Morgan Grenfell SMALLCap Fund, Inc.
Semiannual Report--1996
Dear Shareholder:
The first half of 1996 was a period during which the Fund achieved investment
performance in line with both the smaller company benchmark S&P Small Cap 600
index as well as the large company indices; i.e., the S&P 500 and Dow Jones
Industrial Average. Also, the Fund completed a successful rights offering
which increased the Fund's total assets to over $100 million.
The Fund's investment performance compared to the indices which are
representative of both large and smaller companies are indicated in the table
below.
MG SMALLCap Smaller
Fund Net Asset Companies Large Companies
Value --------------- ---------------------
S&P Small Cap
Period 600 S&P 500 D.J.I.A.
---------------- -------------- --------------- ------- ----------
1996 - 1st Half.... +11.1% +11.2% +10.1% +11.8%
The Fund's total investment return based on net asset value for the first half
of 1996 was (plus)3.3%. This return differs from the Fund's investment
performance in the above table because of the Fund's rights offering, which had
a dilutive effect on the Fund's net asset value.
The market value of the Fund's shares, adjusted for the $2.133 per-share capital
gains distribution which went ex-dividend on January 29, 1996, decreased by
1.1%. During the first half, the Fund's discount to net asset value widened from
12.6% to 18.4%.
PORTFOLIO STRUCTURE
<TABLE>
<CAPTION>
No. Companies Market Value % Portfolio
-------------------- ------------------------ --------------------
Sector 12/31/95 6/30/96 12/31/95 6/30/96 12/31/95 6/30/96 Change
- --------------------- ---------- ------ ---------- ---------- ---------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SERVICE COMPANIES 8 16 $ 9.4MM $ 18.0MM 10% 16% +6
TECHNOLOGY 17 16 18.7 16.7 21 15 -6
CONSUMER 18 19 13.2 16.0 15 14 -1
ENERGY 10 9 10.3 10.4 12 9 -3
CREDIT SENSITIVE 12 12 9.8 9.7 11 8 -3
HEALTH CARE 12 11 9.4 7.0 11 6 -5
PROCESS INDUSTRIES 6 4 4.5 3.3 5 3 -2
TRANSPORTATION 4 3 1.9 2.2 2 2 +0
CAPITAL GOODS 1 2 1.4 1.1 2 1 -1
-------- ---- -------- -------- ------ ---- -------
TOTAL EQUITIES 88 92 $78.6MM $ 84.4MM 89% 74% -15
CASH AND EQUIVALENTS 9.4 30.0 11 26 +15
-------- -------- ------ ---- -------
TOTAL FUND $88.0MM $114.4MM 100% 100% --
</TABLE>
Cash reserves, which totaled approximately $30 million at the end of the
second quarter, represented 26% of the Fund's total assets. The high level of
cash reserves reflects the receipt of approximately $27 million on June 21,
1996 from the Fund's successful rights offering.
Performance of the Fund during the first six months of the year benefited
from gains of greater than 30% in Service Companies as well as the Energy and
Capital Goods sectors. With the exception of technology stocks, which
experienced a slight decline, all sectors made a positive contribution to the
Fund's performance.
1
<PAGE>
The Fund's diversification at the beginning of the year; i.e., portfolio
weightings of greater than 10% in six of the nine sectors, reflects the
ability of our team to select attractive investment opportunities across the
smaller company investment universe. It has also benefited recent performance
since the traditional emerging growth sectors; i.e., Technology, Health Care,
Consumer and Service Companies, have experienced the greatest price declines
since the market peak in early June.
TEN LARGEST HOLDINGS
(June 30, 1996)
<TABLE>
<CAPTION>
% Stock
Company Fund Symbol Business Focus
--------------------------------- ------ ------ ----------------------------
<S> <C> <C> <C>
DELTA & PINE LAND CO. ............ 2.2% DLP LARGEST COTTON SEED COMPANY
MEMC ELECTRONIC MATERIALS ........ 2.1 WFR SILICON WAFER MANUFACTURER
TIDEWATER INC. ................... 2.0 TDW MARINE SUPPORT VESSELS
SYNOPSYS INC. .................... 1.9 SNPS CAE SOFTWARE
PHYCOR INC. ...................... 1.8 PHYC PHYSICIAN PRACTICE MGMT. CO.
