<PAGE>
Deutsche Asset Management
M u t u a l F u n d
A n n u a l R e p o r t
October 31, 2000
Emerging Markets Debt
Formerly a Morgan Grenfell Fund
A Member of the
Deutsche Bank Group [LOGO]
<PAGE>
Emerging Markets Debt
--------------------------------------------------------------------------------
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders.................. 3
Emerging Markets Debt
Schedule of Investments............... 6
Statement of Assets and Liabilities... 8
Statement of Operations............... 9
Statements of Changes in Net Assets... 10
Financial Highlights.................. 11
Notes to Financial Statements......... 13
Report of Independent Accountants..... 17
Tax Information....................... 17
</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.
------------------------
--------------------------------------------------------------------------------
2
<PAGE>
Emerging Markets Debt
--------------------------------------------------------------------------------
Letter to Shareholders
We are pleased to present you with this annual report for Emerging Markets Debt.
In the pages that follow, you will find a discussion of the Fund's investment
performance by the portfolio management team. The analysis highlights key
factors influencing recent performance of the Fund and is followed by detailed
financial statements for the 12-month period ended October 31, 2000.
Our continuing goal is to provide you with high-quality investment management
services across a broad range of specialized mutual funds. We thank you for
investing in our family of mutual funds and we appreciate your continued support
and confidence.
Sincerely,
/S/ David Dowsett /s/ B Diment
David Dowsett and Brett Diment
Portfolio Managers of Emerging Markets Debt
Market Review
Emerging debt markets performed extremely well overall during the fiscal year,
outperforming both the global and US bond markets as a whole. Such strong
performance by the emerging debt markets was due primarily to strong global
growth and improving credit prospects within emerging markets.
During the first half of the fiscal year, emerging debt markets was the only
part of the global bond market to produce robust performance. Emerging debt
markets performed strongly on improving economic growth and deficits combined
with improvements in inflation rates that made credit upgrades possible. For
example, Mexico's debt rating was raised to investment grade by Moody's
Investment Services, boosting regional performance. The Russian bond market was
the best performing of the emerging markets during these months, as the
replacement of President Yeltsin by Vladimir Putin eliminated some political
uncertainty and commodity price recovery positively affected government
revenues.
Emerging debt markets registered more modest returns early in the second half of
the fiscal year, as investors became nervous about rising inflation risks in the
US. The prospect of the US Federal Reserve Board tightening monetary policy
further led to equity market weakness and reduced demand for higher risk assets.
However, market sentiment recovered toward the end of the second calendar
quarter, as prospects improved for the Federal Reserve Board to successfully
engineer a `soft landing' for the US economy. Russia continued to perform well,
as it became clear that London Club debt restructuring would be concluded in the
third calendar quarter. Economic prospects
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Cumulative Total Returns Average Annual Total Returns
Past Past Past Since Past Past Past Since
Periods ended October 31, 2000 1-year 3-years 5-years inception 1-year 3-years 5-years inception
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Emerging Markets Debt Institutional
Class/1 /(inception 8/4/94) 25.08% 2.67% 58.50% 69.44% 25.08% 0.88% 9.65% 8.82%
-------------------------------------------------------------------------------------------------------------------------------
JPMorgan Emerging Markets Bond
Index Plus/2/ 20.50% 29.97% 110.27% 133.39%/4/ 20.50% 9.13% 16.03% 14.53%/4/
-------------------------------------------------------------------------------------------------------------------------------
Lipper Emerging Markets Debt
Funds Average/3/ 16.34% 15.13% 85.13% 106.27%/4/ 16.34% 4.67% 12.86% 11.99%/4/
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
______________
/1/ Past performance is not indicative of future results. 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. These figures assume the
reinvestment of dividend and capital gain distributions. Performance would
have been lower during the specified periods if certain fees and expenses
had not been waived by the Fund.
/2/ The JPMorgan Emerging Markets Bond Plus Index is an unmanaged foreign
securities index representing external currency-denominated debt markets of
emerging markets and is a widely accepted benchmark of emerging debt market
performance. Benchmark returns do not reflect expenses, which have been
deducted from the Fund's returns.
/3/ Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Inc. as falling into the category
indicated. These figures do not reflect sales charges.
/4/ Benchmark returns are for the periods beginning July 31, 1994.
--------------------------------------------------------------------------------
3
<PAGE>
Emerging Markets Debt
--------------------------------------------------------------------------------
Letter to Shareholders
were boosted by still strong oil prices, which led to a large reserve increase.
This, in turn, increased Russia's ability to pay external debt obligations.
Latin American performance was mixed. Repayment prospects for Venezuela were
boosted by strong oil prices. However, the economic outlook deteriorated in
Argentina. Weak growth meant low tax receipts and the threat of Argentina not
meeting its International Monetary Fund fiscal targets. This scenario caused a
ripple effect of general market uncertainty in Brazil and Colombia, despite an
improving economic outlook in these countries.
