trust and, under Delaware
law, the shareholders of a business trust are not generally subject to liability
for the debts or obligations of the trust. Similarly, Delaware law provides that
none of the Funds will be liable for the debts or obligations of any other Fund.
However, no similar statutory or other authority limiting business trust
shareholder liability exists in other states. As a result, to the extent that a
Delaware business trust or a shareholder is subject to the jurisdiction of the
courts in such other states, the courts may not apply Delaware law and may
thereby subject the Delaware business trust shareholders to liability. To guard
against this risk, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the 

                                      -67-

<PAGE>

Trust. Notice of such disclaimer will normally be given in each agreement,
obligation or instrument entered into or executed by the Trust or the Trustees.
The Declaration of Trust provides for indemnification by the relevant Fund for
any loss suffered by a shareholder as a result of an obligation of the Fund. The
Declaration of Trust also provides that the Trust shall, upon request, assume
the defense of any claim made against any shareholder for any act or obligation
of the Trust and satisfy any judgment thereon. The Trustees believe that, in
view of the above, the risk of personal liability of shareholders is remote.

         The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.

CONSIDERATION FOR PURCHASES OF SHARES

         The Trust generally will not issue shares of the Funds for
consideration other than cash. At the Trust's sole discretion, however, it may
issue Fund shares for consideration other than cash in connection with an
acquisition of portfolio securities (other than municipal debt securities issued
by state political subdivisions or their agencies or instrumentalities) or
pursuant to a bona fide purchase of assets, merger or other reorganization,
provided (i) the securities meet the investment objectives and policies of the
Fund; (ii) the securities are acquired by the Fund for investment and not for
resale; (iii) the securities are not restricted as to transfer either by law or
liquidity of market; and (iv) the securities have a value which is readily
ascertainable (and not established only by valuation procedures) as evidenced by
a listing on the American Stock Exchange or the New York Stock Exchange or by
quotation on the NASD Automated Quotation System. An exchange of securities for
Fund shares will generally be a taxable transaction to the shareholder.


                             ADDITIONAL INFORMATION

INDEPENDENT ACCOUNTANTS

         Price Waterhouse LLP serves as the Funds' independent accountants,
providing audit services, including review and consultation in connection with
various filings by the Trust with the Commission and tax authorities.

                                      -68-

<PAGE>

REGISTRATION STATEMENT
   
         The Trust has filed with the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, a Registration Statement under the Securities Act of
1933, as amended, with respect to the securities of the Funds and certain other
series of the Trust. If further information is desired with respect to the
Trust, the Funds or such other series, reference is made to the Registration
Statement and the exhibits filed as a part thereof.
    

                              FINANCIAL STATEMENTS
   
         The Trust's audited financial statements for the period ended October
31, 1995 are included in, and incorporated by reference into, this Statement of
Additional Information in reliance upon the report of Price Waterhouse LLP, the
Trust's independent accountants, as experts in accounting and auditing. The
Trust's unaudited financial statements for the period ended April 30, 1996 are
also included in, and incorporated by reference into, this Statement of
Additional Information.
    
                                      -69-

<PAGE>

   
The audited financial statements of Morgan Grenfell Investment Trust are
incorporated by reference into this Statement of Additional Information by
reference from Morgan Grenfell Investment Trust's 1995 Annual Report to
Shareholders for the year ended October 31, 1995 (filed electronically on
December 29, 1995; file no. 811-8006; accession no. 0000950109-95-005471). The
unaudited financial statements of Morgan Grenfell Investment Trust for the
six-month period ended April 30, 1996 are incorporated by reference into this
Statement of Additional Information by reference from Morgan Grenfell Investment
Trust's Semiannual Report to Shareholders for the six-month period ended April
30, 1996 (filed electronically on June 28, 1996; file no. 811-8006; accession
no. 0000935069-96-000084).
    

<PAGE>


                                    FORM N-1A

                            PART C. OTHER INFORMATION

Item 24.  Financial Statements and Exhibits

         (a)      Financial Statements:

   
                  The financial highlights of the Registrant are included in
                  Part A of the Registration Statement and the financial
                  statements of the Registrant are included in Part B of the
                  Registration Statement and are incorporated therein by
                  reference from Registrant's 1995 Annual Report to Shareholders
                  for the year ended October 31, 1995 (filed electronically on
                  December 29, 1995; file no. 811-8006; accession no.
                  0000950109-95-005471) and from Registrant's Semiannual Report
                  to Shareholders for the six-month period ended April 30, 1996
                  (filed electronically on June 28, 1996; file no. 811-8006;
                  accession no. 0000935069-96-000084).

         (b)      Exhibits:

                  Except as noted, the following exhibits are being filed
                  herewith:

                    **1.      Agreement and Declaration of Trust of Registrant  
                              dated September 13, 1993, as amended.

