<PAGE>
MORGAN GRENFELL
INVESTMENT TRUST
MICROCAP FUND
Annual Report September 30, 1999
[MAP OF WORLD]
<PAGE>
MORGAN GRENFELL MICRO CAP FUND SHAREHOLDER LETTER
- --------------------------------------------------------------------------------
Dear Shareholder:
The Morgan Grenfell Micro Cap Fund (formerly Morgan Grenfell Microcap Fund)
significantly outperformed its benchmark for the eleven months ended
September 30, 1999, particularly noteworthy given the extremely high volatility
in the smaller capitalization U.S. equity market during this time period. The
Fund had a total return of 63.23%(1) for the eleven months ended September 30,
1999, as compared to 14.40% for the Russell 2000 Index and 26.05% for the
Russell 2000 Growth Index.(2) The Fund's Board of Trustees approved a change in
its fiscal year end from October 31, 1999 to September 30, 1999, thus, while
this is an annual report, performance is being reported for the most recent
eleven months and life of the Fund as of the end of September.
MARKET REVIEW
Throughout much of the reporting period, microcap stocks, including stocks with
market values among the smallest 5% of all publicly traded U.S. firms,(3) as
well as the broader equity markets were dominated by investor concerns over
inflationary pressures, the direction of interest rates, corporate earnings
reports, global economic growth, Y2K preparedness, and more. These fears over
both foreign and domestic economies kept investor preference toward more liquid,
large-capitalization stocks--especially during the first half of the year.
The second half of the Fund's fiscal period began with a sharp shift in investor
preference from larger, growth and technology-oriented names to smaller, value
and more economically cyclical stocks, following economic data indicating that
the worst of the Asian financial crisis was apparently over. The combination of
expectations of improving fundamentals as well as low valuations for
long-ignored economically sensitive stocks served to propel these value-oriented
stocks at the expense of larger company growth stocks during April and May. This
broadening of the stock market included strong performance by smaller and
mid-sized companies.
During the third calendar quarter of 1999, economic data pointed to a still
robust U.S. economy, an above expectations uptick in the rate of wage growth,
and strong global economic growth in Europe, Asia, and Japan. Financial markets
grew concerned that synchronized global growth would lead to inflation. To guard
against the perceived risks of inflationary pressures, the Federal Reserve Board
raised interest rates a total of 0.50% in two subsequent moves on June 30 and
August 24, reversing two-thirds of the rate cuts it enacted during the global
turmoil of the third calendar quarter of 1998. U.S. equity markets across all
sectors were both nervous and weak, producing lackluster performance for the
second half as a whole.
Overall, smaller cap stocks underperformed their large cap brethren for the
reporting period. However, smaller cap growth stocks outperformed both large cap
and mid cap stocks for the eleven months. Also, during the latter six months of
the reporting period, the smaller cap sector, as measured by the Russell 2000
Index, returned 8.25%, far outperforming the S&P 500 return of 0.36% for the
same six months. In fact, smaller capitalization stocks, and smaller
capitalization growth stocks in particular, were the best performing U.S. equity
sector for the six months ended September 30, 1999.
INVESTMENT STRATEGY
The weighted average market cap of the Fund's investments on September 30, 1999
was $330 million, with individual companies in the portfolio ranging from
capitalizations of about $1 billion to just $31 million. Given the very nature
of their small size, microcap stocks are less impacted by macroeconomic factors
or general market conditions than other U.S. equity sectors. Rather, the
destinies of microcap stocks are
<PAGE>
MORGAN GRENFELL MICRO CAP FUND SHAREHOLDER LETTER
- --------------------------------------------------------------------------------
primarily controlled by the entrepreneurship of company management, the
execution of strategic business plans, and the particular product or service
they offer. Thus, our ability to select individual stocks was key to our
outperformance of the Russell 2000 Index in each of the fiscal year's four
volatile quarters.
Two additional factors that bolstered Fund performance were our concentration in
a relatively limited number of names in the portfolio while staying broadly
diversified (68 holdings as of September 30, 1999) and, at the same time, our
positioning across economic sectors. Throughout most of the fiscal year, the
portfolio was overweight in three top performing sectors:
- TECHNOLOGY--We focused our research on those companies that we believed
would benefit from e-commerce, the need for greater bandwidth and
connectivity, and other technology innovations we anticipate will enjoy
strong demand in the future. For example, strong performers included
HI/FN, a telecommunications-oriented technology company (sold by the Fund
on September 22, 1999); Pervasive Software, which develops software that
simplifies web-based and client server applications; and Photon Dynamics,
which provides test equipment for manufacturers of flat panel display
systems.