Emerging debt markets generally performed well in the last months of the fiscal
year. Ecuador was the best performing market in the third calendar quarter, as
the restructuring of debt defaulted on in 1999 proved more generous than
expected. Mexico also performed well, as opposition candidate Vicente Fox won
the presidency decisively, ending 71 years of rule by the Partido Revolucionario
Institucional. Argentine debt registered positive returns, but concerns
persisted about ongoing weak economic activity. Peru was the worst performing
Latin American market, as President Fujimori maintained power only through an
election seen as fraudulent. Russian debt posted more moderate though still
positive returns. President Putin continued to make gradual progress on tax
reform and international reserves were boosted by high oil prices, further
enhancing debt repayment capacity.
Opportunities in African and Asian debt remained limited through most of the
fiscal year due primarily to weak economic fundamentals and debt repayment
concerns.
Investment Review
Emerging Markets Debt produced a return of 25.08% for the 12 months ended
October 31, 2000, outperforming the 20.50% return of the JP Morgan Emerging
Markets Bond Index Plus. This strong performance by the Fund is primarily due to
effective market allocation throughout the fiscal year.
For the annual period, our general position was to be overweighted in Eastern
Europe at the expense of Latin America. We believed Eastern European debt
markets were less vulnerable than those in Latin America both to monetary policy
tightening by the US Federal Reserve Board and to a slowdown in US economic
growth.
We consistently remained overweight throughout the year in Russia, where we held
positions in non-performing Soviet debt and Eurobonds. The smooth presidential
transition, strong oil prices, and the successful conclusion of a debt
restructuring agreement all boosted the prices of Russian bonds, which returned
close to 100% over the 12-month period. The Fund also assumed overweight
positions in Bulgaria and Turkey during the year.
In Latin America, we maintained an overweighting in Brazil. Inflation caused by
the previous year's devaluation proved limited, allowing its central bank to cut
interest rates. The result was stronger than expected economic growth. In
contrast, we maintained an underweight position in Argentina, where weak
economic growth led to increased funding pressures and concerns about the
viability of its fixed currency regime. Elsewhere in Latin America, our most
active trading strategies were in Venezuela. There, higher oil prices boosted
bond prices before concerns grew about increased fiscal laxity. Based primarily
on its third calendar quarter restructuring talks, Ecuador proved the strongest
performing Latin America debt market for the fiscal year.
We did not find much value in African and Asian credits during the annual
period. For most of the year, the Fund held no positions in Korea and the
Philippines. We then assumed a position in the Philippines late in the year,
after yield spreads had widened significantly due to political uncertainty over
corruption scandals surrounding President Estrada. In Africa, we had limited
positions in Nigeria, but we reduced those in the second half of the fiscal
year, as worries grew about a forced debt restructuring.
Market Outlook
Our outlook for the emerging debt markets remains positive. We believe that the
US economy is set to achieve a "soft landing," which should allow capital
inflows into emerging economies to continue and sustain local economic growth.
We are most favorable in our views on Russia, Brazil and Ecuador.
We believe that oil revenue growth in Russia will continue to increase
international reserves, thereby enhancing debt service capability. In Brazil,
GDP growth is expected to continue at around a rate of 4%, allowing progress to
be made in reducing debt/GDP ratios. Ecuador's economic growth appears to be set
to rebound following last year's successful dollarization effort. The biggest
risk within the emerging debt markets continues to be Argentina, where ongoing
weak economic growth will likely undermine confidence in the viability of its
currency peg. We believe the currency regime will remain unaltered, but the
Argentine authorities will continue, in our opinion, to experience difficulties
in placing external debt issues.
--------------------------------------------------------------------------------
4
<PAGE>
Emerging Markets Debt
--------------------------------------------------------------------------------
Performance Comparison
EMERGING MARKETS DEBT INSTITUTIONAL CLASS/1/,
JP MORGAN EMERGING MARKETS BOND INDEX PLUS AND
LIPPER EMERGING MARKETS DEBT FUNDS AVERAGE
GROWTH OF A $250,000 INVESTMENT (SINCE AUGUST 4, 1994)/2/
[GRAPH APPEARS HERE]
8/4/94 250,000 250,000 250,000
10/31/94 254,750 256,902 266,142
10/31/95 267,275 277,482 274,247
10/31/96 367,975 405,100 392,492
10/31/97 412,575 448,932 448,691
10/31/98 288,250 403,567 354,131
10/31/99 338,675 484,199 431,899
10/31/00 423,600 583,465 515,681
== Emerging Markets Debt Institutional Class $423,600
__ JP Morgan Emerging Markets Bond Index Plus $583,465
-- Lipper Emerging Markets Debt Funds Average $515,681
Average Annual Total Return for the Periods Ended October 31, 2000
One-Year 25.08% Three-Year 0.88% Five-Year 9.65% Since 8/4/94/2/ 8.82%
--------------------------------------------------------------------------------
/1/ On February 28, 2000 the Institutional Shares were renamed the Institutional
Class.
/2/ The Fund's inception date.
Past performance is not indicative of future results. 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. These figures assume the
reinvestment of dividend and capital gain distributions.
