<PAGE>
Deutsche Asset Management
Mutual Fund
Semi-Annual Report
April 30, 2000
Smaller Companies
Formerly a Morgan Grenfell Fund
A Member of the
Deutsche Bank Group [LOGO]
<PAGE>
Smaller Companies
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Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders..................................... 3
Smaller Companies
Schedule of Investments.................................. 7
Statement of Assets and Liabilities...................... 9
Statement of Operations.................................. 10
Statements of Changes in Net Assets...................... 11
Financial Highlights..................................... 12
Notes to Financial Statements............................ 13
</TABLE>
------------------------
The Fund is not insured by the FDIC and is
not a deposit, obligation of or guaranteed by
Deutsche Bank. The Fund is subject to
investment risks, including possible loss of
principal amount invested.
------------------------
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2
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Letter to Shareholders
Dear Fellow Shareholder:
We are pleased to present you with this newly-designed semi-annual report for
the Smaller Companies Fund of the Morgan Grenfell Investment Trust. Please note
that with the acquisition of Morgan Grenfell by Deutsche Bank, the Board of
Trustees of the Trust approved a change in the name of your Fund. The Fund's
investment objectives, policies and strategies remain the same.
In the pages that follow, you will find a discussion of the Fund's investment
performance by the portfolio management team. The analyses highlight key factors
influencing recent performance of the Fund and are followed by detailed
financial statements for the six month period ended April 30, 2000.
Our continuing goal is to provide you with high-quality investment management
services across a broad range of specialized mutual funds. As always, the Board
of Trustees of the Trust and the employees of Deutsche Asset Management, Inc.
thank you for investing in our family of mutual funds. We appreciate your
continued support and confidence.
Sincerely,
/s/ Audrey M.T. Jones,
/s/ John P. Callaghan
/s/ Doris R. Klug
Audrey M.T. Jones, John P. Callaghan and Doris R. Klug
Portfolio Managers of
Smaller Companies
--------------------------------------------------------------------------------
Market Review
Overall, smaller capitalization stocks, i.e. stocks with market values among the
smallest 20% of all publicly traded firms, outperformed their large cap brethren
for the semi-annual period. The growth segment of the smaller cap market in
particular was the best performing U.S. equity sector for the period. Growth-
oriented small cap stocks, as measured by the Russell 2000 Growth Index,
returned 27.78% for the six months ended April 30, 2000 as compared to the S&P
500 Index return of 7.19% and the S&P 400 Mid Cap Index return of 21.26% for the
same six months.
Still, a theme of "volatility and reversal" dominated the smaller cap equity
market as well as the broader equity markets. Following a nervous October, the
last two months of 1999 experienced significant strength in the equity markets,
as the U.S. economy remained robust with few signs of inflation. There continued
to be tight labor markets, but productivity stayed strong. Economic momentum
also continued to build around the world. However, this equity market strength
was relatively narrow and confined primarily to the technology, biotechnology,
and telecommunications sectors.
January began with weakness in the broader markets as investors focused on a
number of possible Federal Reserve Board interest rate increases in the first
half of 2000. Quickly, the smaller cap market resumed its strength, narrowly
confined to technology, telecommunications and select biotechnology issues where
revenue and earnings growth were expected to continue despite rising interest
rates. In February, there was a sell off of "Old Economy" sectors like
manufacturing and other cyclical industries on fears of higher interest rates.
However, the "New Economy" sectors continued to do well, boosting the S&P 600
Index overall.
The smaller cap market pulled back in March, as the mid and large cap markets
reasserted themselves. Even technology and health care, especially
biotechnology, which had led the first calendar quarter's performance charge,
ended the month in negative territory.
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3
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Letter to Shareholders
Extremely high levels of volatility continued to characterize the U.S. equity
markets in April. In line with the broader U.S. equity markets, the smaller cap
market also ended the month down. The S&P 600 Index lost 1.8% for the month,
with the technology, health care and consumer durables sectors leading the
decline. By the end of April, however, more positive performance was evident
across all sectors.
