DEUTSCHE ASSET MANAGEMENT, 485APOS, 2000-07-28

DEUTSCHE ASSET MANAGEMENT
485APOS, 2000-07-28

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As filed with the Securities and Exchange Commission on July 28, 2000

Form N-1A

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/

Pre-Effective Amendment No. [ ]

Post-Effective Amendment No. [24]

and/or

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /x/

AMENDMENT NO. [26]
(Check appropriate box or boxes)

MORGAN GRENFELL INVESTMENT TRUST
(Exact name of registrant as specified in charter)

One South Street
Baltimore, Maryland 21202
(Address of principal executive office) (Zip Code)

Registrant's Telephone Number, including Area Code: (410) 895-5000

Richard T. Hale
Morgan Grenfell Investment Trust
One South Street
Baltimore, Maryland 21202
(Name and address of agent for service)

Copies of communications to:
Christopher P. Harvey, Esq.
Hale and Dorr LLP
60 State Street
Boston, MA 02109

It is proposed that this filing will become effective (check appropriate box):

X on September 29, 2000 pursuant to paragraph (a)(1) of Rule 485

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Deutsche Asset Management

Mutual Fund
Prospectus
September 29, 2000

Premier Class

High Yield Bond

[Like shares of all mutual funds, these securities have not been approved or
disapproved by the Securities and Exchange Commission nor has the Securities and
Exchange Commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.]

(Deutsche Bank logo)

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Overview
of High Yield Bond

Goal: The Fund seeks high current income and, as a secondary objective, capital
appreciation.

Core Strategy: The Fund invests primarily in U.S. dollar-denominated high yield
bonds of domestic and foreign issuers.

INVESTMENT POLICIES AND STRATEGIES
The Fund is a feeder fund that invests all of its assets in a master portfolio
with the same goal. The Fund, through the master portfolio, seeks to achieve its
goal by investing in a diversified portfolio of high yield fixed income
securities with a dollar weighted effective average portfolio maturity of seven
to ten years.

High Yield Bond--Premier Class

Overview of High Yield Bond

Goal
Core Strategy
Investment Policies and Strategies
Principal Risks of Investing in the Fund
Who Should Consider Investing in the Fund
Total Returns, After Fees and Expenses
Annual Fund Operating Expenses

A Detailed Look at High Yield Bond

Objective
Strategy
Principal Investments
Investment Process
Other Investments
Risks
Management of the Fund
Calculating the Fund's Share Price
Performance Information
Dividends and Distributions
Tax Considerations
Buying and Selling Fund Shares
Financial Highlights

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PRINCIPAL RISKS OF INVESTING IN THE FUND

An investment in the Fund could lose money, or the Fund's performance could
trail that of other investments. For example:

. an issuer's creditworthiness could decline, which in turn may cause the
value of a security in the Fund's portfolio to decline. This risk is higher
for below investment grade bonds;
. the issuer of a security owned by the Fund could default on its obligation
to pay principal and/or interest. This risk is higher for below investment
grade bonds;
. interest rates could increase, causing the prices of fixed income
securities to decline, thereby reducing the value of the Fund's portfolio;
and
. the lower rated debt securities in which the Fund invests are considered
speculative and subject to greater volatility and risk of loss than
investment grade securities, particularly in deteriorating economic
periods.

WHO SHOULD CONSIDER INVESTING IN THE FUND

High Yield Bond Premier Class requires a minimum investment of $5 million. You
may only invest in the Class by setting up an account directly with the Fund's
transfer agent or through an omnibus account for which Deutsche Asset Management
has access to underlying shareholder and trading data. You should consider
investing in High Yield Bond if you are seeking to earn current income higher
than investment grade bond funds provide over most time periods. Moreover, you
should be willing to accept significantly greater short-term fluctuation in the
value of your investment than you would typically experience investing in
investment grade bond or money market funds.

You should not consider investing in High Yield Bond if you are pursuing a
short-term financial goal, if you seek capital appreciation or if you cannot
tolerate fluctuations in the value of your investments. The Fund by itself does
not constitute a balanced investment program. It can, however, afford you
exposure to investment opportunities not available to someone who invests in
investment grade fixed income securities alone. Diversifying your investments
may lower the volatility of your overall investment portfolio.

An investment in High Yield Bond is not a deposit of any bank, and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

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TOTAL RETURNS, AFTER FEES AND EXPENSES

The bar chart and table on this page can help you evaluate the potential risk of
investing in the Fund by showing changes in the Fund's performance. Because
Premier Class shares are a newly offered class of shares with no performance
history, the following bar chart and table show the performance history of the
Fund's Institutional Class shares, which have been in existence since the Fund's
inception on March 16, 1998. The bar chart shows the actual return of the Fund's
Institutional Class shares for each full calendar year since the Fund's
inception. The table compares the average annual return of the Fund's
Institutional Class shares with that of the CS First Boston High Yield Index
over the last year and since its inception. The Index is a passive measure of
combined national and international high yield bond market returns. It does not
factor in the costs of buying, selling and holding securities--costs that are
reflected in the Fund's results.

CALL OUT: The CS First Boston High Yield Index is an unmanaged, trader priced
portfolio constructed to mirror the global high yield debt market. The index
includes over 1,625 issues with a total market value of $350 billion.

YEAR-BY-YEAR RETURNS
Institutional Class/1/
(each full calendar year since inception)

--------
15.72%
--------
1999
--------

For the period covered in the bar chart, the Fund's highest return for
Institutional Class shares in any calendar quarter was 7.28% (fourth quarter
1999) and its lowest quarterly return was ___% (___ quarter 1999). Past
performance offers no indication of how the Fund will perform in the future.

PERFORMANCE FOR PERIOD ENDED DECEMBER 31, 1999

--------------------------------------------------------------------------------
1 year Since Inception
(March 16, 1998)/2/
--------------------------------------------------------------------------------
High Yield Bond - Institutional Class 15.72% 7.34%
--------------------------------------------------------------------------------
CS First Boston High Yield Index 3.28% 0.43%
--------------------------------------------------------------------------------

__________________

/1/ Institutional Class performance is presented because Premier Class shares
have no performance history. Premier Class shares will have substantially
similar performance because the shares are invested in the same portfolio
of securities. The annual returns will differ only to the extent that
Premier Class expenses are lower than Institutional Class expenses.
Institutional Class shares are offered under a separate prospectus, which
is available upon request.
/2/ The CS First Boston High Yield Index average is calculated from March 18,
1998.

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ANNUAL FUND OPERATING EXPENSES
(expenses paid from Fund assets)

The Annual Fees and Expenses table to the right describes the fees and estimated
expenses that you may pay if you buy and hold Premier Class shares of High Yield
Bond.

Expense Example. The example below illustrates the expenses you will incur on a
$10,000 investment in Premier Class shares of the Fund. The numbers assume that
the Fund earned an annual return of 5% over the periods shown, the Fund's
operating expenses remained the same and you sold your shares at the end of the
period.

You may use this hypothetical example to compare the Fund's expense history with
other funds./1/ Your actual costs and investment returns may be higher or lower.

/1/ Information on the annual operating expenses reflects the expenses of both
the Fund and the master portfolio in which the Fund invests its assets, the High
Yield Bond Portfolio. (A further discussion of the relationship between the Fund
and the master portfolio appears in the "Organizational Structure" section of
this prospectus.)

/2/ The investment adviser and administrator have contractually agreed, for the
16-month period from the Fund's fiscal year end of October 31, 1999, to waive
their fees or reimburse expenses so that total expenses will not exceed 0.50%.

/3/ For the first 12 months, the expense example takes into account fee waivers
and reimbursements.

ANNUAL FEES AND EXPENSES

--------------------------------------------------------------------------------
Percentage of Average
Daily Net Assets/1/
--------------------------------------------------------------------------------
Management Fees 0.50%
--------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.21%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.71%
--------------------------------------------------------------------------------
Less: Fee Waivers or Expense Reimbursements (0.21%)/2/
--------------------------------------------------------------------------------
Net Expenses 0.50%
--------------------------------------------------------------------------------

EXPENSE EXAMPLE/3/

--------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
--------------------------------------------------------------------------------
$xxx $xxx $xxx $xxx
--------------------------------------------------------------------------------

__________________________

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A detailed look
at High Yield Bond

OBJECTIVE

The Fund seeks high current income and, as a secondary objective, capital
appreciation. While we seek current income and, to a lesser extent, capital
appreciation, we cannot offer any assurance of achieving these objectives. The
Fund's objectives are not fundamental policies. We must notify shareholders
before we change them, but we do not require their approval to do so.

STRATEGY

In managing the Fund, we generally use both a "top-down" and "bottom-up"
approach to picking securities. This approach focuses on neutral yield curve
distribution, careful cash flow and total return analysis, and broad
diversification among countries, sectors, industries and individual issuers in
an effort to provide higher income and manage risk. We use an active process
which emphasizes relative value in a global environment, managing on a total
return basis, and using intensive research to identify stable to improving
credit situations that may provide yield compensation for the risk of investing
in below investment grade bonds (junk bonds).

Portfolio Maturity. We intend to maintain a dollar weighted effective average
portfolio maturity of seven to ten years. The Fund's average portfolio maturity
may be shortened by certain of the Fund's securities which have floating or
variable interest rates or include put features which provide the Fund the right
to sell the security at face value prior to maturity. Subject to its portfolio
maturity policy, the Fund may purchase individual securities with any stated
maturity. The dollar weighted average portfolio maturity may be shorter than the
stated maturity due to several factors, including but not limited to prepayment
patterns, call dates and put features. In implementing this strategy, the Fund
may experience a high portfolio turnover rate.

CALL OUT: Maturity measures the time remaining until an issuer must repay a
bond's principal in full.

CALL OUT: Portfolio Turnover. The portfolio turnover rate measures the frequency
with which the Fund sells and replaces the value of its securities within a
given period. Fixed income funds usually have a higher portfolio turnover rate
as a group compared to equity funds because fixed income security maturities
contribute to turnover. High turnover can increase the Fund's transaction costs,
thereby lowering its returns.

PRINCIPAL INVESTMENTS

The Fund invests primarily in U.S. dollar denominated high yield bonds of
domestic and foreign issuers. Under normal conditions, the Fund invests at least
65% of its total assets in U.S. dollar-denominated, domestic and foreign below
investment grade fixed income securities (junk bonds). The Fund may invest up to
25% of its assets in non-U.S. dollar denominated, below investment grade
securities. Fixed income investments include bonds, notes (including structured
notes), mortgage-related securities, asset-backed securities, convertible
securities, eurodollar and Yankee

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dollar instruments, preferred stocks and money market instruments. Fixed income
securities may be issued by U.S. and foreign corporations or entities; U.S. and
foreign banks; the U.S. government, its agencies, authorities, instrumentalities
or sponsored enterprises; state and municipal governments; supranational
organizations; and foreign governments and their subdivisions. These securities
may have all types of interest rate payment and reset terms, including fixed
rate, adjustable rate, zero coupon, contingent, deferred, payment in-kind and
auction rate features. The Fund's investments in these securities may be of any
credit quality and may include securities not paying interest currently, and
securities in default.

CALL OUT: Fixed income securities are rated below investment grade if they are
rated below the top four long-term rating categories of a nationally recognized
statistical rating organization or, if unrated, are determined to be of
equivalent quality by the Investment Adviser. These securities may be in default
and are considered speculative.

INVESTMENT PROCESS

The investment process involves a top-down and bottom-up approach, first
focusing on sector allocations and then using relative value and fundamental
analysis to select the best securities within each sector. To select securities
for investment, we:

. analyze economic conditions for improving or undervalued sectors and
industries;
. use independent credit research and on-site management visits to evaluate
individual issues' debt service, growth rate, and both downgrade and
upgrade potential;
. assess new issues versus secondary market opportunities; and
. seek issues within attractive industry sectors and with strong long-term
fundamentals and improving credits.

OTHER INVESTMENTS

The Fund may invest up to 35% of its total assets in cash or money market
instruments in order to maintain liquidity, or in the event that the portfolio
manager determines that securities meeting the Fund's investment objectives are
not otherwise readily available for purchase. Money market securities include
commercial paper, certificates of deposit, banker's acceptances, repurchase
agreements and other short-term debt securities. The Fund may use mortgage
dollar rolls to finance the purchase of additional investments. The Fund may
also purchase securities on a when-issued basis and engage in short sales.

We may also use as secondary investments various instruments commonly known as
"derivatives." In particular, the Fund may use forward currency transactions and
currency options. We may use derivatives in circumstances when we believe they
offer an economical means of gaining exposure to a particular securities market
or index. We may also invest in derivatives to attempt to reduce the Fund's
exposure or to keep cash on hand to meet shareholder redemptions or other needs
while maintaining exposure to the market.

CALL OUT: Forward currency transactions involve the purchase or sale of a
foreign currency at an exchange rate established currently, but with payment and
delivery at a specified future time.

7
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Forward currency transactions may be used in an attempt to hedge against losses,
or where possible, to add to investment returns.

Temporary Defensive Position. We may from time to time adopt a temporary
defensive position in response to extraordinary adverse political, economic or
bond market events. We could place up to 100% of the Fund's assets in U.S. money
market investments, or other short-term bonds that offer comparable safety, if,
in our opinion, the situation warranted. To the extent we might adopt such a
position and over the course of its duration, the Fund may not meet its
investment objectives.

RISKS

Below we have set forth some of the prominent risks associated with investing in
fixed income securities, as well as investing in general. Although we attempt
both to assess the likelihood that these risks may actually occur and to limit
them, we cannot guarantee that we will succeed.

Primary Risks

Interest Rate Risk. Interest rate risk is the risk that fixed income securities
will decline in value because of changes in interest rates. Generally,
investments subject to interest rate risk will decrease in value when interest
rates rise and increase in value when interest rates decline.

Credit Risk. An investor purchasing bonds faces the risk that the
creditworthiness of the issuer may decline, causing the value of its bonds to
decline. In addition, the issuers may not be able to make timely payments on the
interest and principal on the bonds they have issued. Fixed income securities
rated below the fourth highest category have speculative characteristics. These
securities involve a greater risk of loss than investment grade securities and
are more sensitive to changes in the issuer's capacity to pay.

Maturity Risk. Prices of fixed income securities with longer effective
maturities are more sensitive to interest rate changes than those with shorter
effective maturities.

Pricing Risk. The market for below investment grade debt securities may be
thinner and less active than that for higher rated debt securities, which can
adversely affect the prices at which the below investment grade securities are
sold. If market quotations are not available, below investment grade debt
securities will be valued in accordance with procedures established by the Board
of Trustees. Judgment plays a greater role in valuing high yield corporate debt
securities than is the case for securities for which more external sources for
quotations and last sale information is available. Adverse publicity and
changing investor perception may affect the availability of outside pricing
services to value lower-rated debt securities and the Fund's ability to dispose
of these securities. Since the risk of default is higher for lower-rated
securities, the Investment Adviser's research and credit analysis are an
especially important part of managing securities of this type.

Market Risk. Deteriorating market conditions might cause an overall weakness in
the market that reduces the absolute level of securities prices in that market.
Developments in a particular class of bonds or the stock market could also
adversely affect the Fund by reducing the relative attractiveness of bonds as an
investment.

8
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Currency Risk. The Fund invests in foreign currencies and in securities
denominated in foreign currencies. This creates the possibility that changes in
foreign exchange rates will affect the U.S. dollar value of foreign securities
or the U.S. dollar amount of income or gain received on these investments.
Additionally, a change in economic policy may cause a greater fluctuation in the
value of a country's currency than in bonds denominated in that currency. We
may, but need not, seek to minimize this risk by actively managing the currency
exposure of the Fund, which entails hedging from time to time.

CALL OUT: Currency management may be used in attempt to offset investment risks
("hedging") and, where possible, to add to investment returns. Currency
management activities include the use of forward contracts and may include the
use of other instruments. There is no guarantee that these currency management
activities will be employed or that they will work, and their use could cause
lower returns or even losses to the Fund.

Secondary Risks

Foreign Investing. The risks of investing in foreign securities are generally
higher than those of investing in domestic securities. A foreign government
could expropriate or nationalize assets, impose withholding or other taxes on
dividend, interest or other payments and prohibit transactions in the country's
currency. In many foreign countries, securities markets are less liquid, more
volatile and subject to less government regulation than U.S. securities markets.

Short Sales. The Fund may engage in short sales in order to profit from an
anticipated decline in the value of a security. The Fund may also engage in
short sales to attempt to limit its exposure to a possible market decline in the
value of its portfolio securities through short sales of securities which the
Adviser believes possess volatility characteristics similar to those being
hedged. Short selling may produce a higher than normal portfolio turnover which
may result in increased transaction costs to the Fund and may result in gains
from the sale of securities deemed to have been held for less than three months.
Such gains must be less than 30% of the Fund's gross income in order for the
Fund to qualify as a regulated investment company under the Internal Revenue
Code.

Derivative Risks. The Fund may, but is not required to, use derivative contracts
for any of the following purposes:

. to hedge against adverse changes in the market value of securities held by
or to be bought for the Fund. These changes may be caused by changing
interest rates, security prices or currency exchange rates;
. as a substitute for purchasing or selling securities or foreign currencies;
. to shorten or lengthen the effective maturity or duration of the Fund's
fixed income portfolio; or
. in non-hedging situations, to attempt to profit from anticipated market
developments.

CALL OUT: A derivative contract will obligate or entitle the Fund to deliver or
receive an asset or a cash payment that is based on the change in value of a
designated security, index or currency. Examples of derivative contracts are
futures contracts, options, forward contracts, swaps, caps, collars and floors.

9
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Risks associated with derivatives include:

. that the derivative is not well correlated with the security for which it
is acting as a substitute;
. that derivatives used for risk management may not have the intended effects
and may result in losses or missed opportunities; and
. that the Fund cannot sell the derivative because of an illiquid secondary
market.

MANAGEMENT OF THE FUND

Deutsche Asset Management is the marketing name for the asset management
activities of Deutsche Bank AG, Deutsche Fund Management, Bankers Trust Company,
DB Alex. Brown LLC, Deutsche Asset Management, Inc., and Deutsche Asset
Management Investment Services Limited.

Board of Trustees. A Board of Trustees supervises for each Fund all of the
Fund's activities on behalf of the Fund's shareholders.

Investment Adviser. Under the supervision of the Board of Trustees, Deutsche
Asset Management, Inc. (DAMI) with headquarters at 885 Third Avenue, New York,
New York, acts as the investment adviser for the Fund. As investment adviser,
DAMI makes the Fund's investment decisions. It buys and sells securities for the
Fund and conducts the research that leads to these purchase and sale decisions.
The Fund's investment adviser is also responsible for selecting brokers and
dealers and for negotiating brokerage commissions and dealer charges. The
investment adviser will receive 0.50% of the Fund's average daily net assets for
its services in a fiscal year. The investment adviser may reimburse a portion of
its fee during the period.

DAMI provides a full range of international investment advisory services to
institutional clients, and as of __________, 2000, managed approximately $xx
billion in assets.

DAMI is an indirect wholly owned subsidiary of Deutsche Bank AG. Deutsche Bank
AG is a major global banking institution that is engaged in a wide range of
financial services, including investment management, mutual funds, retail and
commercial banking, investment banking and insurance.

Portfolio Manager. The following portfolio manager is responsible for the day-
to-day management of the master portfolio's investments:

Andrew Cestone, Director of DAMI

. Joined the investment adviser in March 1998.
. Investment Analyst, Phoenix Investment Partners, from 1997 to 1998 and
Credit Officer, asset based lending group, Fleet Bank, from 1995 to 1997.

Organizational Structure. The Fund is a series of an open-end investment company
organized as a Delaware business trust. The Fund is a "feeder fund" that invests
all of its assets in a "master

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portfolio," the High Yield Bond Portfolio. The Fund and its master portfolio
have the same goal. The master portfolio is advised by Deutsche Asset
Management, Inc.

The master portfolio may accept investments from other feeder funds. A feeder
bears the master portfolio's expenses in proportion to its assets. Each feeder
can set its own transaction minimums, fund-specific expenses and other
conditions. This arrangement allows a Fund's Trustees to withdraw the Fund's
assets from the master portfolio if they believe doing so is in the
shareholder's best interests. If the Trustees withdraw the Fund's assets, they
would then consider whether the Fund should hire its own investment adviser,
invest in a different master portfolio or take other action.

Other Services. DAMI provides administrative services for the Fund. In addition,
DAMI - or your service agent -- performs the functions necessary to establish
and maintain your account. In addition to setting up the account and processing
your purchase and sale orders, these functions include:

. keeping accurate, up-to-date records for your individual Fund account;
. implementing any changes you wish to make in your account information;
. processing your requests for cash dividends and distributions from the
Fund;
. answering your questions on the Fund's investment performance or
administration;
. sending proxy reports and updated prospectus information to you; and
. collecting your executed proxies.

Service agents include brokers, financial advisors or any other bank, dealer or
other institution that has a sub-shareholder servicing agreement with DAMI.
Service agents may charge additional fees to investors for those services not
otherwise included in the service agent's servicing agreement, such as cash
management or special trust or retirement-investment reporting.

CALCULATING THE FUND'S SHARE PRICE

We calculate the daily price of the Fund's shares (also known as the "Net Asset
Value" or "NAV") in accordance with the standard formula for valuing mutual fund
shares at the close of regular trading on the New York Stock Exchange every day
the Exchange is open for business.

The formula calls for deducting all of the liabilities of a Fund's class of
shares from the total value of its assets--the market value of the securities it
holds, plus its cash reserves--and dividing the result by the number of shares
of that class outstanding. Prices for securities that trade on foreign exchanges
can change significantly on days when the New York Stock Exchange is closed and
you cannot buy or sell Fund shares. Such price changes in the securities a Fund
owns may ultimately affect the price of Fund shares when the New York Stock
Exchange re-opens.