Performance would have been lower during the specified periods if certain fees
and expenses had not been waived by the Fund.
The JP Morgan Emerging Markets Bond Index Plus is an unmanaged foreign
securities index representing external currency-denominated debt markets of
emerging markets and is a widely accepted benchmark of emerging debt 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 category
indicated.
Benchmark returns are for the period beginning July 31, 1994.
--------------------------------------------------------------------------------
5
<PAGE>
Emerging Markets Debt
--------------------------------------------------------------------------------
Schedule of Investments October 31, 2000
Par Value/1/ Security Value
FOREIGN BONDS - 88.87%
ARGENTINA - 12.07%
Argentina Discount L-GL
8,000,000 7.875%, 3/31/23............ $ 6,047,976
Argentina Series BT06
44,750 11.25%, 5/24/04............ 41,605
Argentina L FRB
7,020,000 7.625%, 3/31/05............ 6,124,823
Republic of Argentina
8,350,000 11.75%, 4/7/09............. 7,285,375
6,561,000 11.75%, 6/15/15............ 5,580,131
4,900,000 11.375%, 1/30/17........... 4,120,900
4,100,000 9.75%, 9/19/27............. 3,064,750
2,750,000 10.25%, 7/21/30............ 2,090,000
-----------
34,355,560
-----------
BRAZIL - 17.78%
Brazil C Bond
14,776,912 8.00%, 4/15/14............. 11,034,821
Brazil DCB FRN - Series L
7,100,000 7.688%, 4/15/12............ 5,290,806
Brazil FRN Discount ZL
6,000,000 7.625%, 4/15/24............ 4,572,204
Brazil PAR ZL
22,000,000 6.00%, 4/15/24............. 14,389,958
Republic of Brazil
20,149,000 11.00%, 8/17/40............ 15,313,241
-----------
50,601,030
-----------
BULGARIA - 3.80%
Bulgaria IAB
14,500,000 7.75%, 7/28/11............. 10,820,625
-----------
COLOMBIA - 4.47%
Republic of Colombia
15,900,000 9.75%, 4/23/09............. 12,720,000
-----------
ECUADOR - 4.25%
Republic of Ecuador Reg S
22,200,000 4.00%, 8/15/30............. 8,409,360
Republic of Ecuador 144A
9,750,000 4.00%, 8/15/30............. 3,685,500
-----------
12,094,860
-----------
MEXICO - 8.50%
Petroleos Mexicano
8,850,000 9.25%, 3/30/18............. 8,407,500
3,000,000 9.50%, 9/15/27............. 3,030,000
Petroleos Mexicano Reg S
300,000 9.25%, 3/30/18............. $ 285,000
United Mexican States
3,250,000 11.375%, 9/15/16........... 3,675,975
United Mexican States -
PAR Series W-B
10,000,000 6.25%, 12/31/19............ 8,800,000
-----------
24,198,475
-----------
MOROCCO - 2.17%
Kingdom of Morocco - Series A
7,091,053 7.75%, 1/1/09.............. 6,169,216
-----------
NIGERIA - 0.00%
Nigeria Warrants*
13,500 11/15/20................... --
-----------
PANAMA - 3.35%
Republic of Panama FRN PDI
12,213,190 7.75%, 7/17/16............. 9,522,624
-----------
PERU - 2.54%
Republic of Peru FLIRB
13,800,000 3.75%, 3/7/17.............. 7,227,750
-----------
PHILIPPINES - 4.30%
Republic of Philippines
10,300,000 9.875%, 1/15/19............ 7,673,500
6,000,000 10.625%, 3/16/25........... 4,575,000
-----------
12,248,500
-----------
RUSSIA - 16.70%
Russian Federation
3,700,000 8.75%, 7/24/05............. 2,909,125
5,300,000 12.75%, 6/24/28............ 4,471,875
13,450,000 10.00%, 6/26/07............ 10,070,688
Russian Federation Reg S
33,000,000 2.50%, 3/31/30............. 12,436,710
Russian Federation 144a
13,673,682 8.25%, 3/31/10............. 8,785,340
23,762,500 2.50%, 3/31/30............. 8,851,531
-----------
47,525,269
-----------
TURKEY - 2.98%
Republic of Turkey
8,750,000 11.75%, 6/15/10............ 8,484,000
-----------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
6
<PAGE>
Emerging Markets Debt
--------------------------------------------------------------------------------
Schedule of Investments October 31, 2000
Par Value/1/ Security Value
UKRAINE - 1.46%
Ukraine Government Reg S
6,000,000 11.00%, 3/15/07............. $ 4,170,000
-------------
VENEZUELA - 4.50%
Republic of Venezuela
FLIRB Series A
4,333,287 7.625%, 3/31/07............. 3,545,014
Republic of Venezuela
PAR Series A
10,500,000 6.750%, 3/31/20............. 7,784,406
Republic of Venezuela
PAR Series B
2,000,000 6.750%, 3/31/20............. 1,482,744
Venezuela Warrants*
28,560 4/15/20..................... --
-------------
12,812,164
-------------
Total Investments
(Cost $252,274,077)...................... 88.87% $ 252,950,073
Cash........................................ 9.98 28,404,008
Other Assets in Excess
of Liabilities........................... 1.15 3,277,370
------ -------------
Total Net Assets............................ 100.00% $ 284,631,451
====== =============
-------------------------------------------------------------------------------
/1/ Denominated in local currency unless otherwise denoted.