The Smaller Companies Fund outperformed its key benchmark for the semi-annual
period, particularly noteworthy given the extremely high volatility in the
smaller capitalization U.S. equity market during this time. The Fund had a total
return of 36.14% for the six months ended April 30, 2000, as compared to 17.25%
for the S&P 600 Small Cap Index. The Fund also outperformed the 18.72% return of
the Russell 2000 Index and the 27.78% return of the Russell 2000 Growth Index.
Individual stock selection and sector positioning bolstered Fund performance. In
addition, we believe that concentration in a relatively limited number of names
in the portfolio - our best selections - while staying broadly diversified (83
holdings as of April 30, 2000) has also aided performance. Throughout the semi-
annual period, the Fund was overweight in two of the best performing sectors,
technology and health care. The energy sector was also a top performer in the
first four months of 2000, and the Fund's overweight position there boosted
portfolio returns. Among the Fund's largest holdings within the top performing
sectors were BJ Services Co., Pinnacle Systems and Devon Energy Corp. Each of
these stocks contributed positively to Fund performance. Also to the benefit of
the Fund, the portfolio was underweight in the poorly performing financials
sector throughout. The weighted average market cap of the Fund's investments on
April 30, 2000 was $1.4 billion.
MARKET OUTLOOK
Market volatility during the early months of 2000 was partly based on changing
investor sentiment on "New Economy" vs. "Old Economy" stocks. Looking ahead, we
believe the equity markets may be more focused on macroeconomic issues such as
the near-certain prospect of higher interest rates, a subsequent gradual slow-
down in U.S. economic growth, and a modest pickup in inflation. These issues
have the potential to affect the U.S. equity markets across the board.
Still, we anticipate continued volatility. Valuation risk, especially in NASDAQ
stocks, a rise in margin debt, rising interest rates, and the impact of
Presidential campaign rhetoric are risks to the equity markets in general,
including the small cap market, over the rest of the year. Earnings
disappointments are our major concern looking ahead. However, we remain
optimistic regarding our opportunities to find smaller cap stocks that we
believe are both bargains in a broader universe of stock and outperformers early
in their growth cycle.
The outlook for profit growth remains strong and relative valuations in small
cap stocks continue to be attractive. In addition, the volatile equity markets
we are experiencing favor our diversified investment approach. Consistent with
this, we continue to seek smaller cap companies across economic sectors with
above average growth prospects selling at reasonable valuations with the
potential to be the blue chips of the future. Our focus remains on individual
stock selection with the goal of providing value-added performance relative to
the universe of U.S. smaller companies.
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4
<PAGE>
Smaller Companies
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Performance Comparison
SMALLER COMPANIES, INSTITUTIONAL CLASS/4/, S&P 600
SMALL CAP INDEX AND LIPPER SMALL CAP GROWTH FUND AVERAGE
GROWTH OF A $250,000 INVESTMENT (SINCE JUNE 30, 1995/1/)
[GRAPH APPEARS HERE]
--- Smaller Companies, Institutional Class - $596,625
--- S&P 600 Small Cap Index - $497,900
--- Lipper Small Cap Growth Fund Average - $643,850
Average Annual Total Return for the Periods Ended April 30, 2000.
1 Year 43.96%. 3 Year 24.04%. Since 6/30/95/3/ 19.71%.
Benchmark returns are for the period beginning 6/30/95.
--------------------------------------------------------------------------------
/1/ Past performance is not indicative of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Performance figures assume the
reinvestment of dividends and capital gain distributions. During the period,
the Fund waived certain fees and expenses.
/2/ The S&P 600 Index is an unmanaged domestic equities securities index
consisting of 600 domestic stocks chosen for market size, liquidity and
industry group representation. It is a widely accepted benchmark of small
capitalization equity market performance. Lipper figures represent the
average of the total returns reported by all the mutual funds designated by
Lipper Inc. as falling into the respective categories indicated. These
figures do not reflect sales charges.