DIME BANCORP INC. ................ 1.6 DME NEW YORK SAVINGS BANK
THE SPORTS AUTHORITY INC. ........ 1.5 TSA SPORTING GOODS RETAILER
PAGING NETWORK INC. .............. 1.5 PAGE PAGING SERVICES
UNITED MERIDIAN CORP. ............ 1.5 UMC OIL & GAS PRODUCER
PMT SERVICES INC. ................ 1.4 PMTS TRANSACTION PROCESSOR
-----
17.5%
</TABLE>
The Fund focuses primarily on companies with market capitalizations between
$100 million and $1.6 billion at the time of initial investment. The weighted
average market capitalization of companies held in the Fund was $893 million on
June 30, 1996.
ITEMS OF SHAREHOLDER INTEREST
In June 1996, the Fund issued 2,672,921 shares of its common stock upon
completion of a successful, non- transferable rights offering, bringing the
total outstanding shares to 9,087,934. The subscription price was $10.71 per
share (95% of the average of last reported sales price of a share of the
Fund's common stock on the NYSE on June 14, 1996, the expiration date, and
the four preceding business days). The offering was over-subscribed and net
proceeds totaled approximately $27 million. Management believes that these
new funds will enable the Fund to capitalize on existing and future
investment opportunities for small capitalization companies. Because the
subscription price was less than the net asset value per share of the Fund's
common stock on the pricing date, the offer resulted in a dilution of the net
asset value per share for all shareholders.
On April 19, 1996 at the Fund's Annual Meeting of Shareholders, Messrs.
Robert E. Greeley and Joseph J. Incandela were elected as directors of the
Fund to serve until the 1999 meeting of shareholders. Mr. Greeley was elected
with 5,824,488 shares (90.8% of outstanding shares) voting in favor and
86,378 shares (1.3% of outstanding shares) withheld. Mr. Incandela was
elected with 5,821,019 shares (90.7% of outstanding shares) voting in favor
and 89,847 shares (1.4% of outstanding shares) withheld. Shareholders
ratified KPMG Peat Marwick, LLP as the independent auditors of the Fund for
the fiscal year ending December 31, 1996, by a vote of 5,829,148 shares
(90.9% of outstanding shares) in favor, 49,626 shares (0.8% of outstanding
shares) against, and 32,092 shares (0.5% of outstanding shares) abstained.
Mr. Mark Arthus, Senior Vice President for Morgan Grenfell Capital Management
("MGCM"), was elected Secretary and Treasurer of the Fund.
2
<PAGE>
Gerald Frey, a member of MGCM's small-cap team and a Vice President of the
Fund since 1994, resigned in May. The officers and directors would like to
thank Jerry for his contributions to the Fund and wish him continued success
in the future.
CAPITAL GAINS DISTRIBUTIONS
During 1995, the Fund's capital gains distribution totaled $2.133 per share.
Although distributions this year, if any, will depend upon securities
transactions during the second half of the year, realized gains during the
first half of 1996 totaled $12,007,334, or approximately $1.32 per share. In
addition, net unrealized gains in the Fund's portfolio were an additional
$16,968,391, or approximately $1.87 per share, on June 30, 1996.
OUTLOOK
The correction in the stock market which began in early June was initially
associated with technology stocks and the smaller company stock market
indices. As we entered July, the release of more disappointing news relating
to earnings and future growth prospects caused a downward acceleration in the
performance of the Technology sector. These declines spread throughout the
market with the worst declines experienced by emerging growth stocks.
By late July, the magnitude of the decline experienced by the S&P Small Cap
600 approached -13% from the beginning of June, with the Technology sector
down by over -25%. Although the stock market rally in early August has
resulted in recovering a portion of the losses experienced in July, the stock
market indices which are representative of smaller companies are still down
for the quarter in the 3-6% range midway through the third quarter.
Investment performance of the Fund is also within this range.
A significant portion of the Fund's cash reserves was invested during July's
stock market decline. However, the Fund continues to hold cash reserves of
16% and is in an excellent position to take advantage of attractive
investment opportunities without incurring the transaction costs associated
with selling existing portfolio holdings.
A more challenging investment environment is anticipated. Therefore,
investment strategy is focused on companies in which our team has the
greatest confidence.
I am confident that the experience of our small-cap team and an investment
approach based on fundamental research will provide the Fund's shareholders
with "value added" performance.
Sincerely,
/s/ Robert E. Kern, Jr.
Robert E. Kern, Jr.
President
Morgan Grenfell SMALLCap Fund, Inc.