* Non-income producing security.
DCB Debt Convertible Bond
FLIRB Front Loaded Interest Reduction Bond
FRN Floating Rate Note. The rate reflected on the Schedule of Investments is
the rate in effect on October 31, 2000.
PDI Past Due Income
144A Security exempt from registration under 144A of the Security Act of 1933.
These Securities may be resold in transactions exempt from registration,
normally to qualified buyers.
Amounts designated as "-" are either $0 or have been rounded to $0.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
7
<PAGE>
Emerging Markets Debt
--------------------------------------------------------------------------------
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
October 31, 2000
<S> <C>
Assets
Investment at value (cost $252,274,077) ............................ $ 252,950,073
Foreign currency (cost $185,416) ................................... 159,180
Cash ............................................................... 28,404,008
Receivable for securities sold ..................................... 47,303,599
Interest receivable ................................................ 4,640,507
-------------
Total Assets .......................................................... 333,457,367
-------------
Liabilities
Payable for securities purchased ................................... 47,465,070
Payable for capital shares redeemed ................................ 1,206,731
Due to advisor ..................................................... 3,047
Due to administrator ............................................... 76,168
Due to custodian ................................................... 36,739
Accrued expenses and other ......................................... 38,161
-------------
Total Liabilities ..................................................... 48,825,916
-------------
Net Assets ............................................................ $ 284,631,451
=============
Composition of Net Assets
Paid-in capital .................................................... $ 283,720,513
Undistributed net investment income ................................ 17,138,651
Accumulated net realized loss on investments ....................... (16,877,473)
Net unrealized appreciation on investments and foreign currencies .. 649,760
-------------
Net Assets ............................................................ $ 284,631,451
=============
Shares Outstanding ($0.001 Par Value Per Share, Unlimited Number
of Shares of Beneficial Interest Authorized) ....................... 40,819,890
=============
Net Asset Value, Offering and Redemption Price Per Share
(Net Assets Divided by Shares Outstanding)
Institutional Class /1/............................................. $ 6.97
=============
--------------------------------------------------------------------------------------
</TABLE>
/1/ On February 28, 2000 the Institutional Shares were renamed the
Institutional Class.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
8
<PAGE>
Emerging Markets Debt
--------------------------------------------------------------------------------
Statement of Operations
<TABLE>
<CAPTION>
For the
year ended
October 31, 2000
<S> <C>
Investment Income
Interest ............................................................... $29,247,981
Less: Foreign taxes withheld ........................................... (735,960)
-------------
Total Investment Income ................................................... 28,512,021
-------------
Expenses
Investment advisory fee ................................................ 3,067,420
Administration fees .................................................... 766,855
Custody fee ............................................................ 137,071
Professional fees ...................................................... 99,186
Registration and filing fees ........................................... 64,929
Printing fees .......................................................... 22,229
Interest expense ....................................................... 15,924
Trustees' fees ......................................................... 7,286
-------------
Total Expenses ............................................................ 4,180,900
Less: Fee Waivers or Expense Reimbursements ............................... (1,106,938)
-------------
Net Expenses .............................................................. 3,073,962
-------------
Net Investment Income ..................................................... 25,438,059
-------------
Realized and Unrealized Gain (Loss) on Investment and Foreign
Currency Transactions:
Net realized gain (loss) from:
Investment transactions .............................................. 44,476,799
Foreign currency transactions ........................................ (524,044)
Forward foreign currency transactions ................................ 351,726
Net change in unrealized appreciation/depreciation in ..................