/3/ The Fund's inception date.
/4/ On February 28, 2000 the Institutional Shares were renamed the Institutional
Class.
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5
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Performance Comparison
SMALLER COMPANIES, INVESTMENT CLASS/4/, S&P 600
SMALL CAP INDEX AND LIPPER SMALL CAP GROWTH FUND AVERAGE
GROWTH OF A $2,500 INVESTMENT (SINCE JULY 11, 1997/1/)
[GRAPH APPEAR HERE]
--- Smaller Companies, Investment Class - $3,929
--- S&P 600 Small Cap Index - $3,055
--- Lipper Small Cap Growth Fund Average - $4,597
Average Annual Total Return for the Period Ended April 30, 2000.
1 Year 43.66%. Since 7/11/97/3/ 17.50%.
Benchmark returns are for the period beginning 7/31/97.
--------------------------------------------------------------------------------
/1/ Past performance is not indicative of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Performance figures assume the
reinvestment of dividends and capital gain distributions. During the period,
the Fund waived certain fees and expenses.
/2/ The S&P 600 Index is an unmanaged domestic equities securities index
consisting of 600 domestic stocks chosen for market size, liquidity and
industry group representation. It is a widely accepted benchmark of small
capitalization equity market performance. Lipper figures represent the
average of the total returns reported by all the mutual funds designated by
Lipper Inc. as falling into the respective categories indicated. These
figures do not reflect sales charges.
/3/ The Fund's inception date.
/4/ On February 28, 2000 the Services Shares were renamed the Investment Class.
--------------------------------------------------------------------------------
6
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Schedule of Investments April 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value
<S> <C> <C>
Common Stocks - 96.1%
Consumer - 11.9%
1,200 American Eagle Outfitters, Inc.*.................... $ 20,400
3,000 Bally Total Fitness Holding*........................ 67,125
2,900 Championship Auto Racing Teams, Inc.*............... 58,725
2,400 Corporate Executive Board Co.*...................... 141,000
4,700 Furniture Brands International, Inc.*............... 87,831
3,400 Mohawk Industries*.................................. 84,362
5,400 Pacific Sunwear of California, Inc.*................ 183,937
700 Radio Unica Corp.*.................................. 6,738
3,400 Spanish Broadcasting Systems, Inc.*................. 63,538
800 Talbots, Inc........................................ 40,450
2,400 Too, Inc.*.......................................... 71,850
2,300 Zale Corp.*......................................... 94,875
1,200 99 Cents Only Stores*............................... 45,150
----------
965,981
----------
Credit Sensitive - 10.6%
1,975 Astoria Financial Corp.............................. 54,436
3,100 Bank United Corp.................................... 102,881
1,800 Bottomline Technologies, Inc.*...................... 64,800
5,800 D.R. Horton, Inc.................................... 75,037
5,700 Dime Bancorp........................................ 106,875
2,800 Dime Community Bancshares........................... 48,475
6,500 Golden State Bancorp, Inc.*......................... 99,938
2,800 Labranche & Co., Inc.*.............................. 33,425
6,100 Lennar.............................................. 113,612
5,800 LNR Property Corp................................... 125,063
4,900 Sovereign Bancorp, Inc.............................. 33,688
----------
858,230
----------
Energy - 9.8%
3,600 BJ Services*........................................ 252,900
4,200 Devon Energy........................................ 202,387
10,700 Global Industries, Ltd.*............................ 152,475
4,000 Input/ Output, Inc.*................................ 29,500
6,200 Marine Drilling Companies, Inc.*.................... 161,200
----------
798,462
----------
Health Care - 17.6%
3,300 Accredo Health, Inc.*............................... 92,812
19,500 Caremark Rx, Inc.*.................................. 124,313
4,300 Cell Genesys, Inc.*................................. 80,356
3,500 Coventry Health Care, Inc.*......................... 37,187
4,800 Dendrite International, Inc.*....................... 109,800
2,200 Enzon, Inc.*........................................ 81,950
1,612 Priority Healthcare Corp., CIA*..................... 89,265