The Fund uses a forward pricing procedure. Therefore, the price at which you buy
or sell shares is based on the next calculation of the NAV after the order is
received by the Fund.

We value the securities in the Fund at their stated market value if price
quotations are available. When price quotations for a particular security are
not readily available, we determine their value

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by the method that most accurately reflects their fair value in the judgment of
the Board of Trustees.

CALL OUT: The Exchange is open every week, Monday through Friday, except when
the following holidays are celebrated: New Year's Day, Martin Luther King, Jr.
Day (the third Monday in January), Presidents' Day (the third Monday in
February), Good Friday, Memorial Day (the last Monday in May), Independence Day,
Labor Day (the first Monday in September), Thanksgiving Day (the fourth Thursday
in November) and Christmas Day.

PERFORMANCE INFORMATION

The Fund's performance can be used in advertisements that appear in various
publications. It may be compared to the performance of various indices and
investments for which reliable performance data is available. The Fund's
performance may also be compared to averages, performance rankings, or other
information prepared by recognized mutual fund statistical services.

DIVIDENDS AND DISTRIBUTIONS

If the Fund earns investment income or recognizes taxable net capital gains, its
policy is to distribute to shareholders substantially all of that taxable income
and capital gain at least annually. We automatically reinvest all dividends and
any capital gains, unless you tell us to do otherwise.

TAX CONSIDERATIONS

The Fund does not ordinarily pay any U.S. federal income tax. If you are a
taxable shareholder, you and other shareholders pay taxes on the income or
capital gains earned and distributed by the Fund. Your taxes will vary from year
to year, based on the amount of capital gains distributions and dividends paid
out by your Fund. You owe the taxes whether you receive cash or choose to have
distributions and dividends reinvested. Distributions and dividends usually have
the following tax character:

--------------------------------------------------------------------------------
Transaction Tax Status
--------------------------------------------------------------------------------
Income dividends (except exempt-interest Ordinary Income
dividends)
--------------------------------------------------------------------------------
Short-term capital gains distributions Ordinary Income
--------------------------------------------------------------------------------
Long-term capital gains distributions Long-term capital gains
--------------------------------------------------------------------------------

Every year your Fund will send you information on the distributions for the
previous year. In addition, the sale (including a redemption or exchange) of
Fund shares is a taxable transaction for you.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
Transaction Tax Status
---------------------------------------------------------------------------------------------------
<S> <C>
Your sale of shares owned more than one year Generally, long-term capital gains or losses
---------------------------------------------------------------------------------------------------
Your sale of shares owned for one year or less Generally, short-term capital gains or losses;
losses subject to special rules
---------------------------------------------------------------------------------------------------
</TABLE>

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The tax considerations for tax deferred accounts or non-taxable entities are
different.

Because each investor's tax circumstances are unique and because the tax laws
are subject to change, we recommend that you consult your tax advisor about your
investment.

BUYING AND SELLING FUND SHARES

You may only invest in the Class by setting up an account directly with the
Fund's transfer agent or through an omnibus account for which Deutsche Asset
Management has access to underlying shareholder and trading data.

Contacting the Mutual Fund Service Center of Deutsche Asset Management

--------------------------------------------------------------------------------
By phone 1-800-730-1313
--------------------------------------------------------------------------------
By mail Deutsche Asset Management Service Center
P.O. Box 219210
Kansas City, MO 64121
--------------------------------------------------------------------------------
By overnight mail Deutsche Asset Management Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716
--------------------------------------------------------------------------------

Our representatives are available to assist you personally Monday through
Friday, 9:00 a.m. to 7:00 p.m. Eastern time each day the New York Stock Exchange
is open for business.

Minimum Account Investments

--------------------------------------------------------------------------------
To open an account $5 million
--------------------------------------------------------------------------------
To add to an account $1 million
--------------------------------------------------------------------------------
Minimum account balance $1 million
--------------------------------------------------------------------------------

Shares of the Fund may be purchased without regard to the investment minimums by
employees of Deutsche Bank AG, any of its affiliates or subsidiaries, their
spouses and minor children, and Directors or Trustees of any investment company
advised or administered by Deutsche Bank AG or any of its affiliates or
subsidiaries, their spouses and minor children. The Fund and its service
providers reserve the right to, from time to time, at their discretion, waive or
reduce the investment minimums.

How to Open Your Fund Account

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By mail Complete and sign the account application that accompanies this prospectus.
(You may obtain additional applications by calling the Service Center.) Mail
the completed application along with a check payable to the Fund you have
selected to the Service Center. The addresses are shown under "Contacting the
Mutual Fund Service Center of Deutsche Asset Management Funds".
--------------------------------------------------------------------------------------------------
By wire Call the Service Center to set up a wire account.
--------------------------------------------------------------------------------------------------
</TABLE>

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Please note that your account cannot become activated until we receive a
completed application via mail or fax.

Two Ways to Buy and Sell Shares in Your Account

MAIL:

Buying: Send your check, payable to the Deutsche Asset Management fund you have
selected, to the Service Center. The addresses are shown in this section under
"Contacting the Mutual Fund Service Center of Deutsche Asset Management." Be
sure to include the fund number and your account number (see your account
statement) on your check. Please note that we cannot accept starter checks or
third-party checks. If you are investing in more than one fund, make your check
payable to "Deutsche Asset Management/ Mutual Funds" and include your account
number, the names and numbers of the funds you have selected, and the dollar
amount or percentage you would like invested in the fund.

Selling: To sell by mail send a signed letter to the Service Center with your
name, your fund number and account number, the fund's name, and either the
number of shares you wish to sell or the dollar amount you wish to receive. You
must leave at least $1 million worth of shares in your account to keep it open.
Unless exchanging into another Deutsche Asset Management fund, you must submit a
written authorization to sell shares in a retirement account.

WIRE:

Buying: You may buy shares by wire only if your account is authorized to do so.
Please note that you or your service agent must call the Service Center at 1-
800-730-1313 to notify us in advance of a wire transfer purchase. Inform the
Service Center representative of the amount of your purchase and receive a trade
confirmation number. Instruct your bank to send payment by wire using the wire
instructions noted below. All wires must be received by 4:00 p.m. Eastern time
the next business day.

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--------------------------------------------------------------------------------------------------
<S> <C>
Routing No. 1010 00695
--------------------------------------------------------------------------------------------------
Attn: Deutsche Asset Management/ Mutual Funds
--------------------------------------------------------------------------------------------------
DDA No. 98-7052-395-7
--------------------------------------------------------------------------------------------------
FBO: (Account name)
(Account number)
--------------------------------------------------------------------------------------------------
Credit: High Yield Bond - Premier Class ([fund number])
--------------------------------------------------------------------------------------------------
</TABLE>

Refer to your account statement for the account name, number and fund number.

Selling: You may sell shares by wire only if your account is authorized to do
so. For your protection, you may not change the destination bank account over
the phone. To sell by wire, contact your service agent or the Service Center at
1-800-730-1313. Inform the Service Center representative of the amount of your
redemption and receive a trade confirmation number. The minimum redemption by
wire is $1,000. We must receive your order by 4:00 p.m. Eastern time to wire
your account the next business day.

14
<PAGE>

Important Information about Buying and Selling Shares

. You may buy and sell shares of the fund through authorized service agents
as well as directly from us. The same terms and conditions apply.
Specifically, once you place your order with a service agent, it is
considered received by the Service Center. It is then your service agent's
responsibility to transmit the order to the Service Center. You should
contact your service agent if you have a dispute as to when your order was
placed with the fund. Your service agent may charge a fee for buying and
selling shares for you.
. You may place orders to buy and sell over the phone by calling your service
agent or the Service Center at 1-800-730-1313. If you pay for shares by
check and the check fails to clear, or if you order shares by phone and
fail to pay for them by 4:00 p.m. Eastern time the next business day, we
have the right to cancel your order, hold you liable or charge you or your
account for any losses or fees the fund or its agents have incurred. To
sell shares, you must state whether you would like to receive the proceeds
by wire or check.
. After we or your service agent receives your order, we buy or sell your
shares at the next price calculated on a day the New York Stock Exchange is
open for business.
. We accept payment for shares only in U.S. dollars by check, bank or Federal
Funds wire transfer, or by electronic bank transfer. We do not accept
starter checks or third-party checks.
. The payment of redemption proceeds (including exchanges) for shares of the
fund recently purchased by check may be delayed for up to 15 calendar days
while we wait for your check to clear.
. We process all sales orders free of charge.
. Unless otherwise instructed, we normally mail a check for the proceeds from
the sale of your shares to your account address the next business day but
no later than seven days.
. We reserve the right to close your account on 30 days' notice if it fails
to meet minimum balance requirements for any reason other than a change in
market value.
. If you sell shares by mail or wire, you may be required to obtain a
signature guarantee. Please contact your service agent or the Service
Center for more information.
. We remit proceeds from the sale of shares in U.S. dollars (unless the
redemption is so large it is made "in-kind").
. We do not issue share certificates.
. Selling shares of trust accounts and business or organization accounts may
require additional documentation. Please contact your service agent or the
Service Center for more information.
. During periods of heavy market activity, you may have trouble reaching the
Service Center by telephone. If this occurs, you should make your request
by mail.
. We reserve the right to reject purchases of Fund shares (including
exchanges) for any reason. We will reject purchases if we conclude that the
purchaser may be investing only for the short term or to profit from day to
day fluctuations in the Fund's share price.
. We reserve the right to reject purchases of Fund shares (including
exchanges) or to suspend or postpone redemptions at times when both the New
York Stock Exchange and the Fund's custodian are closed.
. Account Statements and Fund Reports: We or your service agent will furnish
you with a written confirmation of every transaction that affects your
account balance. You will also receive monthly statements reflecting the
balances in your account. We will send you a report every six

15
<PAGE>

months on your fund's overall performance, its current holdings and its
investing strategies.
. Exchange Privilege: You can exchange all or part of your shares for shares
in another Deutsche Asset Management mutual fund up to four times a year
(from the date of the first exchange). When you exchange shares, you are
selling shares in one fund to purchase shares in another. Before buying
shares through an exchange, you should obtain a copy of that fund's
prospectus and read it carefully. You may order exchanges over the phone
only if your account is authorized to do so. You will receive a written
confirmation of each transaction from the Service Center or your service
agent.

Please note the following conditions:

. The accounts between which the exchange is taking place must have the same
name, address and taxpayer ID number.
. You may make the exchange by phone if your account has the exchange by
phone feature or by letter or wire.
. If you are maintaining a taxable account, you may have to pay taxes on the
exchange.

16
<PAGE>

The table below helps you understand the financial performance of the
Institutional Class shares of the Fund for the semi-annual period ended April
30, 2000 and for the past two fiscal periods. Institutional Class performance is
presented because Premier Class shares are a newly offered class of shares with
no performance history. Premier Class shares will have different performance.
Certain information selected reflects financial results for a single
Institutional Class share of the Fund. The total returns in the table represent
the rate of return that an investor would have earned on an investment in the
Institutional Class shares of the Fund, assuming reinvestment of all dividends
and distributions. This information has been audited by [______], whose report,
along with the Fund's financial statements, is included in the Fund's annual
report. The annual report is available free of charge by calling the Deutsche
Asset Management Service Center at 1-800-730-1313.

17
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------

For the 6 month For the year For the period
period ending ended October ended October
April 30, 2000 31, 1999 31, 1998/1/
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For a Share Outstanding
Throughout each Period:
--------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of
Period $ 9.08 $ 8.71 $ 10.00
--------------------------------------------------------------------------------------------------
Net Investment Income $ 0.60 $ 1.03 $ 0.54
--------------------------------------------------------------------------------------------------
Net Realized and Unrealized
Gains (Losses) $ 0.03 $ 0.37 $ (1.29)
--------------------------------------------------------------------------------------------------
Distributions to Shareholders
from
--------------------------------------------------------------------------------------------------
Net Investment Income $ (0.60) $ (1.03) $ (0.54)
--------------------------------------------------------------------------------------------------
Net Realized Gains -- -- --
--------------------------------------------------------------------------------------------------
Total Distributions $ (0.60) $ (1.03) $ (0.54)
--------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 9.11 $ 9.08 $ 8.71
--------------------------------------------------------------------------------------------------
Total Investment Return 6.90% 16.54% (7.84%)/2/
--------------------------------------------------------------------------------------------------
Supplemental Data and Ratios:
--------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s
omitted) $341,852 $318,247 $ 92,668
--------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
--------------------------------------------------------------------------------------------------
Net Investment Income 13.49% 11.37% 9.34%/3/
--------------------------------------------------------------------------------------------------
Expenses 0.69% 0.75% 0.82%/3/
--------------------------------------------------------------------------------------------------
Decrease Reflected in Above 0.04% 0.10% 0.17%/3/
Expense Ratio Due to Absorption
of Expenses by DAMI/4/
--------------------------------------------------------------------------------------------------
Portfolio Turnover Rate/5/ 65% 180% 131%
--------------------------------------------------------------------------------------------------
</TABLE>

/1/ The Fund's inception was March 16, 1998.
/2/ Total return is not annualized.
/3/ Annualized.
/4/ DAMI-Deutsche Asset Management, Inc., the Fund's investment adviser.
/5/ Until [DATE], the Fund operated as a stand-alone fund that directly acquired
and managed its own portfolio securities. The portfolio turnover rate is the
rate for the stand-alone Fund.

________________________

18
<PAGE>

Additional information about the Fund's investments and performance is available
in the Fund's annual and semi-annual reports to shareholders. In the Fund's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year.

You can find more detailed information about the Fund in the current Statement
of Additional Information, dated September 29, 2000, which we have filed
electronically with the Securities and Exchange Commission (SEC) and which is
incorporated by reference. To receive your free copy of the Statement of
Additional Information, the annual or semi-annual report, or if you have
questions about investing in the Fund, write to us at:

Deutsche Asset Management Service Center
P.O. Box 219210
Kansas City, MO 64121
or call our toll-free number: 1-800-730-1313

You can find reports and other information about the Fund on the EDGAR database
on the SEC website (http://www.sec.gov), or you can get copies of this
information, after payment of a duplicating fee, by writing an electronic
request to [email protected] or by writing to the Public Reference Section of
the SEC, Washington, D.C. 20549-0102. Information about the Fund, including its
Statement of Additional Information, can be reviewed and copied at the SEC's
Public Reference Room in Washington, D.C. For information on the Public
Reference Room, call the SEC at 1-202-942-8090.

High Yield Bond - Premier Class
Morgan Grenfell Investment Trust

Distributed by:
ICC Distributors, Inc.

CUSIP #: [CUSIP]

[Product Code (mm/yy)]
811-8006

19
<PAGE>

Deutsche Asset Management

Mutual Fund
Prospectus
September 29, 2000

Premier Class

Total Return Bond

[Like shares of all mutual funds, these securities have not been approved or
disapproved by the Securities and Exchange Commission nor has the Securities and
Exchange Commission passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.]

(Deutsche Bank Group logo)

1
<PAGE>

Total Return Bond--Premier Class

Overview of Total Return Bond
00 Goal
00 Core Strategy
00 Investment Policies and Strategies
00 Principal Risks of Investing in the Fund
00 Who Should Consider Investing in the Fund
00 Total Returns, After Fees and Expenses
00 Annual Fund Operating Expenses

A Detailed Look at Total Return Bond
00 Objective
00 Strategy
00 Principal Investments
00 Investment Process
00 Other Investments
00 Prior Performance of a Similar Composite Portfolio
00 Risks
00 Management of the Fund
00 Calculating the Fund's Share Price
00 Performance Information
00 Dividends and Distributions
00 Tax Considerations
00 Buying and Selling Fund Shares
00 Financial Highlights

2
<PAGE>

Overview
of Total Return Bond--Premier Class

Goal: The Fund seeks total return.

Core Strategy: The Fund invests primarily in U.S. dollar-denominated investment
grade bonds of U.S. and foreign issuers.

INVESTMENT POLICY AND STRATEGIES

The Fund seeks to achieve its objective by investing in a core "asset class"
consisting of U.S. dollar-denominated, investment grade fixed income securities.
The Fund allocates its remaining assets among foreign investment grade fixed
income securities and below investment grade fixed income securities (high yield
or "junk" bonds) of U.S. and foreign issuers, including those in countries with
new or emerging securities markets. Securities may be denominated in U.S. or
foreign currencies. The investment adviser employs a team approach in
allocating the Fund's assets among the various fixed income sectors or "asset
classes." The Fund will revert to a core portfolio of U.S. dollar-denominated
investment grade fixed income securities if the team believes the core asset
class will add value relative to the other asset classes.

PRINCIPAL RISKS OF INVESTING IN THE FUND

An investment in the Fund could lose money, or the Fund's performance could
trail that of other investments. For example:

. An issuer's creditworthiness could decline, which in turn may cause the
value of a security in the Fund's portfolio to decline. This risk is higher
for below investment grade bonds.

. The issuer of a security owned by the Fund could default on its obligation
to pay principal and/or interest. This risk is higher for below investment
grade bonds.

. Interest rates could increase, causing the prices of fixed income
securities to decline, thereby reducing the value of the Fund's portfolio.

. The lower rated debt securities in which the Fund invests are considered
speculative and subject to greater volatility and risk of loss than
investment grade securities, particularly in deteriorating economic
periods.

. Since the Fund is non-diversified and may invest a greater percentage of
its assets in a particular issuer than a diversified fund, the Fund may be
more susceptible to developments affecting any single issuer of portfolio
securities.

Beyond the risks common to all investing, an investment in the Fund could also
lose money or underperform alternative investments as a result of risks in the
foreign countries in which the

3
<PAGE>

Fund invests. These risks are more severe for securities of issuers in emerging
market countries. For example:

. adverse political, economic or social developments could undermine the
value of the Fund's investments or prevent the Fund from realizing their
full value;

. foreign accounting and financial reporting standards differ from those in
the U.S. and could convey incomplete information when compared to
information typically provided by U.S. companies; or

. the currency of a country in which the Fund invests may decrease in value
relative to the U.S. dollar, which could affect the value of the investment
to U.S. investors.

WHO SHOULD CONSIDER INVESTING IN THE FUND

Total Return Bond--Premier Class requires a minimum investment of $5 million.
You should consider investing in the Fund if you are seeking total return higher
than U.S. investment grade bond funds provide over most time periods. Moreover,
you should be willing to accept significantly greater short-term fluctuation in
the value of your investment than you would typically experience investing in
investment grade bond or money market funds. You should not consider investing
in Total Return Bond if you are pursuing a short-term financial goal or if you
cannot tolerate fluctuations in the value of your investments.

The Fund by itself does not constitute a balanced investment program. It can,
however, afford exposure to investment opportunities not available to an
investor in U.S. investment grade fixed income securities alone. Diversifying
your investments may improve your long-run investment return and lower the
volatility of your overall investment portfolio.

An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.

4
<PAGE>

TOTAL RETURNS, AFTER FEES AND EXPENSES

The Fund does not have a full calendar year of annual operating performance to
report.

ANNUAL FUND OPERATING EXPENSES
(expenses paid from Fund assets)

The Annual Fees and Expenses table to the right describes the fees and estimated
expenses that you may pay if you buy and hold shares of Total Return Bond--
Premier Class.

Expense Example. The example below illustrates the expenses incurred on a
$10,000 investment in the Fund. It assumes that the Fund earned an annual return
of 5% over the periods shown, the Fund's operating expenses remained the same
and you sold your shares at the end of the period.

You may use this hypothetical example to compare the Fund's expense ratio with
other funds. The example does not represent an estimate of future returns or
expenses. Actual costs may be higher or lower.

ANNUAL FEES AND EXPENSES

<TABLE>
<CAPTION>
------------------------------------------------------------------------
Percentage of Average
Daily Net Assets
-------------------------------------------------------------------------
<S> <C>
Management Fees 0.45%
-------------------------------------------------------------------------
Distribution and Service (12b-1) Fees None
-------------------------------------------------------------------------
Other Expenses 0.33%
-------------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.78%
-------------------------------------------------------------------------
Less: Fee Waiver or Expense Reimbursement (0.33)%/1/
-------------------------------------------------------------------------
Net Expenses 0.45%
-------------------------------------------------------------------------
</TABLE>

EXPENSE EXAMPLE/2/

------------------------------------
1 year 3 years
------------------------------------
$xxx $xxx
------------------------------------

____________________
/1/ The investment adviser and administrator have agreed, for the period from
September 29, 2000 to February 28, 2001, to waive their fees and reimburse
expenses so that total expenses will not exceed 0.45%.

/2/ For the first year, the expense example takes into account fee waivers and
reimbursements.

5
<PAGE>

A detailed look
at Total Return Bond--Premier Class

OBJECTIVE

The Fund seeks total return. While we seek total return, we cannot offer any
assurance of achieving this objective. The Fund's objective is not a fundamental
policy. We must notify shareholders before we change it, but we do not require
their approval to do so.

STRATEGY

The Fund attempts to produce a total return higher than that of mutual funds
that invest only in U.S. investment grade fixed income securities. The Fund
does this by investing in a core "asset class" consisting of U.S. dollar-
denominated, investment grade fixed income securities. The Fund allocates its
remaining assets among foreign investment grade fixed income securities and
below investment grade fixed income securities (high yield or "junk" bonds) of
U.S. and foreign issuers, including those in countries with new or emerging
securities markets. Securities may be denominated in U.S. or foreign currencies
and may be of any maturity.

CALL OUT: Maturity measures the time remaining until an issuer must repay a
bond's principal in full.