- HEALTH CARE--Winners for the Fund in this sector included Sonosite, which
produces handheld digital ultrasound devices targeted for use in doctors'
offices and by emergency medical technicians. Also producing strong
returns were ResMed, which manufactures devices for treating sleep apnea,
and Zoll Medical, finding success with its proprietary non-invasive
cardiac resuscitation device.
- ENERGY--The Fund benefited from its holdings in certain exploration and
production companies that experienced drilling successes in new oil and
gas fields as well as oil service companies whose stock increased in value
with the recovery of oil prices this fiscal year.
Also to the benefit of the Fund, the portfolio was underweight in the poorly
performing credit sensitive sector, which was particularly impacted by fears of
inflation, rising interest rates, and Y2K concerns.
One more factor helping to fuel performance during the annual period was
takeovers of several companies in the Fund's portfolio, as corporate America and
venture capitalists recognized value in these less well-known microcap
companies.
MANAGER OUTLOOK
The U.S. continues to experience tight labor markets, although signs of
inflation remain scant. We continue to believe that a cycle of full-blown
overheating in the U.S. economy is unlikely due to the slack still remaining in
overseas markets. We also expect the Federal Reserve Board to stay vigilant on
the inflation front.
Although we anticipate future periods of volatility in the marketplace while
global and domestic economic and political events run their course, we remain
optimistic regarding our opportunities to find microcap stocks that we believe
are both bargains in a broader universe of stocks and winners early in their
growth cycle. We also believe that the vibrant U.S. economy, with its high level
of entrepreneurial activity and venture capital backing, should continue to
serve as a fertile breeding ground for many attractive investment opportunities
as early stage private companies shift to public ownership. Earnings
disappointments are our major concern looking ahead; however, we expect strong
third quarter earnings to be reported shortly and, to date, have seen a relative
scarcity of negative earnings preannouncements.
<PAGE>
- --------------------------------------------------------------------------------
Given the recent high volatility in the stock market, it is also important to
keep in mind that we remain disciplined in our process, and we continue to:
- focus on microcap companies with above average growth prospects selling at
reasonable valuations with the potential to be the blue chips of the
future (3)
- focus on individual stock selection with the goal of providing value-added
performance relative to the universe of more than 5,000 very small U.S.
companies
- use extensive and intensive fundamental research to identify companies
with innovation, leading or dominant position in their niche markets, a
high rate of return on invested capital, and the ability to finance a
major part of future growth from internal sources, and
- strictly adhere to our sell discipline to reduce exposure to stocks with
diminished appreciation potential.
As always, our primary objective is to provide maximum capital appreciation for
our shareholders. We thank you for your continued support of the Morgan Grenfell
Micro Cap Fund.
Audrey M. T. Jones, Mary Dugan and John P. Callaghan
Members of the Investment Committee of the Morgan Grenfell Micro Cap Fund
COMPARISON OF CHANGE IN VALUE OF $250,000 INVESTMENT
----------------------------------------------
MICRO CAP, INSTITUTIONAL SHARES
----------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN a/o 9/30/99
Annualized
11 Month 1 Year Inception
Return Return to Date
<S> <C> <C> <C>
Micro Cap, Institutional
Shares 63.23% 65.67% 20.64%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MICROCAP FUND, INSTITUTIONAL SHARES RUSSELL 2000 INDEX LIPPER MICROCAP FUND INDEX S&P 500 INDEX
<S> <C> <C> <C> <C>
12/18/1996* $250,000 $250,000 $250,000 $250,000
10/97 $315,500 $310,767 $315,222 $317,425
10/98 $258,194 $273,973 $263,620 $387,227
09/99 $421,451 $313,425 $325,386 $457,663
</TABLE>
----------------------------------------------
MICRO CAP, SERVICE SHARES
----------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN a/o 9/30/99
Annualized
11 Month 1 Year Inception
Return Return to Date
<S> <C> <C> <C>
Micro Cap, Service Shares 63.16% 65.74% 16.66%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MICROCAP FUND, SERVICE SHARES RUSSELL 2000 INDEX LIPPER MICROCAP FUND INDEX S&P 500 INDEX
<S> <C> <C> <C> <C>
8/21/1997* $250,000 $250,000 $250,000 $250,000
10/97 $253,210 $256,522 $265,425 $254,892
10/98 $206,591 $226,149 $221,975 $310,943
09/99 $337,404 $258,715 $273,984 $367,504
</TABLE>
- ------------------------------
<TABLE>
<S> <C>
(1) PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE.
Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more
or less than their original cost. Performance figures assume
the reinvestment of dividends and capital gain distribution.
Returns would have been lower during the specified periods
if the payment of certain fees by the Fund had not been
waived.
(2) Indexes are unmanaged, and investments cannot be made in an
index. The Russell 2000 Index is a capitalization weighted
index comprised of 2000 of the smallest stocks in the
Russell 3000 Index. The Russell 2000 Growth Index is
comprised of securities in the Russell 2000 Index with a
greater than average growth orientation. The S & P 500 Index
is an indicator of general market performance. The Lipper
Microcap Fund Index is made up of funds that invest
primarily in companies with a market capitalization of less
than $300 million at the time of purchase.
(3) The Fund defines the micro capitalization equity universe as
the bottom 5% of the total domestic equity market
capitalization, using a minimum market capitalization of $10
million. It is important to note that while investment in
smaller, less seasoned companies may present more
opportunities for growth, they also involve greater
risks--particularly in the short term--than customarily
associated with more established companies. Securities in
which the Fund may invest may have limited marketability
and, therefore, may be subject to wide fluctuations in
market value. Additional risks of investing in a fund of
this type, which invests in newly emerging companies,
include the potential of erratic earnings patterns,
competitive conditions in the industry, limited earnings
history, and reliance on one or a limited number of
products.
* Commencement of operations.
</TABLE>
<PAGE>
SCHEDULE OF INVESTMENTS
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MORGAN GRENFELL MICRO CAP FUND -- SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------
DESCRIPTION SHARES VALUE
- --------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 94.2%
CAPITAL GOODS -- 0.9%
Tyler Technologies, Inc. 39,800 $ 176,613
-----------
176,613
-----------
CONSUMER -- 20.0%
Bombay Company, Inc.* 53,300 269,831
Championship Auto Racing
Teams, Inc.* 8,200 213,200
Cheap Tickets, Inc.* 9,100 294,612
Cheesecake Factory, Inc.* 6,200 172,050
Corporate Executive Board Co.* 7,100 289,325
CustomTracks Corp. 4,100 121,463
Damark International, Inc.
Cl A* 32,800 330,050
Deb Shops, Inc. 11,400 222,300
Homeseekers.com, Inc.* 21,300 266,250
K-Swiss, Inc. Cl A 2,500 78,906
Marketing Services Group,
Inc.* 5,600 66,500
P.F. Chang's China
Bistro, Inc.* 4,200 90,825
PJ America, Inc.* 9,100 189,963
Rainbow Rentals, Inc.* 22,000 203,500
Rare Hospitality
International, Inc.* 8,200 177,325
THQ, Inc.* 3,200 138,000
Too, Inc.* 9,500 170,406
Vans, Inc.* 32,100 385,200
-----------
3,679,706
-----------
CREDIT SENSITIVE -- 10.6%
Bank United Financial Corp.,
Class A* 30,000 238,125
CoStar Group, Inc.* 7,000 167,125
Dime Community Bancshares 8,900 184,675
E'Town Corp. 4,400 218,350
Engle Homes, Inc. 24,600 253,688
Insurance Management Solutions
Group, Inc.* 13,100 39,300
Intercept Group, Inc.* 16,000 296,000
MIIX Group, Inc.* 7,600 128,725
Republic Security Financial
Corp. 48,500 421,344
-----------
1,947,332
-----------
ENERGY -- 6.8%
Basin Exploration, Inc.* 20,400 489,600
Chieftan International, Inc.* 13,800 262,200
Dril-Quip, Inc.* 8,200 209,612
Evergreen Resources, Inc.* 10,100 243,031
Horizon Offshore, Inc.* 5,500 44,000
-----------
1,248,443
-----------
HEALTH CARE -- 18.9%
Accredo Health, Inc.* 10,200 321,300
Alkermes, Inc.* 5,600 161,350
Cell Genesys, Inc.* 20,600 162,225
Enzon, Inc.* 1,300 39,650
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------
DESCRIPTION SHARES VALUE
- --------------------------------------------------------
<S> <C> <C>
General Surgical
Innovations, Inc.* 18,500 $ 128,922
Infocure Corp.* 6,400 120,800
Nabi, Inc.* 58,400 302,950
Nanogen, Inc.* 27,700 200,825
ResMed, Inc.* 16,400 542,225
Sonosite, Inc.* 21,900 572,138
Syncor International Corp.* 9,400 352,500
Xomed Surgical Products, Inc.