1,800 Priority Healthcare Corp., CIB*..................... 99,675
5,900 Province Healthcare Co.............................. 170,363
6,600 ResMed, Inc.*....................................... 224,400
3,200 SonoSite*........................................... $ 105,400
6,000 Trigon Healthcare, Inc.*............................ 215,625
----------
1,431,146
----------
Process Industries - 3.7%
1,700 Bowater............................................. 93,500
700 Carbo Ceramics...................................... 23,275
2,200 CompX International*................................ 43,450
5,900 PH Glatfelter....................................... 63,425
1,600 Rayonier............................................ 75,100
----------
298,750
----------
Service Companies - 5.4%
2,700 Alamosa PCS Holdings, Inc.*......................... 76,950
1,400 GT Group Telecom, Inc., Cl B*....................... 18,112
2,800 Insight Communications Company, Inc.*............... 57,050
3,700 Pac-West Telecomm, Inc.*............................ 79,088
3,780 Price Communications Corp.*......................... 76,545
1,900 SBA Communications Corp.*........................... 77,187
600 Triton PCS Holdings, Inc.*.......................... 25,200
800 Viatel, Inc.*....................................... 30,600
----------
440,732
----------
Technology - 30.7%
2,300 Allied Riser Communications Corp.*.................. 44,850
1,800 Alpha Industries, Inc............................... 93,600
2,300 Asyst Technologies, Inc.*........................... 123,050
4,200 ATMI, Inc.*......................................... 161,700
3,300 Cognex*............................................. 187,687
2,500 Computer Network Technology Corp.*.................. 40,313
1,300 Credence Systems Corp.*............................. 185,575
2,000 Documentum, Inc.*................................... 118,000
1,500 FileNET Corp.*...................................... 44,063
2,000 IntraNet Solutions, Inc.*........................... 44,500
2,000 iPrint.com, Inc.*................................... 9,500
18,500 Maxtor Corp.*....................................... 220,844
2,500 Netpliance, Inc.*................................... 22,500
7,200 Pargain Technologies, Inc.*......................... 179,100
800 PC-Tel, Inc.*....................................... 26,800
700 Photon Dynamics, Inc.*.............................. 51,800
8,700 Pinnacle Systems*................................... 208,800
400 Polycom, Inc.*...................................... 31,650
6,400 S3 Inc.*............................................ 90,000
4,800 SAGA SYSTEMS, Inc.*................................. 89,400
6,600 Tech Data Corp.*.................................... 276,787
1,400 Therma-Wave, Inc.*.................................. 38,500
2,000 Titan Corp.*........................................ 85,875
2,400 Zoran Corp.*........................................ 119,850
----------
2,494,744
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
7
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Schedule of Investments April 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value
<S> <C> <C>
Transportation - 5.2%
3,700 Airborne Freight Corp................................ $ 79,319
3,650 Atlantic Coast Airlines*............................. 109,044
1,400 Tidewater, Inc....................................... 41,650
4,100 USFreightways Corp................................... 191,162
----------
421,175
----------
Utilities - 1.2%
4,100 Philadelphia Suburban Corp. 98,400
Total Common Stocks
(Cost $6,552,280)........................... 96.1% $7,807,620
Other Assets in Excess
of Liabilities.............................. 3.9% 314,106
Net Assets....................................... 100.0% $8,121,726
</TABLE>
--------------------------------------------------------------------------------
*Non-income producing security
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
8
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Statement of Assets and Liabilities (Unaudited)
<TABLE>
<CAPTION>
As of
April 30,
2000
<S> <C>
Assets
Investment at Value (Cost $6,552,280).............................................. $ 7,807,620
Cash............................................................................... 369,936
Receivable for Securities Sold..................................................... 14,845
Receivable Due from adviser........................................................ 3,637