The investment adviser employs a team approach in allocating the Fund's assets
among the various asset classes. Using risk/return analysis, the team
evaluates foreign markets, high yield and emerging debt opportunities relative
to the U.S. investment grade fixed income market and sets allocation targets
monthly for each asset class. Sector specialists then evaluate the relative
value of purchase candidates given the distinct characteristics of the relevant
asset class. The Fund will revert to a core portfolio of U.S. dollar-
denominated investment grade fixed income securities if the team believes the
core asset class will add value relative to the other asset classes. In
implementing these strategies, the Fund may experience a high portfolio turnover
rate.

CALL OUT: The portfolio turnover rate measures the frequency with which the Fund
sells and replaces its securities within a given period. High turnover can
increase the Fund's transaction costs, thereby lowering its returns. It may also
increase distributions from the Fund which may be subject to taxation.

The Fund has applied for an exemptive order with the Securities and Exchange
Commission which would permit it to invest in the Deutsche High Yield Bond
Portfolio and the Deutsche Emerging Markets Debt fund to gain exposure to U.S.
and foreign high yield bonds, including high yield bonds of issuers in emerging
markets. There is no assurance that such an order will be granted. The
Deutsche High Yield Bond Portfolio invests primarily in U.S.-dollar denominated
high yield bonds of domestic and foreign issuers. The Deutsche Emerging Markets
Debt fund invests primarily in high yield bonds of issuers located in countries
with new or emerging securities markets. The strategies, principal investments
and investment processes described below for the Fund's investments in high
yield bonds and emerging debt opportunities are

6
<PAGE>

substantially similar to those used by the High Yield Bond Portfolio and
Emerging Markets Debt fund.

PRINCIPAL INVESTMENTS

Under normal conditions, the Fund invests at least 65% of its total assets in
U.S. dollar-denominated investment grade fixed income securities. The remainder
of the Fund's assets may be allocated among fixed income securities of foreign
issuers, high yield bonds of U.S. and foreign issuers, including high yield
bonds of issuers in countries with new or emerging securities markets, or, to
maintain liquidity, in cash or money market instruments.

CALL OUT: Fixed income securities are investment grade if, at the time of
purchase:

. They are rated in one of the top four long-term rating categories by a
nationally recognized statistical rating organization;
. They have received a comparable short-term or other rating; or
. They are unrated securities that the investment adviser believes to be of
comparable quality to rated investment grade securities.

The Fund may choose not to sell securities that are downgraded after their
purchase below the Fund's minimum acceptable credit rating. The Fund's credit
standards also apply to counterparties of over-the-counter derivative contracts.
The Fund may invest up to 25% of its total assets in foreign investment grade
fixed income securities. The Fund may invest up to 17% of its total assets in
below investment grade fixed income securities (high yield or "junk" bonds) of
U.S. and foreign issuers. Up to 7% of the Fund's total assets may be invested
in high yield bonds of sovereign debt issuers located in new or emerging
markets. The Fund considers an emerging securities market to be one where the
sovereign debt issued by the government in local currency terms is rated below
investment grade. Securities may be denominated in U.S. or foreign currencies.

CALL OUT: Fixed income securities are rated below investment grade or are
considered high yield if they are rated below the top four long-term rating
categories by a nationally recognized statistical rating organization or, if
unrated, are determined to be of equivalent quality by the investment adviser.
These securities are considered speculative. If a security receives different
ratings from different rating organizations, the Fund will treat the security as
having the highest rating given.

Fixed income investments include bonds, notes (including structured notes),
mortgage-related securities, asset-backed securities, convertible securities,
eurodollar and Yankee dollar instruments, preferred stocks, non-convertible
preferred stocks and money market instruments. Fixed income securities may be
issued by U.S. and foreign corporations or entities; U.S. and foreign banks; the
U.S. government, its agencies, authorities, instrumentalities or sponsored
enterprises; state and municipal governments; supranational organizations; and
foreign governments and their subdivisions. These securities may have all types
of interest rate payment

7
<PAGE>

and reset terms, including fixed rate, adjustable rate, zero coupon, contingent,
deferred, payment in-kind and auction rate features.

The Fund's high yield component may also consist of performing and non-
performing loans, Eurobonds, Brady Bonds (dollar-denominated securities used to
refinance foreign government bank loans) and other fixed income securities of
foreign governments and their agencies. With respect to emerging market debt
investments, the Fund invests primarily in sovereign debt. The Fund may invest
in fixed income securities of any credit quality, including securities not
paying interest currently, zero coupon bonds, pay-in-kind securities and
securities in default.

INVESTMENT PROCESS

The investment adviser employs a team approach to allocate the Fund's assets
among the various asset classes. The team includes members from the investment
adviser and the sub-adviser. We refer to both as the investment adviser.

The asset allocation team meets formally on a monthly basis to determine
relative value across asset classes, drawing on input from sector and market
specialists. Once allocation targets for each broad fixed income sector are
set, sector specialists consider the relative value of purchase candidates given
the distinct characteristics of that particular asset class. Company research
and fundamental analysis are used to select the best securities within each
asset class. The techniques used by the sector specialists in evaluating each
asset class are described below:

U.S. Investment Grade Securities. In selecting these securities for investment,
the investment adviser:

. assigns a relative value to each bond, based on creditworthiness, cash flow
and price;
. determines the intrinsic value of each issue by examining credit, structure,
option value and liquidity risks. We look to exploit any inefficiencies
between intrinsic value and market trading price;
. uses credit analysis to determine the issuer's ability to fulfill its
contracts; and
. uses a bottom-up approach which subordinates sector weightings to individual
bonds that the adviser believes may add above-market value.

The investment adviser generally sells these securities when they reach their
target price or when there is a negative change in their outlook relative to the
other securities held by the Fund. Bonds may also be sold to facilitate the
purchase of an issue with more attractive risk/return characteristics.

Foreign Investment Grade Securities and Emerging Markets High Yield Securities.
In selecting these securities for investment, the investment adviser considers
macro-economic factors such as inflation, interest rates, monetary and fiscal
policies, taxation, and political climate. The investment adviser seeks to
identify those securities that will offer, in its opinion, the greatest
potential for capital appreciation on a three-month outlook. The investment
adviser sells securities or exchanges currencies when they meet their target
price objectives or when the investment adviser revises price objectives
downward. In selecting emerging market securities,

8
<PAGE>

the investment adviser also considers short-term factors such as market
sentiment, capital flows, and new issue programs.

High Yield Securities (Excluding Emerging Market Sovereign Debt). In selecting
these securities for investment, the investment adviser:
. analyzes economic conditions for improving or undervalued sectors and
industries;
. uses independent credit research and on-site management visits to evaluate
individual issues' debt service, growth rate, and both downgrade and upgrade
potential;
. assesses new issues versus secondary market opportunities; and
. seeks issues within attractive industry sectors and with strong long-term
fundamentals and improving credits.

OTHER INVESTMENTS

The Fund may use mortgage dollar rolls to finance the purchase of additional
investments. The Fund may also purchase securities on a when-issued basis and
engage in short sales.

The Fund may use various instruments commonly known as "derivatives" as
secondary investments. In particular, the Fund may use forward currency
transactions and currency options. The Fund may, but is not required to, use
derivative contracts for any of the following purposes:

. when we believe they offer an economical means of gaining exposure to a
particular securities market or index (e.g., as a substitute for purchasing
or selling securities or foreign currencies);
. to attempt to reduce the Fund's exposure or to keep cash on hand to meet
shareholder redemptions or other needs while maintaining exposure to the
market;
. to hedge against adverse changes in the market value of securities held by or
to be bought for the Fund. These changes may be caused by changing interest
rates, security prices or currency exchange rates;
. to shorten or lengthen the effective maturity or duration of the Fund's fixed
income portfolio; or
. in non-hedging situations, to attempt to profit from anticipated market
developments. This is commonly referred to as "leveraging."

CALL OUT: Forward currency transactions involve the purchase or sale of a
foreign currency at an exchange rate established currently, but with payment and
delivery at a specified future time. Forward currency transactions may be used
in an attempt to hedge against losses, or where possible, to add to investment
returns.

9
<PAGE>

Temporary Defensive Position. We may from time to time adopt a temporary
defensive position in response to extraordinary adverse political, economic or
bond market events. We could place up to 100% of the Fund's assets in U.S. money
market investments, or other short-term bonds that offer comparable safety, if
the situation warranted. To the extent we might adopt such a position and over
the course of its duration, the Fund may not meet its investment objective.

PRIOR PERFORMANCE OF A SIMILAR COMPOSITE PORTFOLIO

Set forth below is certain composite information regarding the performance for
certain periods of separate accounts, each of which is advised by Deutsche Asset
Management, Inc. ("DAMI"), the Fund's investment adviser. These accounts are
collectively referred to as the Enhanced Core Fixed -- Fully Enhanced Composite
or "Composite." In managing the Fund, the investment adviser will employ
substantially the same investment objectives, policies and strategies that are
employed in managing the Composite. However, in managing the Fund, we are
subject to certain rules (e.g., limits on the percentage of assets invested in
securities of issuers in a single industry and requirements on distributing
income to shareholders) that do not apply to the Composite. In addition, the
continuous offering of the Fund's shares and the Fund's obligation to redeem its
shares will likely cause the Fund to experience cash flows which are different
from those of the Composite. Moreover, the way of calculating the performance of
the Composite, which values its assets at the end of each month, differs from
the method employed by mutual funds, which among other things value their assets
on a daily basis. All of these factors may affect the performance of the Fund
and cause it to differ from that of the Composite. Certain of these factors may
adversely affect the Fund's performance.

The Composite is comprised of all separate accounts managed on a fully
discretionary basis by DAMI that employ substantially the same investment
objectives, policies and strategies that will be employed in managing the Fund.
In order to be included in the Composite, accounts must have greater than $25
million in assets.

The performance information presented below for the Composite includes the
combined performance of the separate accounts over various periods of time since
December 1994 (the first full calendar year of operations for the oldest of the
accounts included in the composite was 1995). Of the accounts comprising the
Composite over the periods shown, none have been operational for the entire six
year period indicated. Accounts over $25 million were added to the composite at
their inception or at the time when their investment objectives became
substantially similar to those of the Fund. Eligible new separate accounts were
added to the Composite immediately following the first complete month the
account was managed by DAMI. Accounts were deleted from the Composite when their
investment mandate changed or when the account was terminated.

Expenses incurred in the operation of the Composite are paid directly by its
investors rather than by the Composite. Accordingly, the performance results for
the Composite have been adjusted to reflect an overall expense ratio of 0.45%,
which is the same as that expected to be borne by the Premier Class shares of
the Fund. Returns of the Composite are compared to the Lehman Brothers Aggregate
Bond Index. Unlike the Composite's returns, those of the Index do not

10
<PAGE>

reflect fees and expenses. Both the returns of the Composite and the Index
reflect the reinvestment of dividends and distributions.

CALL OUT: The Lehman Brothers Aggregate Bond Index represents U.S. domestic
taxable investment grade bonds which include securities from the following
sectors: U.S. Treasuries, agencies, corporate, mortgage-backed and asset-backed
securities. The Index includes over 5,500 publicly issued securities with a
minimum one year to final maturity and $150 million par amount outstanding. The
average maturity and duration of the Index is in the intermediate range.

Calendar Year Performance
(each full calendar year since inception)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Year Composite Index Returns Difference Number of Composite Assets
Returns with Separate at End of Period
Fees Accounts at
End of Period/1/
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
--------------------------------------------------------------------------------------------------------
1998
--------------------------------------------------------------------------------------------------------
1997
--------------------------------------------------------------------------------------------------------
1996
--------------------------------------------------------------------------------------------------------
1995
--------------------------------------------------------------------------------------------------------
</TABLE>

/1/ Since its inception in December 1994, the Composite has been composed of as
few as one and as many as seven separate accounts depending on the time period.
For example, for the period since inception to October 1996, the Composite was
composed of only one separate account.

Annualized Performance
Periods Ending June 30, 2000

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Quarter Year to Date 1 Year 3 Year 5 Years Since
Ending June Inception
30, 2000 (Dec. 1994)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Composite
Returns with
Fees
----------------------------------------------------------------------------------------------------------
Index Returns
----------------------------------------------------------------------------------------------------------
</TABLE>

The performance data represents the prior performance of the Composite, not the
prior performance of the Fund, and should not be considered an indication of
future performance of the Fund.

RISKS

11
<PAGE>

Primary Risks

Security Selection Risk. A risk that pervades all investing is the risk that the
securities in the Fund's portfolio will decline in value.

Prepayment Risk. As interest rates decline, the issuers of securities held by
the Fund may prepay principal earlier than scheduled, forcing the Fund to
reinvest in lower yielding securities. Thus, prepayment may reduce the Fund's
income. It may also create a capital gains tax liability because bond issuers
usually pay a premium for the right to pay off bonds early. There is a greater
risk that the Fund will lose money due to prepayment risk because the Fund
invests in mortgage-related securities.

Extension Risk. As interest rates increase, slower than expected principal
payments may extend the average life of fixed income securities. This will have
the effect of locking in a below-market interest rate, increase the security's
duration and reduce the value of the security. There is a greater risk that the
Fund will lose money due to extension risk because the Fund invests in mortgage-
related securities.

Maturity Risk. Prices of fixed income securities with longer effective
maturities are more sensitive to interest rate changes than those with shorter
effective maturities.

Foreign Market Risk. From time to time, foreign capital markets have exhibited
more volatility than those in the United States. Trading fixed income securities
on some foreign exchanges is inherently more difficult than trading in the
United States for several reasons including:

12
<PAGE>

. Information Risk. Financial reporting standards for companies based in
foreign markets differ from those in the United States and may present an
incomplete or misleading picture of a foreign company compared to U.S.
standards.

. Liquidity Risk. Fixed income securities that trade infrequently or in low
volumes can be more difficult or more costly to buy, or to sell, than more
liquid or active securities. This liquidity risk is a factor of the trading
volume of a particular security, as well as the size and liquidity of the
entire local market. On the whole, foreign exchanges are smaller and less
liquid than the U.S. market. Relatively small transactions in some instances
can have a disproportionately large effect on the price and supply of certain
securities. In certain situations, it may become virtually impossible to sell
a security in an orderly fashion at a price that approaches our estimate of
its value.

. Regulatory Risk. There is generally less government regulation of foreign
markets, companies and securities dealers than in the U.S.

. Currency Risk. The Fund invests in foreign currencies and in securities
denominated in foreign currencies. This creates the possibility that changes
in foreign exchange rates will affect the U.S. dollar value of foreign
securities or the U.S. dollar amount of income or gain received on these
investments. Additionally, a change in economic policy may cause a greater
fluctuation in the value of a country's currency than in bonds denominated in
that currency. We may, but need not, seek to minimize this risk by actively
managing the currency exposure of the Fund, which entails hedging from time
to time.

FOOTNOTE: Currency management may be used in an attempt to offset investment
risks (``hedging'') and, where possible, to add to investment returns. Currency
management activities include the use of forward contracts and may include the
use of other instruments. There is no guarantee that these currency management
activities will be employed or that they will work, and their use could cause
lower returns or even losses to the Fund.

Emerging Market Risk. Because the Fund may invest in emerging markets, it may
face higher political, information, and market risks. In addition, profound
social changes and business practices that depart from norms in developed
countries' economies have hindered the orderly growth of emerging economies and
their securities markets in the past. High levels of debt tend to make emerging
economies heavily reliant on foreign capital and vulnerable to capital flight.

Risk Related to Investing in Below Investment Grade Securities. Below
investment grade securities are speculative and have only an adequate capacity
to pay principal and interest. These securities have a higher risk of default,
tend to be less liquid and may be more difficult to value. The issuers of lower
quality securities may be highly leveraged and have difficulty servicing their
debt, especially during prolonged economic recessions or periods of rising
interest rates. The prices of lower quality securities are volatile and may go
down due to market perceptions of deteriorating issuer creditworthiness or
economic conditions. The general risks of investing in fixed income securities
as described below are greater when investing in below investment grade
securities.

13
<PAGE>

Non-diversification Risk. The Fund is non-diversified. Compared with other
funds, the Fund may invest a greater percentage of its assets in a particular
issuer. The Fund may be more susceptible to developments affecting any single
issuer or portfolio security.

Secondary Risks

Derivative Risks. Risks associated with derivatives include:
. that the derivative is not well correlated with the security for which it is
acting as a substitute;
. that derivatives used for risk management may not have the intended effects
and may result in losses or missed opportunities; and
. that the Fund cannot sell the derivative because of an illiquid secondary
market.

The use of derivatives for leveraging purposes tends to magnify the effect of an
instrument's price changes as market conditions change. For futures contracts
and options on futures contracts used for leveraging, the margin and premiums
required to make those investments will not exceed 5% of the Fund's net asset
value after taking into account unrealized profits and losses on the contracts.
Futures contracts and options on futures contracts used for leveraging involve
greater risks than bond investments.

Short Sales. The Fund may engage in short sales in order to profit from an
anticipated decline in the value of a security. The Fund may also engage in
short sales to attempt to limit its exposure to a possible market decline in the
value of its portfolio securities, which the investment adviser believes possess
volatility characteristics similar to those being hedged. Short selling may
produce a higher than normal portfolio turnover that may result in increased
transaction costs to the Fund and gains from the sale of securities deemed to
have been held for less than three months. Such gains must be less than 30% of
the Fund's gross income in order for the Fund to qualify as a regulated
investment company under the Internal Revenue Code.

Pricing Risk. When price quotations for particular securities are not readily
available, we determine their value by the method that most accurately reflects
their current worth in the judgment of the Board of Trustees. This procedure
implies an unavoidable risk that our prices are higher or lower than the prices
that the securities might actually command if we were to sell them. If we value
these securities too highly when you buy shares of the Fund, you may end up
paying too much for your Fund shares. If we underestimate their price when you
sell, you may not receive the full market value for your Fund shares.

The market for below investment grade debt securities may be thinner and less
active than that for higher rated debt securities, which can adversely affect
the prices at which the below investment grade securities are sold. If market
quotations are not available, below investment grade debt securities will be
valued in accordance with procedures established by the Board of Trustees.
Judgment plays a greater role in valuing below investment grade corporate debt
securities than is the case for securities for which more external sources for
quotations and last sale information is available. Adverse publicity and
changing investor perception may affect the availability of outside pricing
services to value lower-rated debt securities and the Fund's ability to dispose
of these securities. Since the risk of default is higher for lower-rated
securities, the

14
<PAGE>

investment adviser's research and credit analysis are an especially important
part of managing securities of this type.

MANAGEMENT OF THE FUND

Board of Trustees. A Board of Trustees supervises all of the Fund's activities
on behalf of the Fund's shareholders.

Investment Adviser and Sub-Adviser. Under the supervision of the Board of
Trustees, DAMI ("DAMI") with headquarters at 885 Third Avenue, New York, New
York, acts as the investment adviser for the Fund. As investment adviser, DAMI
makes the Fund's investment decisions. It buys and sells securities for the Fund
and conducts the research that leads to these purchase and sale decisions. The
Fund's investment adviser is also responsible for selecting brokers and dealers
and for negotiating brokerage commissions and dealer charges. The investment
adviser will receive 0.45% of the Fund's average daily net assets for its
services in a fiscal year. The investment adviser may reimburse a portion of its
fee during the period.

Deutsche Asset Management Investment Services Limited ("DAMIS"), with
headquarters at One Appold Street, London, England, acts as sub-adviser to that
portion of the Fund's assets invested in non-U.S. fixed income securities. The
investment adviser pays the sub-adviser out of the investment advisory fees it
receives from the Fund.

DAMI and DAMIS provide a full range of international investment advisory
services to institutional clients. As of __________, 2000, DAMI and DAMIS
managed approximately $xx billion and $xx billion in assets, respectively. DAMI
and DAMIS are indirect wholly owned subsidiaries of Deutsche Bank AG. Deutsche
Bank AG is a major global banking institution that is engaged in a wide range of
financial services, including investment management, mutual fund services,
retail and commercial banking, investment banking and insurance.

Portfolio Managers

The following portfolio managers are responsible for the day-to-day management
of the Fund:

David Baldt, CFA, Managing Director of DAMI and Lead Manager of the Fund
. Portfolio Manager of the Fund's U.S. investment grade fixed income
investments.
. Joined the investment adviser in 1989.
. Chief Investment Officer of the fixed income group (U.S.) of DAMI
. Member of the Fund's asset allocation team.

J. Christopher Gagnier, Director of DAMI and Co-Manager of the Fund
. Portfolio Manager of the Fund's corporate securities and asset backed
securities investments.

15
<PAGE>

. Joined the investment adviser in 1997.
. Fixed income specialist, Paine Webber, from 1984 to 1997.
. Member of the Fund's asset allocation team.

Steve Ilott, Director of DAMI
. Portfolio Manager and product manager of enhanced core fixed income
investments.
. Joined the investment adviser in 1998.
. Manager of global fixed income and currency portfolios at Robert Fleming &
Co. 1988 to 1998.
. 12 years of investment industry experience.
. Member of the Fund's asset allocation team.

Andrew Cestone, Director of DAMI
. Portfolio Manager of the Fund's U.S. high yield investments.
. Joined the investment adviser in 1998.
. Investment Analyst, Phoenix Investment Partners, from 1997 to 1998 and Credit
Officer, asset based lending group, Fleet Bank, from 1995 to 1997.
. Member of the Fund's asset allocation team.

Ian Clarke, Director of DAMIS
. Portfolio Manager of the Fund's foreign investment grade fixed income
investments.
. Joined the investment adviser in 1999.
. Executive Director, Morgan Stanley Dean Witter from 1992 to 1999 and prior to
that Director, United Bank of Kuwait plc from 1983 to 1992.
. Chief Investment Officer of the fixed income group (U.K.) of DAMIS.
. 14 years of investment industry experience.
. Member of the Fund's asset allocation team.