                    **2.      Amended By-Laws of Registrant.

                    **5(a).   Management Contract dated January 3, 1994, as 
                              amended as of April 25, 1994, April 1, 1995 and 
                              September 1, 1995, between Morgan Grenfell
                              Investment Services Limited and Registrant, on
                              behalf of Morgan Grenfell International Equity
                              Fund, Morgan Grenfell Global Equity Fund, Morgan
                              Grenfell European Equity Fund, Morgan Grenfell
                              Pacific Basin Equity Fund, Morgan Grenfell
                              International Small Cap Equity Fund, Morgan
                              Grenfell Japanese Small Cap Equity Fund, Morgan
                              Grenfell European Small Cap Equity Fund, Morgan
                              Grenfell Emerging Markets Equity Fund, Morgan
                              Grenfell Global Fixed Income Fund, Morgan Grenfell
                              International Fixed Income Fund and Morgan
                              Grenfell Emerging Markets Debt Fund.
    

                                      C-1

<PAGE>

   
                    **5(b).   Management Contract dated as of December 28, 1994
                              between Morgan Grenfell Capital Management, Inc.
                              and Registrant, on behalf of Morgan Grenfell Fixed
                              Income Fund and Morgan Grenfell Municipal Bond
                              Fund.

                    **5(c).   Management Contract dated as of December 28, 1994
                              between Morgan Grenfell Capital Management, Inc.
                              and Registrant, on behalf of Morgan Grenfell Large
                              Cap Growth Fund, Morgan Grenfell Smaller Companies
                              Fund, Morgan Grenfell Short-Term Fixed Income Fund
                              and Morgan Grenfell Short-Term Municipal Bond
                              Fund.

                     *5(d).   Form of Management Contract between Morgan
                              Grenfell Capital Management, Inc. and Registrant,
                              on behalf of Morgan Grenfell Microcap Fund.

                     *6.      Distribution Agreement dated as of December 30,
                              1993 between SEI Financial Services Company and
                              Registrant, on behalf of all of its series.

                    **8(a).   Custody Agreement dated as of December 29, 1993
                              between The Northern Trust Company and Registrant,
                              on behalf of Morgan Grenfell International Equity
                              Fund, Morgan Grenfell Global Equity Fund, Morgan
                              Grenfell European Equity Fund, Morgan Grenfell
                              Pacific Basin Equity Fund, Morgan Grenfell
                              International Small Cap Equity Fund, Morgan
                              Grenfell Japanese Small Cap Equity Fund, Morgan
                              Grenfell European Small Cap Equity Fund, Morgan
                              Grenfell Emerging Markets Equity Fund, Morgan
                              Grenfell Global Fixed Income Fund, Morgan Grenfell
                              International Fixed Income Fund and Morgan
                              Grenfell Emerging Markets Fixed Income Fund, and
                              form of amendment effective as of December 28,
                              1994, causing Custody Agreement to apply to Morgan
                              Grenfell Short-Term Fixed Income Fund, Morgan
                              Grenfell Short-Term Municipal Bond Fund, Morgan
                              Grenfell Large Cap Growth Fund and Morgan Grenfell
                              Smaller Companies Fund.
    

                                      C-2

<PAGE>

   
                    **8(b).   Custody Agreement dated as of December 28, 1994
                              between CoreStates Bank, N.A. and Registrant, on
                              behalf of Morgan Grenfell Fixed Income Fund and
                              Morgan Grenfell Municipal Bond Fund.

                   ***9(a).   Administration Agreement between SEI Financial
                              Management Corporation and Registrant, on behalf
                              of Morgan Grenfell International Equity Fund,
                              Morgan Grenfell Global Equity Fund, Morgan
                              Grenfell European Equity Fund, Morgan Grenfell
                              Pacific Basin Equity Fund, Morgan Grenfell
                              International Small Cap Equity Fund, Morgan
                              Grenfell Japanese Small Cap Equity Fund, Morgan
                              Grenfell European Small Cap Equity Fund, Morgan
                              Grenfell Emerging Markets Equity Fund, Morgan
                              Grenfell Global Fixed Income Fund, Morgan Grenfell
                              International Fixed Income Fund and Morgan
                              Grenfell Emerging Markets Fixed Income Fund
                              (previously filed with the SEC on December 30,
                              1993 pursuant to Pre-Effective Amendment No. 2 to
                              Registrant's Registration Statement).