Dividends and Interest Receivable.................................................. 1,795
-------------
Total Assets........................................................................ 8,197,833
-------------
Liabilities
Due to Administrator............................................................... 3,255
Payable for Securities Purchased................................................... 24,155
Payable for Capital Shares Sold.................................................... 2,654
Accrued Other Expenses............................................................. 46,043
-------------
Total Liabilities................................................................... 76,107
-------------
Net Assets.......................................................................... $ 8,121,726
=============
Composition of Net Assets
Capital Shares of Institutional Shares (unlimited authorization
$0.001 par value). Based on Outstanding Shares of Beneficial Interest............. $ 4,149,499
Capital Shares of Investment Shares (unlimited authorization
$0.001 par value). Based on Outstanding Shares of Beneficial Interest............. 365,554
Distributions in Excess of Net Investment.......................................... (21,769)
Accumulated Net Realized Gains from Investments.................................... 2,373,102
Net Unrealized Appreciation on Investments......................................... 1,255,340
-------------
Net Assets.......................................................................... $ 8,121,726
=============
Computation of Net Asset Value
Institutional Class/1/:
Net Assets......................................................................... $ 7,668,475
Shares Outstanding................................................................. 402,435
Net Asset Value Per Share.......................................................... $ 19.06
Investment Class/2/:
Net Assets......................................................................... 453,251
Shares Outstanding................................................................. 23,952
Net Asset Value Per Share.......................................................... $ 18.92
</TABLE>
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/1/ On February 28, 2000 the Institutional Shares were renamed the Institutional
Class.
/2/ On For the February six 28, 2000 the Service Shares were renamed the
Investment Class.
The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------------
9
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
For the six
months ended
April 30, 2000
<S> <C>
Investment Income
Interest......................................................... $ 18,261
Dividends........................................................ 11,048
-------------
Total Investment Income........................................... 29,309
-------------
Expenses
Investment Advisory Fee.......................................... 40,497
Professional..................................................... 24,805
Custody Fee...................................................... 24,607
Registration & Filing Fees....................................... 17,749
Printing Fees.................................................... 11,147
Administration Fees.............................................. 8,909
Trustees' Fees................................................... 6,605
Miscellaneous.................................................... 2,779
Transfer Agency Fee.............................................. 1,054
Servicing Plan Fee............................................... 535
-------------
Total Expenses.................................................... 138,687
Less: Fee Waivers or Expense Reimbursements...................... (87,609)
-------------
Net Expenses...................................................... 51,078
-------------
Net Investment Loss............................................... (21,769)
-------------
Realized and Unrealized Gain (Loss) on Investments
Net Realized Gain from Investment Transactions................... 2,502,897
Net Change in Unrealized Appreciation/Depreciation of
Investments..................................................... (60,322)
-------------
Net Realized Gain on Investments.................................. 2,442,575
-------------
Net Increase in Net Assets from Operations........................ $ 2,420,806
=============
</TABLE>
See Notes to Financial Statements.