David Dowsett, Portfolio Manager of DAMIS
. Portfolio Manager of the Fund's emerging markets debt investments.
. Joined the investment adviser in 1994.
. 6 years of experience as an investment professional.
. Member of the Fund's asset allocation team.

Other Services. DAMI provides administrative services for the Fund. In addition,
DAMI--or your service agent--performs the functions necessary to establish and
maintain your account. In addition to setting up the account and processing your
purchase and sale orders, these functions include:

. keeping accurate, up-to-date records for your individual Fund account;
. implementing any changes you wish to make in your account information;
. processing your requests for cash dividends and distributions from the Fund;
. answering your questions on the Fund's investment performance or
administration;
. sending proxy reports and updated prospectus information to you; and

16
<PAGE>

. collecting your executed proxies.

Organizational Structure. The Fund is a series of an open-end investment company
organized as a Delaware business trust. The Fund has applied for an exemptive
order with the Securities and Exchange Commission which would permit it to
invest in the Deutsche High Yield Bond Portfolio and the Deutsche Emerging
Markets Debt fund for the purpose of gaining exposure to domestic and foreign
below investment grade fixed income securities, including high yield securities
of issuers in emerging markets. There is no assurance that such an order will be
granted. If the order is granted, the Fund will operate in a structure commonly
known as a "fund of funds." This means that the Fund pursues its objective by
investing in other mutual funds as well as in individual securities. As a fund
of funds, the Fund will incur its own direct expenses, in addition to bearing
indirectly a proportionate share of the expenses incurred by the underlying
funds in which it invests.

CALCULATING THE FUND'S SHARE PRICE

The Fund uses a forward pricing procedure. Therefore, the price at which you buy
or sell shares is based on the next calculation of the NAV after the order is
received by the Fund or your service agent, provided that your service agent
forwards your order to the Fund in a timely manner.

We value the securities in the Fund at their stated market value if price
quotations are available. When price quotations for a particular security are
not readily available, we determine their value by the method that most
accurately reflects their fair value in the judgment of the Board of Trustees.

The New York Stock Exchange is open every week, Monday through Friday, except
when the following holidays are celebrated: New Year's Day, Martin Luther King,
Jr. Day (the third Monday in January), Presidents' Day (the third Monday in
February), Good Friday, Memorial

17
<PAGE>

Day (the last Monday in May), Independence Day, Labor Day (the first Monday in
September), Thanksgiving Day (the fourth Thursday in November) and Christmas
Day.

PERFORMANCE INFORMATION

DIVIDENDS AND DISTRIBUTIONS

Income dividends, if any, for the Fund are declared daily and paid monthly.
Capital gains distributions, if any, are distributed at least annually. We
automatically reinvest all dividends and any capital gains, unless you tell us
otherwise.

TAX CONSIDERATIONS

Every year your Fund will send you information on the distributions for the
previous year. In addition, the sale (including a redemption or exchange) of
Fund shares is a taxable transaction for you.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Transaction Tax Status
--------------------------------------------------------------------------------------------------
<S> <C>
Your sale of shares owned more than one year Generally, long-term capital gains or losses
--------------------------------------------------------------------------------------------------
Your sale of shares owned for one year or less Generally, short-term capital gains or losses;
losses subject to special rules
--------------------------------------------------------------------------------------------------
</TABLE>

The tax considerations for tax deferred accounts or non-taxable entities are
different.

Because each investor's tax circumstances are unique and because the tax laws
are subject to change, we recommend that you consult your tax advisor about your
investment.

18
<PAGE>

BUYING AND SELLING FUND SHARES

Contacting the Mutual Fund Service Center of Deutsche Asset Management

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
By phone 1-800-730-1313
------------------------------------------------------------------------------------------------
<S> <C>
By mail Deutsche Asset Management Service Center
P.O. Box 219210
Kansas City, MO 64121
------------------------------------------------------------------------------------------------
By overnight mail Deutsche Asset Management Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716
------------------------------------------------------------------------------------------------
</TABLE>

Our representatives are available to assist you personally Monday through
Friday, 9:00 a.m. to 7:00 p.m. Eastern time each day the New York Stock Exchange
is open for business.

Minimum Account Investments

How to Open Your Fund Account

Please note that your account cannot become activated until we receive a
completed application via mail or fax.

Two Ways to Buy and Sell Shares in Your Account

MAIL:

Buying: Send your check, payable to the Deutsche Asset Management fund you have
selected, to the Service Center. The addresses are shown in this section under
"Contacting the Mutual Fund

19
<PAGE>

Service Center of Deutsche Asset Management." Be sure to include the fund number
and your account number (see your account statement) on your check. Please note
that we cannot accept starter checks or third-party checks. If you are investing
in more than one fund, make your check payable to "Deutsche Asset Management/
Mutual Funds" and include your account number, the names and numbers of the
funds you have selected, and the dollar amount or percentage you would like
invested in the fund.

WIRE:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
<S> <C>
Routing No. 1010 00695
--------------------------------------------------------------------------------------------------
Attn: Deutsche Asset Management/ Mutual Funds
--------------------------------------------------------------------------------------------------
DDA No. 98-7052-395-7
--------------------------------------------------------------------------------------------------
FBO: (Account name)
(Account number)
--------------------------------------------------------------------------------------------------
Credit: Total Return Bond - Premier Class ([fund number])
--------------------------------------------------------------------------------------------------
</TABLE>

Refer to your account statement for the account name, number and fund number.

Important Information about Buying and Selling Shares

20
<PAGE>

agent may charge a fee for buying and selling shares for you.
. You may place orders to buy and sell over the phone by calling your service
agent or the Service Center at 1-800-730-1313. If you pay for shares by
check and the check fails to clear, or if you order shares by phone and
fail to pay for them by 4:00 p.m. Eastern time the next business day, we
have the right to cancel your order, hold you liable or charge you or your
account for any losses or fees the fund or its agents have incurred. To
sell shares, you must state whether you would like to receive the proceeds
by wire or check.
. After we or your service agent receives your order, we buy or sell your
shares at the next price calculated on a day the New York Stock Exchange is
open for business.
. We accept payment for shares only in U.S. dollars by check, bank or Federal
Funds wire transfer, or by electronic bank transfer. We do not accept
starter checks or third-party checks.
. The payment of redemption proceeds (including exchanges) for shares of the
fund recently purchased by check may be delayed for up to 15 calendar days
while we wait for your check to clear.
. We process all sales orders free of charge.
. Unless otherwise instructed, we normally mail a check for the proceeds from
the sale of your shares to your account address the next business day but
no later than seven days.
. We reserve the right to close your account on 30 days' notice if it fails
to meet minimum balance requirements for any reason other than a change in
market value.
. If you sell shares by mail or wire, you may be required to obtain a
signature guarantee. Please contact your service agent or the Service
Center for more information.
. We remit proceeds from the sale of shares in U.S. dollars (unless the
redemption is so large it is made "in-kind").
. We do not issue share certificates.
. Selling shares of trust accounts and business or organization accounts may
require additional documentation. Please contact your service agent or the
Service Center for more information.
. During periods of heavy market activity, you may have trouble reaching the
Service Center by telephone. If this occurs, you should make your request
by mail.
. We reserve the right to reject purchases of Fund shares (including
exchanges) for any reason. We will reject purchases if we conclude that the
purchaser may be investing only for the short term or to profit from day to
day fluctuations in the Fund's share price.
. We reserve the right to reject purchases of Fund shares (including
exchanges) or to suspend or postpone redemptions at times when both the New
York Stock Exchange and the Fund's custodian are closed.
. Account Statements and Fund Reports: We or your service agent will furnish
you with a written confirmation of every transaction that affects your
account balance. You will also receive monthly statements reflecting the
balances in your account. We will send you a report every six months on
your fund's overall performance, its current holdings and its investing
strategies.
. Exchange Privilege: You can exchange all or part of your shares for shares
in another Deutsche Asset Management mutual fund up to four times a year
(from the date of the first exchange). When you exchange shares, you are
selling shares in one fund to purchase shares in another. Before buying
shares through an exchange, you should obtain a copy of that fund's
prospectus and read it carefully. You may order exchanges over the phone
only if your account is authorized to do so. You will receive a written
confirmation of each transaction

21
<PAGE>

from the Service Center or your service agent.

Please note the following conditions:

. The accounts between which the exchange is taking place must have the
same name, address and taxpayer ID number.
. You may make the exchange by phone if your account has the exchange by
phone feature or by letter or wire.
. If you are maintaining a taxable account, you may have to pay taxes on
the exchange.

FINANCIAL HIGHLIGHTS

The Fund does not have a full calendar year of annual operating performance to
report.

22
<PAGE>

[BACK COVER]

Additional information about the Fund's investments will be made available in
the Fund's annual and semi-annual reports to shareholders. In the Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

You can find more detailed information about the Fund in the current Statement
of Additional Information, dated September 29, 2000, which we have filed
electronically with the Securities and Exchange Commission (SEC) and which is
incorporated by reference into this Prospectus. To receive your free copy of the
Statement of Additional Information, the annual or semi-annual report, or if you
have questions about investing in the Fund, write to us at:

Deutsche Asset Management Service Center
P.O. Box 219210
Kansas City, MO 64121-9210

or call our toll-free number:
1-800-730-1313

You can find reports and other information about the Fund on the EDGAR Database
on the SEC website (http://www.sec.gov), or you can get copies of this
information, after payment of a duplicating fee, by electronic request at
[email protected] or by writing to the Public Reference Section of the SEC,
------------------
Washington, D.C. 20549-0102. Information about the Fund, including its Statement
of Additional Information, can be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. For information on the Public Reference Room,
call the SEC at 202-942-8090.

Cusip #
Total Return Bond--Premier Class
Morgan Grenfell Investment Trust

Distributed by:
ICC Distributors, Inc.
811-8006

23
<PAGE>

Deutsche Asset Management

Mutual Fund
Prospectus
September 29, 2000

Institutional Class

Total Return Bond

[Like shares of all mutual funds, these securities have not been approved or
disapproved by the Securities and Exchange Commission nor has the Securities and
Exchange Commission passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.]

(Deutsche Bank Group logo)

1
<PAGE>

Total Return Bond--Institutional Class

2
<PAGE>

Overview
of Total Return Bond--Institutional Class

Goal: The Fund seeks total return.

Core Strategy: The Fund invests primarily in U.S. dollar-denominated investment
grade bonds of U.S. and foreign issuers.

INVESTMENT POLICY AND STRATEGIES

PRINCIPAL RISKS OF INVESTING IN THE FUND

An investment in the Fund could lose money, or the Fund's performance could
trail that of other investments. For example:

. An issuer's creditworthiness could decline, which in turn may cause the value
of a security in the Fund's portfolio to decline. This risk is higher for
below investment grade bonds.

. The issuer of a security owned by the Fund could default on its obligation to
pay principal and/or interest. This risk is higher for below investment grade
bonds.

. Interest rates could increase, causing the prices of fixed income securities
to decline, thereby reducing the value of the Fund's portfolio.

. Since the Fund is non-diversified and may invest a greater percentage of its
assets in a particular issuer than a diversified fund, the Fund may be more
susceptible to developments affecting any single issuer of portfolio
securities.

Beyond the risks common to all investing, an investment in the Fund could also
lose money or underperform alternative investments as a result of risks in the
foreign countries in which the

3
<PAGE>

Fund invests. These risks are more severe for securities of issuers in emerging
market countries. For example:

. adverse political, economic or social developments could undermine the value
of the Fund's investments or prevent the Fund from realizing their full
value;

. foreign accounting and financial reporting standards differ from those in the
U.S. and could convey incomplete information when compared to information
typically provided by U.S. companies; or

. the currency of a country in which the Fund invests may decrease in value
relative to the U.S. dollar, which could affect the value of the investment
to U.S. investors.

WHO SHOULD CONSIDER INVESTING IN THE FUND

Total Return Bond--Institutional Class requires a minimum investment of
$250,000. You should consider investing in the Fund if you are seeking total
return higher than U.S. investment grade bond funds provide over most time
periods. Moreover, you should be willing to accept significantly greater short-
term fluctuation in the value of your investment than you would typically
experience investing in investment grade bond or money market funds. You should
not consider investing in Total Return Bond if you are pursuing a short-term
financial goal or if you cannot tolerate fluctuations in the value of your
investments.

An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.

4
<PAGE>

TOTAL RETURNS, AFTER FEES AND EXPENSES

The Fund does not have a full calendar year of annual operating performance to
report.

ANNUAL FUND OPERATING EXPENSES
(expenses paid from Fund assets)

The Annual Fees and Expenses table to the right describes the fees and estimated
expenses that you may pay if you buy and hold shares of Total Return Bond--
Institutional Class.

ANNUAL FEES AND EXPENSES

<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Percentage of Average
Daily Net Assets
-------------------------------------------------------------------------
<S> <C>
Management Fees 0.45%
-------------------------------------------------------------------------
Distribution and Service (12b-1) Fees None
-------------------------------------------------------------------------
Other Expenses 0.37%
-------------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.82%
-------------------------------------------------------------------------
Less: Fee Waiver or Expense Reimbursement (0.22)%/1/
-------------------------------------------------------------------------
Net Expenses 0.60%
-------------------------------------------------------------------------
</TABLE>

EXPENSE EXAMPLE/2/

------------------------------------
1 year 3 years
------------------------------------
$xxx $xxx
------------------------------------

________________

/1/ The investment adviser and administrator have agreed, for the period from
September 29, 2000 to February 28, 2001, to waive their fees and reimburse
expenses so that total expenses will not exceed 0.60%.

/2/ For the first year, the expense example takes into account fee waivers and
reimbursements.

5
<PAGE>

A detailed look
at Total Return Bond--Institutional Class

OBJECTIVE

STRATEGY

CALL OUT: Maturity measures the time remaining until an issuer must repay a
bond's principal in full.

6
<PAGE>

substantially similar to those used by the High Yield Bond Portfolio and
Emerging Markets Debt fund.

PRINCIPAL INVESTMENTS

CALL OUT: Fixed income securities are investment grade if, at the time of
purchase:

. They are rated in one of the top four long-term rating categories by a
nationally recognized statistical rating organization;

. They have received a comparable short-term or other rating; or

. They are unrated securities that the investment adviser believes to be of
comparable quality to rated investment grade securities.

The Fund may invest up to 25% of its total assets in foreign investment grade
fixed income securities. The Fund may invest up to 17% of its total assets in
below investment grade fixed income securities (high yield or "junk" bonds) of
U.S. and foreign issuers. Up to 7% of the Fund's total assets may be invested
in high yield bonds of sovereign debt issuers located in new or emerging
markets. The Fund considers an emerging securities market to be one where the
sovereign debt issued by the government in local currency terms is rated below
investment grade. Securities may be denominated in U.S. or foreign currencies.

7
<PAGE>

and reset terms, including fixed rate, adjustable rate, zero coupon, contingent,
deferred, payment in-kind and auction rate features.

INVESTMENT PROCESS

U.S. Investment Grade Securities. In selecting these securities for investment,
the investment adviser:

. assigns a relative value to each bond, based on creditworthiness, cash flow
and price;

. determines the intrinsic value of each issue by examining credit, structure,
option value and liquidity risks. We look to exploit any inefficiencies
between intrinsic value and market trading price;

. uses credit analysis to determine the issuer's ability to fulfill its
contracts; and

. uses a bottom-up approach which subordinates sector weightings to individual
bonds that the adviser believes may add above-market value.

8
<PAGE>

the investment adviser also considers short-term factors such as market
sentiment, capital flows, and new issue programs.

High Yield Securities (Excluding Emerging Market Sovereign Debt). In selecting
these securities for investment, the investment adviser:

. analyzes economic conditions for improving or undervalued sectors and
industries;
. uses independent credit research and on-site management visits to evaluate
individual issues' debt service, growth rate, and both downgrade and upgrade
potential;
. assesses new issues versus secondary market opportunities; and
. seeks issues within attractive industry sectors and with strong long-term
fundamentals and improving credits.

OTHER INVESTMENTS

The Fund may use mortgage dollar rolls to finance the purchase of additional
investments. The Fund may also purchase securities on a when-issued basis and
engage in short sales.

9
<PAGE>

Temporary Defensive Position. We may from time to time adopt a temporary
defensive position in response to extraordinary adverse political, economic or
bond market events. We could place up to 100% of the Fund's assets in U.S. money
market investments, or other short-term bonds that offer comparable safety, if
the situation warranted. To the extent we might adopt such a position and over
the course of its duration, the Fund may not meet its investment objective.

PRIOR PERFORMANCE OF A SIMILAR COMPOSITE PORTFOLIO

Expenses incurred in the operation of the Composite are paid directly by its
investors rather than by the Composite. Accordingly, the performance results for
the Composite have been adjusted to reflect an overall expense ratio of 0.60%,
which is the same as that expected to be borne by the Institutional Class shares
of the Fund. Returns of the Composite are compared to the Lehman Brothers
Aggregate Bond Index. Unlike the Composite's returns, those of the Index

10
<PAGE>

do not reflect fees and expenses. Both the returns of the Composite and the
Index reflect the reinvestment of dividends and distributions.

Calendar Year Performance
(each full calendar year since inception)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Year Composite Index Returns Difference Number of Composite Assets
Returns with Fees Separate at End of Period
Accounts at End
of Period/1/
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
--------------------------------------------------------------------------------------------------------
1998
--------------------------------------------------------------------------------------------------------
1997
--------------------------------------------------------------------------------------------------------
1996
--------------------------------------------------------------------------------------------------------
1995
--------------------------------------------------------------------------------------------------------
</TABLE>

Annualized Performance
Periods Ending June 30, 2000
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Quarter Year to Date 1 Year 3 Year 5 Years Since
Ending June Inception
30, 2000 (Dec. 1994)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Composite
Returns with
Fees
----------------------------------------------------------------------------------------------------------
Index Returns
----------------------------------------------------------------------------------------------------------
</TABLE>

The performance data represents the prior performance of the Composite, not the
prior performance of the Fund, and should not be considered an indication of
future performance of the Fund.

RISKS

11
<PAGE>

Primary Risks

Security Selection Risk. A risk that pervades all investing is the risk that the
securities in the Fund's portfolio will decline in value.

Maturity Risk. Prices of fixed income securities with longer effective
maturities are more sensitive to interest rate changes than those with shorter
effective maturities.

12
<PAGE>

. Political Risk. Some foreign governments have limited the outflow of profits
to investors abroad, extended diplomatic disputes to include trade and
financial relations, and imposed high taxes on corporate profits.
. Information Risk. Financial reporting standards for companies based in
foreign markets differ from those in the United States and may present an
incomplete or misleading picture of a foreign company compared to U.S.
standards.
. Liquidity Risk. Fixed income securities that trade infrequently or in low
volumes can be more difficult or more costly to buy, or to sell, than more
liquid or active securities. This liquidity risk is a factor of the trading
volume of a particular security, as well as the size and liquidity of the
entire local market. On the whole, foreign exchanges are smaller and less
liquid than the U.S. market. Relatively small transactions in some instances
can have a disproportionately large effect on the price and supply of certain
securities. In certain situations, it may become virtually impossible to sell
a security in an orderly fashion at a price that approaches our estimate of
its value.
. Regulatory Risk. There is generally less government regulation of foreign
markets, companies and securities dealers than in the U.S.
. Currency Risk. The Fund invests in foreign currencies and in securities
denominated in foreign currencies. This creates the possibility that changes
in foreign exchange rates will affect the U.S. dollar value of foreign
securities or the U.S. dollar amount of income or gain received on these
investments. Additionally, a change in economic policy may cause a greater
fluctuation in the value of a country's currency than in bonds denominated in
that currency. We may, but need not, seek to minimize this risk by actively
managing the currency exposure of the Fund, which entails hedging from time
to time.

FOOTNOTE: Currency management may be used in an attempt to offset investment
risks ("hedging") and, where possible, to add to investment returns. Currency
management activities include the use of forward contracts and may include the
use of other instruments. There is no guarantee that these currency management
activities will be employed or that they will work, and their use could cause
lower returns or even losses to the Fund.

Risk Related to Investing in Below Investment Grade Securities. Below investment
grade securities are speculative and have only an adequate capacity to pay
principal and interest. These securities have a higher risk of default, tend to
be less liquid and may be more difficult to value. The issuers of lower quality
securities may be highly leveraged and have difficulty servicing their debt,
especially during prolonged economic recessions or periods of rising interest
rates. The prices of lower quality securities are volatile and may go down due
to market perceptions of deteriorating issuer creditworthiness or economic
conditions. The general risks of investing in fixed income securities as
described below are greater when investing in below investment grade securities.

13
<PAGE>

Secondary Risks

Short Sales. The Fund may engage in short sales in order to profit from an
anticipated decline in the value of a security. The Fund may also engage in
short sales to attempt to limit its exposure to a possible market decline in the
value of its portfolio securities, which the investment adviser believes possess
volatility characteristics similar to those being hedged. Short selling may
produce a higher than normal portfolio turnover that may result in increased
transaction costs to the Fund and gains from the sale of securities deemed to
have been held for less than three months. Such gains must be less than 30% of
the Fund's gross income in order for the Fund to qualify as a regulated
investment company under the Internal Revenue Code.

14
<PAGE>

investment adviser's research and credit analysis are an especially important
part of managing securities of this type.

MANAGEMENT OF THE FUND

Board of Trustees. A Board of Trustees supervises all of the Fund's activities
on behalf of the Fund's shareholders.

Portfolio Managers

The following portfolio managers are responsible for the day-to-day management
of the Fund:

J. Christopher Gagnier, Director of DAMI and Co-Manager of the Fund
. Portfolio Manager of the Fund's corporate securities and asset backed
securities investments.

15
<PAGE>

. Joined the investment adviser in 1997.
. Fixed income specialist, Paine Webber, from 1984 to 1997.
. Member of the Fund's asset allocation team.