                   ***9(b).   Transfer Agency Agreement dated as of December 30,
                              1993 between Supervised Service Company, Inc. and
                              Registrant, on behalf of Morgan Grenfell
                              International Equity Fund, Morgan Grenfell Global
                              Equity Fund, Morgan Grenfell European Equity Fund,
                              Morgan Grenfell Pacific Basin Equity Fund, Morgan
                              Grenfell International Small Cap Equity Fund,
                              Morgan Grenfell Japanese Small Cap Equity Fund,
                              Morgan Grenfell European Small Cap Equity Fund,
                              Morgan Grenfell Emerging Markets Equity Fund,
                              Morgan Grenfell Global Fixed Income Fund, Morgan
                              Grenfell International Fixed Income Fund and
                              Morgan Grenfell Emerging Markets Fixed Income Fund
                              (previously filed with the SEC on July 7, 1994
                              pursuant to Post-Effective Amendment No. 1 to
                              Registrant's Registration Statement).

                   ***9(c).   Form of Administration Agreement dated December
                              28, 1994 between SEI Financial Management
                              Corporation and Registrant, on behalf of Morgan
                              Grenfell Large Cap Growth Fund, Morgan Grenfell
                              Smaller Companies Fund, Morgan Grenfell Fixed
                              Income Fund, Morgan Grenfell Short-Term Fixed
                              Income Fund, Morgan Grenfell Municipal Bond Fund
                              and Morgan 
    

                                      C-3

<PAGE>

   
                              Grenfell Short-Term Municipal Bond Fund
                              (previously filed with the SEC on October 14, 1994
                              pursuant to Post-Effective Amendment No. 3 to
                              Registrant's Registration Statement).

                   ***9(d).   Transfer Agency Agreement dated as of December 28,
                              1994 between Supervised Service Company, Inc. and
                              Registrant, on behalf of Morgan Grenfell Large Cap
                              Growth Fund, Morgan Grenfell Smaller Companies
                              Fund, Morgan Grenfell Fixed Income Fund, Morgan
                              Grenfell Short-Term Fixed Income Fund, Morgan
                              Grenfell Municipal Bond Fund and Morgan Grenfell
                              Short-Term Municipal Bond Fund (previously filed
                              with the SEC on April 4, 1995 pursuant to
                              Post-Effective Amendment No. 6 to Registrant's
                              Registration Statement).

                       *10.   Opinion and Consent of Morris, Nichols, 
                              Arsht & Tunnell.

                     11(a).   Consent of Price Waterhouse LLP.

                     11(b).   Consent of Arthur Andersen LLP.

                        12.   Not Applicable.

                     ***13.   Share Purchase Agreement dated as of December 29,
                              1993 between Registrant and SEI Financial
                              Management Corporation (previously filed with the
                              SEC on July 7, 1994 pursuant to Post-Effective
                              Amendment No. 1 to Registrant's Registration
                              Statement).

                     ***16.   Performance Quotation Computation appearing as
                              Exhibit 16 to Post-Effective Amendment No. 13 to
                              the Registration Statement of The Advisors' Inner
                              Circle Fund (File Nos. 33-42484 and 811-6400) is
                              incorporated herein by reference (previously filed
                              with the SEC on December 28, 1994 pursuant to
                              Post-Effective Amendment No. 4 to Registrant's
                              Registration Statement).

                        17.   Financial Data Schedule.

                        18.   Amended Rule 18f-3 Plan.
    

                                      C-4

<PAGE>

   
                      **19.   Powers of Attorney of Graham E. Jones, William N.
                              Searcy, Paul K. Freeman, Theresa M. Messina,
                              Patrick W. Disney, James E. Minnick, Hugh G.
                              Lynch, Edward T. Tokar and Jeffrey A. Cohen.

                  ---------------------------
                  *   Previously filed with the SEC on June 11, 1996 and
                      incorporated by reference herein.

                  **  Previously filed with the SEC on February 14, 1996
                      and incorporated by reference herein.

                  *** Previously filed with the SEC on the dates indicated and
                      incorporated by reference herein.
    

Item 25. Persons Controlled By or Under Common Control With Registrant

   
         The Registrant does not directly or indirectly control any person. On
the effective date of this Registration Statement, 100% of the shares of the
following series of the Registrant will be owned by SEI Financial Management
Corporation, a Delaware corporation: Morgan Grenfell Global Equity Fund, Morgan
Grenfell European Equity Fund, Morgan Grenfell Pacific Basin Equity Fund, Morgan
Grenfell Japanese Small Cap Equity Fund and Morgan Grenfell Microcap Fund. SEI
Financial Management Corporation is a wholly-owned subsidiary of SEI
Corporation, a Delaware corporation, which also controls the distributor of the
Registrant, SEI Financial Services Company, and other corporations engaged in
providing various financial and recordkeeping services, primarily to bank trust
departments, pension plan sponsors and investment managers.