investments and foreign currencies ................................... (3,657,629)
-------------
Net Realized and Unrealized Gain on Investments and Foreign Currencies .... 40,646,852
-------------
Net Increase in Net Assets from Operations ................................ $66,084,911
=============
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
9
<PAGE>
Emerging Markets Debt
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
year ended year ended
Oct. 31, 2000 Oct. 31, 1999
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations
Net investment income..................................................... $ 25,438,059 $ 30,848,031
Net realized gain (loss) on investment and foreign
currency transactions................................................... 44,304,481 (1,433,958)
Net change in unrealized appreciation/depreciation on investments
and foreign currencies.................................................. (3,657,629) 6,756,038
------------- -------------
Net Increase in Net Assets from Operations................................... 66,084,911 36,170,111
------------- -------------
Distributions to Shareholders
Net investment income
Institutional Class/1/.................................................. (12,181,314) (34,764,644)
Service Shares/2/....................................................... (435) (2,278)
------------- -------------
Total Distributions.......................................................... (12,181,749) (34,766,922)
------------- -------------
Capital Share Transactions:
Institutional Class:/1/
Proceeds from sales of shares........................................... 190,335,976 486,391,228
Dividend reinvestments.................................................. 12,181,227 34,749,464
Cost of shares redeemed................................................. (312,153,116) (237,863,685)
------------- -------------
Increase (decrease) in net assets from institutional
Class transactions...................................................... (109,635,913) 283,277,007
------------- -------------
Service Shares:/2/
Proceeds from sales of shares........................................... -- 10,000
Dividend reinvestments.................................................. 435 94
Cost of shares redeemed................................................. (11,557) (16,860)
------------- -------------
Decrease in net assets from Service Shares transactions................... (11,122) (6,766)
------------- -------------
Net Increase (Decrease) in Net Assets fom Capital Transactions............... (109,647,035) 283,270,241
------------- -------------
Total Increase (Decrease) in Net Assets...................................... (55,743,873) 284,673,430
Net Assets
Beginning of year......................................................... 340,375,324 55,701,894
------------- -------------
End of year............................................................... $ 284,631,451 $ 340,375,324
============= =============
</TABLE>
--------------------------------------------------------------------------------
1 On February 28, 2000 the Institutional Shares were renamed Institutional
Class.
2 Service Shares closed on January 21, 2000.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
10
<PAGE>
Emerging Markets Debt
--------------------------------------------------------------------------------
Financial Highlights
<TABLE>
<CAPTION>
Institutional CLASS/1/
For the years ended October 31,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset Value, Beginning of Year............. $ 5.80 $ 5.82 $ 11.95 $ 13.36 $ 10.55
----------- ----------- ---------- ----------- -----------
Income from Investment Operations:
Net investment income....................... 0.60 0.19 1.81 1.05 1.21
Net realized and unrealized gain (loss) on
investments and foreign currencies........ 0.81 0.69 (4.12) 0.40 2.60
----------- ----------- ---------- ----------- -----------
Total from Investment Operations............... 1.41 0.88 (2.31) 1.45 3.81
----------- ----------- ---------- ----------- -----------
Distributions to Shareholders:
Net investment income....................... (0.24) (0.90) (1.32) (1.32) (1.00)
Realized capital gain from investment
transactions.............................. -- -- (2.50) (1.54) --
----------- ----------- ---------- ----------- -----------
Total distributions......................... (0.24) (0.90) (3.82) (2.86) (1.00)
----------- ----------- ---------- ----------- -----------
Net Asset Value, End of Year................... $ 6.97 $ 5.80 $ 5.82 $ 11.95 $ 13.36
=========== =========== ========== =========== ===========
Total Investment Return........................ 25.08% 17.86% (30.35)% 12.03% 38.42%
Supplemental Data and Ratios:
Net Assets at End of Year (000 Omitted)........ $ 284,631 $ 340,365 $ 55,684 $ 187,455 $ 102,431
Ratio of Expenses to Average Net Assets
(Including Expense Limitations
and Including Interest Expense)............. 1.01% --% --% --% --%
Ratio of Expenses to Average Net Assets
(Excluding Expense Limitations
and Including Interest Expense)............. 1.37% 1.40% 1.31% 1.47% 1.92%
Ratio of Expenses to Average Net Assets
(Including Expense Limitations and
Excluding Interest Expense)................. 1.00% 1.00% 1.05% 1.32% 1.50%
Ratio of Net Investment Income to Average
Net Assets.................................. 8.29% 10.90% 9.82% 7.15% 10.15%
Ratio of Net Investment Income to Average
Net Assets (Excluding Expense Limitations).. 7.93% 10.50% 9.56% 7.00% 9.73%
Portfolio Turnover............................. 359% 397% 638% 472% 227%
</TABLE>
--------------------------------------------------------------------------------
/1/ On February 28, 2000 the Institutional Shares were renamed the Institutional
Class.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
11
<PAGE>
Emerging Markets Debt
--------------------------------------------------------------------------------
Financial Highlights
<TABLE>
<CAPTION>
SERVICE CLASS For the period For the period
Nov. 1, 1999 For the years ended Oct. 22, 1997/2/
through October 31, through
Jan. 21, 2000/1/ 1999 1998 Oct. 31, 1997
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period........................ $ 5.78 $ 5.82 $ 11.95 $ 13.61
-------- -------- --------- ---------
Income from Investment Operations:
Net investment income.................................... 0.15 0.19 6.65 0.03
Net realized and unrealized gain (loss) on
investments and foreign currencies..................... 0.45 0.67 (8.96) (1.69)
-------- -------- --------- ---------
Total from investment operations............................ 0.60 0.86 (2.31) (1.66)
-------- -------- --------- ---------
Distributions to Shareholders:
Net investment income.................................... (0.24) (0.90) (1.32) --
Realized capital gain from investment
transactions........................................... -- -- (2.50) --
-------- -------- --------- ---------
Total distributions...................................... (0.24) (0.90) (3.82) --
-------- -------- --------- ---------
Net Asset Value, End of Period.............................. $ 6.14 $ 5.78 $ 5.82 $ 11.95
======== ======== ========= =========
Total Investment Return..................................... 10.26% 17.40% (30.35)% (12.20)%
Supplemental Data and Ratios:
Net Assets at End of Period (000 Omitted)................... $ -- $ 10 $ 18 $ 132
Ratio of Expenses to Average Net Assets
(Including Expense Limitations
and Including Interest Expense).......................... 1.25%/3/ --% --% --%
Ratio of Expenses to Average Net Assets
(Excluding Expense Limitations
and Including Interest Expense).......................... 1.53%/3/ 1.66% 1.76% 1.71%/3/
Ratio of Expenses to Average Net Assets
(Including Expense Limitations and
Excluding Interest Expense).............................. 1.25%/3/ 1.25% 1.30% 1.50%/3/
Ratio of Net Investment Income to
Average Net Assets....................................... 10.87%/3/ 10.65% 10.78% 18.65%/3/
Ratio of Net Investment Income to Average
Net Assets (Excluding Expense Limitations)............... 10.59%/3/ 10.24% 10.32% 18.44%/3/
Portfolio Turnover.......................................... N/A 397% 638% 472%
</TABLE>
--------------------------------------------------------------------------------
/1/ Service Shares closed on January 21, 2000.
