MORGAN GRENFELL INVESTMENT TRUST, 497, 1995-12-19

MORGAN GRENFELL INVESTMENT TRUST
497, 1995-12-19

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MORGAN GRENFELL INVESTMENT TRUST
No-Load Open-End Funds
885 Third Avenue
New York, New York 10022

December 19, 1995

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

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

Each Fund's primary investments are summarized below:

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

Morgan Grenfell Municipal Bond Fund invests primarily in municipal debt
securities that pay interest exempt from U.S. federal income tax. The Fund
expects to maintain a dollar weighted average portfolio maturity of between
five and ten years.

Morgan Grenfell Short-Term Fixed Income Fund invests in the same types of
securities as Morgan Grenfell Fixed Income Fund, but maintains a dollar
weighted average portfolio maturity of no longer than three years.

Morgan Grenfell Short-Term Municipal Bond Fund invests in the same types
of securities as Morgan Grenfell Municipal Bond Fund, but maintains a dollar
weighted average portfolio maturity of no longer than three years.

Morgan Grenfell Smaller Companies Fund invests primarily in
common stocks of small capitalization U.S. companies.

Morgan Grenfell Large Cap Growth Fund invests primarily in equity and
equity-related securities of large capitalization U.S. companies.

---------------------------------------------
(continued on next page)

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<PAGE>

[continued]

This Prospectus provides information about the Trust and each of the
Funds that investors should know before investing in the Funds. Investors
should carefully read this Prospectus and retain it for future reference. For
investors seeking more detailed information, the Statement of Additional
Information dated October 26, 1995, as amended or supplemented from time to
time, is available upon request without charge by calling 1-800-814-3401 or by
writing to SEI Financial Services Company, 680 East Swedesford Road, Wayne,
Pennsylvania 19087-1658. The Statement of Additional Information, which is
incorporated by reference into this Prospectus, has been filed with the
Securities and Exchange Commission. Not all of the Funds are available in
certain states. Please call 1-800-814-3401 to determine availability in a
particular state.

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

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

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

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

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<PAGE>

TABLE OF CONTENTS
-----------------

<TABLE>
<CAPTION>
Page
----
<S> <C>
Expense Information 4
Financial Highlights 6
Introduction to the Funds 8
Risk Factors 9
Investment Objectives and Policies 10
Description of Securities and Investment Techniques
and related Risks 15
Additional Investment Information 25
Management of the Funds 27
Purchase of Shares 30
Redemption of Shares 33
Net Asset Value 35
Dividends, Distributions and Taxes 35
Organization and Shares of the Trust 38
Performance Information 39
Appendix A (Tax Certification Instructions) A-1
</TABLE>

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<PAGE>

EXPENSE INFORMATION

Short-Term Short-Term Smaller
Fixed Income Municipal Fixed Income Municipal Companies Large Cap
Fund Bond Fund Fund Bond Fund Fund Growth Fund
---- --------- ---- --------- ---- -----------
<S> <C> <C> <C> <C> <C> <C>

Shareholder Transaction Expense

Maximum Sales Charge
Imposed on Purchase......................... None None None None None None

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

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

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

Annual Fund Operating Expenses (as a percentage of average net assets after reduction of advisory fee)

Advisory fees............................... 0.40% 0.40% 0.40% 0.40% 1.00% 0.75%

Administration fees**....................... 0.13% 0.13% 0.17% 0.17% 0.17% 0.17%

Other Expenses.............................. 0.16% 0.16% 0.31% 0.31% 0.31% 0.31%

Reduction of Advisory Fee by Adviser***.....(0.14%) (0.14%) (0.33%) (0.33%) (0.23%) (0.23%)

Net Fund Operating Expenses................. 0.55% 0.55% 0.55% 0.55% 1.25% 1.00%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

* A fee, currently $10 will be imposed on redemptions by wire.
** Administration fees shown for Large Cap Growth Fund, Smaller
Companies Fund, Short-Term Fixed Income Fund and Short-Term Municipal Bond Fund
reflect the assumption that each such Fund will have average net assets no
greater than $25 million for the fiscal year ending October 31, 1995. If the
average net assets of any of these Funds exceeds $25 million for such year,
then that Fund's administration fee rate will be lower (as a percentage of
average net assets) than the rate shown above. Conversely, if any of these
Fund's average net assets are lower than $25 million for such year, then that
Fund's administrative fee will be higher than the rate shown above.
*** The Adviser has agreed to reduce its advisory fee to the extent
necessary to limit Fund Operating Expenses of each Fund, on an annualized
basis, to the specified percentage of each Fund's assets shown in the above
table as Net Fund Operating Expenses. The above table and the following Example
reflect this voluntary agreement. In its sole discretion, the Adviser may
terminate or modify this voluntary agreement at any time although the Adviser
has no present intention of doing so. The purpose of the voluntary agreement is
to enhance a Fund's total return during the period when, because of its smaller
size, fixed expenses have a more significant impact on total return. If the
Adviser's voluntary agreement was not in effect, the Fund Operating Expenses
for each Fund would be as follows: Large Cap Growth Fund 1.23%, Smaller
Companies Fund 1.48%, Fixed Income Fund 0.69%, Short-Term Fixed Income Fund
0.88%, Municipal Bond Fund 0.69%, and Short-Term Municipal Bond Fund 0.88%.

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<PAGE>

Example:

Investors would pay the following expenses on a $1,0001 investment
assuming (1) a 5% annual return and (2) redemption at the end of each time
period:

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Morgan Grenfell Fixed Income Fund $6 $18 $31 $69
Morgan Grenfell Municipal Bond Fund $6 $18 $31 $69
</TABLE>

<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C> <C>
Morgan Grenfell Short-Term Fixed Income Fund $ 6 $18
Morgan Grenfell Short-Term Municipal Bond Fund $ 6 $18
Morgan Grenfell Smaller Companies Fund $13 $40
Morgan Grenfell Large Cap Growth Fund $10 $32
</TABLE>

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

The purpose of the Expense Information Table and Example is to assist
investors in understanding the various direct and indirect costs and expenses
that an investment in a Fund will bear. "Other Expenses" included in the
Expense Information Table and Example for Morgan Grenfell Large Cap Growth
Fund, Morgan Grenfell Smaller Companies Fund, Morgan Grenfell Short-Term Fixed
Income Fund and Morgan Grenfell Short-Term Municipal Bond Fund are based on
estimates for the current fiscal year ending October 31, 1995. "Other Expenses"
for Morgan Grenfell Fixed Income Fund and Morgan Grenfell Municipal Bond Fund
are based on expenses incurred by these two Funds during the fiscal year ended
October 31, 1994. The Example assumes reinvestment of all dividends and
distributions and that the percentage amounts listed in the Expense Information
Table remain the same each year. If the Adviser were to discontinue its
voluntary fee reductions, the expenses contained in the Example could increase.

The Example is designed for information purposes only, and should not be
considered a representation of future expenses or return for any Fund. Actual
expenses and return vary from year to year and may be higher or lower than
those shown. For further information regarding advisory and administration
fees, and other expenses of the Funds, see "Management of the Funds."

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<PAGE>
FINANCIAL HIGHLIGHTS

Selected unaudited data for an outstanding share of each of Morgan
Grenfell Fixed Income Fund and Morgan Grenfell Municipal Bond Fund during the
six-month period ended April 30, 1995 is set forth on the next page. This
information should be read in conjunction with these Funds' unaudited
semiannual financial statements as of April 30, 1995 and the notes thereto.

Selected audited data for an outstanding share of each of these Funds is
presented for periods prior to and ending October 31, 1994. This data has been
audited by Arthur Anderson LLP, which served as these two Funds' independent
public accountants during the periods for which audited data is presented, as
indicated in their report dated December 14, 1994. This information should be
read in conjunction with these Funds' audited financial statements as of
October 31, 1994 and the notes thereto.

Selected unaudited data for an outstanding share of each of Morgan
Grenfell Short-Term Municipal Bond Fund, Morgan Grenfell Short-Term Fixed
Income Fund and Morgan Grenfell Smaller Companies Fund during the respective
periods from their inception to July 31, 1995 (September 30, 1995 in the case
of Morgan Grenfell Smaller Companies Fund) are also set forth on the next page.
This information should be read in conjunction with the unaudited financial
statements and notes thereto which appear in the Statement of Additional
Information. The financial statements, notes and report referred to above are
included in the Statement of Additional Information, which is available free of
charge by calling 1-800-814-3401. No information is provided for the Morgan
Grenfell Large Cap Growth Fund which had not commenced operations prior to June
30, 1995.

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<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For a Share Outstanding Throughout Each Period
Net
Net Asset Net Realized Distributions Distributions
Value Investment and from Net from Realized Net Asset
Beginning Income Unrealized Investment Capital Value End Total
Year of Period Loss Gains/Losses Income Gains of Period Return
---- --------- ---- ------------ ------ ----- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------
Municipal Bond Fund
- ------------------------------
1995* $10.37 $ 0.30 $ 0.27 $(0.30) -- $10.64 5.60%
1994 $11.36 $ 0.60 $(0.61) $(0.60) $(0.38) $10.37 (0.15)%
1993 $10.56 $ 0.67 $ 0.84 $(0.67) $(0.04) $11.36 14.68%
1992(1) $10.00 $ 0.60 $ 0.56 $(0.60) -- $10.56 13.42%(T)
- ------------------------------
Fixed Income Fund
- ------------------------------
1995* $ 9.93 $ 0.35 $ 0.24 $(0.35) -- $10.17 6.08%
1994 $10.95 $ 0.64 $(0.91) $(0.64) $(0.11) $ 9.93 (2.58%)
1993 $ 9.92 $ 0.64 $ 1.03 $(0.64) -- $10.95 17.28%
1992(2) $10.00 $ 0.06 $(0.08) $(0.06) -- $ 9.92 (1.61)%(T)
- ------------------------------
Short-Term Municipal Bond Fund
- ------------------------------
1995(3) $10.00 $ 0.18 $ 0.05 $(0.18) -- $10.05 2.35%
- ------------------------------
Short-Term Fixed Income Fund
- ------------------------------
1995(4) $10.00 $ 0.22 $ -- $(0.22) -- $10.00 2.19%
- ------------------------------
Smaller Companies Fund
- ------------------------------
1995(5) $10.00 $ 0.04 $ 0.08 -- -- $10.84 8.40%
<CAPTION>
(continued) Ratio of Net
Ratio of Investment
Ratio of Net Expenses Income(Loss)
Ratio of Investment to Average to Average
Net Assets Expenses to Income(Loss) Net Assets Net Assets Portfolio
End of Average to Average (Excluding (Excluding Turnover
Period (000) Net Assets Net Assets Waivers) Waivers) Rate
------------ ----------- ---------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------
Municipal Bond Fund
- ------------------------------
$190,403 0.54% 5.80% 0.55% 5.79% 52%
$165,677 0.54% 5.60% 0.67% 5.47% 94%
$148,022 0.55% 5.94% 0.75% 5.74% 160%
$ 94,700 0.55% 6.31% 0.79% 6.07% 143%
- ------------------------------
Fixed Income Fund
- ------------------------------
$361,415 0.53% 7.08% 0.63% 6.98% 110%
$239,556 0.54% 6.22% 0.66% 6.10% 251%
$147,917 0.55% 6.01% 0.72% 5.84% 196%
$ 25,528 0.55% 5.24% 1.66% 4.13% 148%
- ------------------------------
Short-Term Municipal Bond Fund
- ------------------------------
$ 3,702 0.52% 4.48% 3.77% 1.23% 42.57%
- ------------------------------
Short-Term Fixed Income Fund
- ------------------------------
$ 1,467 0.51% 5.70% 6.29% (0.08)% 23.94%
- ------------------------------
Smaller Companies Fund
- ------------------------------
$ 2,709 1.25% 1.39% 2.31% 0.33% 2.00%
</TABLE>
* Unaudited data for the period ended April 30, 1995 (All Ratios,
excluding Total Return, have been Annualized)
** Unaudited data for the period ended September 30, 1995 (All Ratios,
excluding Total Return, have been Annualized)
(T) = Annualized
(1) Municipal Bond Fund commenced operations on 12/13/91.
(2) Fixed Income Fund commenced operations on 9/18/92.
(3) Unaudited data for the period from 3/6/95 to 7/31/95 (All Ratios, excluding
Total Return and Portfolio Turnover, have been Annualized)
(4) Unaudited data for the period from 3/13/95 to 7/31/95 (All Ratios,
excluding Total Return and Portfolio Turnover, have been Auunalized)
(5) Unaudited data for the period 6/30/95 to 9/30/95 (All Ratios, excluding
Total Return and Portfolio Turnover, have been Annualized)
-7-
<PAGE>

INTRODUCTION TO THE FUNDS

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

Morgan Grenfell Capital Management, Inc. (the "Adviser" or "MGCM"), with
offices in Philadelphia and New York City, serves as investment adviser to each
of the Funds. The Adviser is a U.S. investment management subsidiary of
London-based Deutsche Morgan Grenfell Group plc. Together with the Adviser and
its other investment management subsidiaries, Deutsche Morgan Grenfell Group
plc had over US$80 billion under management as of September 30, 1995.

Morgan Grenfell Large Cap Growth Fund, Morgan Grenfell Smaller Companies
Fund, Morgan Grenfell Short-Term Fixed Income Fund and Morgan Grenfell
Short-Term Municipal Bond Fund are newly organized funds and have no operating
history. There can be no assurance that any Fund will be able to achieve its
investment objectives.

General Portfolio Management Strategies

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

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

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<PAGE>

marketplace. Fundamental value is determined by taking into account various
factors including earnings per share, the ratio of book value to market price,
and the company's cash flow and dividend yield.

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

RISK FACTORS

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

In addition, certain of the Funds may employ investment techniques,
including options and futures contracts and other investments that may be
considered derivative investments. These may entail special risks. For example,
there is no limit on the percentage of assets of Large Cap Growth Fund and
Smaller Companies Fund that may be at risk with respect to futures and related
options.

See "Investment Objectives and Policies" and "Description of Securities
and Investment Techniques and Related Risks."

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<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

Fixed Income Fund and Short-Term Fixed Income Fund

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

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

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

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

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<PAGE>

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

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

Municipal Bond Fund and Short-Term Municipal Bond Fund

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

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<PAGE>

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

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

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

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

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<PAGE>

securities in the lowest investment grade category are considered medium grade
securities. Such securities have speculative characteristics, involve greater
risk of loss than higher quality securities, and are more sensitive to changes
in the issuer's capacity to pay.

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

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

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

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

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<PAGE>

Smaller Companies Fund

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

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

Up to 35% of the Fund's total assets may be invested in investment grade
fixed income securities (see definition on page 12), cash equivalents and
equity and equity-related securities of medium and large capitalization
companies. In the event any fixed income security held by the Fund is
downgraded below investment grade, the Adviser will review the security and
determine whether to retain or dispose of it. In no event, however, will the
Fund hold more than 5% of its net assets in fixed income securities that are
not investment grade. Up to 5% of the Fund's net assets (measured at time of
investment) may be invested in the securities of non-U.S. issuers of all sizes.

Large Cap Growth Fund

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

Large capitalization companies are those ranked (at time of investment)
according to market capitalization in the top 25% of the Wilshire 5000 Index, a
broad-based index that includes nearly all U.S. public companies. The Adviser
believes that the equity and equity-related securities of many large
capitalization companies offer

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<PAGE>

significant potential for capital growth, but with less risk than investments
in smaller capitalization companies.

Up to 35% of the Fund's total assets may be invested in investment grade
fixed income securities (see definition on page 12), cash equivalents and
equity and equity-related securities of small and medium capitalization
companies. In the event any fixed income security held by the Fund is
downgraded below investment grade, the Adviser will review the security and
determine whether to retain or dispose of it. In no event, however, will the
Fund hold more than 5% of its net assets in fixed income securities that are
not investment grade. Up to 5% of the Fund's net assets (measured at time of
investment) may be invested in the securities of non-U.S. issuers of all sizes.

DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES AND RELATED RISKS

Fixed Income Securities

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

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

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<PAGE>

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

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

U.S. Government Securities. The Funds may invest in obligations issued or
guaranteed as to both principal and interest by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises ("U.S. Government
securities"). Some U.S. Government securities, such as U.S. Treasury bills,
notes and bonds, are supported by the full faith and credit of the United
States. Others, such as obligations issued or guaranteed by U.S. Government
agencies or instrumentalities are supported either by (i) the full faith and
credit of the U.S. Government (such as securities of the Small Business
Administration), (ii) the right of the issuer to borrow from the U.S. Treasury
(such as securities of the Federal Home Loan Banks), (iii) the discretionary
authority of the U.S. Government to purchase the agency's obligations (such as
securities of the Federal National Mortgage Association ("FNMA")), 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.

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<PAGE>

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

Custodial Receipts. Custodial receipts are interests in separately traded
interest and principal component parts of U.S. Government securities that are
issued by banks or brokerage firms and are created by depositing U.S.
Government securities into a special account at a custodian bank. The custodian
holds the interest and principal payments for the benefit of the registered
owners of the certificates or receipts. The custodian arranges for the issuance
of the certificates or receipts evidencing ownership and maintains the
register. Custodial receipts include Treasury Receipts ("TRs"), Treasury
Investment Growth Receipts ("TIGRs"), and Certificates of Accrual on Treasury
Securities ("CATS"). TIGRs and CATS are interests in private proprietary
accounts while TRs and STRIPS (see "U.S. Government Securities" above) are
interests in accounts sponsored by the U.S. Treasury. Receipts are sold as zero
coupon securities; for more information, see "Zero Coupon Securities."

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

Securities of Foreign Issuers

Each Equity Fund and each Fixed Income Fund may invest to a limited
extent in securities of foreign issuers and supranational entities. Investments
in the securities of foreign issuers and supranational entities may subject the
Funds to investment risks that

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<PAGE>

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

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

An Equity Fund may enter into forward contracts and currency options to
protect against an anticipated rise in the U.S. dollar price of securities that
it intends to purchase. In addition, an Equity Fund may enter into forward
contracts and currency options to protect against the decline in value of its
foreign currency denominated or quoted portfolio securities, or a decline in
the value of anticipated dividends from such securities, due to a decline in
the value of the foreign currency against the U.S. dollar. The forecasting of
currency market movements is extremely difficult and there can be no assurance
that currency hedging strategies will be successful. In addition, forward
contracts and over-the-counter currency options may be illiquid and are subject
to the risk that the counterparty will default on its obligations. For more
information on these instruments, see the Statement of Additional Information.

Mortgage-Backed and Asset-Backed Securities

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

Mortgage-backed and asset-backed securities are often subject to more
rapid repayment than their stated maturity date would indicate as a

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<PAGE>

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

Options

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

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

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<PAGE>

purchaser of a put option is that it may hedge against a decrease in the price
of portfolio securities it ultimately wishes to sell.