Item 26. Number of Holders of Securities

         On August 16, 1996, the number of record holders of each series of the
Registrant was as follows:

                                                          Number of
Fund                                                   Record Holders
- ----                                                   --------------
Morgan Grenfell International Equity Fund               
Morgan Grenfell Global Equity Fund                            1
Morgan Grenfell European Equity Fund                          1
Morgan Grenfell Pacific Basin Equity Fund                     1
Morgan Grenfell International Small Cap Equity Fund          22
Morgan Grenfell Japanese Small Cap Equity Fund                1
                                                         
                                                         
                                      C-5                
<PAGE>                                                   
                                                         
                                                         
Morgan Grenfell European Small Cap Equity Fund                9
Morgan Grenfell Emerging Markets Equity Fund                 33
Morgan Grenfell Global Fixed Income Fund                     90
Morgan Grenfell International Fixed Income Fund              20
Morgan Grenfell Emerging Markets Debt Fund                   39
Morgan Grenfell Fixed Income Fund                           223
Morgan Grenfell Municipal Bond Fund                         148
Morgan Grenfell Short-Term Fixed Income Fund                 15
Morgan Grenfell Short-Term Municipal Bond Fund               36
Morgan Grenfell Smaller Companies Fund                       15
Morgan Grenfell Microcap Fund                                 0
Morgan Grenfell Large Cap Growth Fund                         0
    


Item 27. Indemnification

         Article III, Section 7 and Article VII, Section 2 of the Registrant's
Agreement and Declaration of Trust and Article VI of the Registrant's By-Laws
provide for indemnification of the Registrant's trustees and officers under
certain circumstances.

Item 28. Business and Other Connections of Investment Advisers

         All of the information required by this item is set forth in the Form
ADV, as amended, of Morgan Grenfell Investment Services Limited (File No.
801-12880) and in the Form ADV, as amended, of Morgan Grenfell Capital
Management, Inc. (File No. 801-27291). The following sections of each such Form
ADV are incorporated herein by reference:

                  (a)      Items 1 and 2 of Part II

                  (b)      Section 6, Business Background, of
                           each Schedule D.

Item 29. Principal Underwriter
   

                  (a)      The Registrant's distributor is SEI Financial
                           Services Company ("SFS"), which also acts as
                           distributor for SEI Daily Income Trust, SEI Liquid
                           Asset Trust, SEI Tax Exempt Trust, SEI Index Funds,
                           SEI Institutional Managed Trust, SEI International
                           Trust, Stepstone Funds, The Advisors' Inner Circle
                           Fund, The Pillar Funds, CUFUND, STI Classic Funds,
                           CoreFunds, Inc., First American Funds, Inc., First
                           American Investment Funds, Inc., The Arbor Fund, 1784
                           Funds(R), The PBHG Funds, Inc., Marquis Funds(R),
                           Inventor Funds, Inc., The Achievement Funds Trust,
                           Bishop Street Funds, CrestFunds, Inc., STI Classic
                           Variable Trust, ARK Funds, 

                                      C-6

<PAGE>

                           Monitor Funds, FMB Funds, Inc., SEI Asset Allocation
                           Trust, Turner Funds and SEI Institutional Investments
                           Trust pursuant to distribution agreements dated July
                           15, 1982, November 29, 1982, December 3, 1982, July
                           10, 1985, January 22, 1987, August 30, 1988, January
                           30, 1991, November 14, 1991, February 28, 1992, May
                           1, 1992, May 29, 1992, October 30, 1992, November 1,
                           1992, November 1, 1992, January 28, 1993, June 1,
                           1993, July 16, 1993, August 17, 1993, August 1, 1994,
                           December 27, 1994, January 27, 1995, March 1, 1995,
                           August 18, 1995, November 1, 1995, January 11, 1996,
                           March 1, 1996, April 1, 1996, April 30, 1996 and June
                           14, 1996, respectively.
    

                  (b)      The following table lists, for each director and
                           officer of SFS, the information indicated.


   
Name and                                                         Positions and
Principal Business           Position and Offices                Office with
Address*                     with Underwriter                    Registrant
- ------------------           -----------------------             --------------
Alfred P. West, Jr.          Director, Chairman and                  None
                             Chief Executive Officer
Henry H. Greer               Director, President and                 None
                             Chief Operating Officer
Carmen V. Romeo              Director, Executive Vice                None
                             President and Treasurer
Gilbert L. Beebower          Executive Vice President                None
Richard B. Lieb              Executive Vice President,               None
                             President - Investment
                             Services Division
Leo J. Dolan, Jr.            Senior Vice President                   None
Carl A. Guarino              Senior Vice President                   None
Jerome Hickey                Senior Vice President                   None
David G. Lee                 Senior Vice President                   None
Steven Kramer                Senior Vice President                   None
William Madden               Senior Vice President                   None
A. Keith McDowell            Senior Vice President                   None
Dennis J. McGonigle          Senior Vice President                   None
Hartland J. McKeown          Senior Vice President                   None
James V. Morris              Senior Vice President                   None
Steven Onofrio               Senior Vice President                   None
Kevin P. Robins              Senior Vice President,                  None
                             General Counsel and
                             Secretary
Robert Wagner                Senior Vice President                   None
Patrick K. Walsh             Senior Vice President                   None