Cl A* 2,400 136,800
Zoll Medical Corp.* 14,700 444,675
-----------
3,486,360
-----------
PROCESS INDUSTRIES -- 3.5%
CompX International, Inc.
Cl A* 14,900 283,100
Dixie Group, Inc. Cl A* 32,700 253,425
Pope & Talbot, Inc. 8,400 103,950
-----------
640,475
-----------
SERVICE COMPANIES -- 4.5%
Globecomm Systems, Inc.* 31,500 328,781
Hagler Bailly, Inc.* 20,600 141,625
Startec Global Communications
Corp.* 18,100 248,875
Vicon Industries, Inc.* 14,200 99,400
-----------
818,681
-----------
TECHNOLOGY -- 23.8%
Ansoft Corp.* 16,300 134,475
Art Technology Group, Inc.* 5,500 209,344
Asyst Technologies, Inc.* 12,400 409,200
Integral Systems, Inc.* 3,800 109,250
Interphase Corp.* 10,300 240,763
Kronos, Inc.* 11,750 431,078
Mission Critical
Software, Inc.* 4,300 191,350
Pegasus Systems, Inc.* 4,100 153,750
Pervasive Software, Inc.* 31,800 1,097,100
Photon Dynamics, Inc.* 34,100 716,100
Pinnacle Systems, Inc.* 7,000 296,625
Primus Telecommunications
Group, Inc.* 18,100 380,100
-----------
4,369,135
-----------
TRANSPORTATION -- 5.2%
Isle of Capris Casinos, Inc.* 43,500 435,000
Providence & Worcester RR Co. 30,000 318,750
RailTex, Inc.* 12,500 206,250
-----------
960,000
-----------
Total Investments -- 94.2%
(Cost $15,057,935) 17,326,745
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 5.8% 1,056,408
-----------
NET ASSETS - 100% $18,383,153
-----------
*Non-income producing security
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
1
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
MORGAN GRENFELL MICRO CAP FUND -- SEPTEMBER 30, 1999
<TABLE>
<S> <C>
ASSETS
Investments at Value (cost $15,057,935) $ 17,326,745
Cash 1,964,484
Receivable for Securities Sold 19,997
Receivable for Capital Shares Sold 19,097
Dividends Receivable 38
------------
Total Assets 19,330,361
------------
LIABILITIES
Due to Administrator 7,068
Payable for Securites Purchased 872,532
Accrued Expenses and Other Liabilities 67,608
------------
Total Liabilities 947,208
------------
Net Assets $ 18,383,153
============
COMPOSITION OF NET ASSETS
Capital Shares of Institutional Shares (unlimited
authorization; $0.001 par value) $ 13,370,070
Based on 1,051,716 Outstanding Shares of Beneficial
Interest
Capital Shares of Service Shares (unlimited authorization;
$0.001 par value) 1,308,161
Based on 85,756 Outstanding Shares of Beneficial
Interest
Accumulated Net Realized Gains on Investments 1,436,112
Net Unrealized Appreciation on Investments 2,268,810
------------
NET ASSETS AT SEPTEMBER 30, 1999 $ 18,383,153
============
COMPUTATION OF NET ASSET VALUE
Net Assets -- Institutional Shares $ 17,000,391
Shares Outstanding -- Institutional Shares 1,051,716
Net Asset Value $ 16.16
============
Net Assets -- Service Shares $ 1,382,762
Shares Outstanding -- Service Shares 85,756
Net Asset Value $ 16.12
============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
2
<PAGE>
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
MORGAN GRENFELL MICRO CAP FUND -- FOR THE ELEVEN MONTHS ENDED SEPTEMBER 30, 1999
AND FOR THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 29,094 $ 59,443
Interest 35,523 9,138
---------- -----------
64,617 68,581
---------- -----------
EXPENSES:
Investment Advisory Fees 225,700 138,127
Custody Fees 54,407 3,023
Professional Fees 44,455 3,471
Registration & Filing Fees 42,845 4,531
Administration Fees 33,104 57,677
Printing Fees 29,551 1,156
Trustees' Fees and Expenses 11,732 432
Transfer Agent Fees 4,154 25,830
Service Plan Fees 2,222 1,506
Miscellaneous Expenses 6,165 3,289
---------- -----------
Total Expenses 454,335 239,042
Less: Expenses Absorbed By Adviser (227,905) (100,301)
---------- -----------
Net Expenses 226,430 138,741
---------- -----------
NET INVESTMENT LOSS (161,813) (70,160)
---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss) from Investments 2,901,017 (1,303,092)
Net Change in Unrealized Appreciation/(Depreciation) on