/2/ Commencement of operations.
/3/ Annualized.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
12
<PAGE>
Emerging Markets Debt
--------------------------------------------------------------------------------
Notes to Financial Statements
Note 1--Organization and Significant Accounting Policies
A. 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 fifteen separate investment portfolios
(collectively, the "Funds"). The accompanying financial statements and notes
thereto relate to Emerging Markets Debt (the "Fund"), formerly Morgan Grenfell
Emerging Markets Debt Fund. The Fund's prospectus provides a description of the
Fund's investment objectives, policies and strategies. The Fund's Service Class
was liquidated on January 21, 2000.
B. Valuation of Securities
The Fund's investments listed or traded on national stock exchanges or other
domestic or foreign exchanges are valued based on the closing price of the
security traded on that exchange prior to the time when the Fund assets are
valued. Short-term debt securities are valued at market value until such time as
they reach a remaining maturity of 60 days, whereupon they are valued at
amortized cost using their value on the 61st day. All other securities and other
assets are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Trustees.
C. Securities Transactions and Interest Income
Securities transactions are accounted for on a trade date basis. Dividend
income, less foreign taxes withheld, if any, is recorded on the ex-dividend date
or upon receipt of ex-dividend notification in the case of certain foreign
securities. Interest income is recorded on the accrual basis and includes
amortization of premium and accretion of discount on investments. Expenses are
recorded as incurred. Realized gains and losses from securities transactions are
recorded on the identified cost basis.
D. Distributions
It is the Fund's policy to declare and distribute dividends annually to
shareholders from net investment income. Dividends and distributions payable to
shareholders are recorded by the Fund on the ex-dividend date. Distributions of
net realized short-term and long-term capital gains, if any, earned by the Fund
are made at least annually to the extent they exceed capital loss carryforwards.
E. Repurchase Agreements
The Fund may enter into repurchase agreements with financial institutions deemed
to be creditworthy by the Fund's investment advisor, subject to the seller's
agreement to repurchase such securities at a mutually agreed upon price.
Securities purchased subject to repurchase agreements are deposited with the
Fund's custodian, and pursuant to the terms of the repurchase agreement must
have an aggregate market value greater than or equal to the repurchase price
plus accrued interest at all times. If the value of the underlying securities
falls below the value of the repurchase price plus accrued interest, the Fund
requires the seller to deposit additional collateral by the next business day.
If the request for additional collateral is not met, or the seller defaults on
its repurchase obligation, the Fund maintains the right to sell the underlying
securities at market value and may claim any resulting loss against the seller.
However, in the event of a default or bankruptcy by the seller, realization
and/or retention of the collateral may be subject to legal proceedings.
The Fund may enter into tri-party repurchase agreements with broker-dealers and
domestic banks. The third party, which is the broker's custodial bank, holds the
collateral in a separate account until the repurchase agreement matures. The
agreement ensures that the collateral's market value, including any accrued
interest, is adequate to cover the agreement if the broker defaults.
F. Foreign Currency Transactions
The books and records of the Fund are maintained in US dollars. All assets and
liabilities initially expressed in foreign currencies are converted into US
dollars at prevailing exchange rates. Purchases and sales of investment
securities, dividend and interest income and certain expenses are translated at
the rates of exchange prevailing on the respective dates of such transactions.
The International Funds do not isolate that portion of gains and losses on
investments in equity securities which is due to changes in the foreign exchange
rates from that which is due to changes in market prices of such securities. The
International Funds do isolate the effect of fluctuations in foreign currency
rates when determining the gain or loss upon sale or maturity of foreign
currency denominated debt obligations pursuant to the Federal income tax
regulations. Such amounts are categorized as foreign currency gain or loss for
both financial reporting and income tax reporting purposes.