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

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

Stock Index Options

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

When an Equity Fund writes an option on a stock index, it will deposit
cash or high grade liquid debt obligations or a combination of both in an
amount equal to the market value of the option, in a segregated account, which
will be marked to market daily, with the Fund's custodian, and will maintain
the account while the option is open.

Futures Contracts and Options on Futures Contracts

When deemed advisable by the Adviser, each of the Equity Funds may enter
into futures contracts and purchase and write options on futures contracts to
hedge against changes in interest rates, securities prices or currency exchange
rates or for certain non-hedging purposes. The Funds may purchase and sell
financial futures contracts, including stock index futures, and purchase and
write related options. A Fund may engage in futures and related options
transactions for bona fide hedging and non-hedging purposes as defined in
regulations of the Commodity

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<PAGE>

Futures Trading Commission. A Fund will not enter into futures contracts or
options thereon for non-hedging purposes, if immediately thereafter, the
aggregate initial margin and premiums required to establish non-hedging
positions in futures contracts and options on futures will exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. Transactions in futures
contracts and options on futures involve brokerage costs, require margin
deposits and, in the case of contracts and options obligating the Funds to
purchase securities, require the Funds to segregate cash or high grade liquid
debt obligations with a value equal to the amount of the Fund's obligations.

Limitations and Risks Associated With Transactions In Options, Futures
Contracts and Options on Futures Contracts

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

The use of options and futures are highly specialized activities which
involve investment techniques and risks that are different from those
associated with ordinary portfolio transactions. Gains and losses on
investments in options and futures depend on the Adviser's ability to predict
the direction of stock prices and other economic factors. The loss that may be
incurred by a Fund in entering into futures contracts and written options
thereon is potentially unlimited. There is no assurance that higher than
anticipated trading activity or other unforeseen events might not, at times,
render certain facilities of an options clearing entity or other entity
performing the regulatory and liquidity functions of an options clearing entity
inadequate, and

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<PAGE>

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.

There is no limit on the percentage of an Equity Fund's assets that may
be at risk with respect to futures contracts and related options. A Fund may
not invest more than 25% of its total assets in purchased protective put
options nor more than 5% of its total assets in purchased options other than
protective put options. A Fund's transactions in options, futures contracts and
options on futures contracts may be limited by the requirements for
qualification of the Fund as a regulated investment company for tax purposes.
See "Taxes" in the Statement of Additional Information. Options, futures
contracts and options on futures contracts are derivative instruments.

Small Capitalization Companies

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

Convertible Securities and Preferred Stocks

Subject to its investment objectives and policies, each Equity Fund may
invest in convertible securities, which are ordinarily preferred stock or
long-term debt obligations of an issuer convertible at a stated exchange rate
into common stock of the issuer. The market value of convertible securities
tends to decline as interest rates increase and, conversely, to increase as
interest rates decline. Convertible securities generally offer lower interest
or dividend yields than non-convertible securities of similar quality. However,
when the market price of the common stock underlying a convertible security
exceeds the conversion price, the price of the convertible security tends to
reflect the value of the underlying common stock. As the

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<PAGE>

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. In evaluating a convertible security, the Adviser
will give primary emphasis to the attractiveness of the underlying common
stock. The convertible debt securities in which each Fund may invest are
subject to the same rating criteria and downgrade policy as the Fund's
investments in fixed income securities.

Diversification and Concentration of Investments

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

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

Additional Investment Techniques

When-Issued Securities and Forward Commitments. Each Fund may purchase
securities on a when-issued, delayed delivery or forward commitment basis. When
these transactions are negotiated, the price of the securities is fixed at the
time of the commitment, but delivery and payment may take place up to 90 days
after the date of the commitment to purchase for equity securities, and up to
45 days after such date for fixed income securities. When-issued securities or
forward commitments involve a risk of loss if the value of the security to be
purchased

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<PAGE>

declines prior to the settlement date. When a Fund purchases securities on a
forward commitment or when-issued basis, the Fund's custodian will maintain in
a segregated account cash or liquid high grade debt obligations having a value
(determined daily) at least equal to the amount of the Fund's purchase
commitment. Although each Fund will purchase securities on a when-issued basis
only with the intention of actually acquiring securities for its portfolio, a
Fund may dispose of a when-issued security prior to settlement if the Adviser
deems it appropriate to do so.

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

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

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

Warrants. Each Equity Fund may invest in warrants. Warrants generally
entitle the holder to buy a specified number of shares of common stock at a
specified price, which is often higher than the market price at the time of
issuance, for a period of years or in perpetuity. Warrants may be issued in
units with other securities or separately, and may be freely transferrable and
traded on exchanges. While the market value of a warrant tends to be more
volatile than that of the securities

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<PAGE>

underlying the warrant, the market value of a warrant may not necessarily
change with that of the underlying security. A warrant ceases to have value if
it is not exercised prior to any expiration date to which the warrant is
subject.

Lending Securities. For the purpose of realizing income, each Equity Fund
may lend to broker-dealers portfolio securities amounting to not more than 33
1/3% of its total assets taken at current value. These transactions must be
fully collateralized by cash, cash equivalents or U.S. Government securities at
all times. They nevertheless involve some credit risk to a Fund if the other
party should default on its obligation and the Fund is delayed in or prevented
from recovering the collateral.

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

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

ADDITIONAL INVESTMENT INFORMATION

Investment Restrictions

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<PAGE>

investment restrictions and policies are nonfundamental and can be changed by
the Board of Trustees of the Trust at any time without shareholder approval.
Each Fund's shareholders will, however, be given 30 days' advance written
notice of any change in the Fund's investment objective.

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

Portfolio Transactions

The primary consideration in selecting broker-dealers to execute
portfolio security transactions is the execution of such portfolio transactions
at the most favorable prices. Because shares of the Funds are not marketed
through intermediary broker-dealers, it is not the Adviser's practice to
allocate brokerage or effect principal transactions with broker-dealers on the
basis of sales of shares that may be made through such firms. Subject to the
most favorable price requirement and the provisions of Section 28(e) of the
Securities Exchange Act of 1934, as amended, securities may be bought from or
sold to broker-dealers who have furnished statistical, research and other
information or services to the Adviser. Higher commissions may be paid to
broker-dealers that provide research services. See "Portfolio Transactions and
Brokerage Commissions" in the Statement of Additional Information for a more
detailed discussion of portfolio transactions. The Trustees will periodically
review each Fund's portfolio transactions.

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

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<PAGE>

Portfolio Turnover

It is estimated that, under normal circumstances, the portfolio turnover
rate of each of the Equity Funds will not exceed 150%. It is estimated that,
under normal circumstances, the portfolio turnover rate of each of the Fixed
Income Funds and the Municipal Funds will not exceed 175%. The higher portfolio
turnover rates of the Fixed Income Funds and the Municipal Funds may result
from their respective portfolio management strategies. The Fixed Income Funds
and the Municipal Funds may sell securities held for a short time in order to
take advantage of what the Adviser believes to be temporary disparities in
normal yield relationships between securities. A high rate of portfolio
turnover (i.e., 100% or higher) will result in correspondingly higher
transaction costs to a Fund, increase the likelihood of taxable short-term
gains and, under some circumstances, make it more difficult for the Fund to
qualify as a regulated investment company under the Code (see "Portfolio
Transactions" and "Dividends, Distributions and Taxes").

MANAGEMENT OF THE FUNDS

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

The Adviser

MGCM, 885 Third Avenue, New York, New York, acts as investment adviser to
each Fund pursuant to the terms of two investment advisory contracts between
the Trust, on behalf of the Funds, and MGCM (the "Advisory Contracts"). MGCM is
registered as an investment adviser with the Commission and provides a full
range of investment advisory services to institutional clients. All of the
outstanding voting stock of MGCM is owned by Morgan Grenfell Asset Management,
Ltd. ("MGAM"), which is a wholly-owned subsidiary of Deutsche Morgan Grenfell
Group plc. Deutsche Morgan Grenfell Group plc is an indirect wholly-owned
subsidiary of Deutsche Bank AG, an international commercial and investment
banking group. Together with MGCM and its other investment management
subsidiaries, Deutsche Morgan Grenfell Group plc had over US$44.02 billion
under management as of June 30, 1994.

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

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<PAGE>

<TABLE>
<CAPTION>
Annual Rate
-----------
<S> <C>
Morgan Grenfell Fixed Income Fund 0.40%
Morgan Grenfell Municipal Bond Fund 0.40%
Morgan Grenfell Short-Term Fixed Income Fund 0.40%
Morgan Grenfell Short-Term Municipal Bond Fund 0.40%
Morgan Grenfell Smaller Companies Fund 1.00%
Morgan Grenfell Large Cap Growth Fund 0.75%

</TABLE>

The advisory fees paid by Large Cap Growth Fund and Smaller Companies
Fund are higher than the fees paid by most funds but the Adviser believes they
are comparable to the fees paid by funds having similar investment objectives.
As described in "Expense Information," the Adviser has voluntarily agreed to
reduce its advisory fee to the extent necessary to limit each Fund's operating
expenses to a specified level. For the year ended October 31, 1994, this
voluntary agreement was in effect with respect to Morgan Grenfell Fixed Income
Fund and Morgan Grenfell Municipal Bond Fund (the only two Funds then in
operation), and these Funds each paid advisory fees equal to 0.26% of their
respective average daily net assets during such year.

Each Fixed Income Fund and Municipal Fund is managed by David W. Baldt,
who is the Adviser's Fixed Income Manager. Mr. Baldt has been in the investment
advisory business since 1973 (with the Adviser since 1989) and has managed
fixed income investments since 1973.

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

The Large Cap Growth Fund is managed by a committee consisting of
investment professionals employed by the Adviser. This committee makes
investment decisions for the Fund.

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

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<PAGE>

Information." In the event that a Fund's expenses for any fiscal year exceed
the limits established by certain state securities administrators, the Adviser
will reduce its fee payable on behalf of such Fund by the amount of such
excess, but only to the extent of the Fund's advisory fee.

Administrator and Distributor

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

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

Each Fund pays the Administrator a minimum annual fee of $50,000. For the
fiscal year ended October 31, 1994, the Administrator received fees from the
Fixed Income Fund and the Municipal Bond Fund equal to 0.13% and 0.13% of their
respective average daily net assets.

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

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

Custodians and Transfer Agent

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

The Trust has entered into a Custodian Agreement with The Northern Trust
Company ("Northern"), pursuant to which Northern serves as custodian of the
assets of Morgan Grenfell Large Cap Growth Fund, Morgan

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<PAGE>

Grenfell Smaller Companies Fund, Morgan Grenfell Short-Term Fixed Income Fund
and Morgan Grenfell Short-Term Municipal Bond Fund.

DST Systems, Inc. (the "Transfer Agent"), 210 W. 10th Street, Kansas
City, Missouri 64105, serves as the transfer agent of the Funds. The Transfer
Agent maintains the records of each shareholder's account, processes purchases
and redemptions of the Funds' shares, acts as dividend and distribution
disbursing agent and performs other shareholder servicing functions.

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

PURCHASE OF SHARES

Shares of any Fund may be purchased on any Business Day at the net asset
value next determined after receipt of the order in good order by the Transfer
Agent. A "Business Day" means any day on which the New York Stock Exchange (the
"NYSE") is open. There is no sales charge in connection with purchases of
shares. Shareholders who invest in a Fund through a broker may be subject to
transaction and/or account maintemamce fees imposed by the broker (no part of
which will be received by the Trust or the Adviser). Any such fees will be
payable directly by the shareholder and not by the Fund. The Trust reserves the
right, in its sole discretion, to reject any purchase offer and to suspend the
offering of shares.

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

Purchases by Mail

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

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

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<PAGE>

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

Purchases by Wire

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

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

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

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

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

Reports to Shareholders and Confirmations

Shareholders of each Fund receive an annual report containing audited
financial statements and a semiannual report. All transactions

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

Exchange Privilege

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

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

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

An exchange is treated as a sale of the shares exchanged and, therefore,
may produce a gain or loss to the shareholder that is recognizable for tax
purposes.

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<PAGE>

REDEMPTION OF SHARES

How To Redeem

Shareholders may redeem shares of a Fund without charge upon request on
any Business Day by placing redemption requests with the Transfer Agent prior
to 4:00 p.m., Eastern Time. Shares are redeemed at the net asset value next
determined after receipt of the redemption request by the Transfer Agent.
Redemption requests may be made by telephoning Morgan Grenfell Investment Trust
at 1-800-407-7301 or by a written request addressed to the Transfer Agent in
accordance with the procedures set forth below. A written request must specify
the number of shares to be redeemed, the Fund from which shares are being
redeemed, the account number, payment instructions and the exact registration
on the account. Signatures must be guaranteed in accordance with the procedures
set forth below under "Payment of Redemption Proceeds." A shareholder may
request redemptions by telephone if the optional telephone redemption privilege
is elected on the Account Application. In order to verify the authenticity of
telephone redemption requests, the Transfer Agent's telephone representatives
will request that the caller provide certain information unique to the account.
If the caller is unable to provide this information, telephone redemption
requests will not be processed and the redemption will have to be completed by
mail. As long as the Transfer Agent's telephone representatives comply with the
procedures described above, neither the Trust nor the Transfer Agent will be
liable for any losses due to fraudulent or unauthorized transactions. Finally,
it may be difficult to implement telephone redemptions in times of drastic
economic or market changes.

Shareholders may request that redemption payments be made by Federal
Reserve Wire. The Custodian will deduct a wire charge (currently $10.00) from
redemption payments made by Federal Reserve wire.
Shareholders cannot redeem shares of any Fund by Federal Reserve
wire on Federal holidays restricting wire transfers. There is no charge for
Automated Clearing House wire transactions; however, such transactions will not
be posted to a shareholder's bank account until the second Business Day
following the transaction.

Payment of a redemption request will normally be made within seven days
after receipt of the appropriate redemption request documents, including any
additional documentation that may be required by the Transfer Agent in order to
establish that a redemption request has been properly authorized. In addition,
the payment of redemption proceeds for shares of a Fund recently purchased by
check will be delayed for up to 15 calendar days or until the check has
cleared, whichever first occurs.

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<PAGE>

Payment of Redemption Proceeds

Redemption proceeds ordinarily will be wired to the bank account
designated on the Account Application, unless payment by check has been
requested. For redemption requests received by the Transfer Agent by 4:00 p.m.,
Eastern time, redemption proceeds ordinarily will be wired the next Business
Day. Shares subject to such requests will earn dividends on the day the request
is received. After a wire has been initiated by the Transfer Agent, neither the
Transfer Agent nor the Trust assumes any further responsibility for the
performance of intermediaries or the shareholder's bank in the transfer
process. If a problem with such performance arises, the shareholder should deal
directly with such intermediaries or bank.

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

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

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<PAGE>

NET ASSET VALUE

The net asset value per share of each Fund is normally calculated as of
the close of regular trading on the NYSE, currently 4:00 p.m. Eastern time, on
each Business Day. The net asset value of each Fund's shares is determined by
adding the value of all securities, cash and other assets of the Fund,
subtracting liabilities (including accrued expenses and dividends payable) and
dividing the result by the total number of outstanding shares of the Fund.

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

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

DIVIDENDS, DISTRIBUTIONS AND TAXES

Each Equity Fund declares and pays dividends from net investment income,
if any, and distributes net short-term capital gain, if any, at least annually.
Each Fixed Income Fund and each Municipal Fund distributes substantially all of
its net investment income in the form of dividends declared daily and paid
monthly. Each Fund also distributes at least annually substantially all of its
realized net

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<PAGE>

long-term capital gain, if any, which it realizes for each taxable year and may
make distributions at any other times when necessary to satisfy applicable tax
requirements. Capital losses, including any capital loss carryovers from prior
years, are taken into account in determining the amounts of short-term and
long-term capital gains to be distributed.

From time to time, a portion of a Fund's distributions may constitute a
return of capital for tax purposes. Dividends and distributions are made in
additional shares of the same Fund or, at the shareholder's election, in cash.
The election to reinvest dividends and distributions or receive them in cash
may be changed at any time upon written notice to the Transfer Agent. If no
election is made, all dividends and capital gain distributions will be
reinvested.

Taxes

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

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

Each Municipal Fund intends to satisfy certain requirements of the Code
so that it may distribute the tax-exempt interest it receives as

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<PAGE>

"exempt-interest dividends," as defined in the Code. Distributions of a
Municipal Fund that are attributable to interest on tax-exempt obligations and
that the Municipal Fund designates as exempt-interest dividends will be
excluded from gross income for federal income tax purposes, although all or a
portion of such a distribution may increase a shareholder's liability (if any)
for the federal alternative minimum tax and the entire distribution may be
includable in the tax base for determining taxability of social security or
railroad retirement benefits. Distributions by a Municipal Fund from sources
other than tax-exempt interest will generally be taxable as described in the
preceding paragraph. Persons who are "substantial users" (or related persons to
such substantial users) of facilities financed by industrial development or
certain private activity bonds should consult their own tax advisers before
purchasing shares of a Municipal Fund. Interest on indebtedness incurred or
continued to purchase or carry shares of a Municipal Fund is not deductible to
the extent attributable to such Fund's distributions that are exempt-interest
dividends.

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

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

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

In addition to federal taxes, a shareholder may be subject to state,
local or foreign taxes on dividends, capital gain distributions, or the
proceeds of redemptions or exchanges. A state and local tax exemption may be
available in some states to the extent distributions of a Fund are derived from
interest on certain direct U.S Government Securities or, in the case of the
Municipal Funds, interest on municipal securities of certain issuers in the
state or locality imposing the applicable taxes. Shareholders should consult
their tax advisors regarding specific questions about federal, state, local or
foreign taxes and special rules that may be applicable to certain classes of

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<PAGE>

investors, such as retirement plans, financial institutions, tax-exempt
entities, insurance companies and non-U.S. persons.

ORGANIZATION AND SHARES OF THE TRUST

The Trust was formed as a business trust under the laws of the State of
Delaware on September 13, 1993, and commenced investment operations on January
3, 1994. The Board of Trustees of the Trust is responsible for the overall
management and supervision of the affairs of the Trust. The Declaration of
Trust authorizes the Board of Trustees to create separate investment series or
portfolios of shares. As of the date hereof, the Trustees have established the
Funds described in this Prospectus and the following additional eleven series:
Morgan Grenfell International Equity Fund, Morgan Grenfell Global Equity Fund,
Morgan Grenfell European Equity Fund, Morgan Grenfell Pacific Basin Equity
Fund, Morgan Grenfell International Small Cap Equity Fund, Morgan Grenfell
Emerging Markets Equity Fund, Morgan Grenfell Global Fixed Income Fund, Morgan
Grenfell International Fixed Income Fund and Morgan Grenfell Emerging Markets
Debt Fund. Until December 28, 1994, the Fixed Income Fund and the Municipal
Bond Fund were series of The Advisors' Inner Circle Fund, a business trust
organized under the laws of The Commonwealth of Massachusetts on July 18, 1991.
The Declaration of Trust further authorizes the Trust to classify or reclassify
any series or portfolio of shares into one or more classes. As of the date
hereof, the Trustees have not authorized the issuance of any classes of shares
of the Funds.