Investments 5,015,840 (3,151,030)
---------- -----------
Net Realized and Unrealized Gain (Loss) on Investments 7,916,857 (4,454,122)
---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $7,755,044 $(4,524,282)
========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
3
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
MORGAN GRENFELL MICRO CAP FUND
<TABLE>
<CAPTION>
FOR THE
ELEVEN FOR THE FOR THE
MONTHS ENDED YEAR ENDED PERIOD ENDED
SEPTEMBER 30, OCTOBER 31, OCTOBER 31,
1999 1998 1997 (000'S)*
-------------- ------------ -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Loss $ (161,813) $ (70,160) $ (10)
Net Realized Gain (Loss) from Investments 2,901,017 (1,303,092) 143
Net Change in Unrealized Appreciation/(Depreciation)
on Investments 5,015,840 (3,151,030) 404
------------ ------------ ------
Net Increase (Decrease) in Net Assets from Operations 7,755,044 (4,524,282) 537
------------ ------------ ------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from Realized Gains
Institutional Shares -- (129,704) --
Service Shares -- (3,729) --
------------ ------------ ------
Total Distributions to Shareholders -- (133,433) --
------------ ------------ ------
CAPITAL SHARE TRANSACTIONS:
Net Proceeds From Shares Sold 4,379,721 20,187,420 2,939
Net Proceeds From Distributions Reinvested -- 132,609 --
Net Cost of Shares Redeemed (9,150,944) (3,548,982) (190)
------------ ------------ ------
Net Increase (Decrease) in Net Assets Resulting from
Capital Share Transactions (4,771,223) 16,771,047 2,749
------------ ------------ ------
Total Increase in Net Assets 2,983,821 12,113,332 3,286
NET ASSETS:
Beginning of period 15,399,332 3,286,000 --
------------ ------------ ------
End of period $ 18,383,153 $ 15,399,332 $3,286
============ ============ ======
</TABLE>
<TABLE>
<C> <S>
* COMMENCED OPERATIONS ON 12/18/96.
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
MORGAN GRENFELL MICRO CAP FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
------------------------------------------- -------------------------------------------
INSTITUTIONAL SHARES SERVICE SHARES
------------------------------------------- -------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
PERIOD YEAR PERIOD PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
SEPTEMBER 30, OCTOBER 31, OCTOBER 31, SEPTEMBER 30, OCTOBER 31, OCTOBER 31,
1999(1) 1998 1997(2) 1999(1) 1998 1997(3)
------------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $ 9.90 $ 12.62 $ 10.00 $ 9.88 $ 12.62 $ 12.12
------- ------- ------- ------- ------- -------
Net investment loss (0.14) (0.05) (0.04) (0.14) (0.06) (0.02)
Net realized and
unrealized gains
(losses) 6.40 (2.18) 2.66 6.38 (2.19) 0.52
------- ------- ------- ------- ------- -------
Total from investment
operations 6.26 (2.23) 2.62 6.24 (2.25) 0.50
------- ------- ------- ------- ------- -------
Less distributions
from:
Realized capital
gains -- (0.49) -- -- (0.49) --
------- ------- ------- ------- ------- -------
Total distributions -- (0.49) -- -- (0.49) --
------- ------- ------- ------- ------- -------
Net asset value, end of
period $ 16.16 $ 9.90 $ 12.62 $ 16.12 $ 9.88 $ 12.62
======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN 63.23%+ (18.16)% 26.20%+ 63.16%+ (18.33)% 3.87%+
RATIOS TO AVERAGE NET
ASSETS:
Ratio of Expenses to
Average Net Assets 1.49%* 1.49% 1.63%* 1.74%* 1.74% 1.74%*
Ratio of Net Investment
Income/(Loss) to
Average Net Assets (1.07)%* (0.75)% (0.49)%* (1.29)%* (0.98)% (1.15)%*
Ratio of Expenses to
Average Net Assets
(Excluding Expense
Limitations) 3.00* 2.59% 3.39%* 3.25%* 2.68% 3.52%*
Ratio of Net Investment
Income/(Loss) to
Average Net Assets
(Excluding Expense
Limitations) (2.58)%* (1.85)% (2.25)%* (2.80)%* (1.92)% (2.93)%*
SUPPLEMENTAL DATA:
Net assets at end of
year (000 omitted) $17,000 $14,363 $ 3,276 $ 1,383 $ 1,036 $ 10
Portfolio turnover 115% 85% 272% 115% 85% 272%
</TABLE>
* ANNUALIZED.