                                      C-7
<PAGE>

Kenneth Zimmer               Senior Vice President                   None
Robert Crudup                Vice President and
                             Managing Director                       None
Vic Galef                    Vice President and                      None
                             Managing Director
Kim Kirk                     Vice President and                      None
                             Managing Director
John Krzeminski              Vice President and                      None
                             Managing Director
Carolyn McLaurin             Vice President and                      None
                             Managing Director

Barbara Moore                Vice President and                      None
                             Managing Director
Donald Pepin                 Vice President and                      None
                             Managing Director
Mark Samuels                 Vice President and                      None
                             Managing Director
Wayne M. Withrow             Vice President and                      None
                             Managing Director
Mick Duncan                  Vice President and Team Leader          None
Robert S. Ludwig             Vice President and Team Leader          None
Vicki Malloy                 Vice President and Team Leader          None
Robert Aller                 Vice President                          None
W. Kelso Morrill             Vice President                          None
Gordon W. Carpenter          Vice President                          None
Barbara A. Nugent            Vice President and                      None
                             Assistant Secretary
Todd Cipperman               Vice President and                      None
                             Assistant Secretary
Ed Daly                      Vice President                          None
Jeff Drennen                 Vice President                          None
Kathy Heilig                 Vice President                          None
Larry Hutchison              Vice President                          None
Michael Kantor               Vice President                          None
Samuel King                  Vice President                          None
Donald H. Korytowski         Vice President                          None
Jack May                     Vice President                          None
Sandra K. Orlow              Vice President and                      None
                             Assistant Secretary
Larry Pokora                 Vice President                          None
Kim Rainey                   Vice President                          None
Paul Sachs                   Vice President                          None
Steve Smith                  Vice President                          None
Daniel Spaventa              Vice President                          None
Kathryn L. Stanton           Vice President and                      None
                             Assistant Secretary

                                      C-9

<PAGE>


William Zawaski              Vice President                          None
James Dougherty              Director of Brokerage Services          None
Marc H. Cahn                 Vice President and                      None
                             Assistant Secretary
    
- ---------------------------

*  The principal business address of each of the listed persons is SEI Financial
Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658.

                  (c)      Not applicable.

Item 30. Location of Accounts and Records

         The Agreement and Declaration of Trust, By-Laws and minute books of the
Registrant are in the physical possession of Morgan Grenfell Capital Management,
Inc., 885 Third Avenue, New York, New York 10022. All other books, records,
accounts and other documents required to be maintained under Section 31(a) of
the Investment Company Act of 1940 and the rules promulgated thereunder will be
in the physical possession of the Registrant's custodians: The Northern Trust
Company, Fifty South LaSalle Street, Chicago, Illinois 60675, and CoreStates
Bank, N.A., Broad and Chestnut Streets, Philadelphia, Pennsylvania 19101, except
for certain transfer agency and fund accounting records which are in the
physical possession of DST Systems, Inc., 811 Main Street, Kansas City, Missouri
64105, the Registrant's transfer agent, and SEI Financial Management
Corporation, the Trust's administrator, 680 East Swedesford Road, Wayne,
Pennsylvania 19087-1658, respectively.

Item 31. Management Services

         Not Applicable.

Item 32. Undertaking

         (a) Within four to six months from the later of (i) the effective date
of this Post-Effective Amendment under the Securities Act of 1933 and (ii) the
actual date that shares of a series are first sold to the public or operations
otherwise begin with respect to such series, the Registrant undertakes to file a
post-effective amendment covering each series of Registrant that has not
commenced operations prior to the effective date of this Post-Effective
Amendment, using financial statements which need not be certified.

                                      C-9

<PAGE>

         (b) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in such Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in such Act and will
be governed by the final adjudication of such issue.

         (c) The Registrant undertakes to furnish, upon request and without
charge, to each person to whom a prospectus is delivered a copy of the latest
annual report to shareholders of such series (except to the extent a series has
not by such time been required to issue an annual report).

                                      C-10

<PAGE>

   
                                   SIGNATURES

         Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant duly certifies that it meets all
of the requirements for effectiveness of this Post-Effective Amendment No. 11 to
its Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 23rd day of August 1996.