. keeping accurate, up-to-date records for your individual Fund account;
. implementing any changes you wish to make in your account information;
. processing your requests for cash dividends and distributions from the Fund;
. answering your questions on the Fund's investment performance or
administration;
. sending proxy reports and updated prospectus information to you; and

16
<PAGE>

. collecting your executed proxies.

CALCULATING THE FUND'S SHARE PRICE

17
<PAGE>

Day (the last Monday in May), Independence Day, Labor Day (the first Monday in
September), Thanksgiving Day (the fourth Thursday in November) and Christmas
Day.

PERFORMANCE INFORMATION

DIVIDENDS AND DISTRIBUTIONS

TAX CONSIDERATIONS

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Transaction Tax Status
--------------------------------------------------------------------------------
<S> <C>
Income dividends (except exempt-interest Ordinary Income
dividends)
--------------------------------------------------------------------------------
Short-term capital gains distributions Ordinary Income
--------------------------------------------------------------------------------
Long-term capital gains distributions Long-term capital gains
--------------------------------------------------------------------------------
</TABLE>

Every year your Fund will send you information on the distributions for the
previous year. In addition, the sale (including a redemption or exchange) of
Fund shares is a taxable transaction for you.

The tax considerations for tax deferred accounts or non-taxable entities are
different.

Because each investor's tax circumstances are unique and because the tax laws
are subject to change, we recommend that you consult your tax advisor about your
investment.

18
<PAGE>

BUYING AND SELLING FUND SHARES

Contacting the Mutual Fund Service Center of Deutsche Asset Management

By Phone 1-800-730-1313

By Mail Deutsche Asset Management Service Center
P.O. Box 219210
Kansas City, MO 64121-9210

By Overnight Mail Deutsche Asset Management Service Center
210 West 10th Street, 8th floor
Kansas City, MO 64105-1716

Our representatives are available to assist you personally Monday through
Friday, 9:00 a.m. to 7:00 p.m., Eastern time each day the New York Stock
Exchange is open for business. You can reach the Service Center's automated
assistance line 24 hours a day, 7 days a week.

Minimum Account Investments
<TABLE>
<S> <C>
To open an account $250,000
To add to an account $ 25,000
Minimum account balance $ 50,000
</TABLE>

Shares of the Fund may be purchased without regard to the investment minimums by
employees of Deutsche Bank AG, any of its affiliates or subsidiaries, their
spouses and minor children, and Directors or Trustees of any investment company
advised or administered by Deutsche Bank AG, or any of its affiliates or
subsidiaries, their spouses and minor children. The Fund and its service
providers reserve the right to, from time to time, at their discretion, waive or
reduce the investment minimums.

How to Open Your Fund Account

19
<PAGE>

By Mail: Complete and sign the account application that accompanies this
prospectus. (You may obtain additional applications by calling the
Service Center.) Mail the completed application along with a check
payable to Total Return Bond --_____ to the Service Center. The
addresses are shown under "Contacting the Mutual Fund Service
Center of Deutsche Asset Management"

By Wire: Call the Service Center to set up a wire account.

Please note that your account cannot become activated until we receive a
completed application via mail or fax.

Two Ways to Buy and Sell Shares in Your Account

MAIL:
Buying: Send your check, payable to the Fund, to the Service Center. The
addresses are shown in this section under "Contacting the Mutual Fund Service
Center of Deutsche Asset Management." Be sure to include the fund number and
your account number (see your account statement) on your check. Please note that
we cannot accept starter checks or third-party checks. If you are investing in
more than one fund, make your check payable to "Deutsche Asset Management Funds"
and include your account number, the names and numbers of the funds you have
selected, and the dollar amount or percentage you would like invested in each
fund.

Selling: To sell by mail send a signed letter to the Service Center with your
name, your fund number and account number, the fund's name, and either the
number of shares you wish to sell or the dollar amount you wish to receive. You
must leave at least $50,000 invested in your account to keep it open (except for
retirement accounts). Unless exchanging into another Deutsche Asset Management
fund, you must submit a written authorization to sell shares in a retirement
account.

WIRE:

20
<PAGE>

Buying: You may buy shares by wire only if your account is authorized to do so.
Please note that you or your service agent must call the Service Center at
1-800-730-1313 to notify us in advance of a wire transfer purchase. Inform the
Service Center representative of the amount of your purchase and receive a trade
confirmation number. Instruct your bank to send payment by wire using the wire
instructions noted below. All wires must be received by 4:00 p.m. Eastern time
the next business day.

Routing No.: 021001033
Attn: Deutsche Asset Management/ Mutual Funds
DDA No.: 00-226-296
FBO: (Account name)
(Account number)
Credit: Total Return Bond - Institutional Class ([fund number])

Refer to your account statement for the account name, number and fund number.

Important Information about Buying and Selling Shares

. You may buy and sell shares of a fund through authorized service agents as
well as directly from us. The same terms and conditions apply. Specifically,
once you place your order with a service agent, it is considered received by
the Service Center. It is then your service agent's responsibility to
transmit the order to the Service Center by the next business day. You should
contact your service agent if you have a dispute as to when your order was
placed with the fund. Your service agent may charge a fee for buying and
selling shares for you.

21
<PAGE>

. You may place orders to buy and sell over the phone by calling your service
agent or the Service Center at 1-800-730-1313. If you pay for shares by check
and the check fails to clear, or if you order shares by phone and fail to pay
for them by 4:00 p.m. Eastern time the next business day, we have the right
to cancel your order, hold you liable or charge you or your account for any
losses or fees a fund or its agents have incurred. To sell shares you must
state whether you would like to receive the proceeds by wire or check.
. After we or your service agent receive your order, we buy or sell your shares
at the next price calculated on a day the New York Stock Exchange is open for
business.
. We accept payment for shares only in U.S. dollars by check, bank or Federal
Funds wire transfer, or by electronic bank transfer. We do not accept starter
or third-party checks.
. The payment of redemption proceeds (including exchanges) for shares of a fund
recently purchased by check may be delayed for up to 15 calendar days while
we wait for your check to clear.
. We process all sales orders free of charge.
. Unless otherwise instructed, we normally mail a check for the proceeds from
the sale of your shares to your account address the next business day and no
later than seven days.
. We reserve the right to close your account on 30 days' notice if it fails to
meet minimum balance requirements for any reason other than a change in
market value.
. If you sell shares by mail or wire, you may be required to obtain a signature
guarantee. Please contact your service agent or the Service Center for more
information.
. We remit proceeds from the sale of shares in U.S. dollars (unless the
redemption is so large that it is made "in-kind").
. We do not issue share certificates.
. Selling shares of trust accounts and business or organization accounts may
require additional documentation. Please contact your service agent or the
Service Center for more information.
. During periods of heavy market activity, you may have trouble reaching the
Service Center by telephone. If this occurs, you should make your request by
mail.
. We reserve the right to reject purchases of Fund shares (including exchanges)
for any reason. We will reject the purchases if we conclude that the
purchaser may be investing only for the short-term or to profit from day to
day fluctuations in the Fund's share price.

22
<PAGE>

. We reserve the right to reject the purchases of Fund shares (including
exchanges) or to suspend or postpone redemptions at times when both the New
York Stock Exchange and the Fund's custodian are closed.
. Account Statements and Fund Reports: We or your service agent will furnish
you with a written confirmation of every transaction that affects your
account balance. You will also receive monthly statements reflecting the
balances in your account. We will send you a report every six months on your
fund's overall performance, its current holdings and its investing
strategies.
. Exchange Privilege. You can exchange all or part of your shares for shares of
another Deutsche Asset Management mutual fund up to four times a year (from
the date of your first exchange). When you exchange shares, you are selling
shares in one fund to purchase shares in another. Before buying shares
through an exchange, you should be sure to obtain a copy of that fund's
prospectus and read it carefully. You may complete exchanges over the phone
only if your account is authorized to do so. You will receive a written
confirmation of each transaction from the Service Center or your service
agent.

Please note the following conditions:

. The accounts between which the exchange is taking place must have the same
name, address and taxpayer ID number.
. You may make the exchange by phone, if your account has the exchange by phone
feature, letter or wire.
. If you are maintaining a taxable account, you may have to pay taxes on the
exchange.

FINANCIAL HIGHLIGHTS

The Fund does not have a full calendar year of annual operating performance to
report.

23
<PAGE>

[BACK COVER]

You can find more detailed information about the Fund in the current Statement
of Additional Information, dated September 29, 2000, which we have filed
electronically with the Securities and Exchange Commission (SEC) and which is
incorporated by reference into this Prospectus. To receive your free copy of the
Statement of Additional Information, the annual or semi-annual report, or if you
have questions about investing in the Fund, write to us at:

Deutsche Asset Management Service Center
P.O. Box 219210
Kansas City, MO 64121-9210

or call our toll-free number:
1-800-730-1313

Cusip #

Total Return Bond--Institutional Class
Morgan Grenfell Investment Trust

Distributed by:
ICC Distributors, Inc.
811-8006

24
<PAGE>

[BACK COVER]

You can find more detailed information about the Fund in the current Statement
of Additional Information, dated September 29, 2000, which we have filed
electronically with the Securities and Exchange Commission (SEC) and which is
incorporated by reference into this Prospectus. To receive your free copy of the
Statement of Additional Information, the annual or semi-annual report, or if you
have questions about investing in the Fund, write to us at:

Deutsche Asset Management Service Center
P.O. Box 219210
Kansas City, MO 64121-9210

or call our toll-free number:
1-800-730-1313

Cusip #

Total Return Bond--Institutional Class
Morgan Grenfell Investment Trust

Distributed by:
ICC Distributors, Inc.
811-8006

25
<PAGE>

MORGAN GRENFELL INVESTMENT TRUST

No-Load Open-End Funds

One South Street

Baltimore, MD 21202

STATEMENT OF ADDITIONAL INFORMATION

September 29, 2000

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

As described in the Prospectus, the Trust seeks to achieve the investment
objective of the Fund by investing all the investable assets ("Assets") of the
Fund in the High Yield Portfolio, (the "Portfolio"), an open-end management
investment company having the same investment objective as the Fund. The High
Yield Portfolio is a series of DP Trust (the "Portfolio Trust").

This SAI is not a prospectus, and should be read only in conjunction with the
Fund's Institutional and Investment Class Prospectuses dated February 28, 2000,
and the Premier Class Prospectus dated September 29, 2000, as amended or
supplemented from time to time (each a "Prospectus" and collectively, the
"Prospectuses"). The unaudited semi-annual financial statements and the audited
annual financial statements for the Fund are included in the Fund's semi-annual
and annual report, which we have filed electronically with the Securities and
Exchange Commission and which are incorporated by reference into the SAI. A copy
of the Prospectus may be obtained without charge from Deutsche Asset Management,
Inc. ("DAMI"), the Trust's Administrator, by calling 1-800-730-1313 or writing
to Morgan Grenfell Investment Trust, P.O. Box 219210, Kansas City, Missouri
64121.

Page -1-
<PAGE>

<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Introduction.................................................................................................. 3

Additional Information on Fund Investments and Strategies and Related Risks................................... 3

Investment Restrictions....................................................................................... 34

Trustees and Officers......................................................................................... 38

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

Codes of Ethics............................................................................................... 45

Service Plan.................................................................................................. 46

Portfolio Transactions........................................................................................ 48

Purchase and Redemption of Shares............................................................................. 50

Performance Information....................................................................................... 52

Taxes......................................................................................................... 56

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

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

Financial Statements.......................................................................................... 68

Appendix A - Description of Ratings........................................................................... 70
</TABLE>

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 Prospectuses in connection with the offering made by each 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. Each 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 Fund are not
available in certain states. Please call 1-800-730-1313 to determine
availability in your state.

Page -2-
<PAGE>

INTRODUCTION

The Trust is an open-end, management investment company that currently consists
of fifteen separate investment portfolios. This Statement of Additional
Information relates to High Yield Bond (the "Fund").

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

Deutsche Asset Management, Inc. (the "Adviser" or "DAMI") serves as investment
adviser to the Fund. ICC Distributors, Inc. (the "Distributor" or "ICCD") serves
as the Fund's principal underwriter and distributor. DAMI also serves as the
Fund's administrator (the "Administrator").

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

ADDITIONAL INFORMATION ON FUND INVESTMENTS
AND STRATEGIES AND RELATED RISKS

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

The Fund seeks to achieve its investment objective by investing all of its
Assets in the Portfolio. The Trust may withdraw the Fund's investment from the
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interests of the Fund to do so.

Since the investment characteristics of the Fund will correspond directly to
those of the Portfolio, the following is a discussion of the various investments
of and techniques employed by the Portfolio.

Under normal conditions, the Portfolio invests at least 65% of its total assets
in U.S. dollar-denominated domestic and foreign below investment grade bonds
(junk bonds). The Portfolio's investments in these securities may be of any
credit quality and may include securities not paying interest currently, zero
coupon bonds, pay-in-kind securities and securities in default. The Fund may
invest up to 25% of its total assets in non-U.S. dollar-denominated, below
investment grade securities. The Portfolio may also invest up to 35% of its
total assets in cash or money market instruments in order to maintain liquidity,
or in the event that the portfolio manager determines that securities meeting
the Portfolio's investment objectives are not otherwise readily available for
purchase.

Page -3-
<PAGE>

FIXED INCOME SECURITIES

GENERAL. The Portfolio 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 the Portfolio 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 Portfolio may tend to be lower. Also, when
interest rates are falling, the inflow of net new money to such a Portfolio will
likely be invested in portfolio instruments producing lower yields than the
balance of the Portfolio's portfolio, thereby reducing the yield of the
Portfolio. In periods of rising interest rates, the opposite can be true. The
net asset value of the Portfolio 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 the Portfolio'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 Portfolio 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 facilities or
projects. 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 Portfolio 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 the Portfolio holding such securities, the
Portfolio will consider "maturity" to be the first date on which it has the
right to demand payment from the issuer of the put although the final maturity
of the security is later than such date.

U.S. GOVERNMENT SECURITIES. The Portfolio 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

Page -4-
<PAGE>

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 Portfolio 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. 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 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."

The Portfolio 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 TIGRs, and 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 Portfolio. CATS and TIGRS are not considered U.S. Government securities
by the staff of the Commission. Further, the IRS 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 Portfolio. The Trust is not aware of any binding
legislative, judicial or administrative authority on this issue.

Page -5-
<PAGE>

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 the Portfolio 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.

VARIABLE AND FLOATING RATE INSTRUMENTS. The Portfolio 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. The Portfolio 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.

Debt instruments purchased by the Portfolio 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 the Portfolio'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 Portfolio's investment quality
standards relating to investments in bank obligations. The Adviser will also
continuously monitor the creditworthiness of issuers of such instruments to
determine whether the Portfolio 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 the Portfolio
could suffer a loss if the issuer defaults or during periods in which the
Portfolio is not entitled to exercise its demand rights.

Variable and floating rate instruments held by the Portfolio will be subject to
the Portfolio's limitation on investments in illiquid securities when a reliable
trading market for the instruments does not exist and the Portfolio 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 the Portfolio 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 obligation,
the financial condition of the issuer, the size of the

Page -6-
<PAGE>

offering, the maturity of the obligation and the ratings of the issue. The
ratings of Standard and Poor's 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 the Portfolio, a rated security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Portfolio. 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 Portfolio should continue to hold the security in
accordance with the interests of the Portfolio and applicable regulations of the
Securities and Exchange Commission (the "Commission").

LOWER QUALITY DEBT OBLIGATIONS "JUNK-BONDS". The Portfolio may invest in below
investment grade bonds, including securities in default. These securities are
considered speculative and, while generally offering greater income than
investments in higher quality securities, involve greater risk of loss of
principal and income, including the possibility of default or bankruptcy of the
issuers of such securities, and have greater price volatility, especially during
periods of economic uncertainty or change. These lower quality bonds tend to be
affected by economic changes and short-term corporate and industry developments
to a greater extent than higher quality securities, which react primarily to
fluctuations in the general level of interest rates. Below investment grade
bonds (junk-bonds) will also be affected by the market's perception of their
credit quality, especially during times of adverse publicity, and the outlook
for economic growth. In the past, economic downturns or an increase in interest
rates have, under certain circumstances, caused a higher incidence of default by
the issuers of these securities and may do so in the future, especially in the
case of highly leveraged issuers. The market for these lower quality bonds is
generally less liquid than the market for investment grade bonds. Therefore, the
Adviser's judgment may at times play a greater role in valuing these securities
than in the case of investment grade bonds, and it also may be more difficult
under certain adverse market conditions to sell these lower quality securities
to meet redemption requests, to respond to changes in the market, or to
determine accurately the Portfolio's net asset value.

As discussed above, the Portfolio may invest in high yielding fixed income
securities that are rated lower than Baa by Moody's or BBB by Standard & Poor's
and unrated securities determined to be of comparable quality. The values of
these lower quality securities generally fluctuate more than those of higher
quality securities. In addition, these securities involve a greater possibility
of an adverse change in financial condition affecting the ability of the issuer
to make payments of interest and principal. The Adviser seeks to reduce these
risks through investment analysis and attention to current developments in
interest rates and economic conditions, but there can be no assurance that the
Adviser will be successful in reducing the risks associated with investments in
such securities. To the extent that the Portfolio invests in such lower quality
securities, the achievement of its investment objective may be more dependent on
the Adviser's own credit analysis.

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The Portfolio may invest in pay-in-kind (PIK) securities, which pay interest in
either cash or additional securities, at the issuer's option, for a specified
period. In addition, the Portfolio may invest in zero coupon bonds. Both of
these types of bonds may be more speculative and subject to greater fluctuations
in value than securities which pay interest periodically and in cash, due to
changes in interest rates. The Portfolio will accrue income on such investments
for tax and accounting purposes, as required, which is distributable to
shareholders and which, because no cash is generally received at the time of
accrual, may require the liquidation of other portfolio securities to satisfy
the Portfolio's distribution obligations. See "Taxes" below.

The market value of fixed income securities which carry no equity participation
usually reflects yields generally available on securities of similar quality and
type. When such yields decline, the market value of a portfolio already invested
at higher yields can be expected to rise if such securities are protected
against early call. Similarly, when such yields increase, the market value of a
portfolio already invested at lower yields can be expected to decline.

CONVERTIBLE SECURITIES AND PREFERRED STOCKS

Subject to its investment objectives and policies, the Portfolio 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 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. The convertible debt
securities in which the Portfolio may invest are subject to the same rating
criteria and downgrade policy as the Portfolio's investments in fixed income
securities.

The Portfolio, 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

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debt obligations and creditors of the issuer, and convertible preferred stocks
may be subordinated to other preferred stock of the same issuer.

WARRANTS

The Portfolio 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 transferable 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. The
purchase of warrants involves a risk that the Portfolio 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.

MUNICIPAL SECURITIES

The Portfolio 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.

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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 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 the Portfolio'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 the Portfolio. 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 "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, the
Portfolio'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

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<PAGE>

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 the Portfolio'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 Portfolio's respective limitations on
investments in illiquid securities. Other municipal lease obligations and
certificates of participation acquired by the Portfolio 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 Portfolio'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 the
Portfolio. The Portfolio may not invest more than 5% of its net assets in
municipal leases.

The Portfolio may purchase participations in municipal securities held by a
commercial bank or other financial institution. Such participations provide the
Portfolio with the right to a pro rata undivided interest in the underlying
municipal securities. In addition, such participations generally provide the
Portfolio with the right to demand payment, on not more than seven days notice,
of all or any part of the Portfolio'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

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<PAGE>

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.

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 of the principal of and interest on these securities are typically
paid from 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.

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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.

The Portfolio's investments in auction rate preferred securities of closed-end
funds are subject to limitations on investments in other U.S. registered
investment companies, which limitations are prescribed by the 1940 Act. These
limitations include prohibitions against acquiring more than 3% of the voting
securities of any other such investment company, and investing more than 5% of
the Portfolio's assets in securities of any one such investment company or more
than 10% of its assets in securities of all such investment companies. The
Portfolio 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 Portfolio.

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 the Portfolio may be a preference item for purposes of the alternative
minimum tax.

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<PAGE>

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES

GENERAL. The Portfolio 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 Portfolio 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 the
Portfolio'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. The Portfolio will not invest 25% or more of its total
assets in collateralized mortgage obligations or in asset-backed securities (in
each case, excluding U.S. Government securities).

MORTGAGE-BACKED. The Portfolio 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. The Portfolio 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 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.

The Portfolio 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-

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<PAGE>

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 Portfolio does 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.

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 the Portfolio. 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 objective, 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 the Portfolio with a portfolio maturity policy
and make needed adjustments to comply with the Portfolio's 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.

The Portfolio will not invest 25% or more of its total assets in CMOs (other
than U.S. Government securities).

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<PAGE>

ASSET-BACKED SECURITIES. The Portfolio 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. The
Portfolio will not invest 25% or more of its total assets in asset-backed
securities.

SECURITIES OF FOREIGN ISSUERS

FOREIGN SECURITIES. Subject to its investment objectives and policies, the
Portfolio may invest in securities of foreign issuers and supranational
entities. 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 Portfolio's portfolios. Additionally, in some
foreign countries, there is the possibility of expropriation or confiscatory
taxation, limitations on the removal of securities, property, or other Portfolio
assets, political or social instability or diplomatic developments which could
affect investments in foreign securities.

To the extent the investments of the Portfolio are denominated in foreign
currencies, the net asset value of the Portfolio 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 the
Portfolio'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 Portfolio. Similarly, if the Adviser hedges the Portfolio's
exposure to a foreign currency, and that currency's value rises, the Portfolio
will lose the opportunity to participate in the currency's appreciation. The
Portfolio will incur transaction costs in connection with conversions between
currencies.