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) REPRESENTS THE ELEVEN MONTH PERIOD NOVEMBER 1, 1998 THROUGH SEPTEMBER 30,
1999.
(2) MICRO CAP FUND INSTITUTIONAL SHARES COMMENCED OPERATIONS ON 12/18/96.
(3) MICRO CAP FUND SERVICE SHARES COMMENCED OPERATIONS ON 8/21/97.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MORGAN GRENFELL MICRO CAP FUND -- SEPTEMBER 30, 1999
1. Organization
Morgan Grenfell Investment Trust (the "Trust") was organized as a Delaware
business trust on September 13, 1993. The Trust is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The Trust currently consists of twenty-two separate investment
portfolios (collectively, the "Funds"). The accompanying financial statements
and notes thereto relate to the Morgan Grenfell Micro Cap Fund (the "Fund"),
formerly Morgan Grenfell Microcap Fund. The Fund's prospectus provides a
description of the Fund's investment objectives, policies and strategies.
2. Significant Accounting Policies
The preparation of financial statements in accordance with generally accepted
accounting principles requires Trust management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates. The following is a
summary of significant accounting policies followed by the Fund.
SECURITY VALUATION--Securities listed on a securities exchange for which
market quotations are readily available are valued at the last quoted sales
price on the principal exchange on which they are traded on the valuation date
or, if there is no such reported sale on the valuation date, at the most
recently quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recently quoted bid price. Short-term
investments are valued at amortized cost which approximates market value. Other
securities for which market quotations are not readily available or securities
whose market quotations do not, in the opinion of the Investment Adviser,
reflect market value are valued at fair value using methods determined in good
faith by the valuation committee of the Board of Trustees.
INCOME TAXES--It is the intention of the Fund to continue to qualify as a
regulated investment company and to distribute all of its taxable income.
Accordingly, no provision for federal income taxes is considered necessary.
NET ASSET VALUE PER SHARE--The net asset value per share is calculated on a
daily basis by dividing the assets of each class of shares, less its
liabilities, by the number of outstanding shares of the respective class.
CLASSES--Class-specific expenses, such as service plan fees, are borne by
that class. Income, expenses and realized and unrealized gains/losses are
allocated to the respective classes on the basis of relative daily net assets.
REPURCHASE AGREEMENTS--Securities pledged as collateral for repurchase
agreements are held by the custodian banks until maturity of the repurchase
agreements. Provisions of the repurchase agreements and procedures adopted by
the Trust require that the market value of the collateral, including accrued
interest thereon, is sufficient in the event of default by the counterparty.
The Fund may also invest in tri-party repurchase agreements. Securities held
as collateral for tri-party repurchase agreements are maintained in a segregated
account by the broker's custodian bank until maturity of the repurchase
agreement. Provisions of the agreements require that the market value of the
collateral, including accrued interest thereon, is sufficient in the event of
default.
If the counterparty defaults and the value of the collateral declines or if
the counterparty enters an insolvency proceeding, realization of the collateral
by the Fund may be delayed or limited.
DISTRIBUTIONS--Distributions from net investment income and net realized
capital gains are determined in accordance with U.S. federal income tax
regulations, which may differ from those amounts determined under generally
accepted accounting principles. These book/tax differences are either temporary
or permanent in nature. To the extent these differences are permanent, they are
charged or credited to paid-in capital in the period
6
<PAGE>
- --------------------------------------------------------------------------------
that the difference arises. At September 30, 1999, as a result of permanent
differences attributable to net operating loss for the period, the Fund
reclassified the following amounts:
<TABLE>
<CAPTION>
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED
INCOME (LOSS) GAINS (LOSSES)
--------------- --------------
<S> <C> <C>
$161,813 $(161,813)
</TABLE>
The above reclassification had no effect on the net assets or net asset
value per share of the Fund.
EXPENSES--Expenses that are directly related to the Fund are charged
directly to the Fund. Other operating expenses of the Trust are prorated to the
Fund on the basis of relative net assets. Morgan Grenfell, Inc. absorbed all
expenses of organizing the Trust.