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

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

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<PAGE>

either shares having a net asset value of $25,000 or 1% of the outstanding
shares, whichever is less, seek to call a meeting for the purpose of removing a
Trustee, the Trust has agreed to provide certain information to such
shareholders and generally to assist their efforts.

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

As of October 11, 1995, the Adviser owned 100% of the outstanding shares
of the Smaller Companies Fund.

PERFORMANCE INFORMATION

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

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

To help investors better evaluate how an investment in a Fund might
satisfy their investment objective, advertisements regarding the Fund may
discuss performance as reported by various financial

-39-

<PAGE>

publications. Advertisements may also compare performance as reported for
other investments, indices and averages.

Performance quotations of a Fund represent the Fund's past performance
and, consequently, should not be considered representative of the future
performance of the Fund. The value of Fund shares, when redeemed, may be more
or less than the original cost. Any fees charged by banks or other
institutional investors directly to their customer accounts in connection with
investments in shares of a Fund are not at the direction or within the control
of the Funds and will not be included in the Funds' calculations of total
return.

-40-

<PAGE>

APPENDIX A - 1

TAX CERTIFICATION INSTRUCTIONS

Federal law requires that taxable distributions and proceeds of
redemptions and exchanges be reported to the IRS and that 31% be withheld if
you fail to provide your correct Taxpayer Identification Number (TIN) and the
certifications in Section H or you are otherwise subject to backup withholding.
Amounts withheld and forwarded to the IRS can be credited as a payment of tax
when completing your Federal income tax return.

For most individual taxpayers, the TIN is the social security number.
Special rules apply for certain accounts. For example, for an account
established under the Uniform Gift to Minor's Act, the TIN of the minor should
be furnished. If you do not have a TIN, you may apply for one using forms
available at local offices of the Social Security Administration or the IRS.

Recipients exempt from backup withholding, including corporations and
certain other entities, should provide their TIN and write "exempt" after their
signature in section H of the application to avoid possible erroneous
withholding. Non-resident aliens and foreign entities may be subject to
withholding of up to 30% on certain distributions received from the Funds and
must provide certain certifications on IRS Form W-8 to avoid backup withholding
with respect to other payments. For further information, see IRC 1441, and 1442
and 3406 and/or consult your tax adviser.

<PAGE>

Morgan Grenfell Investment Trust
885 Third Avenue
New York, New York 10022

Investment Adviser
Morgan Grenfell Capital Management, Inc.
885 Third Avenue
New York, New York 10022

Administrator and Shareholder
Servicing Agent
SEI Financial Management Corporation
680 East Swedesford Road
Wayne, Pennsylvania 19087-1658

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

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

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

Transfer Agent
DST Systems, Inc.
SEI Division CT-7 Tower
210 W. 10th Street
Kansas City, Missouri 64105

Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036

Legal Counsel
Hale and Dorr
60 State Street
Boston, Massachusetts 02109

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

<PAGE>
MORGAN GRENFELL INVESTMENT TRUST
No-Load Open-End Funds
885 Third Avenue
New York, New York 10022

December 19, 1995

Morgan Grenfell Investment Trust (the "Trust") is an open-end
management investment company that includes eleven distinct investment
portfolios that focus on international investing (the "Funds"). Morgan Grenfell
Investment Services Limited (the "Adviser" or "MGIS"), based in London England,
serves as investment adviser to the Funds. The Funds are designed for long-term
investors seeking to participate in foreign securities markets.

The investment objective of Morgan Grenfell International Equity Fund,
Morgan Grenfell Global Equity Fund, Morgan Grenfell European Equity Fund, Morgan
Grenfell Pacific Basin Equity Fund, Morgan Grenfell International Small Cap
Equity Fund, Morgan Grenfell Japanese Small Cap Equity Fund, Morgan Grenfell
European Small Cap Equity Fund and Morgan Grenfell Emerging Markets Equity Fund
(the "Equity Funds") is to maximize capital appreciation. The investment
objective of Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell
International Fixed Income Fund and Morgan Grenfell Emerging Markets Debt Fund
(the "Fixed Income Funds") is to maximize total return.

Information concerning investment portfolios of the Trust that focus on
U.S. investments is contained in a separate prospectus that may be obtained by
calling 1-800-814-3401.

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

This Prospectus provides information about the Trust and each of the
Funds that investors should know before investing in the Funds. Investors should
carefully read this Prospectus and retain it for future reference. For investors
seeking more detailed information, the Statement of Additional Information dated
October 26, 1995, as amended or supplemented from time to time, is available
upon request without charge by calling the applicable telephone number listed on
the back cover or by writing SEI Financial Services Company, 680 East Swedesford
Road, Wayne, Pennsylvania 19087-1658. The Statement of Additional Information,
which is incorporated by reference into this Prospectus, has been filed with the
Securities and Exchange Commission. Not all of the Funds are available in
certain states. Please call 1-800-814-3401 to determine availability in a
particular state.

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

INVESTMENTS IN EMERGING MARKETS CAN INVOLVE SIGNIFICANT RISKS, AND
MORGAN GRENFELL EMERGING MARKETS EQUITY FUND AND MORGAN GRENFELL EMERGING
MARKETS DEBT FUND ARE DESIGNED FOR AGGRESSIVE INVESTORS. IN ADDITION, MORGAN
GRENFELL EMERGING MARKETS DEBT FUND INVESTS IN LOWER-QUALITY DEBT SECURITIES
(JUNK BONDS), WHICH PRESENT HIGHER RISKS OF UNTIMELY INTEREST AND PRINCIPAL
PAYMENTS, DEFAULT, AND PRICE VOLATILITY THAN HIGHER-QUALITY SECURITIES, AND MAY
PRESENT LIQUIDITY AND VALUATION PROBLEMS.

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

<PAGE>

Each Fund's primary investments are summarized below:

Morgan Grenfell International Equity Fund invests primarily in equity
and equity-related securities of companies in countries other than the United
States.

Morgan Grenfell Global Equity Fund invests primarily in equity and
equity-related securities of companies throughout the world.

Morgan Grenfell European Equity Fund invests primarily in equity and
equity-related securities of companies in Europe.

Morgan Grenfell Pacific Basin Equity Fund invests primarily in equity
and equity-related securities of companies in Pacific Basin countries.

Morgan Grenfell International Small Cap Equity Fund invests primarily
in equity and equity-related securities of small capitalization companies in
countries other than the United States.

Morgan Grenfell Japanese Small Cap Equity Fund invests primarily in
equity and equity-related securities of small capitalization companies in Japan.

Morgan Grenfell European Small Cap Equity Fund invests primarily in
equity and equity-related securities of small capitalization companies in
Europe.

Morgan Grenfell Emerging Markets Equity Fund invests primarily in
equity and equity-related securities of companies in countries with emerging
securities markets.

Morgan Grenfell Global Fixed Income Fund invests primarily in fixed
income securities of issuers throughout the world.

Morgan Grenfell International Fixed Income Fund invests primarily in
fixed income securities of issuers in countries other than the United States.

Morgan Grenfell Emerging Markets Debt Fund invests primarily in fixed
income securities of issuers in countries with emerging securities markets.

[GRAPHIC-ENDNOTE]

ii
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Expense Information 1
Financial Highlights 3
Introduction to the Funds 4
Investment Objectives and Polices 7
Description of Securities and Investment Techniques 14
and Related Risks
Additional Investment Information 28
Management of the Funds 29
Purchase of Shares 32
Redemption of Shares 34
Net Asset Value 36
Dividends, Distributions and Taxes 37
Organization and Shares of the Trust 38
Performance Information 39
Appendix A........................................... A-1
Appendix B........................................... B-1
Appendix C........................................... C-1
Appendix D........................................... D-1
</TABLE>

iii
<PAGE>

EXPENSE INFORMATION
<TABLE>
<CAPTION>
International Japanese
FUND NAME International Global European Pacific Basin Small Cap Small Cap
Equity Fund Equity Fund Equity Fund Equity Fund Equity Fund Equity Fund
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses

Maximum Sales Charge
Imposed on Purchases........................ None None None None None None

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

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

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

Annual Fund Operating Expenses
(as a percentage of average net assets
after reduction of advisory fee)

Advisory fees............................... 0.70% 0.70% 0.70% 0.70% 1.00% 1.00%

Administration fees......................... 0.15% 0.15% 0.15% 0.15% 0.14% 0.15%

Other Expenses.............................. 0.55% 0.55% 0.55% 0.55% 0.53% 0.55%

Reduction of Advisory Fee by Adviser*...... (0.50)% (0.50)% (0.50)% (0.50)% (0.42)% (0.45)%

Net Fund Operating Expenses................. 0.90% 0.90% 0.90% 0.90% 1.25% 1.25%

<CAPTION>
(continued) European Emerging International Emerging
FUND NAME Small Cap Markets Global Fixed Fixed Markets
Equity Fund Equity Fund Income Fund Income Fund Debt Fund
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses

Maximum Sales Charge
Imposed on Purchases........................ None None None None None

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

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

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

Annual Fund Operating Expenses
(as a percentage of average net assets
after reduction of advisory fee)

Advisory fees............................... 1.00% 1.00% 0.50% 0.50% 1.50%

Administration fees......................... 0.15% 0.14% 0.14% 0.25% 0.20%

Other Expenses.............................. 0.55% 0.54% 0.53% 0.56% 0.81%

Reduction of Advisory Fee by Adviser*...... (0.45)% (0.43)% (0.42)% (0.56)% (1.01)%

Net Fund Operating Expenses................. 1.25% 1.25% 0.75% 0.75% 1.50%
</TABLE>

*The Advisor has agreed to reduce its advisory fee to the extent necessary
to limit Fund Operting Expenses of each Fund, on an annual basis, to the
specified percentage of each Fund's assets shown in the above table as Net Fund
Operating Expenses. The above table and the following Example reflect this
voluntary agreement. In its sole discretion, the Advisor may terminate or modify
this voluntary agreement at any time although the Advisor has no present
intention of doing so. The purpose of this voluntary agreement is to enhance a
Fund's total return during the period when, because of its smaller size, fixed
expenses have a more significant impact on total return. If the Advisor's
voluntary agreement were not in effect, the Fund Operating Expenses for each
Fund would be as follows: International Equity Fund, 1.40%; Global Equity Fund,
1.40%; European Equity Fund, 1.40%; Pacific Basin Equity Fund, 1.40%;
International Small Cap Equity Fund, 1.67%; Japanese Small Cap Equity Fund,
1.70%; European Small Cap Equity Fund, 1.70%; Emerging Markets Equity Fund,
1.68%; Global Fixed Income Fund, 1.17%; International Fixed Income Fund, 1.31%
and Emerging Markets Debt Fund, 2.51%.

-1-
<PAGE>

Example:

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

<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Morgan Grenfell International Equity Fund $ 9 $29 $50 $111
Morgan Grenfell Global Equity Fund $ 9 $29 $50 $111
Morgan Grenfell European Equity Fund $ 9 $29 $50 $111
Morgan Grenfell Pacific Basin Equity Fund $ 9 $29 $50 $111
Morgan Grenfell International Small Cap Equity Fund $13 $40 $69 $151
Morgan Grenfell Japanese Small Cap Equity Fund $13 $40 $69 $151
Morgan Grenfell European Small Cap Equity Fund $13 $40 $69 $151
Morgan Grenfell Emerging Markets Equity Fund $13 $40 $69 $151
Morgan Grenfell Global Fixed Income Fund $ 8 $24 $42 $ 93
Morgan Grenfell International Fixed Income Fund $ 8 $24 $42 $ 93
Morgan Grenfell Emerging Markets Debt Fund $15 $47 $82 $179
</TABLE>

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

The purpose of the Expense Information Table and Example is to assist
investors in understanding the various direct and indirect costs and expenses
that an investment in a Fund will bear. For Morgan Grenfell International Small
Cap Equity Fund, Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell
Emerging Markets Equity Fund, Morgan Grenfell International Fixed Income Fund
and Morgan Grenfell Emerging Markets Debt Fund, "Other Expenses" included in the
Expense Information Table and Example are estimates for the fiscal year ending
October 31, 1995 that are based on actual expenses incurred during the fiscal
period ended October 31, 1994. For the other Funds, which had no operating
history during such period, "Other Expenses" are based solely on estimates for
the current fiscal year ending October 31, 1995 (assumes each Fund has average
net assets of $25 million for such year). The Example assumes reinvestment of
all dividends and distributions and that the percentage amounts listed in the
Expense Information Table remain the same each year. If the Adviser were to
discontinue its voluntary fee waivers, the expenses contained in the Example
could increase.

The Example is designed for information purposes only, and should not
be considered a representation of future expenses or return for any Fund. Actual
expenses and return vary from year to year and may be higher or lower than those
shown. For further information regarding advisory and administration fees, and
other expenses of the Funds, see "Management of the Funds."

-2-
<PAGE>

FINANCIAL HIGHLIGHTS

Set forth below are selected unaudited data for (1) an outstanding share
of each of Morgan Grenfell International Small Cap Equity Fund, Morgan Grenfell
Global Fixed Income Fund, Morgan Grenfell Emerging Markets Equity Fund, Morgan
Grenfell International Fixed Income Fund and Morgan Grenfell Emerging Markets
Debt Fund (formerly named Morgan Grenfell Emerging Markets Fixed Income Fund)
during the 6-month period ended April 30, 1995; (2) an outstanding share of
Morgan Grenfell European Small Cap Equity Fund during the period from its
inception to April 30, 1995; and (3) an outstanding share of Morgan Grenfell
International Equity Fund during the period from its inception to September 30,
1995. Selected data for an outstanding share of each of the above Funds (other
than European Small Cap Equity Fund and International Equity Fund) during the
period from its inception to October 31, 1994 are also set forth below. The
data for periods ended October 31, 1994 has been audited by Price Waterhouse
LLP, independent accountants, whose report thereon was unqualified.

The information set forth below should be read in conjunction with the
financial statements and notes thereto which appear in the Statement of
Additional Information. The Statement of Additional Information is available
free of charge by calling 1-800-814-3401. No information is presented below for
the Funds that had not commenced operations by June 30, 1995.

<TABLE>
<CAPTION>
For a Share Outstanding Throughout Each Period (T)
Net
Net Asset Net Realized Distributins Distributions
Value Investment and from Net from Realized Net Asset
Beginning Income/ Unrealized Investment Capital Value End
Year of Period Loss Gains/Losses Income (8) Gains of Period
---- --------- ---- ---------- ---------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------
European Small Cap Equity Fund
- -----------------------------------
1995*(1) $10.00 $ 0.12 $ 0.35 (0.01) -- $10.46
- -----------------------------------
International Small Cap Equity Fund
- -----------------------------------
1995* $10.35 $ 0.01 $(1.30) (0.04) (0.22) $ 8.80
1994(2) $10.00 $ 0.02 $ 0.33 -- -- $10.35
- -----------------------------------
Emerging Markets Equity Fund
- -----------------------------------
1995* $11.00 $ 0.01 $(2.31) (0.02) (0.62) $ 8.06
1994(3) $10.00 $(0.01) $ 1.01 -- -- $11.00
- -----------------------------------
Global Fixed Income Fund
- -----------------------------------
1995* $ 9.85 $ 0.35 $ 0.66 (0.20) -- $10.66
1994(4) $10.00 $ 0.25 $(0.40) -- -- $ 9.85
- -----------------------------------
International Fixed Income Fund
- -----------------------------------
1995* $ 9.94 $ 0.21 $ 0.77 (0.05) -- $10.87
1994(5) $10.00 $ 0.29 $(0.35) -- -- $ 9.94
- -----------------------------------
Emerging Markets Debt Fund
- -----------------------------------
1995* $10.19 $ 0.20 $(0.79) (0.11) (0.01) $ 9.48
1994(6) $10.00 $ 0.13 $ 0.06 -- -- $10.19
- -----------------------------------
International Equity Fund
- -----------------------------------
1995(7)** $10.00 $ 0.07 $ 0.99 -- -- $11.06

<PAGE>

<CAPTION>
(continued)
Ratio of Net
Ratio of Investment
Ratio of Net Expenses Income(Loss)
Ratio of Investment to Average to Average
Net Assets Expenses to Income(Loss) Net Assets Net Assets Portfolio
Total End of Average to Average (Excluding (Excluding Turnover
Return Period (000) Net Assets Net Assets Waivers) Waivers) Rate
------ ------------ --------- ---------- -------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------
European Small Cap Equity Fund
- -----------------------------------
4.75% $ 7,336 1.25% 1.40% 2.33% 0.32% 14%
- -----------------------------------
International Small Cap Equity Fund
- -----------------------------------
(12.62)% $58,107 1.25% 0.18% 1.58% (0.15)% 37%
3.50% $68,798 1.25% 0.34% 1.67% (0.08)% 41%
- -----------------------------------
Emerging Markets Equity Fund
- -----------------------------------
(21.48)% $67,282 1.25% (0.16)% 1.61% (0.52)% 16%
10.00% $56,892 1.36% (0.12)% 1.79% (0.55)% 45%
- -----------------------------------
Global Fixed Income Fund
- -----------------------------------
10.46% $80,508 0.83% 5.89% 0.98% 5.74% 79%
(1.50)% $53,915 0.85% 5.71% 1.28% 5.28% 173%
- -----------------------------------
International Fixed Income Fund
- -----------------------------------
9.81% $21,235 0.83% 5.00% 1.33% 4.50% 103%
(0.60)% $15,238 0.85% 5.66% 1.42% 5.09% 130%
- -----------------------------------
Emerging Markets Debt Fund
- -----------------------------------
(5.88)% $47,627 1.90% 9.68% 2.06% 9.52% 122%
1.90% $16,248 1.90% 7.04% 2.60% 6.34% 52%
- -----------------------------------
International Equity Fund
- -----------------------------------
10.60% $ 2,766 0.90% 1.85% 2.99% (0.24)% 13%
</TABLE>

* Unaudited data, for the Period ended April 30, 1995
** Unaudited data for the Period ended September 30, 1995
(1) European Small Cap Equity Fund commenced operations on 11/1/94.
(2) International Small Cap Equity Fund commenced operations on 1/3/94.
(3) Emerging Markets Equity Fund commenced operations on 2/2/94.
(4) Global Fixed Income Fund commenced operations on 1/3/94.
(5) International Fixed Income Fund commenced operations on 3/15/94.
(6) Emerging Markets Debt Fund commenced operations on 8/4/94.
(7) International Equity Fund commenced operations on 5/15/95.
(8) Distributions from net investment income include distributions of certain
foreign currency gains and losses.
(T) All ratios, excluding total return and portfolio turnover rate are
annualized.

-3-
<PAGE>

INTRODUCTION TO THE FUNDS

Morgan Grenfell Investment Trust (the "Trust") offers a number of
mutual funds, each of which is a separate series of the Trust. This prospectus
relates solely to shares of the Funds. Information regarding the Trust's other
mutual funds (the "Domestic Funds"), which invest primarily in U.S. securities
markets, is contained in a separate prospectus that may be obtained by calling
1-800-814-3401.