FOREIGN GOVERNMENT SECURITIES. The foreign government securities in which the
Portfolio may invest generally consist of debt obligations issued or guaranteed
by national, state or provincial governments or similar political subdivisions.
The Portfolio may invest in foreign government securities in the form of
American Depositary Receipts. Foreign government securities also include debt
securities of supranational entities. Quasi-governmental and supranational
entities include international organizations designated or supported by
governmental entities to promote economic reconstruction or development and
international banking institutions and related government agencies. Examples
include the International Bank

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for Reconstruction and Development (the "World Bank"), the Japanese Development
Bank, the Asian Development Bank and the InterAmerican Development Bank. Foreign
government securities also include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.

EQUITY AND EQUITY RELATED SECURITIES

The Portfolio may invest in common stock, preferred stock, warrants, purchased
call options and other rights to acquire stock. The market value of an equity
security will increase or decrease depending on market conditions. This affects
the value of the shares of the Portfolio, and the value of your investment.

CURRENCY MANAGEMENT TECHNIQUES

To the extent that the Portfolio invests in securities denominated or quoted in
foreign currencies, the Portfolio may enter into forward currency exchange
contracts ("forward contracts") and buy and sell currency options to hedge
against currency exchange rate fluctuations. The instruments involved in
Currency-Related Transactions may be considered derivative instruments. The
Portfolio may enter into Currency-Related Transactions to attempt to protect
against an anticipated rise in the U.S. dollar price of securities that it
intends to purchase. In addition, the Portfolio may enter into Currency-Related
Transactions to attempt 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 or interest 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.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Portfolio 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. The Portfolio 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. The Portfolio 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 Portfolio 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.

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customers. A forward contract generally has no deposit requirement, and no
commissions are generally charged at any stage for trades, but currency dealers
seek to obtain a "spread" or profit on each transaction.

At the maturity of a forward contract, the Portfolio 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 Portfolio may use forward currency transactions in an attempt to hedge
against losses, or where possible, to add to investment returns. The Portfolio
may enter into forward currency contracts only for the following hedging
purposes. First, when the Portfolio enters into a contract for the purchase or
sale of a security denominated in a foreign currency, or when the Portfolio
anticipates the receipt in a foreign currency of dividend or interest payments
on such a security which it holds, the Portfolio may desire to "lock in" the
U.S. dollar price of the security or the 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 Portfolio 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 the Portfolio believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may cause the Portfolio 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 Portfolio'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 the
Portfolio'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 the Portfolio 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 the Portfolio's foreign assets.

The Portfolio's custodian will place cash or liquid securities into a segregated
account of the Portfolio in an amount equal to the value of the Portfolio's
total assets committed to the consummation of forward currency contracts
requiring the Portfolio to purchase foreign currencies. If the value of the
securities placed in the segregated account declines, additional cash or liquid
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the Portfolio's commitments with respect to
such contracts. The

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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 Portfolios' ability to utilize forward
currency contracts may be restricted. In addition, a particular forward currency
contract and assets used to cover such contract may be illiquid.

The Portfolio generally will not enter into a forward currency contract with a
term of greater than one year. The forecasting of short-term currency market
movements is extremely difficult and there can be no assurance that short-term
hedging strategies will be successful.

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

The Portfolio'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 Code, for qualification as a
regulated investment company.

OPTIONS ON SECURITIES, SECURITIES INDICES AND FOREIGN CURRENCIES

GENERAL. The Portfolio 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 Portfolio 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.

WRITTEN OPTIONS. The Portfolio may write (sell) covered put and call options on
securities and enter into related closing transactions. The Portfolio 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
Portfolio assumes certain risks. For example, in the case of a written call
option, the Portfolio 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 Portfolio 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 Portfolio gives to its purchaser the
right to compel the Portfolio 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 the Portfolio, the Portfolio may suffer a
loss equal to the difference between the price at which the Portfolio 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 the Portfolio are covered. In the case of a call option, this
means that the Portfolio will own the securities subject to the option or an
offsetting call option as long as the written option is

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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 Portfolio will deposit cash or liquid
securities in a segregated account with the custodian with a value at least
equal to the exercise price of the put option.

PURCHASED OPTIONS. The Portfolio may also purchase put and call options on
securities. A put option entitles the Portfolio to sell, and a call option
entitles the Portfolio 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 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.

The Portfolio 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 the Portfolio 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 Portfolio may purchase and sell options traded on U.S. exchanges and, to the
extent permitted by law, options traded over-the-counter. The Portfolio may also
purchase and sell options traded on recognized foreign exchanges. 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.

OTHER CONSIDERATIONS. The Portfolio 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. The Portfolio bears
the risk that the broker- dealer may fail to meet its obligations. There is no
assurance that the Portfolio 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.

When the Portfolio purchases a put option, the premium paid by it is recorded as
an asset of the Portfolio. When the Portfolio writes an option, an amount equal
to the net premium (the premium less the commission paid by the Portfolio)
received by the Portfolio is included in the liability section of the
Portfolio's statement of assets and liabilities as a deferred credit. The amount
of 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
Portfolio expires unexercised, the Portfolio realizes a loss equal to the
premium paid. If the Portfolio enters into a closing sale transaction on an
option purchased by it, the Portfolio will realize a gain if the premium
received by the Portfolio 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 Portfolio expires on the stipulated expiration date or if the Portfolio
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 Portfolio is exercised, the

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proceeds to the Portfolio from the exercise will be increased by the net premium
originally received, and the Portfolio 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 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

GENERAL. When deemed advisable by the Adviser, the Portfolio 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 Portfolio may purchase and sell
financial futures contracts, including stock index futures, and purchase and
write related options. The Portfolio may engage in futures and related options
transactions for hedging and non-hedging purposes as defined in regulations of
the Commodity Futures Trading Commission. The Portfolio 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 Portfolio'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 Portfolio to
purchase securities, require the Portfolio to segregate cash or liquid
securities with a value equal to the amount of the Portfolio's obligations.

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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, the Portfolio
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, the Portfolio, 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 in a profit
or a loss. While futures contracts on securities will usually be liquidated in
this manner, the Portfolio 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 the Portfolio proposes to acquire. The Portfolio
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 the
Portfolio's portfolio securities. Such futures contracts may include contracts
for the future delivery of securities held by the Portfolio or securities with
characteristics similar to those of the Portfolio's portfolio securities. If, in
the opinion of the Adviser, there is a sufficient degree of correlation between
price trends for the Portfolio's portfolio securities and futures contracts
based on other financial instruments, securities indices or other indices, the
Portfolio may also enter into such futures contracts as part of its hedging
strategy. Although under some circumstances prices of securities in the
Portfolio'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 Portfolio enter into a greater or lesser number of futures
contracts or by attempting to achieve only a partial hedge against price changes
affecting the Portfolio'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 the Portfolio's
portfolio securities would be substantially offset by a decline in the value of
the futures position.

On other occasions, the Portfolio may take a "long" position by purchasing
futures contracts. This would be done, for example, when the Portfolio
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.

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OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options on
futures contracts will give the Portfolio 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 purchaser of an option on
a futures contract, the Portfolio 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 the Portfolio's assets. By writing a
call option, the Portfolio 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 the Portfolio intends to purchase. However, the
Portfolio 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 the Portfolio in writing options on futures is potentially unlimited
and may exceed the amount of the premium received. The Portfolio 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 Portfolio's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.

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

OTHER CONSIDERATIONS. The Portfolio 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. The Portfolio 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 Portfolio or securities or instruments which it
expects to purchase. Except as stated below, the Portfolio's 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 the Portfolio
owns or futures contracts will be purchased to protect the Portfolio against an
increase in the price of securities (or the currency in which they are
denominated) that the Portfolio intends to purchase. As evidence of this hedging
intent, the Portfolio expects that, on 75% or more of the occasions on which it
takes a long futures or option position (involving the purchase of futures
contracts), the Portfolio 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 the Portfolio to do so, a long futures position may be
terminated or an option may expire without the corresponding purchase of
securities or other assets.

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As an alternative to compliance with the bona fide hedging definition, a CFTC
regulation now permits the Portfolio 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 the Portfolio'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. The Portfolio 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. See "Taxes."

The Portfolio 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 Portfolio 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 the
Portfolio to purchase securities, require the Portfolio to segregate cash or
liquid 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 the Portfolio 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 the Portfolio 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.

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 the Portfolio 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 Portfolio's underlying securities.
The Portfolio 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.

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

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 the Portfolio 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 Commission,
the Portfolio will limit its investments in illiquid securities to 15% of the
Portfolio's net assets.

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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 the Portfolio 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 the Portfolio's assets that
may be at risk with respect to futures contracts and related options. The
Portfolio may not invest more than 25% of its total assets in purchased
protective put options. The Portfolio's transactions in options, futures
contracts and options on futures contracts may be limited by the requirements
for qualification of the Portfolio as a regulated investment company for tax
purposes. See "Taxes" below. Options, futures contracts and options on futures
contracts are derivative instruments.

REPURCHASE AGREEMENTS

The Portfolio may enter into repurchase agreements. In a repurchase agreement,
the Portfolio 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 Portfolio'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 the
Portfolio if the other party defaults on its obligation and the Portfolio is
delayed in or prevented from liquidating the collateral. The Portfolio 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.

For purposes of the 1940 Act and, generally, for tax purposes, a repurchase
agreement is considered to be a loan from the Portfolio 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 Portfolio or as being collateral for a
loan by the Portfolio 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 Portfolio
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 Portfolio has not
perfected a security interest in the obligation, the Portfolio 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 Portfolio

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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
Portfolio, 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.

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

The Portfolio 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.

These transactions, which involve a commitment by the Portfolio to purchase or
sell particular securities with payment and delivery taking place at a future
date (perhaps one or two months later), permit the Portfolio to lock in a price
or yield on a security, regardless of future changes in interest rates. The
Portfolio 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, the
Portfolio 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 Portfolio on the settlement date. In these cases the Portfolio
may realize a gain or loss, and distributions attributable to any such gain
would be taxable to shareholders.

When the Portfolio agrees to purchase securities on a "when-issued" or forward
commitment basis, the Portfolio's custodian will set aside cash or liquid
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 Portfolio 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
Portfolio's commitments. The market value of the Portfolio'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 the
Portfolio's liquidity and ability to manage its portfolio might be affected when
it sets aside cash or portfolio securities to cover such purchase commitments,
the Portfolio expects that its commitments to purchase when-issued securities
and forward commitments will not exceed 33% of the value of its total assets.
When the Portfolio 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 Portfolio incurring a loss or missing
an opportunity to obtain a price considered to be advantageous.

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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
the Portfolio starting on the day the Portfolio agrees to purchase the
securities. The Portfolio does not earn interest or dividends on the securities
it has committed to purchase until the settlement date.

BORROWING

The Portfolio may borrow for temporary or emergency purposes or for investment
purposes as permitted under the 1940 Act. This borrowing may be unsecured. With
respect to 5% of the Fund's total assets, the Fund may borrow money for the
purpose of purchasing securities when the Fund has received notice of a tender
offer for a bond held by the Fund until receipt of payment or termination of the
tender offer. The 1940 Act requires the Portfolio 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, the
Portfolio 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 the Fund's borrowings,
the Fund will not make investments while borrowings are in excess of 5% of total
assets. 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. The Portfolio 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

The Portfolio may lend portfolio securities to brokers, dealers and other
financial organizations. These loans, if and when made by the Portfolio, may not
exceed 33 1/3% of the value of the Portfolio's total assets. The Portfolio's
loans of securities will be collateralized by cash, cash equivalents or U.S.
Government securities. The cash or instruments collateralizing the Portfolio's
loans of securities will be maintained at all times in a segregated account with
the Portfolio's custodian, in an amount at least equal to the current market
value of the loaned securities. From time to time, the Portfolio 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
Portfolio and is acting as a "placing broker". No fee will be paid to affiliated
persons of the Portfolio. The Board of Trustees will make a determination that
the fee paid to the placing broker is reasonable.

By lending portfolio securities, the Portfolio can increase its income by
continuing to receive amounts equal to the interest or dividends on the 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. The Portfolio will comply
with the following conditions whenever it loans securities: (i) the Portfolio
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 Portfolio must be able to terminate the loan at any time; (iv) the Portfolio
must receive reasonable interest on the loan, as well as amounts equal to the
dividends, interest or

Page -27-
<PAGE>

other distributions on the loaned securities, and any increase in market value;
(v) the Portfolio may pay only reasonable custodian fees in connection with the
loan; and (vi) voting rights on the loaned securities may pass to the borrower
except that, if a material event will occur affecting the investment in the
loaned securities, the Portfolio must terminate the loan in time to vote the
securities on such event.

DIVERSIFICATION

The Portfolio is "diversified" under the 1940 Act and is also subject to issuer
diversification requirements imposed on regulated investment companies by
Subchapter M of the Code. See "Investment Restrictions" and "Taxes" below.

CONCENTRATION OF INVESTMENTS

As a matter of fundamental policy, the Portfolio may not 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).

MORTGAGE DOLLAR ROLLS

The Portfolio may enter into mortgage "dollar rolls" in which the Portfolio
sells securities for delivery in the current month and simultaneously contracts
to repurchase substantially similar (same type, coupon and maturity) securities
on a specified future date. During the roll period, the Portfolio forgoes
principal and interest paid on the securities. The Portfolio is compensated by
the difference between the current sales price and the lower forward price for
the future purchase (often referred to as the "drop") or fee income and by the
interest earned on the cash proceeds of the initial sale. A "covered roll" is a
specific type of dollar roll for which there is an offsetting cash position or a
cash equivalent security position which matures on or before the forward
settlement date of the dollar roll transaction. The Portfolio may enter into
both covered and uncovered rolls.

RESTRICTED SECURITIES

The Portfolio 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.

OTHER INVESTMENT COMPANIES

The Portfolio may invest in the aggregate no more than 10% of its total assets,
calculated at the time of purchase, in the securities of other U.S.-registered
investment companies. In addition, the Portfolio may not invest more than 5% of
its total assets in the securities of any one such investment company or acquire
more than 3% of the voting securities of any other such investment company. The
Portfolio will indirectly bear its proportionate share of any

Page -28-
<PAGE>

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, the Portfolio 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.

COMMERCIAL PAPER

Commercial paper is a short-term, unsecured negotiable promissory note of a U.S
or non-U.S issuer. The Portfolio may purchase commercial paper. The Portfolio
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 the Portfolio and an issuer, and are not
normally traded in a secondary market. The Portfolio, 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

The Portfolio'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.

Page -29-
<PAGE>

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 Portfolio, 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.

INVESTMENT RESTRICTIONS

The fundamental investment restrictions set forth below may not be changed with
respect to the Fund or the Portfolio without the approval of a "majority" (as
defined in the 1940 Act) of the outstanding shares of the Fund or the Portfolio,
as the case may be. For the purposes of the 1940 Act, "majority" means the
lesser of (a) 67% or more of the shares of the Fund (or of the total beneficial
interests of the Portfolio) present at a meeting, if the holders of more than
50% of the outstanding shares of the Fund (or of the total beneficial interests
of the Portfolio) are present or represented by proxy or (b) more than 50% of
the shares of the Fund (or of the total beneficial interests of the Portfolio).
Whenever the Trust is requested to vote on a fundamental policy of the
Portfolio, the Trust will hold a meeting of the Fund's shareholders and will
cast its vote as instructed by the Fund's shareholders.

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, the
Portfolio (or the Fund) with the exception of borrowings permitted by
fundamental investment restriction (2) listed below for the Portfolio (Fund).

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

INVESTMENT RESTRICTIONS.

FUNDAMENTAL INVESTMENT RESTRICTIONS The Portfolio (Fund) may not:

(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
Portfolio's (Fund's) investment policy, and the pledge, mortgage or
hypothecation of the Portfolio's (Fund's) assets within the meaning of
paragraph (3) below are not deemed to be senior securities, if
appropriately covered.

(2) Borrow money except to the extent permitted by the 1940 Act.

Page -30-
<PAGE>

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 Portfolio (Fund) securities, the Portfolio (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 Portfolio (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 Portfolio (Fund) may lend Portfolio (Fund)
securities in accordance with the Portfolio's (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, 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 Portfolio's (Fund's) investment policies.

(8) Invest 25% or more of the value of the Portfolio's (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, the Portfolio (Fund) will adhere to the following fundamental
investment restriction:

With respect to 75% of its total assets, the Portfolio (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 Portfolio's (Fund's) total
assets taken at market value to be invested in the securities of

Page -31-
<PAGE>

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
Portfolio (Fund).

NONFUNDAMENTAL INVESTMENT RESTRICTIONS The Portfolio (Fund) may not:

(a) Participate on a joint-and-several basis in any securities trading account.
The "bunching" of orders for the sale or purchase of marketable Portfolio
(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 of other U.S.-registered investment companies, except
as permitted by the 1940 Act and the rules, regulations and any applicable
exemptive order issued thereunder.

(d) 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 Portfolio (Fund), taken at market value, would be invested in such
securities.

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 Portfolio (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 the Portfolio's net asset value.

OFFICERS OF THE TRUST AND THE PORTFOLIO TRUST

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Name and Address Positions with Trust Principal Occupation During Past
and Portfolio Trust Five Years
------------------------------------------------------------------------------------------------
<S> <C> <C>
Paul K. Freeman (2) Trustee Project Leader,
7257 South Tucson Way International Institute for Applied
Englewood, CO 80112 (age 48) Systems Analysis (since 1998); Chief
Executive Officer, The Eric Group
Inc. (environmental insurance)
(1986-1998).
------------------------------------------------------------------------------------------------
Graham E. Jones (2) Trustee Senior Vice President, BGK Realty
------------------------------------------------------------------------------------------------
</TABLE>

Page -32-
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Name and Address Positions with Trust Principal Occupation During Past
and Portfolio Trust Five Years
--------------------------------------------------------------------------------------------------
<S> <C> <C>
330 Garfield Street Inc. (since 1995); Financial Manager,
Santa Fe, NM 87501 Practice Management Systems (medical
(age 65) information services) (1988-95);
Director, 11 closed-end Fund managed
by Morgan Stanley Asset Management;
Trustee, 9 open-end mutual Fund
managed by Weiss, Peck & Greer;
Trustee of 10 open-end mutual Fund
managed by Sun Capital Advisers, Inc.
--------------------------------------------------------------------------------------------------
William N. Searcy (2) Trustee Pension & Savings Trust Officer,
2330 Shawnee Mission Pkwy Sprint Corporation
Westwood, KS 66205 (telecommunications) (since 1989);
(age 53) Trustee of six open-end mutual Fund
managed by Sun Capital Advisers, Inc.
--------------------------------------------------------------------------------------------------
Hugh G. Lynch Trustee Retired, former Managing Director,
767 Fifth Avenue International Investments, General
New York, NY 10153 Motors Investment Management
(age 62) Corporation
Director, Emerging Markets Growth
Fund managed by Capital
International, Inc. (since December
1994); Director, The Greater Chinthe
Fund (since February 2000).
--------------------------------------------------------------------------------------------------
Edward T. Tokar Trustee Vice President-Investments, Honeywell
101 Columbia Road International, Inc. (advanced
Morristown, NJ 07962 technology and manufacturer) (since
(age 52) 1985).
--------------------------------------------------------------------------------------------------
Richard T. Hale* President Trustee of each of the investment
One South Street companies within the Deutsche Asset
Baltimore, MD 21202 Management mutual fund complex;
Managing Director, Deutsche Asset
Management; Managing Director,
Deutsche Banc Alex. Brown
Incorporated;
Director and President, Investment
Company Capital Corp.; Executive Vice
President, ICCD (the Trust's
Distributor) (since 2000).
--------------------------------------------------------------------------------------------------
Neil P. Jenkins Vice President Director, Deutsche Asset Management
20 Finsbury Circus Investment Services (since 1996);
London, England Chief Executive Deutsche Asset
(age 39)
--------------------------------------------------------------------------------------------------
</TABLE>

Page -33-
<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
Name and Address Positions with Trust Principal Occupation During Past
and Portfolio Trust Five Years
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Investment Services (since
1999); Director, Deutsche Asset
Management, Inc (1991-1996)
Morgan Grenfell International Fund
Mgmt (1995-1999), and Morgan Grenfell
& Co. (since 1985).
---------------------------------------------------------------------------------------------------
David W. Baldt Vice President Managing Director of Active Fixed
150 S. Independence Sq. Income, DAMI (since 1989).
W. Philadelphia, PA 19106
(age 50)
---------------------------------------------------------------------------------------------------
James H. Grifo Vice President Vice Chairman, ICCD (the Trust's
150 S. Independence Sq. Distributor) (since 2000); Managing
W. Philadelphia, PA 19106 Director and Executive Vice
(age 48) President, DAMI (since 1996); Senior
Vice President, GT Global Financial
(1990 - 1996).
---------------------------------------------------------------------------------------------------
Amy M. Olmert (1)(3) Treasurer, Chief Vice President, Deutsche Asset
One South Street Financial Officer Management Americas (since 1999);
Baltimore, MD 21202 Vice President, BT Alex. Brown Inc.
(age 36) (1997-1999); Senior Manager,
PricewaterhouseCoopers LLP
(1988-1997).
-------------------------------------------------------------------------------------------------
Daniel O. Hirsch Secretary Secretary, ICCD (the Trust's
One South Street Distributor) (since 2000); Principal,
Baltimore, MD 21202 Deutsche Asset Management Americas
(age 45) (since 1999); Director, Deutsche Bank
Alex. Brown Incorporated and
Investment Company Capital Corp.
(since 1998); Assistant General
Counsel, Office of the General
Counsel, United States Securities and
Exchange Commission (1993-1998).
---------------------------------------------------------------------------------------------------
</TABLE>

1 Member of the Trust's and Portfolio's Pricing Committee.
2 Member of the Trust's and Portfolio's Audit Committee.
3 Member of the Trust's and Portfolio's Dividend Committee.