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10
<PAGE>
Smaller Companies
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Statements of Change in Net Assets (Unaudited)
<TABLE>
<CAPTION>
For the six For the
Months Ended Year Ended
April 30, October 31,
2000 1999
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations
Net Investment Loss............................................................. $ (21,769) $ (51,059)
Net Realized Gain on Investments................................................ 2,502,897 (5,110)
Net Change in Unrealized Appreciation (Depreciation) on Investments............. (60,322) 1,451,701
----------- -----------
Net Increase in Net Assets from Operations........................................ 2,420,806 1,395,532
----------- -----------
Distributions to Shareholders
Net Investment Income
Institutional Class............................................................ -- (13,875)
Investment Class............................................................... -- (2,181)
----------- -----------
Total Distributions............................................................... -- (16,056)
----------- -----------
Capital Share Transactions:
Institutional Class/1/:
Proceeds from Shares Issued.................................................... 579,742 4,044,216
Shares Issued in Lieu of Cash Distributions.................................... -- --
Cost of Shares Repurchased..................................................... (1,509,819) (3,695,423)
----------- -----------
Increase (Decrease) in Net Assets from Institutional
Class Transactions............................................................. (930,077) 348,793
----------- -----------
Investment Class/2/:
Proceeds from Shares Issued.................................................... 20,618 484,187
Shares Issued in Lieu of Cash Distributions.................................... -- --
Cost of Shares Repurchased..................................................... (28,591) (1,304,490)
----------- -----------
Decrease in Net Assets from Investment Class Transactions....................... (7,973) (820,303)
----------- -----------
Net Decrease in Net Assets from Capital Transactions.............................. (938,050) (471,510)
----------- -----------
Total Increase in Net Assets...................................................... 1,482,756 907,966
Net Assets
Beginning of Period............................................................... 6,638,970 5,731,004
----------- -----------
End of Period..................................................................... $ 8,121,726 $ 6,638,970
=========== ===========
Capital Share Transactions:
Institutional Class/1/:
Shares Issued.................................................................. 29,511 308,629
Shares Issued in Lieu of Cash Distributions.................................... -- --
Shares Repurchased............................................................. (77,297) (280,485)
----------- -----------
Increase (Decrease) in Capital Shares from Institutional
Class Transactions............................................................. (47,786) 28,144
============ ===========
Investment Class/2/:
Shares Issued.................................................................. 1,042 40,472
Shares Issued in Lieu of Cash Distributions.................................... -- --
Shares Repurchased............................................................. (1,547) (105,181)
----------- -----------
Decrease in Capital Shares from Investment Class Transactions................... (505) (64,709)
=========== ===========
</TABLE>
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/1/ On February 28, 2000 the Institutional Shares were renamed the Institutional
Class.
/2/ On February 28, 2000 the Service Shares were renamed the Investment Class.
See Notes to Financial Statements.
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11
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Financial Highlights
For the six months ended April 30, 2000 and the years ended October 31,
(Unaudited)
For a Share Outstanding Throughout each Period
<TABLE>
<CAPTION>
Net
Net Realized Distributions Distributions Net
Asset Net and from from Asset
Value Investment Unrealized Net Realized Value
Beginning Income Gains/ Investment Capital End of
of Period (Loss) (Losses) Income Gains Period
<S> <C> <C> <C> <C> <C> <C>
Smaller Companies:
Institutional Class/3/
2000/5/ $13.99 $ 0.23 $ 4.84 $ -- $ -- $19.06
1999 11.22 0.00 2.80 (0.03) -- 13.99
1998 14.72 (0.01) (1.81) -- (1.68) 11.22
1997 13.10 (0.03) 2.87 -- (1.22) 14.72
1996 10.55 (0.02) 2.61 (0.04) -- 13.10
1995/1/ 10.00 0.03 0.52 -- -- 10.55
Investment Class/4/
2000/5/ $13.91 $ 0.03 $ 4.98 $ -- $ -- $18.92
1999 11.18 0.00 2.76 (0.03) -- 13.91
1998 14.71 (0.05) (1.80) -- (1.68) 11.18
1997/5/ 13.77 (0.03) 0.97 -- -- 14.71
<CAPTION>
Ratio of
Net
Ratio of Investment
Net Ratio of Income/
Investment Expenses to (Loss) to
Net Ratio of Income/ Average Average
Assets Expenses (Loss) Net Net
End to to Assets Assets
of Average Average (Excluding (Excluding Portfolio
Total Period Net Net Expense Expense Turnover
Return (000) Assets Assets Limitations) Limitations) Rate
<S> <C> <C> <C> <C> <C> <C> <C>
Smaller Companies:
Institutional Class/3/
2000/5/ 36.14% $7,668 1.25% 0.72% 3.41% 2.89% 67%
1999 25.03 6,299 1.25 (0.78) 4.40 (3.93) 105
1998 (13.54) 4,734 1.25 0.26 2.44 (0.93) 108
1997 23.29 5,724 1.25 (0.29) 2.63 (1.67) 122
1996 24.58 4,115 1.25 (0.23) 2.55 (1.53) 141
1995/1/ 5.50+ 2,638 1.25 0.94 2.28 (0.09) 23
Investment Class/4/
2000/5/ 35.92% $ 453 1.50% (0.77)% 3.66% 1.39% 67%
1999 24.74 340 1.50 (1.03) 3.98 (3.51) 105
1998 (13.79) 997 1.50 0.09 2.76 (1.17) 108
1997/5/ 7.45+ 6 1.50 (0.77) 2.79 (2.06) 122
</TABLE>
--------------------------------------------------------------------------------
+ Returns are for period indicated and have not been annualized
/1/ Smaller Companies Fund Institutional Shares commenced operations on 6/30/95.