3
<PAGE>
SCHEDULE OF INVESTMENTS
June 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMMON STOCKS: 73.8%
- -----------------------------------
SERVICE COMPANIES: 15.7% BUSINESS FOCUS SHARES MARKET VALUE
- ----------------------------------- ----------------------------------------- ------ -------------
Delta & Pine Land Co. Largest Cotton Seed Company 60,000 $ 2,535,000
Paging Network Inc. Paging Services 72,000 1,728,000
PMT Services Inc. Transaction Processor 57,700 1,651,663
American Radio System Corp. Radio Broadcasting Stations 35,600 1,530,800
New England Business Service Business Forms 75,100 1,464,450
NUCO2 Inc. Bulk Carbon Dioxide Services 46,000 1,414,500
Daisytek International Corp. Non-Paper Office Supplies 30,900 1,297,800
Checkpoint Systems Inc. Retail Security Systems 30,000 1,031,250
True North Communication Advertising 46,250 1,029,063
Mobilemedia Corp. Paging Services 71,750 869,969
Chancellor Broadcasting Inc. Radio Broadcasting Stations 27,500 859,375
Vanguard Cellular Systems Cellular Telephone Service 35,800 778,650
Caribiner International Inc. Corporate Marketing 20,200 648,925
Mail Boxes Etc. Inc. Mail & Business Services 26,500 606,187
Philip Environmental Inc. Disposal & Reclamation Co. 40,200 316,575
Paxson Communications Inc. Infomercials & Broadcasting 17,600 187,000
-------------
$17,949,207
-------------
TECHNOLOGY: 14.6%
- -----------------------------------
MEMC Electronic Materials Inc. Silicon Wafer Manufacturer 63,400 $ 2,456,750
Synopsys Inc. CAE Software 55,650 2,212,088
PRI Automation Inc. Semiconductor Manufacturer 48,700 1,485,350
Micrel Inc. Analog Semiconductors 80,000 1,340,000
Actel Corp. Field Programmable Gate Arrays 59,000 1,091,500
Platinum Technology Corp. System Software Products 71,850 1,086,731
Geoworks System & Application Software 28,800 1,022,400
Altera Corp. Complex Logic Devices 26,000 988,000
Sandisk Corp. Flash Memory Products 77,200 936,050
Analog Devices Inc. Analog Semiconductors 36,500 930,750
Computervision Corp. Computer-Aided Design Systems 91,600 916,000
Linear Technology Corp. Advanced Linear Circuits 29,000 870,000
Premiere Technologies Inc. Communication Services 26,600 837,900
Rational Software Corp. Computer Software 5,000 268,750
Integrated Systems Inc. Computer Software/Operate. Sys. 5,000 200,312
Ceridian Corp. Human Resource Service 1,300 65,650
-------------
$16,708,231
-------------
CONSUMER: 13.9%
- -----------------------------------
The Sports Authority Inc. Sporting Goods Retailer 54,050 $ 1,770,138
Damark International Inc. General Merchandise 109,450 1,532,300
Sonic Corp. Drive-In Restaurants 59,200 1,435,600
Central Parking Corp. Auto Parking Services 45,600 1,350,900
Barnett Inc. Direct Marketer 42,950 1,234,813
Garden Ridge Corp. Specialty Home Accessories 21,200 1,070,600
Westpoint Stevens Inc. Textiles 40,800 974,100
Apple South Inc. Restaurant Chain 36,200 968,350
Starbucks Corp. Coffee Retailer 33,900 957,675
Movie Gallery Inc. Video Rental Company 45,100 947,100
4
<PAGE>
CONSUMER: continued BUSINESS FOCUS SHARES MARKET VALUE
- ----------------------------------- ----------------------------------------- ------ ------------
Staples Inc. Office Products Superstores 42,675 $ 832,163
Mohawk Industries Inc. Carpet Manufacturer 44,800 795,200
Baby Superstores Inc. Young Children Products 36,600 603,900
Micro Warehouse Inc. Computer Direct Marketer 19,000 380,000
Robert Mondavi Corp. Wine Manufacturer 9,200 289,800
Daka International Inc. Restaurants 9,700 227,950
Rock Bottom Resturants Inc. Restaurant Chain 18,100 217,200
Taco Cabana Inc. Quick Service Restaurant Chain 27,050 196,112
York Group Inc. Casket Manufacturer 7,200 124,200
-------------
$15,908,101
-------------
ENERGY: 9.1%
- -----------------------------------
Tidewater Inc. Marine Support Vessels 51,000 $ 2,237,625
United Meridian Corp. Oil & Gas Producer 46,500 1,674,000
BJ Services Corp. Stimulation & Pumping Services 45,000 1,580,625
Devon Energy Corp. Oil & Gas Producer 58,500 1,433,250
Camco International Inc. Oil Field Services & Equipment 28,500 965,438
Triton Energy Corp. Oil & Gas Producer 18,000 875,250
Benton Oil & Gas Corp. Oil & Gas Producer 31,800 699,600
Parker & Parsley Pete Corp. Oil & Gas Producer 25,000 693,750
Rutherford-Moran Oil Corp. Oil & Gas Producer 10,800 263,250
-------------
$10,422,788
-------------
CREDIT SENSITIVE: 8.5%