Under normal market conditions, the Funds will invest primarily in
foreign securities. Investing primarily in foreign securities and across
international borders presents growth opportunities and potentially higher
returns than could be achieved by investing solely in the United States. Over
the last three decades, the growth rates of many foreign economies have outpaced
that of the United States. International investing permits participation in the
economies of countries with business cycles and stock and bond market
performance often different from that in the United States and, with more than
one-half of the world's stock and bond market value outside the United States,
it can help broaden the investments of a portfolio otherwise solely invested in
domestic securities. International investments also involve certain risks not
normally associated with domestic investments. The Funds are designed for
long-term investors comfortable with the special risk and return characteristics
of investing internationally. See "Description of Securities and Investment
Techniques and Related Risks."

MGIS, a member of the London-based Deutsche Morgan Grenfell Group,
serves as the investment adviser to each of the Funds. The London-based Deutsche
Morgan Grenfell Group has been managing international investments for over
thirty years and now has over US$ 80 billion of assets under management. Within
the Deutsche Morgan Grenfell Group, MGIS has specialized in delivering
international investment management services to U.S. investors in both equity
and fixed income markets.

Geographic and Issuer Focus

For purposes of each Fund's investment objective and policies, a
company is considered to be located in a particular country if it (1) is
organized under the laws of that country and has a principal place of business
in that country or (2) derives 50% or more of its total revenues from business
in that country.

European Equity Fund, Pacific Basin Equity Fund, Japanese Small Cap
Equity Fund and European Small Cap Equity Fund focus their respective
investments in the particular region or country reflected in their names. In
contrast, International Equity Fund, Global Equity Fund, International Small Cap
Equity Fund, Global Fixed Income Fund and International Fixed Income Fund may
spread their investments across world markets.

International Small Cap Equity Fund, Japanese Small Cap Equity Fund and
European Small Cap Equity Fund focus their investments on equity securities of
companies with market capitalizations that are small relative to the market
capitalizations of other issuers in the same market. Each of these Funds has its
own policy regarding what constitutes a small capitalization company. See
"Investment Objective and Policies." Small capitalization companies may offer
greater opportunities for capital growth than larger, more mature companies, but
investments in small capitalization companies also involve special risks. See
"Description of Securities and Investment Techniques and Related Risks--Small
Capitalization Companies."

-4-
<PAGE>

Emerging Markets Equity Fund and Emerging Markets Debt Fund seek to
attain their objectives by focusing on what are, in the Adviser's view, the most
promising markets and companies in the world's rapidly developing countries.
While emerging markets are highly volatile and subject to change with political
or economic developments, a number of emerging markets have significantly
outperformed the world's major stock and bond markets over the past several
years.

Each of the Fixed Income Funds is non-diversified under the Investment
Company Act of 1940 (the "1940 Act") and, therefore, may be more susceptible
than the Equity Funds to developments affecting any single issuer of portfolio
securities. See "Description of Securities and Investment Techniques and Related
Risks--Diversification." Each of the Equity Funds is diversified under the 1940
Act.

Certain of the Funds have no operating history and there can be no
assurance that a Fund will achieve its investment objective.

Selection of Portfolio Securities

Equity and Equity-Related Securities. Equity and equity-related
securities in which the Equity Funds may invest include common stock, preferred
stock, and warrants, purchased call options and other rights to acquire stocks.
See "Description of Securities and Investment Techniques and Related Risks." In
selecting equity and equity-related securities for the Equity Funds' portfolios,
the Adviser will focus on those companies which have earnings growth that, in
the Adviser's view, has not been sufficiently reflected in the market price of
the security. The Equity Funds may also invest in equity and equity-related
securities where the fundamental value of the issuer is believed to be greater
than its current market price. Fundamental value will be determined by taking
into account various factors including earnings per share, the ratio of book
value to market price, and the company's cash flow and dividend yield. While
individual security selection is an important part of the investment process,
macro-economic factors such as prospects for relative economic growth among
countries, regions or geographic areas, expected levels of inflation and
political policies influencing business conditions will also be considered.

Fixed Income Securities. Fixed income securities in which the Equity
Funds and Fixed Income Funds may invest include U.S. and foreign government
securities and corporate fixed income securities. See "Description of Securities
and Investment Techniques and Related Risks--Fixed Income Securities." In
managing the Fixed Income Funds, the Adviser uses a top-down approach which
gives primary emphasis to the relative attractiveness of bond markets and
currencies. Markets are selected after consideration is given to their risk and
return outlook under various economic scenarios. Currencies are evaluated
separately, and the underlying currency mix of each Fund's position in fixed
income securities generally is designed to enhance returns during periods of
relative U.S. dollar weakness and to protect return during periods of relative
U.S. dollar strength. These investment decisions require consideration of
macro-economic factors such as inflation, interest rates, monetary and fiscal
policies, taxation and political climate. The Adviser also considers the
characteristics of individual securities and issuers.

The fixed income securities in which each Fund may invest may have
stated maturities ranging from overnight to forty years. Each Fixed Income
Fund's weighted average maturity will vary based upon the Adviser's assessment
of economic and market conditions.

-5-
<PAGE>

Investment Techniques and Related Risks

Foreign Securities. Investing in the securities of foreign issuers and
of companies whose securities are principally traded outside the United States
involves considerations and potential risks not typically associated with
investing in the securities of U.S. issuers whose securities are principally
traded in the United States. For example, in many foreign countries, securities
markets are less liquid, more volatile and less subject to governmental
regulation than U.S. securities markets. Also, in many foreign countries, there
is less publicly available information about foreign issuers. Moreover, the
value of the securities of foreign issuers held in a Fund's portfolio will be
affected by changes in currency exchange rates, which may be incurred due to
either changes in securities prices expressed in local currencies or due to
movements in exchange rates, or both. See "Description of Securities and
Investment Techniques and Related Risks--Foreign Securities."

Foreign Currency Transactions. To manage exposure to fluctuations in
currency exchange rates and, in some circumstances, to seek to profit from
exchange rate fluctuations, each Fund may employ certain currency management
techniques, including forward foreign currency exchange contracts, options and
futures on currencies and currency swaps. These transactions are considered
speculative when entered into for non-hedging purposes. In addition, each Fund
may also employ a variety of active investment management techniques, including
entering into options, futures, options on futures, interest rate swaps and
when-issued and forward commitment transactions in order to hedge its positions
against potential adverse changes in future foreign currency exchange rates and
for non-hedging purposes. Engaging in these transactions entails special risks.
See "Description of Securities and Investment Techniques and Related
Risks--Currency Management Techniques."

Fixed Income Securities. The net asset value of the shares of the Funds
investing in fixed income securities will change in response to fluctuations in
interest rates and in currency exchange rates. When interest rates decline, the
value of fixed income securities generally can be expected to rise. Conversely,
when interest rates rise, the value of fixed income securities generally can be
expected to decline. The performance of investments in fixed income securities
denominated in a foreign currency generally can be expected to increase when the
value of the foreign currency appreciates. A rise in foreign interest rates or a
decline in the value of foreign currencies relative to the U.S. dollar generally
can be expected to depress the value of a Fund's investments in securities
denominated in a foreign currency. See "Description of Securities and Investment
Techniques and Related Risks--Fixed Income Securities."

Lower Quality Fixed Income Securities. The Emerging Markets Debt Fund
may invest in fixed income securities which are unrated or rated in the lowest
rating categories by Standard & Poor's Ratings Group ("Standard & Poor's") or
Moody's Investors Service, Inc. ("Moody's") (i.e., ratings of BB or lower by
Standard & Poor's or Ba or lower by Moody's). Securities rated BB or Ba or below
(or comparable unrated securities) are considered speculative, and payments of
principal and interest thereon may be questionable. In some cases, these
securities may be highly speculative, have poor prospects for reaching
investment grade standing and be in default. See "Description of Securities and
Investment Techniques and Related Risks--Fixed Income Securities."

Temporary Defensive Investments. When market conditions warrant, in
the judgment of the Adviser, each Fund may, for temporary defensive purposes,
invest up to 100% of its total assets in U.S. and Canadian dollars, U.S.
Government securities maturing within one year (including repurchase

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agreements collateralized by such securities) and commercial paper of U.S. or
foreign issuers, cash equivalents and certain high grade fixed income
securities. See "Description of Securities and Investment Techniques and
Related Risks--Temporary Defensive Investments."

INVESTMENT OBJECTIVES AND POLICIES

International Equity Fund

The investment objective of the International Equity Fund is to
maximize capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of
companies located in countries other than the United States. The Fund will focus
on securities traded in equity markets of the countries represented in the
Morgan Stanley Capital International-Europe Australia Far East Index (the
"EAFE(R) Index") but may decide, on a stock-specific basis, to make investments
in other foreign markets. The EAFE(R) Index includes the equity markets of
Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
Ireland, Italy, Japan, Malaysia, the Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland and the United Kingdom. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
equity and equity-related securities of companies in at least three foreign
countries.

The Fund may invest more than 25% of its total assets in each of Japan
and the United Kingdom. The concentration of the Fund's investments in these
countries will cause the Fund to be particularly susceptible to the effects of
political and economic developments in Japan and the United Kingdom. See
"Description of Securities and Investment Techniques and Related Risks--Region
and Country Concentration" and Appendix A to this Prospectus.

Up to 35% of the Fund's total assets may be invested in investment
grade fixed income securities (i.e., securities rated BBB, Baa, or higher by
Standard & Poor's, Moody's or comparable rating agency, or, if unrated,
determined to be of comparable quality by the Adviser), cash equivalents and
equity and equity-related securities of issuers located in the United States.

Global Equity Fund

The investment objective of the Global Equity Fund is to maximize
capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of
companies in at least three countries. These countries may include Austria,
Belgium, Denmark, Finland, France, Germany, Holland, Ireland, Italy, Luxembourg,
Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom, the United
States, Canada, Mexico, Japan, Hong Kong, Singapore, Australia, Malaysia,
Indonesia, the Philippines, Thailand, and New Zealand. At the discretion of the
Adviser, the Fund may invest in equity and equity-related securities of
companies located in other countries.

The Fund may invest more than 25% of its total assets in each of Japan,
the United States and the United Kingdom. The concentration of the Fund's
investments in these countries will cause the Fund to be particularly
susceptible to the effects of political and economic developments in Japan, the
United

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<PAGE>

States and the United Kingdom. See "Description of Securities and Investment
Techniques and Related Risks--Region and Country Concentration" and Appendix A
to this Prospectus.

Up to 35% of the Fund's total assets may be invested in cash
equivalents and investment grade fixed income securities (i.e., securities rated
BBB, Baa, or higher by Standard & Poor's, Moody's or comparable rating agency,
or, if unrated, determined to be of comparable quality by the Adviser) of
issuers located anywhere in the world.

European Equity Fund

The investment objective of the European Equity Fund is to maximize
capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of
companies located in European countries, including Austria, Belgium, Denmark,
Finland, France, Germany, Holland, Ireland, Italy, Luxembourg, Norway, Portugal,
Spain, Sweden, Switzerland and the United Kingdom. At the discretion of the
Adviser, the Fund may invest in equity and equity-related securities of
companies located in other European countries.

The Fund may invest more than 25% of its total assets in each of
France, Germany and the United Kingdom, reflecting the dominance of these
countries' stock markets in Europe. The concentration of the Fund's investments
in these countries will cause the Fund to be particularly susceptible to the
effects of political and economic developments in France, Germany and the United
Kingdom. See "Description of Securities and Investment Techniques and Related
Risks--Region and Country Concentration" and Appendix A to this Prospectus.

Pacific Basin Equity Fund

The investment objective of the Pacific Basin Equity Fund is to
maximize capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of
companies located in Pacific Basin countries, including Japan, Australia,
Malaysia, Singapore, Hong Kong, Thailand, the Philippines, Indonesia, Taiwan,
South Korea and New Zealand. At the discretion of the Adviser, the Fund may
invest in other Pacific Basin countries.

The Fund may invest more than 25% of its total assets in each of Japan
and Hong Kong, reflecting the dominance of these stock markets in the Pacific
Basin. The concentration of the Fund's investments in Japan and Hong Kong will
cause the Fund to be particularly susceptible to the effects of political and
economic developments in Japan, Hong Kong and China. See "Description of
Securities and Investment Techniques and Related Risks--Region and Country
Concentration" and Appendix A to this Prospectus.

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<PAGE>

Up to 35% of Fund's total assets may be invested in investment grade
fixed income securities (i.e., securities rated BBB, Baa, or higher by Standard
& Poor's, Moody's or comparable rating agency, or, if unrated, determined to be
of comparable quality by the Adviser), cash equivalents and equity and
equity-related securities of issuers located in countries outside the Pacific
Basin, including the United States.

International Small Cap Equity Fund

The investment objective of the International Small Cap Equity Fund is
to maximize capital appreciation. Under normal circumstances, the Fund pursues
this objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of small
capitalization companies located in countries other than the United States.
Small capitalization companies are those ranked according to market
capitalization in the bottom 20% of issuers listed on a stock exchange and
companies listed on a secondary market (e.g., the Tokyo Stock Exchange Second
Section, the Singapore SESDAQ Market) or over-the-counter market.

The Fund will focus on companies located in countries represented in
the FT-A Euro Pacific Index, but may decide, on a stock-specific basis, to make
investments in companies located outside of these countries. The FT-A Euro
Pacific Index includes the equity markets of Austria, Belgium, Denmark, Finland,
France, Germany, Holland, Ireland, Italy, Norway, Spain, Sweden, Switzerland,
the United Kingdom, Japan, Hong Kong, Singapore, Malaysia, Australia and New
Zealand. Under normal market conditions, the Fund will invest at least 65% of
its total assets in equity and equity-related securities issued by small
capitalization companies in at least three different foreign countries.

Japanese Small Cap Equity Fund

The investment objective of the Japanese Small Cap Equity Fund is to
maximize capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of small
capitalization companies located in Japan. Small capitalization companies are
those ranked according to market capitalization in the bottom 20% of issuers
listed on the Tokyo Stock Exchange and companies listed on a Japanese secondary
market (e.g., the Tokyo Stock Exchange Second Section) or over-the-counter
market. The concentration of the Fund's investments in Japanese companies will
cause the Fund to be particularly susceptible to the effects of social,
political and economic events that occur in Japan.

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<PAGE>

See "Description of Securities and Investment Techniques and Related
Risks--Region and Country Concentration."

European Small Cap Equity Fund

The investment objective of the European Small Cap Equity Fund is to
maximize capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of small
capitalization companies located in European countries, including Austria,
Belgium, Denmark, Finland, France, Germany, Holland, Ireland, Italy, Luxembourg,
Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. At the
discretion of the Adviser, the Fund may invest in other European countries.
Small capitalization companies are those ranked according to market
capitalization in the bottom 20% of issuers listed on a European stock exchange
and companies listed on a European secondary market or over-the-counter market.

The Fund may invest more than 25% of its total assets in each of
Germany, France and the United Kingdom, reflecting the dominance of these
countries' stock markets in Europe. The concentration of the Fund's investments
in these countries will cause the Fund to be particularly susceptible to the
effects of political and economic developments in Germany, France and the United
Kingdom. See "Description of Securities and Investment Techniques and Related
Risks--Region and Country Concentration" and Appendix A to this Prospectus.

Emerging Markets Equity Fund

The investment objective of the Emerging Markets Equity Fund is to
maximize capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of
companies that are located in countries with emerging securities markets; that
is, countries with securities markets that are, in the opinion of the Adviser,
emerging as investment markets but that have yet to reach a level of maturity
associated with developed foreign stock markets, especially in terms of foreign
investor participation. Countries with emerging securities markets include:
Algeria, Argentina, Bangladesh, Brazil, Bulgaria, Chile, China, Colombia, Costa
Rica, Cyprus, Czech Republic, Ecuador, Egypt, Greece, Hungary, India, Indonesia,
Jordan, Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland,
Portugal, Russia, South Korea, Sri Lanka, Taiwan, Thailand, Turkey, Uruguay,

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<PAGE>

Venezuela and Vietnam. At the discretion of the Adviser, the Fund may invest in
other countries with emerging securities markets.

Investments in securities of companies located in countries with
emerging securities markets may offer greater opportunities for capital growth
than investments in securities traded in developed markets. However, investing
in emerging securities markets also involves risks that are not present in
developed markets. See "Description of Securities and Investment Techniques and
Related Risks--Foreign Securities."

The Fund may invest more than 25% of its total assets in each of
Brazil, Malaysia and Mexico. The concentration of the Fund's investments in
these countries will cause the Fund to be particularly susceptible to the
effects of political and economic developments in Brazil, Malaysia and Mexico.
See "Description of Securities and Investment Techniques and Related
Risks--Region and Country Concentration" and Appendix A to this Prospectus.

Global Fixed Income Fund

The investment objective of the Global Fixed Income Fund is to maximize
total return, emphasizing current income and, to a lesser extent, providing
opportunities for capital growth consistent with reasonable investment risk.
Under normal circumstances, the Fund pursues this objective by investing at
least 65% of its total assets in fixed income securities of issuers in at least
three countries, which may include: Austria, Belgium, Denmark, Finland, France,
Germany, Holland, Ireland, Italy, Luxembourg, Norway, Portugal, Spain, Sweden,
Switzerland, the United Kingdom, the United States, Canada, Japan, Australia and
New Zealand. At the discretion of the Adviser, the Fund may invest in fixed
income securities of issuers located in other countries.

The fixed income securities in which the Fund invests consist primarily
of high grade debt obligations of foreign governments or their agencies,
instrumentalities, political subdivisions and authorities; debt obligations
issued or guaranteed by international or supranational entities; U.S. Government
securities and high grade fixed income securities of U.S. and foreign corporate
issuers. High grade securities include securities rated within the three highest
grades by Moody's (Aaa, Aa and A), Standard & Poor's (AAA, AA and A) or
comparable rating agency or, if unrated, determined to be of comparable quality
by the Adviser. The Fund may invest up to 10% of its total assets in
governmental and corporate fixed income securities that are rated in the fourth
highest grade by Moody's (Baa), Standard & Poor's (BBB) or comparable rating
agency or, if unrated, determined to be of comparable quality by the Adviser.
Securities rated in the fourth highest grade by any of the major rating agencies
have speculative characteristics. See "Description of Securities and Investment
Techniques and Related Risks--Fixed Income Securities" for a description of
these risks and Appendix B to this Prospectus for a description of the various
ratings categories.

The Fund may invest more than 25% of its total assets in each of Japan,
the United States, Germany and the United Kingdom. The concentration of the
Fund's investments in these countries will

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<PAGE>

cause the Fund to be particularly susceptible to the effects of political and
economic developments in Japan, the United States, Germany and the United
Kingdom. See "Description of Securities and Investment Techniques and Related
Risks--Region and Country Concentration" and Appendix A to this Prospectus.