All ratios, except for Portfolio Turnover Rate, for the period have been
annualized.
/2/ Smaller Companies Fund Investment Shares commenced operations on 7/11/97.
All ratios, except for Portfolio Turnover Rate, for the period have been
annualized.
/3/ On February 28, 2000 the Institutional Shares were renamed the Institutional
Class.
/4/ On February 28, 2000 the Service Shares were renamed the Investment Class.
/5/ All ratios, except for Portfolio Turnover Rate, for the six month period
have been annualized. Total Return has not been annualized.
--------------------------------------------------------------------------------
12
<PAGE>
Smaller Companies
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Notes to Financial Statements April 30, 2000 (Unaudited)
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 consisting of fourteen investment portfolios. The Smaller Companies Fund
(the "Fund") is one of the portfolios.
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 Funds.
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. Certain debt and
fixed income investments owned by the Funds are valued at prices supplied by
independent pricing agents selected by Deutsche Asset Management, Inc. ("DeAM",
formerly Morgan Grenfell Inc.) and Deutsche Asset Management Investment Services
Limited ("DeAMS", formerly Morgan Grenfell Investment Services Limited),
(collectively, the "Advisers", each an affiliate of Deutsche Bank AG), which
prices reflect broker-dealer supplied valuations. 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 applicable 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 each 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 Fund or Class, less its liabilities,
by the number of oustanding shares, of the Fund or Class.
Classes--Class specific expenses, such as investment 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 by the counterparty.
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 that the difference arises.
Accordingly, permanent differences primarily attributable to net operating loss
for the year ended October 31, 1999 have been reclassified as follows:
Undistributed Accumulated
Net Investment Net Realized Paid-in
Fund Income Gains (Losse) Capital
---- -------------- ------------- --------
Smaller Companies $51,060 -- $(51,060)
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<PAGE>
Smaller Companies
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Notes to Financial Statements
The above reclassifications have no effect on net assets or net asset value per
share of the Fund.
Expenses--Expenses that are directly related to a Fund are charged directly to
that Fund. Other operating expenses of the Trust are prorated to the Fund on the
basis of relative net assets. DeAM 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. Original
issue discounts and purchase premiums on securities held by the Fund are
accreted and amortized ratably to maturity using the effective interest method.
Dividend income is recognized on the ex-dividend date or, using reasonable
diligence, when known to the Fund. Interest income is recognized using the
accrual method.
3. Administration, Investment Advisory, Distribution and Service Agreements
By an agreement dated August 27, 1998, the Trust entered into an administration
agreement with DeAM (the "Administrator"), pursuant to which the Administrator
will receive an annual fee of 0.22% based on 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 Trust'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
Investment Company Capital Corp., an affiliate of Deutsche Bank AG, and the
Trust, replacing DST Systems Inc., effective November 22, 1999.
Under the advisory agreements with the Trust, DeAM serves as the Adviser to the
Fund. For these services, the Adviser is entitled to a monthly fee at an annual
rate of 1.00% of the Fund's average daily net assets.