- -----------------------------------
Dime Bancorp Inc. New York Savings Bank 138,500 $ 1,800,500
Credit Acceptance Corp. Auto Financing 51,700 1,085,700
Glendale Fed. Bank Fed. Svgs. California Savings & Loan 59,750 1,082,969
Lennar Corp. Residential & Commercial Builders 40,000 1,000,000
Long Island Bancorp Inc. New York Savings Bank 29,000 886,313
Amresco Inc. Real Estate Financial Services 47,500 813,437
Paine Webber Group Inc. Financial Broker 29,250 694,687
Triangle Pacific Corp. Flooring & Kitchen Cabinets 31,000 612,250
Bank Plus Corp. So. California Savings Bank 65,000 568,750
Peoples Heritage Financial Group Maine Savings Bank 27,000 550,125
First Bell Bancorp Inc. Pennsylvania Savings Bank 30,000 412,500
Security First Network Internet Bank 6,350 209,550
-------------
$ 9,716,781
-------------
HEALTH CARE: 6.2%
- -----------------------------------
Phycor Inc. Physician Practice Management Co. 55,162 $ 2,096,156
Henry Schein Inc. Healthcare Products Distributor 36,300 1,388,475
Perseptive Biosystems Inc. Analytical Instruments 96,000 894,000
Value Health Inc. Managed Health 28,800 680,400
Gensia Pharmaceuticals Inc. Pharmaceuticals 102,500 518,906
ImmuLogic Pharmaceutical Corp. Pharmaceuticals 51,300 468,112
Uromed Corp. Urological Devices 20,100 276,375
Quorum Health Group Inc. Managed Care 10,000 263,750
Cytyc Corp. Medical Device 9,100 235,462
Affymetrix Inc. Biotechnology 9,600 146,400
Biopsys Medical Inc. Medical Device 5,500 110,000
-------------
$ 7,078,036
5
<PAGE>
PROCESS INDUSTRIES: 2.9% BUSINESS FOCUS SHARES MARKET VALUE
- ----------------------------------- ----------------------------------------- ------- ------------
Rayonier Inc. Forest Products & Specialty Pulp 27,500 $ 1,045,000
Bowater Inc. Newsprint and Paper Producer 24,700 929,337
P.H. Glatfelter & Co. Paper Manufacturer 50,000 918,750
Potlatch Corp. Forest Products 11,000 430,375
------------
$ 3,323,462
------------
TRANSPORTATION: 1.9%
- -----------------------------------
USFreightways Corp. LTL Motor Carrier 53,900 $ 1,051,050
Atlantic Southeast Airlines Air Carrier 26,300 742,975
Midwest Express Holdings Inc. Regional Airline 12,800 411,200
------------
$ 2,205,225
------------
CAPITAL GOODS: 1.0%
- -----------------------------------
Furon Corp. Engineered Components 14,000 $ 346,500
Miller Industries Inc. Tow Truck Manufacturer 27,000 772,875
------------
$ 1,119,375
------------
TOTAL COMMON STOCKS (cost $67,462,815) $ 84,431,206
============
COMMERCIAL PAPER: 26.2%
- -----------------------------------
Associates Corp. 5.452% due 7/1/96 $ 30,017,000
------------
TOTAL: 100% (cost $67,462,815 + $30,017,000 = $97,479,815) $114,448,206
============
</TABLE>
6
<PAGE>
Statement of Assets and Liabilities--June 30,1996
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investment in securities at market value, cost $97,479,815 (Note 1) ........ $114,448,206
Cash on deposit with custodian ............................................. 255,065
Receivables:
Investment securities sold ................................................ 34,374,158
Dividends and interest .................................................... 41,830
------------
Total assets ............................................................ $149,119,259
------------
LIABILITIES:
Payable for investment securities purchased ............................... $ 33,336,877
Accrued expenses .......................................................... 143,920
------------
Total liabilities ...................................................... $ 33,480,797
------------
Net assets applicable to 9,087,934 shares of beneficial interest ($0.01
par value per share; authorized 150,000,000) ............................... $115,638,462
------------
Net asset value per share as of the close of business June 30, 1996
($115,638,462 divided by 9,087,934) ........................................ $ 12.72
------------
</TABLE>
Statement of Changes in Net Assets for the Six Months ending June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Increase (Decrease) in net assets from operations:
Net investment expense ..................................................... $ (63,426)
Net realized gain on investments ........................................... 12,007,334
Net unrealized depreciation ................................................ (2,703,812)
------------