                        MORGAN GRENFELL INVESTMENT TRUST


                                            By:/s/ Mark G. Arthus
                                               ------------------------------
                                               Mark G. Arthus
                                               Secretary

         Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 11 to the Registrant's Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated:


     Signature               Title                  Date
     ---------               -----                  ----
                                                   
                                             
James E. Minnick*                                   )
- ---------------------                        
James E. Minnick          Chief Executive Officer   )
                          (Principal Executive      )
                          Officer) and Trustee      )
                                                    )
                                                    )
Jeffrey A. Cohen*                                   )   Aug. 23, 1996
- ---------------------
Jeffrey A. Cohen          Treasurer and Chief       )
                          Financial Officer         )
                          (Principal Financial and  )
                          Accounting Officer)       )
                                                    )
Paul K. Freeman*                                    )
- --------------------
Paul K. Freeman           Trustee                   )
                                                    )
                                                    )
Graham E. Jones*                                    )
- ---------------------
Graham E. Jones           Trustee                   )


<PAGE>

     Signature               Title                  Date
     ---------               -----                  ----


William N. Searcy*                                  )
- --------------------
William N. Searcy         Trustee                   )
                                                    )
                                                    )
Patrick W. Disney*                                  )
- --------------------
Patrick W. Disney         Trustee                   )
                                                    )
                                                    )
Hugh G. Lynch*                                      )
- --------------------
Hugh G. Lynch             Trustee                   )
                                                    )
                                                    )
Edward T. Tokar*                                    )
- --------------------
Edward T. Tokar           Trustee                   )



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

                                          Dated:  August 23, 1996
*By:/s/ Mark G. Arthus
    ---------------------------------
    Mark G. Arthus, Attorney-in-Fact, pursuant to powers of attorney.
    


<PAGE>


                                  EXHIBIT INDEX


   
Exhibit
Number            Document Title
- -------           --------------
11(a).            Consent of Price Waterhouse LLP.

11(b).            Consent of Arthur Andersen LLP.

17.               Financial Data Schedule.

18.               Amended Rule 18f-3 Plan.
    



Consent of Independent Accountants

     We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 11 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
December 11, 1995 relating to the financial statements and financial highlights
of Municipal Bond Fund, Fixed Income Fund, Short-Term Municipal Bond Fund,
Short-Term Fixed Income Fund, Smaller Companies Fund, International Equity Fund,
International Small Cap Equity Fund, European Small Cap Equity Fund, Emerging
Markets Equity Fund, Global Fixed Income Fund, International Fixed Income Fund,
Emerging Markets Debt Fund, Global Equity Fund, European Equity Fund, Pacific
Basin Equity Fund and Japanese Small Cap Equity Fund (comprising Morgan Grenfell
Investment Trust), which appears in such Statement of Additional Information,
and to the incorporation by reference of our report into the Prospectus which
constitutes part of this Registration Statement. We also consent to the
references to us under the headings "Financial Statements" and "Independent
Accountants" in such Statement of Additional Information and to the reference to
us under the heading "Financial Highlights" in such Prospectus.

/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036

August 26, 1996


                          [ARTHUR ANDERSEN LETTERHEAD]


                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to all references to our
firm included in the Post-Effective Amendment No. 11 to the Registration
Statement on Form N1-A of Morgan Grenfell Investment Trust (File No. 33-68704).

ARTHUR ANDERSEN LLP
Philadelphia, PA
August 26, 1996


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<NAME> MORGAN GRENFELL INVESTMENT TRUST
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<REALIZED-GAINS-CURRENT>                            67
<APPREC-INCREASE-CURRENT>                          323
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<NET-CHANGE-IN-ASSETS>                             654
<ACCUMULATED-NII-PRIOR>                             98
<ACCUMULATED-GAINS-PRIOR>                          (6)
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                             (11)
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                   (46)
<AVERAGE-NET-ASSETS>                              3024
<PER-SHARE-NAV-BEGIN>                            10.95
<PER-SHARE-NII>                                    .06
<PER-SHARE-GAIN-APPREC>                           1.42
<PER-SHARE-DIVIDEND>                             (.43)
<PER-SHARE-DISTRIBUTIONS>                            0
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              12.00
<EXPENSE-RATIO>                                    .90
<AVG-DEBT-OUTSTANDING>                               0
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<CIK> 0000912035
<NAME> MORGAN GRENFELL INVESTMENT TRUST
<SERIES>
   <NUMBER> 051
   <NAME> INTERNATIONAL SMALL CAP EQUITY
<MULTIPLIER> 1,000
       