Certain of the Trustees and officers of the Trust and Portfolio 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

Page -34-
<PAGE>

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
and Portfolio Trust matters relating to accounting and auditing practices and
procedures, accounting records, internal accounting controls and the functions
performed by the Trust's and Portfolio Trust's custodian, administrator and
transfer agent.

As of [date], the Trustees and officers of the Trust and Portfolio Trust owned,
as a group, less than one percent of the outstanding shares of the Fund.

COMPENSATION OF TRUSTEES

The Trust and Portfolio Trust pay 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,
currently Mr. Searcy, receives an additional $1,000 per Audit Committee meeting
attended. The Trustees are also reimbursed for out-of-pocket expenses incurred
by them in connection with their duties as Trustees. Because the Portfolio did
not commence operations until [DATE], the Portfolio Trust did not pay the
Trustees for the fiscal year ended October 31, 1999. The following table sets
forth the compensation paid by the Trust to the Trustees for the fiscal year of
the Trust ended October 31, 1999:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Pension or Retirement Benefits
Name of Trustee Accrued as Part of Fund Aggregate Compensation from
Expenses the Trust/Complex*
------------------------------------------------------------------------------------------------
<S> <C> <C>
Paul K. Freeman $0 $22,750
------------------------------------------------------------------------------------------------
Graham E. Jones $0 $24,750
------------------------------------------------------------------------------------------------
William N. Searcy $0 $25,750
------------------------------------------------------------------------------------------------
Hugh G. Lynch $0 $21,750
------------------------------------------------------------------------------------------------
Edward T. Tokar $0 $21,750
------------------------------------------------------------------------------------------------
</TABLE>

* 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.

Page -35-
<PAGE>

INVESTMENT ADVISORY AND OTHER SERVICES

THE ADVISER

Effective October 6, 1999, the investment adviser to the Portfolio, Morgan
Grenfell Inc. changed its name to Deutsche Asset Management, Inc. ("DAMI").
DAMI, 885 Third Avenue, New York, New York, acts as the investment adviser to
the Portfolio pursuant to the terms of a Management Contract, dated [DATE]
("Management Contract"). Pursuant to the Management Contract, the Adviser
supervises and assists in the management of the assets of the Portfolio and
furnishes the Portfolio with research, statistical, advisory and managerial
services. The Adviser pays the ordinary office expenses of the Portfolio Trust
and the compensation, if any, of all officers and employees of the Portfolio
Trust and all Trustees who are "interested persons" (as defined in the 1940 Act)
of the Adviser. Under the Management Contract, the Portfolio Trust, on behalf
of the Portfolio, is obligated to pay the Adviser a monthly fee at an annual
rate of 0.50% of the Portfolio's average daily net assets.

The Portfolio's advisory fees are paid monthly and will be prorated if the
Adviser shall not have acted as the Portfolio's investment adviser during the
entire monthly period.

The Adviser and the Administrator have contractually agreed for the 16-month
period from the Fund's most recently completed fiscal year to waive their fees
and reimburse expenses so that total expenses will not exceed those set forth in
the Fund's Prospectus. These contractual fee waivers may only be changed by the
Fund's Board of Trustees. Until [DATE], the Fund operated as a stand-alone fund
that directly acquired and managed its own portfolio securities. For the fiscal
year ended October 31, 1999, the Fund paid the Adviser net advisory fees of
$1,232,710. For the fiscal year ended October 31, 1998, the Fund paid the
Adviser net advisory fees of $119,581. During the fiscal period ended October
31, 1997, the Fund paid no advisory fees.

The Management Contract between DAMI and the Portfolio Trust, was approved on
August 17, 2000 for an initial two-year term by a vote of the Portfolio 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. After
the initial two-year term, the Management Contract will continue in effect, with
respect to the Portfolio, only if such continuance is specifically approved
annually by the Trustees, including a majority of the Trustees who are not
parties to the Management Contract or "interested persons" of any such parties,
or by a vote of a majority of the total beneficial interests of the Portfolio.
The Management Contract is terminable by vote of the Board of Trustees, or, with
respect to the Portfolio, by the holders of a majority of the total beneficial
interests of the Portfolio, at any time without penalty on 60 days' written
notice to the Adviser. Termination of a Management Contract (that covers more
than one Fund or Portfolio) with respect to the Portfolio will not terminate or
otherwise invalidate any provision of such Management Contract with respect to
any other Fund or Portfolio. The Adviser may terminate the Management Contract
at any time without penalty on 60 days' written notice to the Portfolio Trust.
The Management Contract terminates automatically in the event of its
"assignment" (as such term is defined in the 1940 Act).

Page -36-
<PAGE>

The 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 Portfolio
Trust or the Portfolio in connection with the performance of the Adviser's
obligations under the Management Contract with the Portfolio 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 Portfolio 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 the Portfolio'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 the Portfolio is concerned. However, it is the judgment of the Board
that the desirability of continuing the Portfolio Trust's advisory arrangements
with the Adviser outweighs any disadvantages that may result from
contemporaneous transactions. See "Portfolio Transactions."

DAMI is registered with the Commission as an investment adviser and provides a
full range of investment advisory services to institutional clients. DAMI is an
indirect wholly-owned subsidiary of Deutsche Bank AG, an international
commercial and investment banking group. As of [date], DAMI managed
approximately $xxx billion in assets for various individual and institutional
accounts, including the SMALLCap Fund, Inc., a registered, closed-end investment
company for which it acts as investment adviser.

CODE OF ETHICS

The Boards of Trustees of the Trust and Portfolio Trust have adopted a Code of
Ethics pursuant to Rule 17j-1 under the 1940 Act. The Code of Ethics permits
access persons of the Fund and Portfolio to invest in securities for their own
accounts, but requires compliance with the Code's preclearance requirements,
subject to certain exceptions. In addition, the Code provides for trading
blackout periods that prohibit trading by personnel within periods of trading by
the Portfolio in the same security. The Code prohibits short term trading
profits, prohibits personal investment in initial public offerings and requires
prior approval with respect to purchases of securities in private placements.

The Portfolio's Adviser and the Trust's Distributor have each also adopted a
Code of Ethics. The Codes of Ethics allow personnel to invest in securities for
their own accounts, but require compliance with the Codes' pre-clearance
requirements and other restrictions, including "blackout periods" and minimum
holding periods, subject to limited exceptions. The Codes prohibit
participation in all initial public offerings. The Codes also require prior
approval for purchases of securities in private placements.

PORTFOLIO MANAGEMENT

The person or persons who are primarily responsible for the day-to-day
management of the Fund's portfolio and his or her relevant experience is
described in the Fund's prospectuses.

Page -37-
<PAGE>

PORTFOLIO TURNOVER

It is estimated that, under normal circumstances, the portfolio turnover rate of
the Portfolio will not exceed 150%. The higher portfolio turnover rates of the
Portfolio may result from the portfolio management strategies. The Portfolio
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 the Portfolio. A high
rate of portfolio turnover will also increase the likelihood of net short-term
capital gains (distributions of which are taxable to shareholders as ordinary
income).

The Portfolio'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 the Portfolio's portfolio securities, excluding securities
having a maturity at the date of purchase of one year or less. Until [DATE],
the Fund operated as a stand-alone fund that directly acquired and managed its
own portfolio securities. For the fiscal period ended October 31, 1999, the
portfolio turnover rate for the Fund was 180%. For the fiscal period ended
October 31, 1998, the portfolio turnover rate for the Fund was 131%.

THE ADMINISTRATOR

DAMI (the "Administrator"), 150 South Independence Square West, Philadelphia, PA
19106, serves as the Trust's administrator pursuant to an Administration
Agreement dated August 27, 1998. The Administrator also serves as the Portfolio
Trust's Administrator pursuant to an Administration Agreement dated [DATE].
Pursuant to the Administration Agreements, 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 Fund and Portfolio,
including the computation of the Fund's and Portfolio's net asset value, net
investment income and net realized capital gains, if any.

For its services under the Administration Agreements, the Administrator receives
a monthly fee at the annual rate of 0.12% of the aggregate average daily net
assets of the Fund, and the annual rate of [___ %] of the aggregate average
daily net assets of the Portfolio. The Administrator will pay Accounting Agency
and Transfer Agency fees out of the Administration fee. Previously, these fees
were charged directly to the Fund. Net Fund Operating Expenses will remain
unchanged since 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 the Fund to the specified percentage of the Fund's
net assets as demonstrated in the Expense Information tables in the prospectus.
For the fiscal year ended October 31, 1999, the Fund paid the Administrator
administration fees of $295,872. Because the Portfolio did not commence
operations until [DATE], the Portfolio did not pay administration fees during
the period indicated.

Prior to November 1, 1998, SEI Financial Management Corporation was the
Administrator for the Fund. For the fiscal period ended October 31, 1998, the
Fund paid the Administrator

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<PAGE>

administration fees of $26,888. The administration fees described in this
paragraph were paid pursuant to a fee schedule that is different from the one
currently in effect (described above).

The Administration Agreements provides that the Administrator shall not be
liable under the Administration Agreements 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 AND PORTFOLIO TRUST

The expenses borne by the Fund and Portfolio include: (i) fees and expenses of
any investment adviser and any administrator of the Fund and/or Portfolio; (ii)
fees and expenses incurred by the Fund or Portfolio 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; (vi) interest, insurance premiums, taxes or governmental fees; (vii)
clerical expenses of issue, redemption or repurchase of shares of the Fund;
(viii) the expenses of and fees for registering or qualifying shares of the Fund
for sale and of maintaining the registration of the Fund and registering the
Fund as a broker or a dealer; (ix) the fees and expenses of Trustees who are not
affiliated with the Adviser; (x) the fees or disbursements of custodians of the
Portfolio's assets, including expenses incurred in the performance of any
obligations enumerated by the Declaration of Trust or By-Laws of the Portfolio
Trust insofar as they govern agreements with any such custodian; (xi) costs in
connection with annual or special meetings of shareholders, including proxy
material preparation, printing and mailing; (xii) charges and expenses of the
Trust's and/or Portfolio Trust's auditor; (xiii) litigation and indemnification
expenses and other extraordinary expenses not incurred in the ordinary course of
the Trust's and/or Portfolio Trust's business; and (xiv) expenses of an
extraordinary and nonrecurring nature.

TRANSFER AGENT

Investment Company Capital Corp., One South Street, Baltimore, Maryland 21202
("ICCC"), has been retained to act as transfer and dividend disbursing agent
pursuant to transfer agency agreements (the "Transfer Agency Agreements"), under
which the Transfer Agent (i) maintains record shareholder accounts, and (ii)
makes periodic reports to the Trust's and Portfolio Trust's Board of Trustees
concerning the operations of the Fund and Portfolio.

THE DISTRIBUTOR

The Trust, on behalf of the Fund, has entered into a distribution agreement (the
"Distribution Agreement") pursuant to which ICC Distributors, Inc., One South
Street, Baltimore, Maryland 21202 (the "Distributor" or ICCD), as agent, serves
as principal underwriter for the continuous offering of shares of the Fund. The
Distributor has agreed to use its best efforts to solicit orders for the
purchase of shares of the Fund, although it is not obligated to sell any
particular amount of shares. Shares of the Fund 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 Fund.

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<PAGE>

or "interested persons" of such parties. The Distribution Agreement was most
recently approved on August 19, 1999 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 the 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 Distributor. The Distributor
may terminate the Distribution Agreement at any time without penalty on 60 days'
written notice to the Trust.

ICCD is an indirect wholly-owned subsidiary of Deutsche Bank AG and, therefore,
is an affiliate of DAMI and DAMIS. James H. Grifo is Vice President of the
Trust and Vice Chairman of ICCD. Richard T. Hale is President of the Trust and
Executive Vice President of ICCD. Daniel O. Hirsch is Secretary of the Trust
and ICCD.

CUSTODIAN

Brown Brothers Harriman and Co. (the "Custodian"), 40 Water Street, Boston,
Massachusetts 02109, serves as the Portfolio Trust's custodian pursuant to a
Custodian Agreement. Under its custody agreement with the Portfolio Trust, the
Custodian (i) maintains separate accounts in the name of the Portfolio, (ii)
holds and transfers portfolio securities on account of the Portfolio, (iii)
accepts receipts and makes disbursements of money on behalf of the Portfolio,
(iv) collects and receives all income and other payments and distributions on
account of the Portfolio's portfolio securities and (v) makes periodic reports
to the Portfolio Trust's Board of Trustees concerning the Portfolio's
operations. The Custodian is authorized to select one or more foreign or
domestic banks or companies to serve as sub-custodian on behalf of the
Portfolio.

SERVICE PLAN
(INVESTMENT SHARES ONLY)

The Fund has adopted a service plan (the "Plan") with respect to its Investment
shares which authorizes it to compensate Service Organizations whose customers
invest in Investment shares of the Fund for providing certain personal, account
administration and/or shareholder liaison services. Pursuant to the Plans, the
Fund may enter into agreements with Service Organizations ("Service
Agreements"). Under such Service Agreements or otherwise, the Service
Organizations may perform some or all of the following services: (i) acting as
record holder and nominee of all Investment shares beneficially owned by their
customers; (ii) establishing and maintaining individual accounts and records
with respect to the service shares owned by each customer; (iii) providing
facilities to answer inquiries and respond to correspondence from customers
about the status of their accounts or about other aspects of the Trust or
applicable Fund; (iv) processing and issuing confirmations concerning customer
orders to purchase, redeem and exchange Investment shares; (v) receiving and
transmitting Fund representing the purchase price or redemption proceeds of such
Investment shares; (vi) participant level recordkeeping, sub-accounting, and
other administrative services in connection with the entry of purchase and
redemption orders for the Plan; (vii) withholding sums required by applicable
authorities; (viii) providing daily violation services to the Plans; (ix) paying
and filing of all withholding and documentation required by appropriate
government agencies; (x) provision of reports, reFund and other documents
required by tax laws and the Employee Retirement Income Security Act of 1974
("ERISA"); and (xi) providing prospectuses, proxy materials and other documents
of the

Page -40-
<PAGE>

Fund to participants as may be required by law. In the event that your service
plan is terminated, your shares will be converted to Institutional Class shares
of the same Fund.

As compensation for such services, each Service Organization of the Fund is
entitled to receive a service fee in an amount up to 0.25% (on an annualized
basis) of the average daily net assets of the Fund's Investment shares
attributable to customers of such Service Organization. Service Organizations
may from time to time be required to meet certain other criteria in order to
receive service fees.

In accordance with the terms of the Service Plans, the officers of the Trust
provide to the Trust's Board of Trustees for their review periodically a written
report of services performed by and fees paid to each Service Organization under
the Service Agreements and Service Plans.

Pursuant to the Plans, Investment shares of the Fund that are beneficially owned
by customers of a Service Organization will convert automatically to
Institutional shares of the same Fund in the event that such Service
Organization's Service Agreement expires or is terminated. Customers of a
Service Organization will receive advance notice of any such conversion, and any
such conversion will be effected on the basis of the relative net asset values
of the two classes of shares involved.

Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974 ("ERISA") may apply to a Service Organization's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
assets in Investment shares of the Fund. Service Organizations that are subject
to the jurisdiction of the Commission, the Department of Labor or state
securities commissions are urged to consult their own legal advisers before
investing fiduciary assets in Investment shares and receiving service fees.

The Trust believes that fiduciaries of ERISA plans may properly receive fees
under a Service Plan if the plan fiduciary otherwise properly discharges its
fiduciary duties, including (if applicable) those under ERISA. Under ERISA, a
plan fiduciary, such as a trustee or investment manager, must meet the fiduciary
responsibility standards set forth in part 4 of Title I of ERISA. Those
standards are designed to help ensure that the fiduciary's decisions are made in
the best interests of the plan and are not colored by self-interest.

Section 403 (c)(1) of ERISA provides, in part, that the assets of a plan shall
be held for the exclusive purpose of providing benefits to the plan's
participants and their beneficiaries and defraying reasonable expenses of
administering the plan. Section 404(a)(1) sets forth a similar requirement on
how a plan fiduciary must discharge his or her duties with respect to the plan,
and provides further that such fiduciary must act prudently and solely in the
interests of the participants and beneficiaries. These basic provisions are
supplemented by the per se prohibitions of certain classes of transactions set
forth in Section 406 of ERISA.

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<PAGE>

fiduciary from causing the plan to engage in a transaction which would benefit a
third person who is a party in interest, but it would also prohibit the
fiduciary from similarly benefiting himself. In addition, Section 406(b)(1)
specifically prohibits a fiduciary with respect to a plan from dealing with the
assets of that plan in his own interest or for his own account. Section
406(b)(3) supplements these provisions by prohibiting a plan fiduciary from
receiving any consideration for his own personal account from any party dealing
with the plan in connection with a transaction involving the assets of the plan.

In accordance with the foregoing, however, a fiduciary of an ERISA plan may
properly receive service fees under a Service Plan if the fees are used for the
exclusive purpose of providing benefits to the plan's participants and their
beneficiaries or for defraying reasonable expenses of administering the plan for
which the plan would otherwise be liable. See, e.g., Department of Labor ERISA
Technical Release No. 86-1 (stating a violation of ERISA would not occur where a
broker-dealer rebates commission dollars to a plan fiduciary who, in turn,
reduces its fees for which plan is otherwise responsible for paying). Thus, the
fiduciary duty issues involved in a plan fiduciary's receipt of the service fee
must be assessed on a case-by-case basis by the relevant plan fiduciary.

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 Portfolio. In executing portfolio transactions, the
Adviser seeks to obtain the best net results for the Portfolio, 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 Portfolio employs 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 Portfolio deals with the primary market makers
unless a more favorable result is obtainable elsewhere. Fixed income securities
purchased or sold on behalf of the Portfolio 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 Contract, the Adviser agrees to select broker-dealers
in accordance with guidelines established by the Portfolio 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 Portfolio Trust's Board of
Trustees, to cause the Portfolio to pay a broker-dealer which furnishes
brokerage and research services a higher commission than that which might be
charged by

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<PAGE>

another broker-dealer for effecting the same transaction, provided that the
Adviser determines in good faith that such commission is 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 Portfolio. 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 Portfolio to consider whether the commissions
paid over representative periods of time appear to be reasonable in relation to
the benefits inuring to the Portfolio. 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, the Portfolio 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.

Investment decisions for the Portfolio 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
the Portfolio is concerned, in other cases it is believed to be beneficial to
the Portfolio. To the extent permitted by law, the Adviser may aggregate the
securities to be sold or purchased for the Portfolio 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 Portfolio 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 Portfolio to an 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 Portfolio 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 the Portfolio
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

Page -43-
<PAGE>

a clearing broker, and any of their customers determined, by a majority of the
Trustees who are not "interested persons" of the Portfolio or the Adviser, not
to be comparable to the Portfolio. 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 Portfolio Trust or the Adviser, exceptions
may be made. Since the Adviser, as investment adviser to the Portfolio, 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 Portfolio will not engage in principal
transactions with Affiliated Brokers. When appropriate, however, orders for the
account of the Portfolio 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 Portfolio or customers
on the same day, the Portfolio 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 Portfolio 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 Portfolio, and the Board reviews and approves all such portfolio
transactions on a quarterly basis and the compensation received by Affiliated
Brokers in connection therewith. During the fiscal years ended October 31,1997
and 1998, the Portfolio did not pay brokerage commissions to any Affiliated
Broker.

Affiliated Brokers do not knowingly participate in commissions paid by the
Portfolio 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.

Until [DATE], the Fund operated as a stand-alone fund that directly acquired and
managed its own portfolio securities. For the fiscal periods ending October 31,
1998 and 1999, the Fund paid no brokerage commissions.

PURCHASE AND REDEMPTION OF SHARES

Shares of the Fund are distributed by ICC Distributors, Inc., the Distributor.
General information on how to buy shares of the Fund is set forth in "Buying and
Selling Fund Shares" in the Fund's Prospectus. The following supplements that
information.

Investors may invest in Premier shares by establishing a shareholder account
with the Trust. Additionally, the Fund has authorized brokers to accept purchase
and redemption orders for shares for the Fund. Brokers, including authorized
brokers of service organizations, are, in turn, authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
Investors who invest through brokers, service organizations or their designated
intermediaries may be subject to minimums established by their broker, service
organization or designated intermediary.

Investors who establish shareholder accounts with the Trust should submit
purchase and redemption orders to the Transfer Agent as described in the
Prospectus. Investors who invest

Page -44-
<PAGE>

through authorized brokers, service organizations or their designated
intermediaries should submit purchase and redemption orders directly to their
broker, service organization or designated intermediary. The broker or
intermediary may charge you a transaction fee. The Fund will be deemed to have
received a purchase or redemption order when an authorized broker, service
organization or, if applicable, an authorized designee, accepts the order.
Shares of the Fund may be purchased or redeemed on any Business Day at the net
asset value next determined after receipt of the order, in good order, by the
Transfer Agent, the service organization, broker or designated intermediary. A
"Business Day" means any day on which the New York Stock Exchange (the "NYSE")
is open. For an investor who has a shareholder account with the Trust, the
Transfer Agent must receive the investor's purchase or redemption order before
the close of regular trading on the NYSE for the investor to receive that day's
net asset value. For an investor who invests through a mutual fund marketplace,
the investor's authorized broker or designated intermediary must receive the
investor's purchase or redemption order before the close of regular trading on
the NYSE and promptly forward such order to the Transfer Agent for the investor
to receive that day's net asset value. Service organizations, brokers and
designated intermediaries are responsible for promptly forwarding such
investors' purchase or redemption orders to the Transfer Agent.