OTHER--Security transactions are accounted for on the date the security is
purchased or sold (trade date). Costs used in determining net realized capital
gains and losses on the sale of investment securities are those of the specific
securities sold adjusted for the accretion and amortization of original issue
discounts and purchase premiums during the respective holding period. Dividend
income is recognized on the ex-dividend date and interest income is recognized
using the accrual method.
3. Administration, Investment Advisory Fee and Other Transactions with
Affiliates
By an agreement dated August 27, 1998, the Trust entered into an administration
agreement with Deutsche Asset Management Inc. ("DAMI"), formerly Morgan Grenfell
Inc. (the "Administrator"), an affiliate of Deutsche Bank AG, pursuant to which
the Administrator will receive, on a monthly basis, a fee at an annual rate of
0.22% based upon the average daily net assets of the Fund. The Administrator
generally assists in all matters relating to the administration of the Fund,
including the coordination and monitoring of any third parties furnishing
services to the Fund, preparation and maintenance of financial accounting
records, and the provision of necessary office space, equipment and personnel to
perform administrative and clerical functions. The Administrator is also
responsible for engaging an accounting agent, custodian and transfer agent for
the Fund's operations. Fees for services rendered by the accounting agent and
the transfer agent are paid by the Administrator and not the Fund. At a meeting
held on August 19, 1999, the Board of Trustees of the Trust adopted a resolution
to approve a transfer agent agreement between ICC Capital, Inc., an affiliate of
the Deutsche Bank AG, and the Trust, replacing DST Systems, Inc., effective
November 22, 1999.
Prior to October 13, 1998, SEI Financial Management Corporation ("SEI")
served as the Fund's administrator and received an annual fee based on the
aggregate average daily net assets of all the Funds of the Trust as follows:
0.10% up to $1 billion; 0.07% from $1 billion to $1.5 billion; 0.05% from $1.5
billion to $2.5 billion; and 0.04% in excess of $2.5 billion. Each Fund also
paid SEI a minimum annual administration fee of $60,000. Services rendered by
SEI to the Fund were substantially the same as being rendered by the
Administrator, however, administration fees payable to SEI did not include fees
payable to Fund's transfer agent and SEI as accounting agent to the Fund.
Under the advisory agreement with the Trust, DAMI serves as the Investment
Adviser ("Investment Adviser") for the Fund. Under the advisory agreement, the
Investment Adviser receives on a monthly basis, a fee at an annual rate of 1.50%
of the Fund's average daily net assets.
The Investment Adviser has voluntarily agreed to reduce its investment
advisory fees and/ or reimburse the Fund to the extent necessary to limit the
Fund's operating expenses to 1.49% of the average daily net assets for the
Institutional Class and 1.74% of the average daily net assets for the Service
Class.
Certain officers and/or Trustees of the Trust are affiliated with the
Administrator or the Investment Adviser.
SEI Investments Distribution Co. (the "Distributor") serves as the
distributor of shares of the Fund pursuant to a distribution agreement with the
Trust and assists in the sale of shares of the
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
MORGAN GRENFELL MICRO CAP FUND -- SEPTEMBER 30, 1999
Fund. The Investment Adviser, and not the Trust, is responsible for payment of
any expenses or fees incurred in the marketing and distribution of shares of the
Fund. At a meeting held on August 19, 1999, the Board of Trustees of the Trust
adopted a resolution to approve a distribution agreement between ICC
Distributors Inc. and the Trust, replacing SEI Investments Distribution Co.,
effective November 1, 1999.
The Trust, on behalf of the Fund, has adopted a service plan pursuant to
which the Service Shares pay service fees at an aggregate annual rate of up to
0.25% of the Fund's average daily net assets attributable to Service Shares.
Service plan fees are payable to Service Organizations that have agreements with
the Trust, and are intended to compensate Service Organizations for providing
personal services and/or account maintenance services to their customers who
invest in Service Shares.
During the period ended September 30, 1999, the Fund purchased securities
from and sold securities to other portfolios of the Trust or other accounts
managed by the Investment Adviser or its affiliates at market value.
4. Investment Transactions
The aggregate cost of securities purchased and the aggregate proceeds of
securities sold for the period ended September 30, 1999, excluding short-term
investments, were $16,701,633 and $18,277,550, respectively.
For federal income tax purposes, the cost of securities owned at September
30, 1999 and the net realized gains or losses on securities sold for the period
then ended was not materially different from the amounts reported for financial
reporting purposes. The gross unrealized appreciation, gross unrealized
depreciation and net unrealized appreciation on the Fund's investments at
September 30, 1999 were $3,638,369, $1,369,559 and $2,268,810, respectively.