Net increase in net assets resulting from operations ...................... $ 9,240,096
Share Transactions ........................................................ 31,996,672
------------
Net increase in assets .................................................... $ 41,236,768
Net Assets
Beginning of period ........................................................ 74,401,694
------------
End of period .............................................................. $115,638,462
------------
</TABLE>
See accompanying Notes to Financial Statements
7
<PAGE>
Statement of Operations for the Six Months ending June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Income:
Interest .......................................... $ 323,667
Cash dividends .................................... 197,784
Miscellaneous ..................................... 1,323
-----------
Total Income ...................................... $ 522,774
Expenses:
Investment advisory fees (Note 2) ................ $ 416,690
Custodian and transfer agent fees ................ 49,293
Professional fees ................................ 34,488
Shareholder relations ............................ 30,575
Directors' fees and expenses ..................... 25,645
Insurance ........................................ 15,737
Registration and listing fees .................... 10,330
Miscellaneous .................................... 3,442
-----------
Total Expenses .................................... $ (586,200)
----------
Net investment expense ............................ $ (63,426)
Net realized and unrealized gain on investments for
the six months ended June 30, 1996:
Net realized gain on investments ................. $12,007,334
Net unrealized depreciation ...................... (2,703,812)
-----------
$9,303,522
----------
Increase in net assets from operations ............ $9,240,096
----------
</TABLE>
See accompanying Notes to Financial Statements
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
Morgan Grenfell SMALLCap Fund, Inc. (the "Fund") was organized as a Maryland
corporation on January 16, 1987 and is registered under the Investment
Company Act of 1940, as amended, as a closed-end, diversified management
investment company. The Fund commenced operations on May 6, 1987.
The following is a summary of the significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
Portfolio valuation: Securities listed on an exchange and over-the-counter
securities quoted on the NASDAQ system are valued on the basis of the last
sale price on the last business day of the year. Over-the-counter securities
not quoted on the NASDAQ system are valued on the basis of the average bid
and asked prices on that date. Commercial paper is carried at cost, which
approximates market.
Securities transactions and investment income: Securities transactions are
recorded on a trade date basis. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis.
Realized gains and losses from securities transactions are recorded on the
basis of identified cost.
Federal income taxes: It is the policy of the Fund to qualify as a regulated
investment company by complying with provisions available to certain
investment companies, as defined in applicable sections of the Internal
Revenue Code, and to make distributions of income and securities profits
(after application of net capital loss carryovers) sufficient to relieve it
from all, or substantially all, Federal income taxes.
2. Investment Advisory Fee and Other Transactions with Affiliates
The Fund pays advisory fees for investment and advisory services to Morgan
Grenfell Capital Management, Inc. ("MGCM"), a wholly-owned subsidiary of
Morgan Grenfell PLC. Under the terms of the investment advisory agreement,
the management fee is calculated at an annual rate of one percent of the
Fund's average daily net assets.
Certain individuals who are officers or directors, or both, of the Fund are
also officers or directors, or both, of MGCM.
3. Investment Transactions
The aggregate cost of securities purchased and the aggregate proceeds of
securities sold during the six-month period ended June 30, 1996, excluding
short-term investments, were $80,700,347 and $82,219,993, respectively.
4. Remuneration to Directors and Officers
Payments to unaffiliated Directors on an accrual basis for the period January
1, 1996 to June 30, 1996 amounted to $25,645 representing Directors' fees and
costs attending Board Meetings.