The Adviser has voluntarily agreed to reduce their advisory fees and/or
reimburse the Fund to the extent necessary to limit the Fund's operating
expenses to a specified percentage of its average net assets as follows:
Institutional Investment
Class Class
------------- ----------
1.25% 1.50%
By an Expense Limitation agreement dated November 1999, between the Trust and
the Adviser, the Adviser has agreed to waive its fees and reimburse expenses to
the Fund in order to limit the total operating expenses of each Fund at the
above levels for a period of 16 months from February 28, 2000.
Certain officers and/or Trustees of the Trust are affiliated with the
Administrator or the Adviser.
ICC Distributors (the "Distributor") serves as the distributor of shares of the
Funds pursuant to a distribution agreement with the Trust. The Adviser is
responsible for payment of any expenses or fees incurred in the marketing and
distribution of shares of the Fund. Prior to November 1, 1999 SEI Investments
Distribution Co. was the Fund's Distributor.
The Trust, on behalf of each Fund, has adopted a service plan pursuant to which
each Fund that offers an Investment Class pays service fees at an aggregate
annual rate of up to 0.25% of the Investment Class average daily net assets.
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 the Investment Class.
During the period ended April 30, 2000, certain portfolios of the Trust
purchased securities from and sold securities to other portfolios of the Trust
or other accounts managed by the Advisers at market value.
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Smaller Companies
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Notes to Financial statements
4. Investment Transactions
The cost of securities purchased and the proceeds from the sale of securities,
other than short-term investments and U.S. government securities, during the six
month period ended April 30, 2000, were as follows:
Purchases Sales
--------- -----
$5,183,774 $6,298,403
For federal income tax purposes, the Fund's cost of securities owned, the
aggregate gross unrealized appreciation and depreciation and the net unrealized
appreciation (depreciation) on investments at April 30, 2000 for the Fund are as
follows:
Net
Unrealized
Appreciated Depreciated Appreciated/
Tax Cost Securities Securities (Depreciated)
-------- ----------- ----------- ------------
$6,552,280 $1,900,870 $(645,530) $1,255,340
At October 31, 1999 the Fund had available realized capital losses of $127,538,
which expire in 2006 and 2007, to offset future net capital gains.
5. Borrowing Agreements
By an agreement dated November 2, 1998, certain Funds of the Trust entered into
a Credit Agreement (the "Agreement") with the BankBoston, N.A. (the "Lender").
The maximum aggregate credit available to all the participating Funds under the
Agreement, which expires on February 27, 2001, was approximately $50,000,000.
Interest payments on borrowings are payable by the borrowing Funds on a monthly
basis at the federal funds rate plus 1.00% per annum and the borrowings are
payable on demand. The participating Funds 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 six months ended April 30, 2000, the
participating Funds incurred commitment fees under the Agreement which have been
allocated to the participating Funds based on their relative net assets during
the non-borrowing period.
6. Proposed Fund Reorganizations
At its meeting on August 19, 1999, the Board of Trustees approved:
i. A tax-free transfer of substantially all of the assets of Morgan Grenfell
Smaller Companies to BT Small Cap, an affiliate of the Trust and assumption by
BT Small Cap of all of the liabilities of Smaller Companies, in exchange solely
for the shares of common stock of BT Small Cap and the distribution of shares of
BT Small Cap to the shareholders of Smaller Companies in liquidation of Smaller
Companies.
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15
<PAGE>
For information on how to invest, shareholder account information and
current price and yield information, please contact your relationship manager or
write to us at:
Deutsche Asset Management Service Center
P.O. Box 219210
Kansas City, MO 64121-9210
or call our toll-free number: 1-800-730-1313
This report must be preceded or accompanied by a current prospectus for the
Fund.
Smaller Companies CUSIP #61735K844
Morgan Grenfell Investment Trust 61735K745
362/366SA (04/00)
Distributed by:
ICC Distributors, Inc.