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 the Portfolio. In
accordance with procedures adopted by the Board of Trustees, the net asset value
per share of each class of the Fund is calculated by determining the net worth
of the Fund attributable to the class (assets, including securities at value,
minus liabilities) divided by the number of shares of such class outstanding.
The Fund computes net asset value for each class of its shares at the close of
such regular trading, on each day on which the New York Stock Exchange ("NYSE")
is open (a "Business Day"). If the NYSE closes early, the fund will accelerate
the calculation of the NAV and transaction deadlines to the actual closing time.
The NYSE is closed on Saturdays and Sundays as well as the following holidays:
New Year's Day, Martin Luther King, Jr. Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

For purposes of calculating net asset value, 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 prior
to the time of valuation.

Debt securities and other fixed income investments of the Portfolio 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 amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the security. While

Page -45-
<PAGE>

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 Portfolio would receive if the Portfolio sold the
security.

Other assets and assets for 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 close of regular
trading or the NYSE 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 Fund' 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 Fund' 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

From time to time, performance information, such as total return and yield for
shares of the Fund may be quoted in advertisements or in communications to
shareholders. The 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 shares of the 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. The Fund's yield
reflects the 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.

To help investors better evaluate how an investment in the Fund might satisfy
their investment objective, advertisements regarding the Fund may discuss
performance as reported by various financial publications. The performance of
the 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 the Fund may be compared in publications to averages,
performance rankings or other information prepared by recognized mutual fund
statistical services.

Performance quotations of the Fund represent the Fund's past performance and,
consequently, should not be considered representative of the future performance
of the Fund. The value of 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 accounts in connection with investments

Page -46-
<PAGE>

in shares of the Fund are not at the direction or within the control of the Fund
and will not be included in the Fund' calculations of total return.

YIELD

From time to time, the Fund may advertise its yield. Yield is calculated
separately for each class of shares of the Fund. Each type of share is subject
to differing yields for the same period. The yield of a class of shares of the
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:

a-b
YIELD = 2 [ ( --- + 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 outstanding during the period
entitled to receive dividends; and

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

For the 30-day period ended October 31, 1999, the yield for Institutional shares
of the Fund was 13.01%. If the expense limitations for the Fund had not been in
effect during this period, the yield for Institutional shares of the Fund would
have been 13.00%.

For the 30-day period ended October 31, 1999, the yield for the Investment
shares of the Fund was 12.76%. If the expense limitations described in the
Prospectus for this Fund had not been in effect during this period, the yield
for Investment shares of the Fund would be 12.75%.

TOTAL RETURN

Average annual total return is calculated separately each class of shares of the
Fund. Each type of share is subject to different fees and expenses and,
consequently, may have differing average annual total returns for the same
period. The Fund that advertises "average annual total return" for a class of
its shares 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,

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<PAGE>

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.

The Fund that advertises "aggregate total return" for a class of its shares
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:

Aggregate Total Return = [( ERV ) - 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 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, 1999, the average annual total return of
Institutional shares of the Fund was 16.54%. For the period from commencement of
operations to October 31, 1999, the average annual total returns of
Institutional shares of the Fund was 4.48%. If expense limitations for the
above Fund had not been in effect during the indicated periods, the total
returns for Institutional shares of the Fund for such periods would have been
lower than the total return figures shown in this paragraph.

For the fiscal year ended October 31, 1999, the average annual returns for
Investment shares of the Fund was 16.07%. For the period from commencement of
operations for Investment shares to October 31, 1999, the average annual total
returns for Investment shares of the Fund was 14.42%. If the expense limitations
described in each Prospectus for the above Fund had not been in effect during
the indicated periods, the total returns of this Fund for such periods would
have been lower than the total return figures shown in this paragraph.

The Fund may from time to time advertise comparative performance as measured by
various publications, including, but not limited to, Barron's, The Wall Street
Journal, Weisenberger Investment Companies Service, Dow Jones Investment
Adviser, Dow Jones Asset Management, Business Week, Changing Times, Financial
World, Forbes, Fortune and Money. In addition, the Fund 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)

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<PAGE>

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
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, Lehman Brothers, Inc., Credit Suisse First Boston Corporation,
Morgan Stanley Dean Witter, Salomon Smith Barney, 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 Fund' 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 Fund 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 Fund. 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 Fund. The summary
is based on the laws in effect on the date of this Statement of Additional
Information, which are subject to change.

GENERAL

The Fund is a separate taxable entity. The 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 the Fund as
a regulated investment company under the Code requires, among other things, that
(a) the Fund derive at least 90% of its gross income (including tax-exempt
interest) for its taxable year 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"); and (b) 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 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. Future
Treasury regulations could provide that qualifying income under the 90% gross
income test will not include gains from foreign currency transactions or
derivatives that are not directly related to

Page -49-
<PAGE>

the 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 the
Fund's portfolio or anticipated to be acquired may not qualify as "directly-
related" under such regulations.

If the 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, recognized market discount income, 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 the
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 federal income tax at regular corporate rates on the amount
retained.

If the 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 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 the Fund will be increased by an amount equal under current law
to 65% of the amount of undistributed net capital gain included in the
shareholder's gross income. The 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
the 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, any net tax-exempt interest may be subject to alternative minimum tax,
and its distributions to shareholders will be taxable as ordinary dividends to
the extent of its current and accumulated earnings and profits.

In order to avoid a 4% federal excise tax, the 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 the
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 taxable
to such shareholders as if received on December 31 of the year declared.

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<PAGE>

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
Fund will generally be treated as capital gains and losses. Certain of the
futures contracts, forward contracts and options held by the Fund 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
Fund' taxable year. As a result, the Fund may be required to recognize income
or gain without a concurrent receipt of cash. Additionally, the Fund may be
required to recognize gain if an option, future, forward contract, short sale,
or other transaction that is not subject to these mark to market rules is
treated as a "constructive sale" of an "appreciated financial position" held by
the Fund under Section 1259 of the Code. Any gain or loss recognized on actual
or deemed sales of futures contracts, forward contracts, or options that are
subject to the mark to market rules, but not the constructive sales rules,
(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 the Fund, such Fund may be required to defer the recognition of losses
on futures or forward contracts and options 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, forward
contracts and constructive sales may affect the amount, timing and character of
the Fund's distributions to shareholders. Certain tax elections may be
available to the Fund 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 Fund. 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 the Fund acquires stock (including, under proposed regulations, an option to
acquire stock such as is inherent in a convertible bond) in certain foreign
corporations that receive at least 75% of their annual gross income from passive
sources (such as interest, dividends, certain rents and royalties or capital
gains) 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. Investments in passive foreign investment
companies may also produce ordinary income rather than capital gains, and the
deductibility of losses is subject to certain limitations. The applicable Fund
may limit and/or manage their holdings in passive foreign investment companies
or make an available election to minimize their tax liability or maximize their
return from these investments.

Page -51-
<PAGE>

The federal income tax rules applicable to currency and interest rate swaps,
mortgage dollar rolls, and certain structured securities are unclear in certain
respects, and the Fund may be required to account for these transactions or
instruments under tax rules in a manner that may affect the amount, timing and
character of income, gain or loss therefrom and that may, under certain
circumstances, limit the extent to which the Fund engage in these transactions
or acquire these instruments.

The Fund may invest in debt obligations that are in the lowest rating categories
or are unrated, including debt obligations of issuers not currently paying
interest as well as issuers who are in default. Investments in debt obligations
that are at risk of or in default present special tax issues for this Fund. Tax
rules are not entirely clear about issues such as when the Fund may cease to
accrue interest, original issue discount, or market discount, when and to what
extent deductions may be taken for bad debts or worthless securities, how
payments received on obligations in default should be allocated between
principal and income, and whether exchanges of debt obligations in a workout
context are taxable. These and other issues will be addressed by the Fund, to
the extent it invests in such securities, in order to reduce the risk of their
distributing insufficient income to preserve their status as regulated
investment companies and seek to avoid having to pay federal income or excise
tax.

If the Fund invests in foreign securities it 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 in some cases.
The Fund anticipates that it generally will not be entitled to elect to pass
through such foreign taxes to their shareholders. If such an election is made,
shareholders would have to include their shares of such taxes as additional
income, but could be entitled to U.S. tax credits or deductions for such taxes,
subject to certain requirements and limitations under the Code.

The Fund's investments in zero coupon securities, deferred interest securities,
increasing rate securities, pay-in-kind ("P.I.K.") 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. Transactions or instruments subject to the mark to market or
constructive sale rules described above may have the same result in some
circumstances. 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, the Fund may be required to liquidate portfolio
securities that it might otherwise have continued to hold.

The 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."
The 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, the 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
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

Page -52-
<PAGE>

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. The 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 the 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, the 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, 1999 the Fund had available
realized capital losses to offset future net capital gains of $4,781,756 with an
expiration date of 10/31/2006-2007.

U.S. SHAREHOLDERS--DISTRIBUTIONS

For U.S. federal income tax purposes, distributions by the Fund, whether
reinvested in additional shares or paid in cash, generally will be taxable to
shareholders who are subject to tax.

Page -53-
<PAGE>

Because eligible dividends are limited to those received by the Fund from U.S.
domestic corporations, dividends paid by Fund will generally not qualify for the
dividends received deduction, and some of the dividends paid by the Equity Fund
also may not qualify for the deduction. The dividends-received deduction, if
available, is reduced to the extent the shares with respect to which the
dividends received are treated as debt financed under the Code and is eliminated
if the shares are deemed to have been held for less than a minimum period,
generally 46 days, extending before and after each such dividend. 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. The dividend may, if it is treated as an
"extraordinary dividend" under the Code, reduce such shareholder's tax basis in
its shares of the Fund and, to the extent such basis would be reduced below
zero, require the current recognition of income. Capital gain dividends (i.e.,
dividends from net capital gain) paid by the Fund, if designated as such in a
written notice to shareholders mailed not later than 60 days after the 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.

Shareholders that are required to file tax returns are required to report tax-
exempt interest income, including exempt-interest dividends, on their federal
income tax returns. 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 in a
transaction that is treated as a sale for tax purposes, 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. However, any loss realized on the sale,
redemption or other disposition of shares of a Municipal Fund with a tax holding
period of six months or less will be disallowed to the extent of any exempt-
interest dividends with respect to such shares. Moreover, any loss realized on
the sale, redemption, or other disposition of the shares of the Fund with a tax
holding period of six months or less, to the extent such loss is not disallowed
under any other tax rule, will be treated as a long-term capital loss to the
extent of any capital gain dividend with respect to such shares. Additionally,
any loss realized on a sale, redemption or other disposition of shares of the
Fund may be disallowed under "wash sale" rules 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. Shareholders should consult their own tax advisers regarding
their particular circumstances to determine whether a disposition of Fund shares
is properly treated as a sale for tax purposes, as is assumed in the foregoing
discussion.

Page -54-
<PAGE>

The Fund may be required to withhold, as "backup withholding," federal income
tax at a rate of 31% from dividends (including distributions from the Fund's net
long-term capital gains, but not including exempt-interest dividends) and share
redemption and exchange proceeds to individuals and other non-exempt
shareholders who fail to furnish the Fund with a correct taxpayer identification
number ("TIN") certified under penalties of perjury, or if the Internal Revenue
Service or a broker notifies the Fund 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 Fund 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 the Fund which are designated as
undistributed capital gains, to a non-U.S. shareholder will not be subject to
U.S. federal 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. Any gain realized by a non-U.S. shareholder
upon a sale or redemption of shares of the 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 Fund may be subject to state or local taxes in jurisdictions in which the
Fund may be deemed to be doing business. In addition, in those states or
localities which have income tax laws, the treatment of the 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.

TAXATION OF THE PORTFOLIO

Page -55-
<PAGE>

The Portfolio is not subject to the Federal income taxation. Instead, the Fund
and other investors investing in the Portfolio must take into account, in
computing their Federal income tax liability, their share of the Portfolio's
income, gains, losses, deductions, credits and tax preference items, without
regard to whether they have received any cash distributions from the Portfolio.

GENERAL INFORMATION ABOUT THE TRUST

GENERAL

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 Fund described
in this Prospectus and thirteen additional series. The Declaration of Trust
further authorizes the Trust to classify or reclassify any series or portfolio
of shares into one or more classes. As of the date hereof, the Trustees have
established three classes of shares: Investment shares, Institutional shares
and Premier shares.

The shares of each class represent an interest in the same portfolio of
investments of the Fund. Each class has equal rights as to voting, redemption,
dividends and liquidations, except that only Investment shares bear service fees
and each class may bear other expenses properly attributable to the particular
class. Also, holders of Investment shares of the Fund have exclusive voting
rights with respect to the service plan adopted by their Fund.

When issued, shares of the Fund 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
Fund entitle their holders to one vote per share, are freely transferable and
have no preemptive, subscription or conversion rights.

Shares of the 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 the 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.

In the event of a liquidation or dissolution of the Trust or the Fund,
shareholders of the Fund would be entitled to receive the assets available for
distribution belonging to such Fund.

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<PAGE>

Shareholders of the 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.

Whenever the Trust is requested to vote on a matter pertaining to the Portfolio,
the Trust will vote its shares without a meeting of Fund shareholders if the
proposal, if made with respect to the Fund, would not require the vote of Fund
shareholders as long as such action is permissible under applicable statutory
and regulatory requirements. The Trust will hold a meeting of Fund shareholders
for all other matters requiring a vote, and the Trust will cast all of its votes
at the meeting of investors in the Portfolio in the same proportion as the votes
of the Fund shareholders. Other investors with a greater pro rata ownership of
the Portfolio could have effective voting control of the operations of the
Portfolio.

As of July 24, 2000, the following shareholders owned the following respective
percentages of the outstanding Institutional shares of the Fund:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Percentage of
Fund Shareholder Name and Address Outstanding
Shares of the Fund
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
High Yield Bond - Institutional Bost & Co, A/C NYXF 1703802, FBO Bell Atlantic Master 72.35%
Class Trust Mutual Fund Operations, P.O. Box 3198,
Pittsburgh, PA 15230-3198
-------------------------------------------------------------------------------------------------------------------
Public School Employees Retirement System, c/o Mellon 5.69%
Trust MTL FUNDS OPS, P.O. Box 31998, Pittsburgh, PA
15230-3198
-------------------------------------------------------------------------------------------------------------------
</TABLE>

As of July 24, 2000, the following shareholders owned the following respective
percentages of the outstanding Investment shares of the Fund:

-------------------------------------------------------------------------------------------------------------------
National Financial Svcs Corp for the Exclusive Benefit 5.41%
of our Customers, ATTN Mutual FDS - No Loads - 5/th/ Fl,
200 Liberty St, 1 World Fin Ctr, New York, NY 10281-1003
-------------------------------------------------------------------------------------------------------------------
</TABLE>

SHAREHOLDER AND TRUSTEE LIABILITY

Page -57-
<PAGE>

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 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.

ANNUAL AND SEMI-ANNUAL REPORTS

Shareholders of the Fund receive an annual report containing audited financial
statements and a semi-annual report. All transactions in Institutional shares
and Premier shares of the Fund and dividends and distributions paid by the 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.

CONSIDERATION FOR PURCHASES OF SHARES

The Trust generally will not issue shares of the Fund 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 the securities meet
the investment objectives and policies of the Fund and are acquired by the Fund
for investment and not for resale. An exchange of securities for Fund shares
will generally be a taxable transaction to the shareholder.

ADDITIONAL INFORMATION

INDEPENDENT ACCOUNTANTS

____________________, 1177 Avenue of the Americas, New York, New York 10036,
serves as the Fund's and Portfolio's independent accountants, providing audit
services, including review and consultation in connection with various filings
by the Trust and Portfolio Trust with the Commission and tax authorities.

Page -58-
<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 Fund and certain other series of
the Trust. If further information is desired with respect to the Trust, the
Fund or such other series, reference is made to the Registration Statement and
the exhibits filed as a part thereof.

FINANCIAL STATEMENTS

The audited financial statements for the Fund for the year ended October 31,
1999 are included in, and incorporated by reference into, this Statement of
Additional Information in reliance upon the reports of _____________________,
the Fund's independent auditors, as experts in accounting and auditing.

The financial statements of the Fund for the semi-annual period ended April 30,
2000 and for the fiscal periods ended on and prior to October 31, 1999 are
included in, and incorporated by reference into, this Statement of Additional
Information from the 2000 Semi-Annual Report to Shareholders of the Fund for the
semi-annual period ended April 30, 2000 (filed electronically on June 28, 2000;
file no. 811-08006; accession no. 0000950169-00-000661) and from the 1999 Annual
Report to Shareholders of the Fund for the year ended October 31, 1999 (filed
electronically on December 30, 1999; file no. 811-08006; accession no.
0000912057-99-011088), and will be attached to each copy of such Statement of
Additional Information that is distributed.

Page -59-
<PAGE>

APPENDIX A

DESCRIPTION OF BOND RATINGS

The rating descriptions set forth below are believed to be the most recent
rating descriptions available from Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("Standard & Poor's), Duff & Phelps, Inc.
("Duff") and Fitch IBCA Investors Service ("Fitch IBCA") at the date of this
Statement of Additional Information for the securities listed. Ratings are
generally given to securities at the time of issuance. While the rating agencies
may from time to time revise such ratings, they undertake no obligation to do
so, and the ratings indicated do not necessarily represent ratings which will be
given to these securities on the date of the Fund's fiscal year end.

I. LONG-TERM DEBT RATINGS

MOODY'S

Description of four highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (1, 2 and 3) in each rating category to indicate the
security's ranking within the category):

Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.

A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa: Bonds which are rated Baa are considered as medium grade obligations, ie:,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

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STANDARD & POOR'S (1)

Description of the four highest long-term debt ratings by Standard & Poor's
(Standard & Poor's may apply a plus (+) or minus (-) to a particular rating
classification to show relative standing within the classification):

AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.

A: Bonds rated A have a very strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.

BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.

DUFF

Description of the four highest long-term debt ratings by Duff (Duff may
apply a plus or minus to show relative standing within a rating category):

AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA: High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions.

A: Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.

BBB: Investment grade. Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.

FITCH IBCA

Description of the four highest long-term ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):

AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

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<PAGE>

AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issues is generally rated "F-1+".

A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and to repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and to repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.

II. SHORT-TERM DEBT RATINGS

Short-term debt ratings may be assigned, for example, to commercial paper,
master demand notes, bank instruments and letters of credit.

Moody's description of its highest short-term debt rating:

PRIME-1 Issuers rated Prime-1 (or supporting institutions) have superior
capacity for repayment of senior short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by many of the following
characteristics:

- Leading market positions in well established industries.

- High rates of return on Fund employed.

- Conservative capitalization structures with moderate reliance on debt and
ample asset protection.

- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

- Well-established access to a range of financial markets and assured
sources of alternative liquidity.

Standard & Poor's description of its highest short-term debt rating:

A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus sign (+).

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<PAGE>

III. SHORT-TERM LOAN/MUNICIPAL NOTE RATINGS

Moody's description of its two highest short-term loan / municipal note
ratings:

MIG-1/VMIG-1 This description denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.

MIG-2/VMIG-2 This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.

Standard & Poor's description of its two highest municipal note ratings:

SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.

SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.

Page -63-
<PAGE>

MORGAN GRENFELL
INVESTMENT TRUST
One South Street
Baltimore, MD 21202

INVESTMENT ADVISER OF THE PORTFOLIO
Deutsche Asset Management, Inc.
885 Third Avenue
New York, NY 10022

ADMINISTRATOR OF THE FUND AND PORTFOLIO
Deutsche Asset Management, Inc.
150 South Independence Square West
Philadelphia, Pennsylvania 19106

DISTRIBUTOR
ICC Distributors, Inc.
One South Street
Baltimore, Maryland 21202

CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109

TRANSFER AGENT
ICCD Company Capital Corp.
One South Street
Baltimore, Maryland 21202

INDEPENDENT ACCOUNTANTS
__________________________
1177 Avenue of the Americas
New York, New York 100036

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

SERVICE INFORMATION
Existing accounts, new accounts, prospectuses, Statements of Additional
Information applications, and service forms--1-800-730-1313

Telephone Exchanges--1-800-730-1313

Share Price and Performance
Information--1-800-730-1313

Page -64-
<PAGE>

MORGAN GRENFELL INVESTMENT TRUST

No-Load Open-End Funds

One South Street

Baltimore, MD 21202

STATEMENT OF ADDITIONAL INFORMATION

September 29, 2000

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

- Fixed Income, previously Morgan Grenfell Fixed Income Fund

- Municipal Bond, previously Morgan Grenfell Municipal Bond Fund

- Short-Term Fixed Income, previously Morgan Grenfell Short-Term Fixed
Income Fund

- Short-Term Municipal Bond, previously Morgan Grenfell Short-Term
Municipal Bond Fund

- Smaller Companies, previously Morgan Grenfell Smaller Companies Fund

- Micro Cap, previously Morgan Grenfell Micro Cap Fund

- Total Return Bond, previously Morgan Grenfell Total Return Bond Fund

This SAI is not a prospectus, and should be read only in conjunction with the
Institutional and Investment Class Prospectuses for each Fund except Total
Return Bond, dated February 28, 2000, and with the Investment, Institutional and
Premier Class Prospectuses dated September 29, 2000 for Total Return Bond, as
amended or supplemented from time to time (each, a "Prospectus" and
collectively, the "Prospectuses"). The unaudited semi-annual financial
statements and the audited financial statements for each Fund are included in
the Funds' annual and semi-annual reports, which we have filed electronically
with the Securities and Exchange Commission and which are incorporated by
reference into the SAI. A copy of each Prospectus may be obtained without charge
from Deutsche Asset Management, Inc. ("DAMI"), the Trust's Administrator, by
calling 1-800-730-1313 or writing to Morgan Grenfell Investment Trust, P.O. Box
219210, Kansas City, Missouri 64121.