During the period ended September 30, 1999, the Fund utilized $1,267,724 of
capital loss carried forward from prior periods.
5. Capital Share Transactions
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
SEPTEMBER 30, 1999 OCTOBER 31, 1998
SHARES AMOUNT SHARES AMOUNT
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES
Shares Sold 298,149 $ 3,848,230 1,444,154 $18,023,858
Reinvestment of Dis-
tributions -- -- 11,373 128,979
Shares redeemed (697,276) (8,514,681) (264,431) ($2,784,723)
----------- ----------- --------- -----------
Net Increase
(Decrease) (399,127) $(4,666,451) 1,191,096 $15,368,114
=========== =========== ========= ===========
SERVICE SHARES
Shares Sold 36,267 $ 531,491 168,183 $ 2,163,562
Reinvestment of Dis-
tributions -- -- 320 3,630
Shares redeemed (55,428) (636,263) (64,347) (764,259)
----------- ----------- --------- -----------
Net Increase
(Decrease) (19,161) $ (104,772) 104,156 $ 1,402,933
=========== =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED OCTOBER 31, 1997
-----------------------------------------
INSTITUTIONAL SERVICE
SHARES* SHARES**
------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
(000'S) (000'S) (000'S) (000'S)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Shares Sold 275 $2,924 1 $15
Shares redeemed (15) (185) -- (5)
--- ------ -- ---
Net increase 260 $2,739 1 $10
=== ====== == ===
</TABLE>
- ------------------------------
* COMMENCED OPERATIONS ON 12/18/96.
** COMMENCED OPERATIONS ON 8/21/97.
6. Credit Agreement
By an agreement dated November 2, 1998, certain Portfolios of the Trust
including the Fund entered into a Credit Agreement (the "Agreement") with
BankBoston, N.A. (the "Lender"). The maximum aggregate credit available to all
the participating portfolios under the Agreement, which expired on October 31,
1999, was $50,000,000. The Agreement has been extended for a period of three
months through January 30, 2000. Interest payments on borrowings are payable by
the borrowing Portfolios at the federal funds rate plus 0.50% per annum and the
borrowings are payable on demand. The participating Portfolios are also subject
to a commitment fee of 0.10% per annum of the unused portion of the maximum
aggregate credit available under the Agreement. During the period ended
September 30, 1999, the Fund did not make any borrowings under the Agreement.
8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
Morgan Grenfell Micro Cap Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statement of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Morgan Grenfell Micro Cap Fund
(the "Fund", formerly Morgan Grenfell Microcap Fund), a series of Morgan
Grenfell Investment Trust, at September 30, 1999, and the results of its
operations, the changes in its net assets and the financial highlights for each
of the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
November 24, 1999
9
<PAGE>
MORGAN
GRENFELL
INVESTMENT
TRUST--MICRO CAP FUND
- ------------------
ANNUAL
REPORT
SEPTEMBER 30, 1999
TRUSTEES AND OFFICERS
Paul K. Freeman, TRUSTEE
Graham E. Jones, TRUSTEE
Hugh G. Lynch, TRUSTEE
William N. Searcy, TRUSTEE
Edward T. Tokar, TRUSTEE
Richard T. Hale,
PRESIDENT
David W. Baldt,
VICE PRESIDENT
James H. Grifo,
VICE PRESIDENT
Neil P. Jenkins,
VICE PRESIDENT
Ian D. Kelson,
VICE PRESIDENT
Amy Olmert,
TREASURER, CHIEF FINANCIAL OFFICER
Daniel O. Hirsch,
SECRETARY
INVESTMENT ADVISER
Deutsche Asset Management Inc.
ADMINISTRATOR
Deutsche Asset Management Inc.
DISTRIBUTOR
ICC Distributors, Inc.
CUSTODIAN
Brown Brothers Harriman & Co.
TRANSFER AGENT
ICC Capital, Inc.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
LEGAL COUNSEL
Hale and Dorr LLP
THIS ANNUAL REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED
FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE MORGAN GRENFELL MICRO CAP
FUND AND MUST BE PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS. INVESTORS
SHOULD READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. SHARES OF THE MORGAN
GRENFELL MICRO CAP FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. ICC DISTRIBUTORS, THE DISTRIBUTOR OF MORGAN GRENFELL
INVESTMENT TRUST, IS NOT AFFILIATED WITH ANY BANK.
MG-F-11-0999-01