Up to 35% of the Fund's total assets may be invested in cash
equivalents.

International Fixed Income Fund

The investment objective of the International Fixed Income Fund is to
maximize total return, emphasizing current income and, to a lesser extent,
providing opportunities for capital growth consistent with reasonable investment
risk. Under normal circumstances, the Fund pursues this objective by investing
at least 65% of its total assets in fixed income securities of issuers in at
least three countries other than the United States, including Austria, Belgium,
Denmark, Finland, France, Germany, Holland, Ireland, Italy, Luxembourg, Norway,
Portugal, Spain, Sweden, Switzerland, the United Kingdom, Canada, Japan,
Australia, and New Zealand. At the discretion of the Adviser, the Fund may
invest in fixed income securities of issuers located in other foreign countries.

The fixed income securities in which the Fund invests consist primarily
of high grade debt obligations of foreign governments or their agencies,
instrumentalities, political subdivisions and authorities; debt obligations
issued or guaranteed by international or supranational entities and high grade
fixed income securities of foreign corporate issuers. High grade securities
include securities rated within the three highest grades by Moody's (Aaa, Aa and
A), Standard & Poor's (AAA, AA and A) or comparable rating agency or, if
unrated, determined to be of comparable quality by the Adviser. The Fund may
invest up to 10% of its total assets in governmental and corporate fixed income
securities that are rated in the fourth highest grade by Moody's (Baa), Standard
& Poor's (BBB) or comparable rating agency or, if unrated, determined to be of
comparable quality by the Adviser. Securities rated in the fourth highest grade
by any of the major rating agencies have speculative characteristics. See
"Description of Securities and Investment Techniques and Related Risks--Fixed
Income Securities" for a description of these risks and Appendix B attached to
this Prospectus for a description of the various ratings categories.

The Fund may invest more than 25% of its total assets in each of
Germany, France, Japan, Italy and the United Kingdom. The concentration of the
Fund's investments in these countries will cause the Fund to be particularly
susceptible to the effects of political and economic developments in Germany,
France, Japan, Italy and the United Kingdom. See "Description of Securities and
Investment Techniques and Related Risks--Region and Country Concentration" and
Appendix A to this Prospectus.

Up to 35% of the Fund's total assets may be invested in fixed income
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.

Emerging Markets Debt Fund

The investment objective of the Emerging Markets Debt Fund is to
maximize total return. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in fixed income
securities of issuers located in countries with emerging securities markets,
including Algeria, Argentina, Bangladesh, Brazil, Bulgaria, Chile, China,
Colombia, Costa Rica, Cyprus, Czech

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Republic, Ecuador, Egypt, Greece, Hungary, India, Indonesia, Jordan, Malaysia,
Mexico, Morocco, Pakistan, Peru, the Philippines, Poland, Portugal, Russia,
Thailand, Turkey, Uruguay, Venezuela and Vietnam. At the discretion of the
Adviser, the Fund may invest in fixed income securities of issuers in other
countries that have emerging securities markets. Investments in emerging
securities markets may offer greater opportunities for total return than
investments in securities traded in developed markets. However, investing in
emerging securities markets also involves risks that are not present in
developed markets. See "Description of Securities and Investment Techniques and
Related Risks--Foreign Securities."

Under normal market conditions, the Fund's investments in emerging
securities markets will consist principally of (i) loans, debt instruments and
fixed income securities issued or guaranteed by sovereign governments or their
agencies and instrumentalities, (ii) sub-participations in such loans, debt
instruments and fixed income securities and (iii) financial instruments, such as
call options, the value of which are dependent on the prices of such loans, debt
instruments and fixed income securities. The loans and debt instruments in which
the Fund may invest may be denominated in a major currency, such as the U.S.
dollar or the German Deutschemark, or in the local currency. The price of loans
and debt instruments denominated in a local currency may be linked to the value
of a major currency. The Fund's investments may include so-called "Brady Bonds,"
which recently have been issued by the governments of Costa Rica, Mexico,
Nigeria, the Philippines, Uruguay and Venezuela, as well as non-performing or
semi-performing instruments with potential to be converted into securities under
a Brady plan or otherwise to appreciate in value as debt servicing prospects
improve. See "Description of Securities and Investment Techniques and Related
Risks--Fixed Income Securities." The Fund's investments in emerging securities
markets may also include fixed income securities of companies located in
countries with emerging securities markets.

Fixed income securities in which the Fund may invest may be of any
credit quality, including securities not paying interest currently, zero coupon
bonds, securities that pay interest in the form of other securities (i.e., "pay
in kind" or PIK securities) and securities in default. Fixed income securities
having low credit quality involve greater price volatility and risk of loss of
principal and income. For a description of these and other risks of investing in
lower quality fixed income securities, see "Description of Securities and
Investment Techniques and Related Risks--Fixed Income Securities." See Appendix
B to this Prospectus for a description of the various ratings categories of
Moody's and Standard & Poor's.

The Fund may invest more than 25% of its total assets in each of Mexico
and Brazil. The concentration of the Fund's investments in these countries will
cause the Fund to be particularly susceptible to the effects of political and
economic developments in Mexico and Brazil. See "Description of Securities and
Investment Techniques and Related Risks--Region and Country Concentration" and
Appendix A to this Prospectus.

Up to 35% of the Fund's total assets may be invested in fixed income
securities issued or guaranteed by the U.S. Government.

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<PAGE>

DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES AND RELATED RISKS

Foreign Securities

General. Subject to their respective investment objectives and
policies, the Funds may invest in securities of foreign issuers, including U.S.
dollar-denominated and non-dollar denominated foreign equity and fixed income
securities and in certificates of deposit issued by foreign banks and foreign
branches of U.S. banks. While investments in securities of foreign issuers and
non-U.S. dollar denominated securities may offer investment opportunities not
available in the United States, 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 and custody arrangements abroad may offer less protection to
the Funds' investments and there may be difficulty in enforcing legal rights
outside the United States. Settlement of transactions in some foreign markets
may be delayed or may be less frequent than in the United States which could
affect the liquidity of the Funds' portfolios. Additionally, in some foreign
countries, there is the possibility of expropriation or confiscatory taxation,
limitations on the removal of securities, property, or other Fund assets,
political or social instability or diplomatic developments which could affect
investments in foreign securities.

To the extent the Funds' investments are denominated in foreign
currencies, the Funds' net asset values 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 a Fund's exposure to a
foreign currency, and that currency's value subsequently falls, the Adviser's
currency management may result in increased losses to the Fund. Similarly, if
the Adviser hedges a Fund's exposure to a foreign currency, and that currency's
value rises, the Fund will lose the opportunity to participate in the currency's
appreciation. The Funds will incur transaction costs in connection with
conversions between currencies.

Investments in American, European, Global and International Depository
Receipts. The Funds may invest in foreign securities in the form of American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"), Global
Depository Receipts ("GDRs") or International Depository Receipts ("IDRs"). ADRs
are receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs and
IDRs are receipts issued in Europe typically by non-U.S. banking and trust
companies that evidence ownership of either foreign or U.S. securities. GDRs are
receipts issued by either a U.S. or non-U.S. banking institution evidencing
ownership of the underlying foreign securities. Generally, ADRs, in registered
form, are designed for use in U.S. securities markets and EDRs, GDRs and IDRs,
in bearer form, are designed for use in European securities markets. An ADR,
EDR, GDR or IDR may be denominated in a currency different from the currency in
which the underlying foreign security is denominated.

Investments in Emerging Markets. Each of the Funds, with the exception
of the Japanese Small Cap Equity Fund, may invest to varying degrees in one or
more countries with emerging securities markets. These countries are located in
Latin America, Europe, the Middle East, Africa and Asia.

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Political and economic structures in many of these countries may be undergoing
significant evolution and rapid development, and these countries may lack the
social, political and economic stability characteristic of more developed
countries. Certain of these countries may have in the past failed to recognize
private property rights and, at times, may have nationalized or expropriated the
assets of private companies. As a result, these risks, including the risk of
nationalization or expropriation of assets, may be heightened. In addition,
unanticipated political or social developments may affect the value of a Fund's
investments in these countries, as well as the availability of additional
investments in these countries. The small size and inexperience of the
securities markets in certain of these countries and the limited volume of
trading in securities in these countries may make the Funds' investments in
these countries illiquid and more volatile than investments in most Western
European countries, and the Funds may be required to establish special custodial
or other arrangements before making certain investments in some of these
countries. There may be little financial or accounting information available
with respect to issuers located in certain of these countries, and it may be
difficult as a result to assess the value or prospects of an investment in these
countries. The laws of some foreign countries may limit the Funds' ability to
invest in securities of certain issuers located in those countries.

Region and Country Concentration. Each Fund may concentrate its
investments in a particular region and/or in one or more foreign countries.
Concentration of a Fund's investments in a particular region or country will
subject the Fund, to a greater extent than if its investments in such region or
country were more limited, to the risks of adverse securities markets, exchange
rates and social, political or economic developments which may occur in that
region or country. For information about the foreign countries in which the
Funds may concentrate their investments, including information concerning the
risks of concentrating in each such country, see Appendix A to this Prospectus.

Currency Management Techniques

General. The performance of foreign currencies relative to that of the
U.S. dollar is an important factor in each Fund's performance and the Adviser
may manage the Fund's exposure to various currencies to seek to take advantage
of the yield, risk and return characteristics that different currencies can
provide. Currency exchange rates may fluctuate significantly over short periods
of time causing, together with other factors, a Fund's net asset value to
fluctuate as well, notwithstanding the performance of a Fund's underlying
assets. Currency exchange rates generally are determined by the forces of supply
and demand in the foreign exchange markets and the relative merits of
investments in different countries, actual or anticipated changes in interest
rates and other complex factors, as seen from an international perspective.
Currency exchange rates also can be affected by intervention, or failure to
intervene, by U.S. or foreign governments or central banks, or by currency
controls or political developments in the United States or abroad. To the extent
that a substantial portion of a Fund's total assets, adjusted to reflect the
Fund's net position after giving effect to currency transactions, is denominated
in the currency of a foreign country, the Fund will be more susceptible to the
risk of adverse economic and political developments in that country.

To manage exposure to currency exchange rate fluctuations, the Funds
may enter into forward foreign currency exchange contracts or currency swap
agreements, purchase securities indexed to foreign currencies, and buy and sell
options and futures contracts relating to foreign currencies and options on such
futures contracts. See "Forward Foreign Currency Transactions," "Interest Rate
and Currency

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<PAGE>

Swaps," "Options" and "Futures and Options on Futures" below. The Funds use
currency hedging techniques in the normal course of business to lock in an
exchange rate in connection with purchases and sales of securities denominated
in foreign currencies. Other currency management strategies allow the Adviser to
hedge portfolio securities, to shift investment exposure from one currency to
another, or to attempt to profit from anticipated declines in the value of a
foreign currency relative to the U.S. dollar. There is no overall limitation on
the amount of assets that any of the Funds may commit to currency management
strategies. Although the Adviser may attempt to manage currency exchange rate
risks, there is no assurance that the Adviser will do so at an appropriate time
or that the Adviser will be able to predict exchange rates accurately.

Securities held by a Fund are generally denominated in the currency of
the foreign market in which the investment is made. However, securities held by
a Fund may be denominated in the currency of a country other than the country in
which the security's issuer is located. For example, Emerging Markets Debt Fund
often purchases foreign securities that are denominated in U.S. dollars. The
Funds may also invest in securities denominated in the European Currency Unit
("ECU"), which is a "basket" consisting of specified amounts of the currencies
of certain of the twelve member countries of the European Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Community from time to time to reflect changes in
their relative values. In addition, the Fund may invest in securities
denominated in other currency "baskets."

Forward Foreign Currency Transactions. Each of the Funds may conduct
foreign currency exchange transactions on a spot (i.e., cash) basis at the rate
prevailing in the foreign currency exchange market or by entering into forward
currency exchange contracts ("forward currency contracts") to purchase or sell
foreign currencies. A Fund may purchase or sell forward currency contracts for
hedging purposes and also for non-hedging purposes when the Adviser anticipates
that the foreign currency will appreciate or depreciate in value, but securities
denominated or quoted in that currency do not present attractive investment
opportunities and are not held in a Fund's portfolio. When purchased or sold for
non-hedging purposes, forward currency contracts are speculative.

Each Fund may enter into forward currency contracts to purchase foreign
currency to protect against an anticipated rise in the U.S. dollar price of
securities that it intends to purchase. A Fund may enter into contracts to sell
foreign currency to protect against the decline in value of its foreign currency
denominated or quoted portfolio securities, or a decline in the value of
anticipated dividends from such securities, due to a decline in the value of the
foreign currency against the U.S. dollar. Contracts to sell foreign currency
could limit any potential gain which might be realized by a Fund if the value of
the hedged currency increased.

If a Fund enters into a forward currency contract to sell foreign
currency for non-hedging purposes or to buy foreign currency for any purpose,
the forward currency contract generally will not have a term 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.

When a Fund enters into a forward currency contract to sell foreign
currency for non-hedging purposes or to buy foreign currency for any purpose,
the Fund will be required to place cash, U.S. Government securities or liquid,
high grade debt securities in a segregated account, which will be marked to
market daily, in an amount equal to the value of the total assets committed to
the consummation of the forward currency contract. If the value of the
securities placed in the segregated

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account declines, additional cash or securities will be placed in the account so
that the value of the account will equal the amount of the Fund's commitment
with respect to the contract.

Forward currency contracts are subject to the risk that the
counterparty to such contract will default on its obligations. Since a forward
currency contract is not guaranteed by an exchange or clearinghouse, a default
on the contract would deprive a Fund of unrealized profits, transaction costs or
the benefits of a currency hedge or force a Fund to cover its purchase or sale
commitments, if any, at the current market price. The Funds will not enter into
forward currency contracts unless the credit quality of the unsecured senior
debt or the claims-paying ability of the counterparty is determined to be
investment grade by the Adviser. The Adviser will monitor the claims-paying
ability of the counterparty on an ongoing basis.

A Fund may also utilize forward foreign currency contracts to establish
a synthetic investment position designed to change the currency characteristics
of a particular security without the need to sell such security. For example, a
Fund wishing to acquire a particular security that is denominated in French
Francs, but wishing to seek exposure to a second currency and not the Franc, may
simultaneously enter into a forward contract to sell an equivalent value of
Francs in exchange for such foreign currency. Synthetic investment positions
will typically involve the purchase of U.S. dollar-denominated securities
together with a forward contract to purchase the currency to which the Fund
seeks exposure and to sell U.S. dollars. This may be done because the range of
highly liquid short-term instruments available in the U.S. may provide greater
liquidity to a Fund than actual purchases of foreign currency-denominated
securities in addition to providing superior returns in some cases. Depending on
(a) each Fund's liquidity needs, (b) the relative yields of securities
denominated in different currencies and (c) spot and forward currency rates, a
significant portion of a Fund's assets may be invested in synthetic investment
positions, subject to compliance with the tax requirements for qualification as
a regulated investment company. See "Taxes."

There is a risk in adopting a synthetic investment position. It is
impossible to forecast with absolute precision what the market value of a
particular security will be at any given time. If the value of the U.S.
dollar-denominated security is not exactly matched with a Fund's obligation
under a forward currency contract on the date of maturity, the Fund may be
exposed to some risk of loss from fluctuations in U.S. dollars. Although the
Adviser will attempt to hold such mismatching to a minimum, there can be no
assurance that the Adviser will be able to do so.

Position-Hedging and Cross-Hedging. At the discretion of the Adviser,
each of the Fixed Income Funds may employ currency hedging strategies known as
"cross-hedging" and "position-hedging" by using forward currency contracts,
currency options or a combination of both. When engaging in cross-hedging, a
Fund acts to protect against a decline in the value of a foreign currency in
which certain of its portfolio securities are denominated by selling that
currency forward into a different foreign currency for the purpose of
diversifying the Fund's total currency exposure or gaining exposure to a foreign
currency that is expected to appreciate.

When engaging in position-hedging, a Fund will sell U.S. dollars and
buy foreign currency forward in order to gain exposure to a currency which is
expected to appreciate against the U.S. dollar. This speculative strategy allows
a Fund to benefit from currency appreciation potential without requiring it to
purchase a local fixed income instrument, for which prospects may be relatively
unattractive. It is

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the Adviser's intention that each Fund's net U.S. dollar currency exposure
generally will not fall below zero (i.e., that net short positions in the U.S.
dollar generally will not be taken).

For a description of the Funds' transactions in currency options,
futures and swaps, see "Options--Currency Options," "Futures Contracts and
Options on Futures Contracts" and "Interest Rate and Currency Swaps."

Small Capitalization Companies

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

Options

Written Options. Each Fund may write (sell) covered put and call
options on equity and fixed income securities and enter into related closing
transactions. A Fund may receive fees (referred to as "premiums") for granting
the rights evidenced by the options. However, in return for the premium, the
Fund forfeits the right to any appreciation in the underlying security while the
option is outstanding. A put option gives to its purchaser the right to compel
the Fund to purchase an underlying security from the option holder at the
specified price at any time during the option period. In contrast, a call option
written by the Fund gives to its purchaser the right to compel the Fund to sell
an underlying security to the option holder at a specified price at any time
during the option period. Upon the exercise of a put option written by a Fund,
the Fund may suffer a loss equal to the difference between the price at which
the Fund is required to purchase the underlying security and its market value at
the time of the option exercise, less the premium received for writing the
option. All options written by a Fund are covered, which means that the Fund
will own the securities subject to the option as long as the call option is
outstanding, or, in the case of a put option, that the Fund will deposit cash or
cash equivalents or a combination of both in a segregated account with the
custodian with a value at least equal to the exercise price of the put option.

Purchased Options. The Funds may also purchase put and call options on
securities. The advantage to the purchaser of a call option is that it may hedge
against an increase in the price of portfolio securities it ultimately wishes to
buy. The advantage to the purchaser of a put option is that it may hedge against
a decrease in the price of portfolio securities it ultimately wishes to sell.

Each Fund may enter into closing transactions in order to offset an
open option position prior to exercise or expiration by selling an option it has
purchased or by entering into an offsetting option. If a

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Fund cannot effect closing transactions, it may have to retain a security in its
portfolio it would otherwise sell or deliver a security it would otherwise
retain.

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

Yield Curve Options. The Funds may enter into options on the yield
spread, or yield differential between two securities. These options are referred
to as yield curve options. In contrast to other types of options, a yield curve
option is based on the difference between the yields of designated securities,
rather than the prices of the individual securities, and is settled through cash
payments. Accordingly, a yield curve option is profitable to the holder if this
differential widens (in the case of a call) or narrows (in the case of a put),
regardless of whether the yields of the underlying securities increase or
decrease.