--------------------------------------------------------------------------------
13
<PAGE>
Emerging Markets Debt
--------------------------------------------------------------------------------
Notes to Financial Statements
The International Funds report gains and losses on foreign currency related
transactions as realized and unrealized gains and losses for financial reporting
purposes, whereas such gains and losses, to the extent realized, are treated as
ordinary income or loss for federal income tax purposes.
G. Forward Foreign Currency Contracts
The Fund may enter into forward foreign currency contracts for the purpose of
settling specific purchases or sales of securities denominated in a foreign
currency or with respect to the Fund's investments. The net U.S. dollar value of
foreign currency underlying all contractual commitments held by the Fund and the
resulting unrealized appreciation or depreciation are determined using
prevailing exchange rates. With respect to forward foreign currency contracts,
losses in excess of amounts recognized in the Statement of Assets and
Liabilities may arise due to changes in the value of the foreign currency or if
the counterparty does not perform under the contract.
H. Option Contracts
Upon the purchase of a put option or a call option by the Fund, the premium paid
is recorded as an investment and marked-to-market daily to reflect the current
market value. When a purchased option expires, the Fund will realize a loss in
the amount of the cost of the option. When the Fund enters into a closing sale
transaction, the Fund will realize a gain or loss depending on whether the sale
proceeds from the closing sale transaction are greater or less than the cost of
the option. When the Fund exercises a put option, it realizes a gain or loss
from the sale of the underlying security and the proceeds from such sale will be
decreased by the premium originally paid. When the Fund exercises a call option,
the cost of the security which the Fund purchases upon exercise will be
increased by the premium originally paid.
I. Futures Contracts
The Fund may enter into financial futures contracts, which are contracts to buy
a standard quantity of securities at a specified price on a future date. The
Fund is required to deposit either in cash or securities an amount equal to a
certain percentage of the contract amount. Variation margin payments are made or
received by the Fund each day, depending on the daily fluctuations in the value
of the underlying security, and are recorded for financial statement purposes as
unrealized gains or losses by the Fund. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on which
they are traded.
J. Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and distribute substantially
all of its taxable income to shareholders. Therefore, no federal income tax
provision is required. The Fund may periodically make reclassifications among
certain of its capital accounts as a result of differences in the
characterization and allocation of certain income and capital gain distributions
determined annually in accordance with federal tax regulations that may differ
from generally accepted accounting principles. The Fund has a capital loss
carryover of $15,208,072 expiring October 31, 2006.
The International Funds may be subject to taxes imposed by countries in which
they invest with respect to their investments in issuers existing or operating
in such countries. Such taxes are generally based on either income earned or
repatriated and/or capital gains realized on sale of such investments. The
International Funds accrue such taxes when the related income is or gains are
earned.
K. Cash
Deposits held at Brown Brother's Harriman ("BBH"), the Fund's custodian, in a
variable rate account are classified as cash. At October 31, 2000 the interest
rate was 6.03%, which resets on a periodic basis. Amounts on deposit are
generally available on the same business day.
L. 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 Funds on the basis of
relative net assets. DeAM absorbed all expenses of organizing the Trust.
M. 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 outstanding
shares, of the Fund or Class.
N. 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.
--------------------------------------------------------------------------------
14
<PAGE>
Emerging Markets Debt
--------------------------------------------------------------------------------
Notes to Financial Statements
O. Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts in the financial statements.
Actual results could differ from those estimates.
Note 2--Fees and Transactions with Affiliates
By an agreement dated August 27, 1998, the Trust entered into an administration
agreement with Deutsche Asset Management, Inc. ("DeAM, Inc."), formerly Morgan
Grenfell Inc. (the "Administrator"), an affiliate of Deutsche Bank AG, pursuant
to which the Administrator will receive an annual fee of 0.25% of 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. Effective November 22, 1999 the Trust has entered into an agreement
with Investment Company Capital Corp., an indirect wholly owned subsidiary of
Deutsche Bank AG, to provide transfer agency services to the Trust, replacing
DST Systems, Inc.
Under the advisory agreement with the Trust, Deutsche Asset Management
Investment Services Limited (DeAMiS) serves as the Investment Advisor
("Advisor") for the Fund. Under the agreement, DeAMiS receives on a monthly
basis, a fee at an annual rate of 1.00% of the Fund's average daily net assets.
The Advisor has contractually agreed to reduce its investment advisory fees and
reimburse the Fund through February 28, 2002, to the extent necessary, to limit
the Fund's operating expenses to 1.00% of the average daily net assets of the
Institutional Class.
Certain officers and/or Trustees of the Trust are affiliated with the
Administrator or the Advisor.
ICC Distributors, Inc. a nonaffiliated company, provides distribution services
to the Fund.
At October 31, 2000 the Funds were participants in a revolving credit facility
with Fleet National Bank in the amount of $50,000,000, which expires on February
28, 2001. A commitment fee on the average daily amount of the available
commitment is payable on a quarterly basis and apportioned among all
participants based on net assets. During the year ended October 31, 2000, the
participating Funds incurred commitment fees under the agreement which have been
allocated to the participating funds based on their relative net assets. The
following is a summary of borrowings made during the year ended October 31,
2000.