<S>                             <C>
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<PERIOD-START>                             NOV-01-1995
<PERIOD-END>                               APR-30-1996
<INVESTMENTS-AT-COST>                           105281
<INVESTMENTS-AT-VALUE>                          123885
<RECEIVABLES>                                     1407
<ASSETS-OTHER>                                    4769
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                                  130061
<PAYABLE-FOR-SECURITIES>                          1716
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                          281
<TOTAL-LIABILITIES>                               1997
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                        112872
<SHARES-COMMON-STOCK>                            11887
<SHARES-COMMON-PRIOR>                             9672
<ACCUMULATED-NII-CURRENT>                         1029
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                         (4301)
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                         18464
<NET-ASSETS>                                    128064
<DIVIDEND-INCOME>                                  686
<INTEREST-INCOME>                                  129
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                   (682)
<NET-INVESTMENT-INCOME>                            133
<REALIZED-GAINS-CURRENT>                         (499)
<APPREC-INCREASE-CURRENT>                        16624
<NET-CHANGE-FROM-OPS>                            16258
<EQUALIZATION>                                   21368
<DISTRIBUTIONS-OF-INCOME>                        (479)
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                           2362
<NUMBER-OF-SHARES-REDEEMED>                      (194)
<SHARES-REINVESTED>                                 47
<NET-CHANGE-IN-ASSETS>                           37147
<ACCUMULATED-NII-PRIOR>                            254
<ACCUMULATED-GAINS-PRIOR>                       (2681)
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                            (599)
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                  (736)
<AVERAGE-NET-ASSETS>                            109779
<PER-SHARE-NAV-BEGIN>                             9.40
<PER-SHARE-NII>                                    .01
<PER-SHARE-GAIN-APPREC>                           1.62
<PER-SHARE-DIVIDEND>                             (.04)
<PER-SHARE-DISTRIBUTIONS>                        (.22)
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              10.77
<EXPENSE-RATIO>                                   1.25
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

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<INVESTMENTS-AT-COST>                             8066
<INVESTMENTS-AT-VALUE>                           10276
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<ASSETS-OTHER>                                     856
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                                   11249
<PAYABLE-FOR-SECURITIES>                            63
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                           14
<TOTAL-LIABILITIES>                                 77
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                          8779
<SHARES-COMMON-STOCK>                              863
<SHARES-COMMON-PRIOR>                              809
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<OVERDISTRIBUTION-GAINS>                             0
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<OTHER-INCOME>                                       0
<EXPENSES-NET>                                    (63)
<NET-INVESTMENT-INCOME>                             18
<REALIZED-GAINS-CURRENT>                           116
<APPREC-INCREASE-CURRENT>                         1183
<NET-CHANGE-FROM-OPS>                             1317
<EQUALIZATION>                                     648
<DISTRIBUTIONS-OF-INCOME>                         (99)
<DISTRIBUTIONS-OF-GAINS>                          (30)
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                             43
<NUMBER-OF-SHARES-REDEEMED>                          0
<SHARES-REINVESTED>                                 11
<NET-CHANGE-IN-ASSETS>                            1836
<ACCUMULATED-NII-PRIOR>                            117
<ACCUMULATED-GAINS-PRIOR>                           30
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                            (109)
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                  (131)
<AVERAGE-NET-ASSETS>                             10067
<PER-SHARE-NAV-BEGIN>                            11.55
<PER-SHARE-NII>                                    .02
<PER-SHARE-GAIN-APPREC>                           1.53
<PER-SHARE-DIVIDEND>                             (.12)
<PER-SHARE-DISTRIBUTIONS>                        (.04)
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              12.94
<EXPENSE-RATIO>                                   1.25
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

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<INVESTMENTS-AT-VALUE>                          102942
<RECEIVABLES>                                     2086
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<TOTAL-ASSETS>                                  105567
<PAYABLE-FOR-SECURITIES>                          4785
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</TABLE>

<TABLE> <S> <C>

<ARTICLE>                                            6
<CIK> 0000912035
<NAME> MORGAN GRENFELL INVESTMENT TRUST
<SERIES>
   <NUMBER> 091
   <NAME> GLOBAL FIXED INCOME
<MULTIPLIER> 1,000
       
<S>                             <C>
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</TABLE>

<TABLE> <S> <C>

<ARTICLE>                                            6
<CIK> 0000912035
<NAME> MORGAN GRENFELL INVESTMENT TRUST
<SERIES>
   <NUMBER> 101
   <NAME> INTERNATIONAL FIXED INCOME
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
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</TABLE>

<TABLE> <S> <C>

<ARTICLE>                                            6
<CIK> 0000912035
<NAME> MORGAN GRENFELL INVESTMENT TRUST
<SERIES>
   <NUMBER> 111
   <NAME> EMERGING MARKETS DEBT
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
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</TABLE>

<TABLE> <S> <C>

<ARTICLE>                                            6
<CIK> 0000912035
<NAME> MORGAN GRENFELL INVESTMENT TRUST
<SERIES>
   <NUMBER> 121
   <NAME> MUNICIPAL BOND FUND
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
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</TABLE>

<TABLE> <S> <C>

<ARTICLE>                                            6
<CIK> 0000912035
<NAME> MORGAN GRENFELL INVESTMENT TRUST
<SERIES>
   <NUMBER> 131
   <NAME> FIXED INCOME FUND
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
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</TABLE>

<TABLE> <S> <C>

<ARTICLE> 6
<CIK> 0000912035
<NAME> MORGAN GRENFELL INVESTMENT TRUST
<SERIES>
   <NUMBER> 141
   <NAME> SHORT-TERM MUNICIPAL BOND FUND
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
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</TABLE>