Currency Options. The Funds may purchase and write put and call options
on foreign currencies (traded on U.S. and foreign exchanges or over-the-counter)
to manage portfolio exposure to changes in U.S. dollar exchange rates. Call
options on foreign currency written by a Fund will be covered, which means that
the Fund will own an equal amount of the underlying foreign currency. With
respect to put options on foreign currency written by a Fund, the Fund will
deposit cash or cash equivalents or a combination of both in a segregated
account with the custodian in an amount equal to the amount the Fund would be
required to pay upon exercise of the put option.

Stock Index Options

The Funds may purchase and write exchange-listed put and call options
on stock indices to hedge against risks of market-wide price movements. A stock
index measures the movement of a certain group of stocks by assigning relative
values to the common stocks included in the index. Examples of well-known
foreign stock indices are the Toronto Stock Exchange Composite 100 and the
Financial Times Stock Exchange 100. Options on stock indices are similar to
options on securities. However, because options on stock indices do not involve
the delivery of an underlying security, the option represents the holder's right
to obtain from the writer in cash a fixed multiple of the amount by which the
exercise price exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying index on the exercise date.

When a Fund writes an option on a stock index, it will deposit cash or
cash equivalents or a combination of both in an amount equal to the market value
of the option, in a segregated account, which will be marked to market daily,
with the custodian, and will maintain the account while the option is open.

Futures Contracts and Options on Futures Contracts

When deemed advisable by the Adviser, each of the Funds may enter into
futures contracts and purchase and write options on futures contracts to hedge
against changes in interest rates, securities prices or currency exchange rates
or for certain non-hedging purposes. The Funds may purchase and sell financial
futures contracts, including stock index futures, and purchase and write related
options. A Fund

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may engage in futures and related options transactions for bona fide hedging and
non-hedging purposes as defined in regulations of the Commodity Futures Trading
Commission. A Fund will not enter into futures contracts or options thereon for
non-hedging purposes, if immediately thereafter, the aggregate initial margin
and premiums required to establish non-hedging positions in futures contracts
and options on futures will exceed 5% of the net asset value of the Fund's
portfolio, after taking into account unrealized profits and losses on any such
positions and excluding the amount by which such options were in-the-money at
the time of purchase. Transactions in futures contracts and options on futures
involve brokerage costs, require margin deposits and, in the case of contracts
and options obligating the Funds to purchase securities or currencies, require
the Funds to segregate assets with a value equal to the amount of the Fund's
obligations.

Limitations and Risks Associated With Transactions In Forward Foreign Currency
Exchange Contracts, Options, Futures Contracts and Options on Futures Contracts

Each of the Funds' active management techniques involves (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 and foreign currency fluctuations intended to be hedged,
and (3) market risk that an incorrect prediction of securities prices or
exchange rates by the Adviser may cause a Fund to perform worse than if such
positions had not been taken. The ability to terminate over-the-counter options
is more limited than with exchange traded options and may involve the risk that
the counterparty to the option will not fulfill its obligations. In accordance
with a position taken by the Securities and Exchange Commission (the
"Commission"), each Fund will limit its investments in illiquid securities to
15% of the Fund's net assets and treat over-the-counter options as illiquid
securities subject to this limitation. With respect to options written with
primary dealers in U.S. Government securities pursuant to an agreement requiring
a closing purchase transaction at a formula price, the amount of the illiquid
securities may be calculated with reference to the formula price.

The use of options, futures and forward currency contracts is a highly
specialized activity which involves 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, interest rates, currency movements and
other economic factors. The loss that may be incurred by a Fund in entering into
futures contracts and written options thereon and forward currency contracts 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. Options and futures
traded on foreign exchanges generally are not regulated by U.S. authorities, and
may offer less liquidity and less protection to a Fund in the event of default
by the other party to the contract.

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

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futures contracts may be limited by the requirements for qualification of the
Fund as a regulated investment company for tax purposes. See "Taxes" in the
Statement of Additional Information.

Fixed Income Securities

General. In order to achieve their respective investment objectives,
the Funds may invest in a broad range of U.S. and non-U.S. fixed income
securities. In periods of declining interest rates, a Fund's yield (its income
from portfolio investments over a stated period of time) may tend to be higher
than prevailing market rates, and in periods of rising interest rates, the yield
of the Fund may tend to be lower. Also, when interest rates are falling, the
inflow of net new money to each Fund from the continuous sale of its shares will
likely be invested in portfolio instruments producing lower yields than the
balance of the Fund's portfolio, thereby reducing the yield of the Fund. In
periods of rising interest rates, the opposite can be true. The net asset value
of a Fund investing in fixed income securities can generally be expected to
change as general levels of interest rates fluctuate. The value of fixed income
securities in a Fund's portfolio generally varies inversely with changes in
interest rates. Prices of fixed income securities with longer effective
maturities are more sensitive to interest rate changes than those with shorter
effective maturities. The Funds may invest up to 5% of their net assets in
inverse floating rate securities, which have greater volatility risk than
ordinary fixed income securities.

Risk Factors of Lower Quality Securities. The Emerging Markets Debt
Fund may invest in U.S. and foreign fixed income securities receiving a Standard
& Poor's rating of BBB or lower, a Moody's rating of Baa or lower, or an
equivalent rating. These securities are speculative and, while generally
providing 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.
Securities rated D by Standard & Poor's, Moody's or comparable rating agency are
in default. These lower quality fixed income securities 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. To the extent the Fund invests in such
lower quality securities, the achievement of its investment objective may be
more dependent on the Adviser's own credit analysis. The market prices of zero
coupon and payment-in-kind bonds are affected to a greater extent by interest
rate changes, and therefore tend to be more volatile than securities which pay
interest periodically and in cash. Increasing rate note securities are typically
refinanced by the issuers within a short period of time. See "Taxes" in the
Statement of Additional Information for special tax considerations associated
with investing in high yield bonds structured as zero coupon or payment-in-kind
securities.

Lower quality fixed income securities 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 fixed income securities is generally less liquid than the
market for investment grade fixed income securities. Therefore, the Adviser's
judgment may at times play a greater role in valuing these securities than in
the case of investment grade fixed income securities, and it also may be more
difficult under certain adverse market conditions to sell these lower rated
securities to meet redemption requests, to respond to changes in the market, or
to determine accurately a Fund's net asset value.

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If a fixed income security, that at the time of purchase satisfied a
Fund's minimum rating criteria, is subsequently downgraded, the Fund will not be
required to dispose of the security. If such a downgrading occurs, however, the
Adviser will consider what action, including the sale of the security, is in the
best interest of the Fund. No Fund, other than the Emerging Markets Debt Fund,
will continue to hold fixed income securities that have been downgraded below
investment grade if more than 5% of that Fund's net assets would consist of such
securities.

Foreign Government Securities. The foreign government securities in
which the Funds may invest generally consist of debt obligations issued or
guaranteed by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational or quasi-governmental 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 for Reconstruction and
Development (the "World Bank"), the European Coal and Steel Community, 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. For a description of the risks associated with all
investments in foreign securities, see "Foreign Securities" above.

The Emerging Markets Debt Fund may also invest in so-called "Brady
Bonds." The Fund may invest in Brady Bonds and other sovereign debt securities
of countries that have restructured or are in the process of restructuring
sovereign debt pursuant to the Brady Plan. Brady Bonds are debt securities
issued under the framework of the Brady Plan, an initiative announced by U.S.
Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations
to restructure their outstanding external indebtedness (generally, commercial
bank debt). In restructuring its external debt under the Brady Plan framework, a
debtor nation negotiates with its existing bank lenders as well as multilateral
institutions such as the World Bank and the International Monetary Fund (the
"IMF"). The Brady Plan framework, as it has developed, contemplates the exchange
of commercial bank debt for newly issued bonds (Brady Bonds). The World Bank
and/or the IMF support the restructuring by providing funds pursuant to loan
agreements or other arrangements which enable the debtor nation to collateralize
the new Brady Bonds or to repurchase outstanding bank debt at a discount. Under
these arrangements with the World Bank and/or the IMF, debtor nations have been
required to agree to the implementation of certain domestic monetary and fiscal
reforms. Such reforms have included the liberalization of trade and foreign
investment, the privatization of state-owned enterprises and the setting of
targets for public spending and borrowing. These policies and programs seek to
promote the debtor country's ability to service its external obligations and
promote its economic growth and development. Investors should recognize that the
Brady Plan only sets forth general guiding principles for economic reform and
debt reduction, emphasizing that solutions must be negotiated on a case-by-case
basis between debtor nations and their creditors. The Adviser believes that
economic reforms undertaken by countries in connection with the issuance of
Brady Bonds make the debt of countries which have issued or have announced plans
to issue Brady Bonds an attractive opportunity for investment.

Brady Bonds have recently been issued by Costa Rica, Mexico, Nigeria,
the Philippines, Uruguay and Venezuela and may be issued by other countries.
Over $50 billion in principal amount of

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Brady Bonds have been issued to date, the largest proportion having been issued
by Mexico and Venezuela. Brady Bonds may involve a high degree of risk, may be
in default or present the risk of default. As of October 1, 1995, the Fund is
not aware of the occurrence of any payment defaults on Brady Bonds. Investors
should recognize however, that Brady Bonds have been issued only recently, and,
accordingly, they do not have a long payment history. Agreements implemented
under the Brady Plan to date are designed to achieve debt and debt-service
reduction through specific options negotiated by a debtor nation with its
creditors. As a result, the financial packages offered by each country differ.
The types of options have included the exchange of outstanding commercial bank
debt for bonds issued at 100% of face value of such debt, bonds issued at a
discount of face value of such debt, bonds bearing an interest rate which
increases over time and bonds issued in exchange for the advancement of new
money by existing lenders. Certain Brady Bonds have been collateralized as to
principal due at maturity by U.S. Treasury zero coupon bonds with a maturity
equal to the final maturity of such Brady Bonds, although the collateral is not
available to investors until the final maturity of the Brady Bonds. Collateral
purchases are financed by the IMF, the World Bank and the debtor nations'
reserves. In addition, the first two or three interest payments on certain types
of Brady Bonds may be collateralized by cash or securities agreed upon by
creditors. Although Brady Bonds may be collateralized by U.S. Government
securities, repayment of principal and interest is not guaranteed by the U.S.
Government.

Registered Loans. The Emerging Markets Debt Fund may invest in loan
obligations issued or guaranteed by sovereign governments or their agencies and
instrumentalities. The ownership of these loans is registered in the books of an
agent bank and/or the borrower and transfers of ownership are effected by
assignment agreements. Documentation for these assignments includes a signed
notice of assignment, which is sent to the agent and/or borrower for
registration shortly after the execution of the assignment agreement. Prior to
the notice of assignment being registered with the agent and/or borrower, the
borrower or its agent will make any payments of principal and interest to the
last registered owner.

Given the volume of secondary market trading in registered loans, the
agent and/or borrower's books may be out of date, making it difficult for the
Fund to establish whether the seller of a registered loan is the owner of the
loan. For this reason, the Fund will require a contractual warranty from the
seller to this effect. In addition, to assure the Fund's ability to receive
principal and interest owed to it but paid to a prior holder because of delays
in registration, the Fund will purchase registered loans only from parties that
agree to pay the amount of such principal and interest to the Fund upon demand
after the borrower's payment of such principal and interest to any prior holder
has been established.

Generally, registered loans trade in the secondary market with interest
(i.e., the right to accrued but unpaid interest is transferred to purchasers).
Occasionally, however, the Fund may sell a registered loan and retain the right
to such interest ("sell a loan without interest"). To assure the Fund's ability
to receive such interest, the Fund will make such sales only to parties that
agree to pay the amount of such interest to the Fund upon demand after the
borrower's payment of such interest to any subsequent holder of the loan has
been established. In this rare situation, the Fund's ability to receive such
interest (and, therefore, the value of shareholders' investments in the Fund
attributable to such interest) will depend on the creditworthiness of both the
borrower and the party who purchased the loan from the Fund.

To further assure the Fund's ability to receive interest and principal
on registered loans, the Fund will only purchase registered loans from, and sell
loans without interest to, parties determined to be

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creditworthy by the Adviser. For purposes of the Fund's industry concentration
policy, the Fund will treat the underlying borrower of a registered loan as an
issuer of that loan. The Fund will also treat the party that sold the registered
loan to the Fund as an issuer of that loan for purposes of this policy until the
Fund becomes assured that its ownership of the loan has been registered. Where
the Fund sells a loan without interest, it will treat both the borrower and the
purchaser of the loan as issuers for purposes of this policy.

U.S. Government Securities. The Funds may invest in obligations issued
or guaranteed as to both principal and interest by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises ("U.S. Government
securities"). Some U.S. Government securities, such as U.S. Treasury bills,
notes and bonds, are supported by the full faith and credit of the United
States. Others, such as obligations issued or guaranteed by U.S. Government
agencies or instrumentalities are supported either by (i) the full faith and
credit of the U.S. Government (such as securities of the Small Business
Administration), (ii) the right of the issuer to borrow from the U.S. Treasury
(such as securities of the Federal Home Loan Banks), (iii) the discretionary
authority of the U.S. Government to purchase the agency's obligations (such as
securities of the Federal National Mortgage Association ("FNMA")), 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 Funds may also invest in separately traded principal and interest
components of U. S. Government securities 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.

Custodial Receipts. Each Fund may acquire custodial receipts which are
typically issued by a custodian bank or investment brokerage firm. These
receipts represent unmatured interest coupons that have been separated
("stripped") by a custodian bank or investment brokerage firm. These custodial
receipts evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued by the U.S. Government or its agencies or
instrumentalities. For certain securities law purposes, custodial receipts are
not considered U.S. Government securities.

Mortgage-Backed and Asset-Backed Securities

The Funds may invest in mortgage-backed securities, which represent
direct or indirect participations in, or are collateralized by and payable from,
mortgage loans secured by real property. These include collateralized mortgage
obligations ("CMOs") and various "stripped" mortgage-backed securities ("SMBS").
CMOs are issued in multiple classes, each with a specified fixed or adjustable
interest rate and final maturity date. Principal payments may be made to the
various classes in either a sequential order or simultaneously. SMBS typically
are issued in two classes, with one receiving only interest payments from a pool
of mortgage loans ("IOs") and the other receiving only principal payments
("POs"). The Funds may also invest in asset-backed securities, which represent
participations in, or are secured by and payable from, assets such as motor
vehicle installment sales, installment loan contracts, leases of various types
of real and personal property and receivables from revolving credit (credit
card) agreements and other categories of receivables. Such securities are
generally issued by trusts and special purpose corporations.

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Mortgage-backed and asset-backed securities are often subject to more
rapid repayment than their stated maturity date would indicate as a result of
the pass-through of prepayments of principal on the underlying loans. During
periods of declining interest rates, prepayment of loans underlying
mortgage-backed and asset-backed securities can be expected to accelerate, and
thus impair a Fund's ability to reinvest the returns of principal at comparable
yields. Accordingly, the market values of such securities will vary with changes
in market interest rates generally and in yield differentials among various
kinds of U.S. Government securities and other mortgage-backed and asset-backed
securities. Asset-backed securities present certain risks that are not presented
by mortgage-backed securities because asset-backed securities generally do not
have the benefit of a security interest in collateral that is comparable to
mortgage assets. In addition, there is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support payments on
these securities.

Interest Rate, Mortgage and Currency Swaps and Interest Rate Caps and Floors

The Fixed Income Funds may enter into interest rate, mortgage and
currency swaps for hedging and non-hedging purposes. The Funds may also enter
into other types of interest rate swap arrangements such as caps and floors. A
Fund will typically use interest rate swaps to adjust the effective duration of
its portfolio, to preserve a return or spread on a particular investment or
portion of its portfolio or to protect against any increase in the price of
securities the Fund anticipates purchasing at a future date. Interest rate swaps
involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest, such as an exchange of fixed rate
payments for floating rate payments. Mortgage swaps are similar to interest rate
swaps in that they represent commitments to pay and receive interest. The
principal amount, however, is tied to a reference pool or pools of mortgages.
Currency swaps involve the exchange of rights to make or receive payments in
specified currencies. In a typical cap or floor arrangement, one party agrees to
make payments only under specified circumstances, usually in return for payment
of a fee by the other party. For example, the buyer of an interest rate cap
obtains the right to receive payments to the extent that a specified interest
rate exceeds an agreed upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate falls
below an agreed upon level. Since interest rate and currency swaps and interest
rate caps and floors are individually negotiated, the Funds expect to achieve an
acceptable degree of correlation between their hedged portfolio investments and
their interest rate and currency swap positions.

The Funds will enter into interest rate, mortgage and currency swaps
only on a net basis, which means that the two payment streams are netted out,
with a Fund receiving or paying, as the case may be, only the net amount of the
two payments. Interest rate and mortgage swaps do not involve the delivery of
securities, other underlying assets or principal. Accordingly, the risk of loss
with respect to interest rate swaps is limited to the net amount of interest
payments that a Fund is contractually obligated to make. If the other party to
an interest rate or mortgage swap defaults, a Fund's risk of loss consists of
the net amount of interest payments that the Fund is contractually entitled to
receive. The net amount of the excess, if any, of a Fund's obligations over its
entitlements with respect to each interest rate swap, mortgage swap, and
interest rate caps and floors, will be accrued on a daily basis, and an amount
of cash or high grade debt securities having an aggregate net asset value at
least equal to such accrued excess will be maintained in a segregated account,
which will be marked to market daily, by the Fund's custodian. In contrast,
currency swaps usually involve the delivery of the entire principal amount of
one designated currency in exchange for the other designated currency.
Therefore, the entire principal value of a currency swap is subject to the risk
that the other party to the swap will default on its contractual delivery
obligations and the Funds will segregate, in an account maintained by the Funds'
custodian, an

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amount of cash or high grade debt securities having an aggregate net asset value
equal to the entire amount at risk in a currency swap.

The use of interest rate, mortgage and currency swaps and interest rate
caps and floors is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates or currency exchange rates, the investment performance of
a Fund will be less favorable than it would have been if these investment
techniques were not used.

Convertible Securities and Preferred Stocks

Subject to their investment policies, the Funds may invest in
convertible securities, which may include corporate notes or preferred stock but
are ordinarily long-term debt obligations of the issuer convertible at a stated
exchange rate into common stock of the issuer. As with all fixed income
securities, 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. In evaluating a
convertible security, the Adviser will give primary emphasis to the
attractiveness of the underlying common stock. The convertible debt securities
in which each Fund may invest are subject to the same rating criteria as the
Fund's investments in non-convertible securities.

Diversification

Each of the Fixed Income Funds is "non-diversified" under the 1940 Act.
Accordingly, they are subject only to certain federal tax diversification
requirements and to the policies adopted by the Adviser. With respect to 50% of
its total assets, each Fixed Income Fund may invest up to 25% of its total
assets in the securities of any one issuer (except that this limitation does not
apply to U.S. Government securities). With respect to the remaining 50% of its
total assets, a Fixed Income Fund may not invest more than 5% of its total
assets in the securities of any one issuer (except U.S. Government securities)
nor acquire more than 10% of the outstanding voting securities of any issuer.
These federal tax diversification requirements apply only at taxable
quarter-ends. To the extent that a Fixed Income Fund does not meet standards for
being "diversified" under the 1940 Act, it will be more susceptible to
developments affecting any single issuer of portfolio securities.