9
<PAGE>
SUPPLEMENTARY INFORMATION
Financial Highlights
(Unaudited)
The information contained below has been derived from information provided in
the financial statement and market price data for the Fund's shares for the
six-month period ended June 30, 1996 and the fiscal year ended December 31,
1995.
<TABLE>
<CAPTION>
Six Months
Ended Year
6/30/96 Ended 12/31/95
-------------- ---------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .................... $ 12.31 $ 10.21
Net investment income (expense) ........................ (0.01) (0.00)
Net gain/(loss) on securities (realized and
unrealized) ............................................ 1.02 4.23
-------- ---------
Total from investment operations ........................ $ 1.01 $ 4.23
Less dividends and distributions:
Tax return of capital distribution .................... -- (2.13)
-------- --------
Total dividends and distributions ....................... $ 0.00 $ (2.13)
Dilution effect of rights offering ...................... (0.60)(2) --
-------- --------
Net asset value, end of period .......................... $ 12.72 $ 12.31
======== ========
Market value per share, end of period ................... $ 10.375 $ 12.625(1)
TOTAL INVESTMENT RETURN:
Based on market value per share ......................... -1.1% +42.3%
Based on net asset value per share ...................... +3.3% +41.4%
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................................ 1.36%* 1.51%
Net investment income (expense) ......................... (0.15%)* (0.03%)
SUPPLEMENTAL DATA:
Net assets at end of period (000 omitted) ............... $115,638 $74,402
Average net assets during period (000 omitted) .......... $ 85,709 $72,202
Portfolio turnover ...................................... 192%* 110%
Total debt outstanding at end of period (000 omitted) ... 0 0
Asset coverage per $1,000 of debt (000 omitted) ......... N/A N/A
</TABLE>
*Annualized.
(1) The Fund declared a $2.133 capital gain distribution payable to
shareholders of record on December 29, 1995. The market value of $12.625
includes the capital gain distribution of $2.133. The dividend was paid on
January 26, 1996 and the Fund's shares traded with the dividend until the
ex-dividend date, January 29, 1996.
(2) An immediate dilution of the net asset value per share of common stock
experienced as a result of the offering.
10
<PAGE>
(This Page Intentionally Left Blank)
<PAGE>
MORGAN GRENFELL
SMALLCap FUND, INC. DIRECTORS AND OFFICERS
- ---------------------------- --------------------------
Michael Bullock Audrey M.T. Jones
CHAIRMAN AND DIRECTOR VICE PRESIDENT
Chief Investment Officer Senior Vice President
Morgan Grenfell Asset Morgan Grenfell Capital
Management, Ltd. Management, Inc.
Robert E. Kern, Jr. Mark G. Arthus
PRESIDENT AND DIRECTOR SECRETARY AND TREASURER
Executive Vice President Senior Vice President
Morgan Grenfell Capital Morgan Grenfell Capital
Management, Inc. Management, Inc.
Robert E. Greeley
DIRECTOR INDEPENDENT AUDITORS
Partner KPMG Peat Marwick, LLP
Page Mill Asset 345 Park Avenue
Management Company New York, NY 10154
Joseph J. Incandela
DIRECTOR TRANSFER AGENT & CUSTODIAN
Partner/Managing Director The Bank of New York
Thomas H. Lee Company 101 Barclay Street
New York, NY 10286
Richard D. Wood
DIRECTOR INVESTMENT ADVISOR
Consultant Morgan Grenfell Capital
Management, Inc.
885 Third Avenue
32nd Floor
New York, NY 10022
Shares of the Morgan Grenfell SMALLCap Fund, Inc. are traded on the New York
Stock Exchange under the symbol "MGC."
In accordance with Section 23(c) of the Investment Company Act of 1940, the
Fund hereby serves notice that it may from time to time repurchase shares of
the Fund in the open market at the option of the Board of Directors.
SHAREHOLDER & INFORMATION SERVICES
Information regarding the Fund is available by calling the offices of Morgan
Grenfell Capital Management, Inc. at 212-230-2600. Shareholder information
can be obtained by calling 1-800-432-8224 through The Bank of New York's
Shareholder Relations Department. The Fund's net asset value is reported each
week in The Wall Street Journal and Barron's or by calling 1-800-888- 8060.
(MORGAN GRENFELL LOGO)
Morgan
Grenfell
SMALLCap
Fund,
Inc.
-----------------
Semiannual Report
June 30, 1996
-----------------
11
<PAGE>