<TABLE> <S> <C>

<ARTICLE>                                            6
<CIK> 0000912035
<NAME> MORGAN GRENFELL INVESTMENT TRUST
<SERIES>
   <NUMBER> 151
   <NAME> SHORT-TERM FIXED INCOME
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          OCT-31-1996
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</TABLE>

<TABLE> <S> <C>

<ARTICLE>                                            6
<CIK> 0000912035
<NAME> MORGAN GRENFELL INVESTMENT TRUST
<SERIES>
   <NUMBER> 161
   <NAME> SMALLER COMPANIES FUND
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          OCT-31-1996
<PERIOD-START>                             NOV-01-1995
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</TABLE>



                        MORGAN GRENFELL INVESTMENT TRUST

                   AMENDED PLAN IN ACCORDANCE WITH RULE 18F-3


         This plan is applicable to each series of Morgan Grenfell Investment
Trust (the "Trust"). Unless otherwise determined by the Trust's Board of
Trustees, each future series of the Trust will issue multiple classes of shares
in accordance with this plan. Each series of the Trust, including any series
established in the future, is referred to herein as a "Fund."

         Each class of shares of each Fund will have the same relative rights
and privileges and be subject to the same fees and expenses except as set forth
below. In addition, extraordinary expenses attributable to one or more classes
shall be borne by such classes. The Trust's Board of Trustees may determine in
the future that other allocations of expenses or other services to be provided
to a class of shares are appropriate and amend this Plan accordingly without the
approval of shareholders of any class. Unless a class of shares is otherwise
designated, it shall have the terms set forth below for Institutional Shares.
Except as set forth in a prospectus of the Trust, shares may be exchanged only
for shares of the same class of another Fund.

INSTITUTIONAL SHARES

         Institutional Shares are sold at net asset value without a sales charge
and are sold subject to the minimum purchase requirements set forth in the
relevant prospectuses of the Trust. A wire transfer fee may be imposed in
connection with the payment of redemption proceeds from Institutional Shares
that is not imposed in connection with other classes of shares. Institutional
Shares shall be entitled to the shareholder services set forth from time to time
in the Trust's prospectuses with respect to Institutional Shares.

SERVICE SHARES

         Service Shares are sold at net asset value without a sales charge and
are sold subject to the minimum purchase requirements set forth in the relevant
Trust prospectuses. Service Shares are sold only to or through certain service
organizations that have entered into agreements with the Funds. Pursuant to such
agreements, Service Shares are subject to a fee for shareholder services
provided by such organizations. Service Shares shall be entitled to the
shareholder services set forth from time to time in the Trust's prospectuses
with respect to Service Shares.

CLASS A SHARES

         Class A Shares are sold at net asset value with a front-end sales
charge and are sold subject to the minimum purchase requirements set forth in
the relevant Trust prospectuses. Investors that purchase Class A Shares having
at least a specified aggregate value as set forth in the relevant Trust
prospectuses may be permitted to purchase Class A shares at net asset value with
no initial sales charge; but if these shares are redeemed within a specified
period after their purchase as set forth in the relevant Trust prospectuses, a
contingent deferred sales charge may be imposed. Class A Shares will be subject
to distribution and/or service fees imposed under a Rule 12b-1 plan as set forth
in the relevant Trust prospectuses. Class A Shares shall be entitled to the
shareholder services set forth from time to time in the Trust's prospectuses
with respect to Class A Shares.

<PAGE>

CLASS B SHARES

         Class B Shares are sold at net asset value and are sold subject to the
minimum purchase requirements set forth in the relevant Trust prospectuses.
Class B Shares redeemed within a specified period after their purchase as set
forth in the relevant Trust prospectuses will be subject to a contingent
deferred sales charge. Class B Shares will be subject to distribution and/or
service fees imposed under a Rule 12b-1 plan as set forth in the relevant Trust
prospectuses. Class B Shares shall be entitled to the shareholder services set
forth from time to time in the Trust's prospectuses with respect to Class B
Shares.

CLASS C SHARES

         Class C Shares are sold at net asset value and are sold subject to the
minimum purchase requirements set forth in the relevant Trust prospectuses.
Class C Shares redeemed within a specified period after their purchase as set
forth in the relevant Trust prospectuses will be subject to a contingent
deferred sales charge. Class C Shares will be subject to distribution and/or
service fees imposed under a Rule 12b-1 plan as set forth in the relevant Trust
prospectuses. Class C Shares shall be entitled to the shareholder services set
forth from time to time in the Trust's prospectuses with respect to Class C
Shares.

SHAREHOLDER MEETING EXPENSES

         Printing, postage and other expenses related to (i) preparing and
distributing materials such as proxy statements to current shareholders of a
specific class and (ii) holding meetings of the shareholders of such class are
class expenses.

                                      -2-



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