Temporary Defensive Investments

For temporary defensive purposes, each of the Funds may invest all or
part of its portfolio in U.S. or Canadian currencies, U.S. Government
securities maturing within one year (including repurchase

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<PAGE>

agreements collateralized by such securities), commercial paper of U.S. or
foreign issuers, and cash equivalents.

Commercial paper represents short-term unsecured promissory notes
issued in bearer form by U.S. or foreign corporations and finance companies. The
commercial paper purchased by the Funds consists of U.S. dollar-denominated
obligations of domestic or foreign issuers. Each Fund may also invest in
commercial paper which at the date of investment is rated at least A-2 by
Standard & Poor's or P-2 by Moody's, or their equivalent ratings, or, if not
rated, is issued or guaranteed as to payment of principal and interest by
companies which are rated, at the time of purchase, A or better by Standard &
Poor's or Moody's, or their equivalents, and other debt instruments, including
unrated instruments, not specifically described if such instruments are deemed
by the Adviser to be of comparable quality.

Cash equivalents include obligations of banks which at the date of
investment have capital, surplus and undivided profits (as of the date of their
most recently published financial statements) in excess of US$ 100 million. Bank
obligations in which the Funds may invest include certificates of deposit,
bankers' acceptances and fixed time deposits. Bank obligations also include U.S.
dollar-denominated obligations of foreign branches of U.S. banks or of U.S.
branches of foreign banks, all of the same type as domestic bank obligations. A
Fund will invest in the obligations of foreign branches of U.S. banks or of U.S.
branches of foreign banks only when the Adviser determines that the credit risk
with respect to the instrument is minimal.

Additional Investment Techniques

Mortgage Dollar Rolls. The Funds may enter into mortgage "dollar rolls"
in which a Fund 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, a
Fund forgoes principal and interest paid on the securities. A Fund 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 as well as 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 Funds
may enter into both covered and uncovered rolls. The value of a Fund's
outstanding rolls, together with the amount of any other borrowings, will not
exceed one-third of the Fund's total assets.

When-Issued Securities and Forward Commitments. Each Fund may purchase
securities on a when-issued, delayed delivery or forward commitment basis. When
these transactions are negotiated, the price of the securities is fixed at the
time of the commitment, but delivery and payment may take place up to 90 days
after the date of the commitment to purchase. When-issued securities or forward
commitments involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date. When a Fund purchases securities on a
forward commitment or when-issued basis, the Fund's custodian will maintain in a
segregated account liquid, high grade debt securities having a value (determined
daily) at least equal to the amount of the Fund's purchase commitment.

Repurchase Agreements. Each Fund may enter into repurchase agreements.
In a repurchase agreement, a Fund buys a security subject to the right and
obligation to sell it back to the other party at

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<PAGE>

the same price plus accrued interest. These transactions must be fully
collateralized at all times, but they involve some credit risk to a Fund if the
other party defaults on its obligations and the Fund is delayed in or prevented
from liquidating the collateral. A Fund will enter into repurchase agreements
only with U.S. or foreign banks having total assets of at least US$ 100 million
(or its foreign currency equivalent).

Reverse Repurchase Agreements. Each Fund may enter into reverse
repurchase agreements with banks and domestic broker-dealers. Reverse repurchase
agreements involve sales by a Fund of portfolio securities concurrently with an
agreement by the Fund to repurchase the same securities at a later date at a
fixed price. During the reverse repurchase agreement period, the Fund continues
to receive principal and interest payments on these securities. Each Fund will
deposit cash or cash equivalents or a combination of both in a segregated
account, which will be marked to market daily, with its custodian equal in value
to its obligations with respect to reverse repurchase agreements. Reverse
repurchase agreements are considered borrowings, and as such are subject to the
limitations on borrowings by the Funds.

Restricted and Illiquid Securities. Each Fund will not invest more than
15% of its net assets in illiquid securities, which include repurchase
agreements and fixed time deposits maturing in more than seven days and
securities that are not readily marketable. In addition, each Fund will not
invest more than 5% of its net assets in securities that are not registered in
reliance on the exemption for non-public offerings ("restricted securities")
under the Securities Act of 1933 (the "1933 Act"). However, this restriction
does not apply to restricted securities offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act or to securities
purchased in accordance with Regulation S under the 1933 Act.

Lending Securities. For the purpose of realizing income, each Fund may
lend to broker-dealers portfolio securities amounting to not more than 33 1/3%
of its total assets taken at current value. These transactions must be fully
collateralized at all times but involve some credit risk to a Fund if the other
party should default on its obligation and the Fund is delayed in or prevented
from recovering the collateral.

Other Investment Companies. Each Fund may invest up to 10% of its total
assets, calculated at the time of purchase, in the securities of other
investment companies. A Fund may not invest more than 5% of its total assets in
the securities of any one investment company or acquire more than 3% of the
voting securities of any other investment company. A Fund will indirectly bear
its proportionate share of any management or other fees paid by investment
companies in which it invests, in addition to its own fees.

ADDITIONAL INVESTMENT INFORMATION

Investment Restrictions

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

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<PAGE>

Portfolio Transactions

The Adviser is responsible for making specific decisions to buy and
sell portfolio securities for the Funds. The Adviser is also responsible for
selecting brokers and dealers to effect these transactions and negotiating, if
possible, brokerage commissions and dealers' charges. The Funds generally
purchase and sell foreign securities in foreign countries, since the best
available market for foreign securities is often on foreign markets. In
transactions on foreign markets, brokerage commissions generally are fixed and
are often higher than in the United States where commissions are negotiated. In
the over-the-counter markets, securities generally are traded on a net basis
with the dealers acting as principal for their own accounts without a stated
commission.

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

Portfolio Turnover

MANAGEMENT OF THE FUNDS

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

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<PAGE>

The Adviser

MGIS, located at 20 Finsbury Circus, London, England, acts as
investment adviser to each Fund pursuant to the terms of an investment advisory
contract between the Trust, on behalf of each Fund, and MGIS (the "Advisory
Contract"). MGIS is registered as an investment adviser with the Commission and
provides a full range of international investment advisory services to
institutional clients. All of the outstanding voting stock of MGIS is owned by
Morgan Grenfell Asset Management, Ltd. ("MGAM"), which is a wholly-owned
subsidiary of Deutsche Morgan Grenfell Group plc. Deutsche Morgan Grenfell Group
plc is an indirect wholly-owned subsidiary of Deutsche Bank AG, an international
commercial and investment banking group. As of September 30, 1995, MGIS managed
approximately $12.3 billion in assets.

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

<TABLE>
<CAPTION>
Annual Rate
-----------
<S> <C>
Morgan Grenfell International Equity Fund 0.70%
Morgan Grenfell Global Equity Fund 0.70%
Morgan Grenfell European Equity Fund 0.70%
Morgan Grenfell Pacific Basin Equity Fund 0.70%
Morgan Grenfell International Small Cap Equity Fund 1.00%
Morgan Grenfell Japanese Small Cap Equity Fund 1.00%
Morgan Grenfell European Small Cap Equity Fund 1.00%
Morgan Grenfell Emerging Markets Equity Fund 1.00%
Morgan Grenfell Global Fixed Income Fund 0.50%
Morgan Grenfell International Fixed Income Fund 0.50%
Morgan Grenfell Emerging Markets Debt Fund 1.50%
</TABLE>

As further described in "Expense Information," the Adviser has
voluntarily agreed to reduce its advisory fee for each Fund to the extent
necessary to limit the Fund's operating expenses to a specified percentage of
its average net assets. For the fiscal period ended October 31, 1994, this
voluntary agreement was in effect, and Morgan Grenfell International Small Cap
Equity Fund, Morgan Grenfell Emerging Markets Equity Fund, Morgan Grenfell
Global Fixed Income Fund, Morgan Grenfell International Fixed Income Fund and
Morgan Grenfell Emerging Markets Debt Fund paid advisory fees equal to 0.58%,
0.68%, 0.17% 0.04% and 0.87% of their respective average daily net assets during
such period. The advisory fees to which the Adviser is entitled for
International Small Cap Equity Fund, Japanese Small Cap Equity Fund, European
Small Cap Equity Fund, Emerging Markets Equity Fund and Emerging Markets Debt
Fund are higher than those for most mutual funds, but the Trustees believe that
these fees are warranted by the resources needed to evaluate and invest in the
particular markets on which these Funds focus.

Each Fund is managed by a team of MGIS investment professionals with
expertise in the region(s) and types of investments in which the Fund invests.
For a description of the business

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<PAGE>

experience and other credentials of each investment professional involved in
managing the Funds' portfolios, see Appendix C to this Prospectus.

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

Administrator and Distributor

The Trust has entered into an Administration Agreement with SEI
Financial Management Corporation ("SEI Financial Management" or the
"Administrator"), 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658.

Pursuant to the Administration Agreement, SEI Financial Management
receives from all series of the Trust (i.e., the Funds and the Domestic Funds)
an aggregate monthly fee at the following annual rates of the aggregate average
daily net assets ("aggregate assets") of such series:

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

Each Fund pays the Administrator a minimum annual fee that equals
(after a one-year phase-in period) $75,000 ($100,000 in the case of Morgan
Grenfell International Small Cap Equity Fund, Morgan Grenfell Japanese Small Cap
Equity Fund, Morgan Grenfell European Small Cap Equity Fund, Morgan Grenfell
Emerging Markets Equity Fund and Morgan Grenfell Emerging Markets Debt Fund).

For the fiscal period ended October 31, 1994, the Administrator
received fees from Morgan Grenfell International Small Cap Equity Fund, Morgan
Grenfell Emerging Markets Equity Fund, Morgan Grenfell Global Fixed Income Fund,
Morgan Grenfell International Fixed Income Fund and Morgan Grenfell Emerging
Markets Debt Fund equal to 0.14%, 0.14%, 0.14%, 0.25% and 0.20% of their
respective average daily net assets.

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

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<PAGE>

Custodian and Transfer Agent

The Trust has entered into a Custodian Agreement with The Northern
Trust Company ("Northern Trust" or the "Custodian"), pursuant to which Northern
Trust serves as custodian of the Trust's assets. The Custodian is located at
Fifty South LaSalle Street, Chicago, Illinois 60675.

DST Systems, Inc. (the "Transfer Agent"), 210 W. 10th Street, Kansas
City , Missouri 64105, serves as the transfer agent of the Funds. The Transfer
Agent maintains the records of each shareholder's account, processes purchases
and redemptions of the Funds' shares, acts as dividend and distribution
disbursing agent and performs other shareholder servicing functions.

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

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

PURCHASE OF SHARES

Shares of any Fund may be purchased on any Business Day at the net
asset value next determined after receipt of the order in good order by the
Transfer Agent. A "Business Day" means any day on which the New York Stock
Exchange (the "NYSE") is open. There is no sales charge in connection with
purchases of shares. Shareholders who invest in a Fund through a broker may be
subject to transaction and/or account maintenance fees imposed by the broker (no
part of which will be received by the Trust or the Adviser). Any such fees will
be payable directly by the shareholder, and not by the Fund. The Trust reserves
the right, in its sole discretion, to reject any purchase offer and to suspend
the offering of shares.

Payments for Fund shares must be denominated in U.S. dollars. The
minimum initial investment is US$ 250,000 and subsequent investments will be
accepted in any amount. The Trust reserves the right to vary the initial
investment minimum and to establish minimums for additional investments at any
time. In addition, the Trust may waive the minimum initial investment
requirement for any investor. The Trust does not issue share certificates.

Purchases by Mail

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

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

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<PAGE>

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

Purchases by Wire

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

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

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

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

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

Reports to Shareholders and Confirmations

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

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<PAGE>

Exchange Privilege

The Funds provide a telephone exchange privilege and a written exchange
privilege. Shares of a Fund may be exchanged in amounts as low as $50,000 for
shares of any other Fund or any Domestic Fund. A shareholder should obtain and
read the prospectus relating to a Domestic Fund and consider its investment
objective, policies and fees before making an exchange into that Fund. Exchanges
will be permitted only in those states in which the relevant fund is available
for sale. If a shareholder elects the telephone exchange privilege on the
Account Application, the shareholder will be able to effect the exchange of
shares in its account in one Fund for shares in any other Fund described in this
Prospectus by telephone, as long as all accounts are identically registered. A
shareholder can exchange shares by telephone by calling 1-800-407-7301 before
4:00 p.m., Eastern time, on any Business Day. Shares exchanged will be valued at
their respective net asset values next determined after the telephone exchange
request is received. Neither the Funds nor their agents will be liable for any
loss incurred by a shareholder as a result of following instructions
communicated by telephone that they reasonably believe to be genuine. To confirm
that telephone exchange requests are genuine, the Funds will employ reasonable
procedures such as providing written confirmation of telephone exchange
transactions and tape recording of telephone exchange requests. If a Fund does
not employ such reasonable procedures, it may be liable for any loss incurred by
a shareholder due to a fraudulent or other unauthorized telephone exchange
request. The Funds reserve the right to refuse any request made by any
shareholder.

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

REDEMPTION OF SHARES

How To Redeem

Shareholders may redeem shares of a Fund without charge upon request on
any Business Day by placing redemption requests with the Transfer Agent prior to
4:00 p.m., Eastern Time. Shares are redeemed at the net asset value next
determined after receipt of the redemption request by the Transfer Agent.
Redemption requests may be made by telephoning Morgan Grenfell Investment Trust
at 1-800-407-7301 or by a written request addressed to the Transfer Agent in
accordance with the procedures set forth below. A written request must specify
the number of shares to be redeemed, the Fund from which shares are being
redeemed, the account number, payment instructions and the exact registration on
the account. Signatures must be guaranteed in accordance with the procedures set
forth below under "Payment of Redemption Proceeds." A shareholder may request
redemptions by telephone if the optional telephone redemption privilege is
elected on the Account Application. In order to verify the authenticity of
telephone redemption requests, the Transfer Agent's telephone representatives
will request that the caller provide certain information unique to the account.
If the caller is unable to provide

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<PAGE>

this information, telephone redemption requests will not be processed and the
redemption will have to be completed by mail. As long as the Transfer Agent's
telephone representatives comply with the procedures described above, neither
the Trust nor the Transfer Agent will be liable for any losses due to fraudulent
or unauthorized transactions. Finally, it may be difficult to implement
telephone redemptions in times of drastic economic or market changes.

Shareholders may request that redemption payments be made by Federal
Reserve Wire. The Custodian will deduct a wire charge (currently $10.00) from
redemption payments made by Federal Reserve wire. Shareholders cannot redeem
shares of any Fund by Federal Reserve wire on Federal holidays restricting wire
transfers. There is no charge for Automated Clearing House wire transactions;
however, such transactions will not be posted to a shareholder's bank account
until the second Business Day following the transaction.

Payment of Redemption Proceeds

Redemption proceeds ordinarily will be wired to the bank account
designated on the Account Application, unless payment by check has been
requested. For redemption requests received by the Transfer Agent by 4:00 p.m.,
Eastern time, redemption proceeds ordinarily will be wired the next Business
Day. Shares subject to such requests will earn dividends on the day the request
is received. After a wire has been initiated by the Transfer Agent, neither the
Transfer Agent nor the Trust assumes any further responsibility for the
performance of intermediaries or the shareholder's bank in the transfer process.
If a problem with such performance arises, the shareholder should deal directly
with such intermediaries or bank.

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

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<PAGE>

kind payments would not have to constitute a cross-section of a Fund's
portfolio. Investors receiving redemption payment in portfolio securities will
not have eliminated their investment exposure by their redemption as would
investors receiving their redemption payment in cash. Instead these investors
will be subject to risks inherent in owning such securities, including market
value and currency fluctuations, difficulties in selling securities in
particular markets and repatriating the sales proceeds, and the political and
other risks described under "Description of Securities and Investment Techniques
and Related Risks - Foreign Securities." In addition, a shareholder generally
will incur additional expenses, such as brokerage commissions and currency
conversion fees or expenses, on the sale or other disposition of securities
received from a Fund. Any portfolio securities paid or distributed to a
redeeming shareholder would be valued as described under "Net Asset Value."

NET ASSET VALUE

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

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

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<PAGE>

DIVIDENDS, DISTRIBUTIONS AND TAXES

Each Fund declares and pays dividends from net investment income, if
any, and distributes net short-term capital gain, if any, at least annually.
Each Fund also distributes at least annually substantially all of its realized
net long-term capital gain, if any, which it realizes for each taxable year and
may make distributions at any other times when necessary to satisfy applicable
tax requirements. Capital losses, including any capital loss carryovers from
prior years, are taken into account in determining the amounts of short-term and
long-term capital gains to be distributed. From time to time, a portion of a
Fund's distributions may constitute a return of capital for tax purposes.
Dividends and distributions are made in additional shares of the same Fund or,
at the shareholder's election, in cash. The election to reinvest dividends and
distributions or receive them in cash may be changed at any time upon written
notice to the Transfer Agent. If no election is made, all dividends and capital
gain distributions will be reinvested.

Taxes

Each Fund is treated as a separate entity for federal income tax
purposes and has elected or intends to elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and to qualify for such treatment for each taxable year.
To qualify as a regulated investment company, each Fund must satisfy certain
requirements relating to the sources of its income, diversification of its
assets and distribution of its income to shareholders. As a regulated investment
company, a Fund will not be subject to federal income or excise tax on any net
investment income or net realized capital gain that is distributed to its
shareholders in accordance with certain timing requirements of the Code.

Dividends paid by a Fund from its net investment income, certain net
realized foreign exchange gains, the excess of net short-term capital gain over
net long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income. Dividends paid by a Fund
from any excess of net long-term capital gain over net short-term capital loss
will be taxable to a shareholder as long-term capital gain regardless of how
long the shareholder has held its shares. These tax consequences will apply
regardless of whether distributions are received in cash or reinvested in
shares. Certain distributions declared in October, November or December and paid
in January of the following year are taxable to shareholders as if received on
December 31 of the year in which they are declared. Shareholders will be
informed annually about the amount and character of distributions received from
a Fund for federal income tax purposes and foreign taxes, if any, passed through
to shareholders, as described below.

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

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<PAGE>

Because each Fund invests in foreign securities, it may be subject to
foreign withholding or other foreign taxes on income earned on such securities
(possibly including, in some cases, capital gains). In any year in which any of
the Funds qualifies, it may make an election that would generally permit its
shareholders to take a credit or a deduction for their proportionate shares of
qualified foreign income taxes paid by such Fund, subject to applicable
restrictions or limitations under the Code. Each such shareholder would then
treat as additional income (in addition to actual distributions) his or her
proportionate share of the amount of qualified foreign income taxes paid by such
Fund. For some years, a Fund may be unable or may not elect to pass such taxes
and foreign tax credits and deductions with respect to such taxes through to its
shareholders.

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

In addition to federal taxes, a shareholder may be subject to state,
local or foreign taxes on dividends, capital gain distributions, or the proceeds
of redemptions or exchanges. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the extent
distributions of a Fund are derived from interest on (or, in the case of
intangibles taxes, the value of its assets is attributable to) certain U.S.
Government Securities provided in some states that certain thresholds for
holdings of U.S. Government Securities and/or reporting requirements are
satisfied. Shareholders should consult their tax advisors regarding specific
questions about federal, state, local or foreign taxes and special rules that
may be applicable to certain classes of investors, such as retirement plans,
financial institutions, tax-exempt entities, insurance companies and non-U.S.
persons.

ORGANIZATION AND SHARES OF THE TRUST

As of October 11, 1995, the Allied Signal Inc. Master Pension Trust
owned beneficially 30.19% of the outstanding shares of the International Small
Cap Equity Fund, the Archdiocese of Detroit owned beneficially 32.53% of the
outstanding shares of the International Fixed Income Fund, IBM Retirement Plan
Trust owned beneficially 32.29% of the outstanding shares of the Emerging
Markets Debt Fund, TRW Master Trust Retirement Plan owned beneficially 76.45% of
the outstanding shares of the European Small Cap Equity Fund, the Public
Employees' Retirement Association owned beneficially

-38-

<PAGE>

31.83% of the outstanding shares of the Emerging Markets Equity Fund and Morgan
Grenfell Capital Management, Inc. owned beneficially 99.95% of the outstanding
shares of the International Equity Fund.

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

As of the date of this Prospectus, the Administrator owned 100% of the
outstanding shares of each Fund other than International Small Cap Equity Fund,
Global Fixed Income Fund, Emerging Markets Equity Fund, International Fixed
Income Fund, Emerging Markets Debt Fund, European Small Cap Equity Fund and
International Equity Fund.

PERFORMANCE INFORMATION

-39-

<PAGE>

are assumed to be reinvested in the Fund's shares. A Fund's yield reflects a
Fund's overall rate of income on portfolio investments as a percentage of the
share price. Yield is computed by annualizing the result of dividing the net
investment income per share over a 30-day period by the net asset value per
share on the last day of that period.

To help investors better evaluate how an investment in a Fund might
satisfy their investment objective, advertisements regarding the Fund may
discuss performance as reported by various financial publications.
Advertisements may also compare performance as reported for other investments,
indices and averages.

Performance quotations of a Fund represent the Fund's past performance
and, consequently, should not be considered representative of the future
performance of the Fund. The value of Fund shares, when redeemed, may be more or
less than the original cost. Any fees charged by banks or other institutional
investors directly to their customer accounts in connection with investments in
shares of a Fund are not at the direction or within the control of the Funds and
will not be included in the Funds' calculations of total return.

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

-40-
<PAGE>

APPENDIX A

Japan

The currency is the Japanese Yen (12/31/94: Yen 100.2 = $1). Gross Domestic
Product for FY 1993 (Apr 93 - Mar 94) was Y469 trillion ($4,346 billion). The
current account balance in foreign trade in FY 1993 was a surplus of $130
billion, which was 3.0% of the Gross Domestic Product. The annual rate of
inflation in FY 1993 was 1.2% of the average annual rate of inflation over the
last three years ending FY 1993 was 1.8%. Japan is a highly industrialized
nation with a population of around 123 million people.

Total market value of shares listed on the Tokyo Stock Exchange at the end of
1993 was Y336 trillion ($3,018 billion), an increase of 12.4% from 1992. Share
trading volume during 1993 totaled Y106 trillion ($954 billion), an increase of
32% compared to 1992. The Nikkei stock average, which is calculated on a formula
similar to that used for the Dow Jones Industrial average in the United States,
was 16,924.9, 17,417.2 and 19,723.1 for 1992, 1993 and 1994 respectively.

The Japanese economy is expected to recover in the year to March 1996, with GDP
growth forecasted at 1.2%. The relatively high value of the Yen has adversely
affected many of Japan's export industries but aggressive cost cutting in the
manufacturing sector and the bottoming of the Yen/$ rate will herald sharp
increases in corporate earnings this year. Personal consumption remains weak and
the ruling Liberal Democratic / Socialist party coalition is a potential source
of uncertainty but 1995 should herald a strengthening recovery in Japan's
economic fortunes.

United Kingdom

The currency is the British Pound Sterling (12/31/94: BPS 0.639 = $1). Gross
Domestic Product was BPS 630 billion (US$ 985 billion) in 1993. The current
account balance in visible foreign trade in 1993 was a deficit of US$ 13.2
billion. The annual rate of inflation in 1992 was 3.7% and 1.6% in 1993. The
average rate of inflation for the three years ending 1994 was 2.6%.

Stock market capitalization was BPS 714 billion (US$ 1,117 billion) at year end
1994. Total market volume in 1994 was BPS 600 billion (US$ 939 billion). The
FT-SE 100 Index was 2,846.5, 3,418.4 and 3,065.5 at year end 1992, 1993 and 1994
respectively.

The United Kingdom economy grew strongly in 1994, driven primarily by industrial
and export demand. Despite this growth, inflation remained subdued and the
authorities increased interest rates from 5.5% to 6.25% in an attempt to control
inflation at these historically low levels, further rate increases are expected
in 1995. The governments popularity is currently at a very low ebb and the
possibility of political risk being discounted by the market should not be
ignored.

Hong Kong

The currency is the Hong Kong Dollar (12/31/94: HK$ 7.74 = $1). Gross Domestic
Product was HK$ 851 billion (US$ 110 billion) in 1993. The current account
balance in foreign trade in 1993 was a surplus of US$ 3.1 billion, which was
2.9% of Gross Domestic Product. The annual rate

A-1

<PAGE>

of inflation in 1992 was 8.5%. The average rate of inflation for the 3 years
ending 1993 was 10.0%. The population of Hong Kong is 5.8 million people.

Stock market capitalization was US$ 303 billion at year end 1994. The Hang Seng
Index was 5,572, 11,888 and 8,191 at year end 1992, 1993 and 1994 respectively.

The risks of investing in Hong Kong revolve around the intentions and actions of
the Chinese government, as the British lease of Hong Kong will terminate in
1997. In the short-term, a slow down in China's dramatic economic growth,
together with softer property prices are expected to reduce corporate earnings
growth from 18% in 1994 to 15% in 1995.

Malaysia

The currency is the Malaysian Ringgit (12/31/94: MR 2.55 = $1). Gross Domestic
Product was MR 165.9 billion ($63 billion) in 1993. The current account balance
in foreign trade in 1992 was a deficit of $2.4 billion, which was 3.9% of Gross
Domestic Product. The annual rate of inflation in 1993 was 3.6%. The average
rate of inflation for the three years ending 1993 was 4.2%. The population of
Malaysia is 19.5 million people.

Stock market capitalization was US$ 182 billion at year end 1994. The KL
Composite Index was 644, 1,275 and 971 at year end 1992, 1993 and 1994
respectively.

Malaysia's economy is still heavily dependent on the level of commodity prices.
In addition, with GDP growing at over 8%, inflationary pressures remain an area
of concern. Interest rates are expected to rise over the coming months.

Germany

The currency is the Deutschmark (12/31/94: DM 1.58 = $1). Gross Domestic Product
in 1993 including eastern Germany was DM 3 trillion (US$ 1.8 trillion),
equivalent to US$ 22,700 per capita. The current account deficit totaled US$
21.4 billion or 1.2% of GDP in 1993 with a surplus of US$ 43 billion on trade.
Inflation averaged 4.5% I 1994 (4.1% in Western Germany).

The capitalization of the German stockmarket at year end 1994 was US$ 411
billion (23% of GDP). The market is dominated by a small number of financial,
engineering, chemical and auto companies.

Following a short recession in 1993, when GDP fell 1.3% (West only), driven by a
collapse in business investment and exports, the German economy recovered
rapidly during the following year, with consumer and business confidence
rebounding in the first quarter and strengthening throughout the year. The
outlook for the economy in 1995 is positive, with inflation likely to remain
subdued for most of the year, aided by negative unit labor cost growth. Interest
rates are unlikely to fall further, however, given capacity pressures. Consumer
spending is expected to recover slowly after the initial shock of higher income
taxes from January. Corporate earnings are recovering sharply, but the market
remains expensive on a historical and relative basis.

A-2
<PAGE>

France

The currency is the French Franc (12/31/94: FF 5.27 = $1). GDP was FF 7 trillion
(US$ 1.3 trillion) in 1993, equivalent to 21,800 per capita. The current account
showed a surplus of FF 59 billion (US$ 11 billion) in 1993.
Inflation averaged 2.1% over the year 1994.

The French stockmarket was capitalized at US$ 379 billion in 1994 (29% of GDP).
The market is not heavily weighted towards any particular area, though the
financial sector is relatively large.

In spite of still high real interest rates the French economy recovered rapidly
from the deep recession of 1993 (when GDP fell 1.2%). Growth in 1994, estimated
at 2.2%, has been broadly based. However, business investment has remained
muted, while stock building has been an important element of the recovery.
Forecasts for 1995 have generally been revised upwards, with consumption
expected to accelerate further and business investment to recover gradually
throughout the year. Inflationary pressures remain low and monetary policy is
likely to continue to mirror that of the Bundesbank. The outlook for corporate
earnings, as the recovery gathers way, is good. However, with some exceptions,
valuations are not compelling.

Italy

The currency is the Lire (12/31/94: Lire 1,588 = $1). Gross Domestic Product in
1993 was L 1,588 trillion (US$ 990 billion), equivalent to $17,400 on a per
capita basis. The current account showed a surplus of US$ 7 billion in 1993,
reflecting a sizable positive balance of trade. Inflation averaged 4.5% in 1994,
compared to a 5 year average of 5.7%. Government debt remains a significant
burden for the economy, with a debt to GDP ratio over 100% and a budget deficit
approaching 10% of GDP in 1994.

In aggregate, the Italian market was capitalized at US$ 179 billion (18% of GDP)
at the end of 1994. The market remains heavily weighted towards bank and
insurance companies but there is a broad representation from other sectors.

The economy continues to grow rapidly after the recession of 1993 (when GDP fell
0.7%). As in most other European economies, recovery has been driven by the
extremely competitive Lire, while imports have grown less sharply, reflecting
muted real disposable income growth. After a sharp fall in 1993, business
investment is recovering, and in 1995 the recovery is expected to be in full
swing, with all components of GDP contributing positively. Low wage growth is
providing scope for further falls in inflation, though long-term interest rates
will remain negatively influenced by budgetary and political concerns. Corporate
earnings are recovering strongly and in 1995, aided by recovery in the domestic
economy, will again show rapid growth. The valuation of the Italian market as a
whole remains demanding both in an historical and in a relative context, but at
the individual stock level a number of opportunities remain.

A-3
<PAGE>

Mexico

The currency is the Mexican Nuevo Peso (12/31/94: MexP 5.08 = $1). Gross
Domestic Product was US$ 362 billion in 1993. The current account balance was in
deficit by US$ 23.4 billion representing 6.5% of the total Gross Domestic
Product, while the fiscal account was in surplus by US$ 0.7 billion before
privatization receipts. Inflation was 8.0% in 1993, having fallen from 18.8% in
1991 and from a peak of 160% in 1988.

Stock market capitalization was US$ 167 billion and the index level was 2,204 as
of 12/21/94. The largest stock is Telefonos de Mexico, which makes up 19% of the
market capitalization.

Mexico is in the early stages of an economic recovery program after many years
of high inflation and public debt in the 1970's and 1980's. The signing of the
North American Free Trade Agreement (NAFTA) is of great benefit to the Mexican
economy; however, it will expose inefficient companies to increased competition.

The economy is currently going through a difficult adjustment period as reduced
capital inflows and greater austerity from the government in response to the
devaluation of the peso have resulted in a sharp contraction in Gross Domestic
Product. However, a lower currency has given Mexican exporters a significant
competetive boost and Mexico's balance of trade terms have now become positive.
After a severe setback earlier in the year, the Mexican stockmarket has now
shown more encouraging signs of stabilizing.

Brazil

The currency is the Brazilian Real (12/31/94: BLR 0.84698 = $1). Gross Domestic
Product was US$ 456 billion in 1993. The current account balance in foreign
trade was a surplus of US$ 14.3 billion in 1993, US$ 15.76 billion in 1992 and a
surplus of US$ 10.59 billion in 1991. Brazil's annual rate of inflation was
2,708% in 1993, 1,158% in 1992 and 480% in 1991. Brazil's stock market was
capitalized at US$ 182 billion at 12/21/94.

President Cardoso took office on January 1st following the introduction during
his term as finance director of an economic program to reduce inflation through
opening the economy to imports and a new dollar linked currency.
Inflation had fallen to 2.2% per month by the end of 1994 from over 50% in June.

The reforms now being implemented in Brazil come after a long period of
political uncertainty surrounding the previous Government's commitment to
address many of Brazil's structural economic problems.

A-4
<PAGE>

APPENDIX B

Description of Ratings Categories of
Moody's Investors Service, Inc. and
Standard & Poor's Ratings Group

Moody's Investors Service, Inc. ("Moody's") describes classifications
of fixed income securities (not including commercial paper) as follows:

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, i.e., 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.

Ba--Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B--Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

Caa--Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.

B-1

<PAGE>

Ca--Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.

C--Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

Standard & Poor's Ratings Group ("Standard & Poor's") describes
classifications of fixed income securities (not including commercial paper) as
follows:

AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.

AA--Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from the AAA issues only in small degree.

A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

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

Debt rated BB, B, CCC or CC is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

D--Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.

B-2

<PAGE>

APPENDIX C

PORTFOLIO MANAGER INFORMATION

<TABLE>
<CAPTION>
Funds Portfolio Managers
- ----- ------------------
<S> <C>
Morgan Grenfell International Equity Fund Patrick Disney
Jeremy Lodwick

Morgan Grenfell Global Equity Fund Patrick Disney
William Thomas

Morgan Grenfell European Equity Fund Julian Johnston
Michael Wheatley

Morgan Grenfell Pacific Basin Equity Fund William Thomas
Graham Bamping

Morgan Grenfell International Small Cap Equity Fund Graham Bamping
Richard Curling

Morgan Grenfell Japanese Small Cap Equity Fund James Pulsford

Morgan Grenfell European Small Cap Equity Fund Richard Curling
Christopher Turner

Morgan Grenfell Emerging Markets Equity Fund Richard Lamb
Christopher Getley

Morgan Grenfell Global Fixed Income Fund Ian Kelson
Martin Hall

Morgan Grenfell International Fixed Income Fund Ian Kelson
Martin Hall

Morgan Grenfell Emerging Markets Debt Fund Simon Treacher
</TABLE>

C-1
<PAGE>

<TABLE>
<CAPTION>
Portfolio Manager Expertise Professional Experience
- ----------------- --------- -----------------------
<S> <C> <C>
Graham Bamping Pacific Basin Equity Markets Director, Morgan Grenfell
Investment Services ("MGIS") (since
1987); Portfolio Manager, Pacific
Basin (since 1989); Portfolio
Manager, Singapore (1981-83);
Research, Far East (1980-81);
Research, UK (1978-80).

Richard Curling UK Equity Markets, Small Member, UK Fund Management Team,
Capitalization Companies MGIS (since 1986); UK Equity
Analyst, MGAM (since 1982).

Patrick Disney EAFE(R) Markets Managing Director, MGIS
(since 1988); Director, MGIS
(1987-88); EAFE(R) Team (since 1981).

Christopher Getley Latin American Equity Markets MGIS (since 1987); Mexican,
Portfolio Manager Brazilian and
Argentinian Team (since 1989);
Australian and Canadian Team
(1987-89).

Martin Hall European Bond Markets MGIS, Fixed Income Team (since 1988);
Bank of England (UK monetary policy)
(1982-88).

Julian Johnston European Equity Markets Director, MGIS (since 1988);
Fidelity International (1984-88);
James Capel & Co. (1979-84).

Ian Kelson Fixed Income Markets Director, MGIS (since 1988); Chief
Investment Officer, MGIS Fixed
Income (since 1989); Portfolio
Manager, Bank of America
(multi-currency accounts) (1981-85).
</TABLE>

C-2
<PAGE>

<TABLE>
<CAPTION>
Portfolio Manager Expertise Professional Experience
- ----------------- --------- -----------------------
<S> <C> <C>
Richard Lamb Latin American Markets MGIS (since 1993); Rothschild Asset
Management (The Chile Fund and Five
Arrows Fund) (1988-93); Portfolio
Manager, Berkeley Govett and Samual
Montagu (1981-88).

Jeremy Lodwick European Equity Markets Director MGIS (since 1994);
Portfolio Manager MGIS (1992-1994);
Vice President MGCM (1986-1991);MIM
Britannia Ltd (1985-1986); Samuel
Montagu & Co. (1984-1985).

James Pulsford Japanese Markets Portfolio Manager, Japanese
Markets, MGIS (since 1987); UK
research (since 1984).

William Thomas Japanese Markets Director, MGIS (since 1988);
Portfolio Manager, MGIS (technology
investments) (1984-88); Director,
Extel (UK computing services
company) (1971-79).

Simon Treacher Emerging Markets MGIS (since 1994); Portfolio
Manager, Prudential Portfolio
Managers (1992-1993); Portfolio
Manager, Worldinvest Ltd.
(1978-1992); Portfolio Manager,
Bankers Trust Co. (1984-1987);
National Westminster Bank
(1980-1984)

Christopher Turner European Equity Markets Fund Manager, MGIS (since 1993) and
Morgan Grenfell Intl. Funds
Management Ltd. (since 1991);
Analyst and Fund Manager, Equity &
Law Life Assurance (since 1986).
</TABLE>

C-3

<PAGE>

APPENDIX D

TAX CERTIFICATION INSTRUCTIONS

Federal law requires that taxable distributions and proceeds of
redemptions and exchanges be reported to the IRS and that 31% be withheld if you
fail to provide your correct Taxpayer Identification Number (TIN) and the
certifications in Section H or you are otherwise subject to backup withholding.
Amounts withheld and forwarded to the IRS can be credited as a payment of tax
when completing your Federal income tax return.

D-1
<PAGE>

Morgan Grenfell Investment Trust
885 Third Avenue
New York, New York 10022

Investment Adviser
Morgan Grenfell Investment Services Limited
20 Finsbury Circus
London, England EC2M 1NB

Administrator and Shareholder
Servicing Agent
SEI Financial Management Corporation
680 East Swedesford Road
Wayne, Pennsylvania 19087-1658

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

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

Transfer Agent
DST Systems, Inc.
SEI Division CT-7 Tower
210 W. 10th Street
Kansas City, Missouri 64105

Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036

Legal Counsel
Hale and Dorr
60 State Street
Boston, Massachusetts 02109

Service Information
Existing accounts, new accounts, prospectuses, Statements
of Additional Information applications, and
service forms - 1-800-814-3401

Telephone Exchanges - 1-800-407-7301

Share Price and Performance
Information - 1-800-814-3401