Weighted Weighted
Maximum Average Average
Amount Balance Interest Interest
Borrowed Outstanding Paid Rate
-------- ----------- -------- --------
$12,979,636 $3,490,313 $15,924 8.79%
Prior to August 2, 2000, Emerging Markets Debt, in the event of an overdraft
would execute a demand note with Brown Brothers Harriman, the Trust's custodian
to meet their short-term liquidity requirements.
Note 3--Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales of investments, other
than short-term obligations, for the year ended October 31, 2000, were
$1,147,278,868 and $1,257,660,226, respectively.
For federal income tax purposes, the tax basis of investments held at October
31, 2000 was $253,943,478. The aggregate gross unrealized appreciation was
$1,341,679, and the aggregate gross unrealized depreciation was $2,335,084 for
all investments as of October 31, 2000.
--------------------------------------------------------------------------------
15
<PAGE>
Emerging Markets Debt
--------------------------------------------------------------------------------
Notes to Financial Statements
Note 4--Capital Share Transactions
At October 31, 2000, there were an unlimited number of shares authorized.
Transactions in shares during the year were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 2000 October 31, 1999
--------------------------- ---------------------------
Shares Amount Shares Amount
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Institutional Class
Shares Sold 27,608,818 $ 190,335,976 86,590,263 $ 486,391,228
Reinvestment of Distributions 2,010,103 12,181,227 7,020,094 34,749,464
Shares Redeemed (47,507,632) (312,153,116) (44,476,619) (237,863,685)
----------- ------------- ----------- -------------
Net Increase (Decrease) (17,888,711) $(109,635,913) 49,133,738 $ 283,277,007
=========== ============= =========== =============
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 2000/2/ October 31, 1999
------------------- ----------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Service Class
Shares Sold -- $ -- $ 1,665 $ 10,000
Reinvestment of Distributions 72 435 19 94
Shares Redeemed (1,884) $(11,557) (2,898) (16,860)
------ -------- ------- --------
Net (Decrease) (1,812) $(11,122) (1,214) $ (6,766)
====== ======== ======= ========
</TABLE>
/2/ Service Shares closed on January 21, 2000.
Note 5--Loan Participations/Assignments
The Fund invests in U.S. dollar-denominated fixed and floating rate loans
("Loans") arranged through private negotiations between a foreign sovereign
entity and one or more financial institutions ("Lenders"). The Fund invests in
such Loans in the form of participations in Loans ("Participations") or
assignments of all or a portion of loans from third parties ("Assignments").
Participations typically result in the Fund having a contractual relationship
only with the Lender, not with the sovereign borrower. The Fund has the right to
receive payments of principal, interest and any fees to which it is entitled
from the Lender selling the Participation and only upon receipt by the Lender of
the payments from the borrower. In connection with purchasing Participations,
the Fund generally has no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan, nor any rights of set-off
against the borrower, and the Fund will not benefit directly from any collateral
supporting the Loan in which it has purchased the Participation. As a result,
the Fund assumes the credit risk of both the borrower and the Lender that is
selling the Participation. The Fund may have difficulty disposing of
Participations and Assignments because the market for such instruments is not
highly liquid.
Note 6--Foreign Risks
The Fund invests in securities of foreign issuers in various countries. These
investments may involve certain considerations and risks not typically
associated with investments in the United States, as a result of, among other
factors, the possibility of future political and economic developments and the
level of governmental supervision and regulation of securities markets in the
respective countries. The Fund invests in emerging markets securities. Emerging
markets are substantially smaller, less developed, less liquid, and more
volatile than the major securities markets in the United States. The Fund
invests in debt securities, the market value of which may change in response to
interest rate changes. Also, the ability of the issuers of debt securities held
by the Fund to meet their obligations may be affected by economic and political
developments in a specific country, industry, or region.
--------------------------------------------------------------------------------
16
<PAGE>
Emerging Markets Debt
--------------------------------------------------------------------------------
Report of Independent Accountants
To the Board of Trustees of Morgan Grenfell Investment Trust and Shareholders of
Emerging Markets Debt:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Emerging Markets Debt (one of
the funds comprising the Morgan Grenfell Investment Trust, hereafter referred to
as the "Fund") at October 31, 2000, the results of its operations, the changes
in its net assets and the financial highlights for each of the fiscal periods
presented, in conformity with accounting principles generally accepted in the
United States of America. 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 auditing standards generally accepted in
the United States of America, 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 October 31, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
December 20, 2000
________________________________________________________________________________
Tax Information (Unaudited) For the Tax Year Ended October 31, 2000
The amounts may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
During the year ended October 31, 2000, the Fund received income from foreign
sources in the amount of $28,534,877 or $0.699 per share. The Fund has paid
foreign taxes in the amount of $735,960 or $0.018 per share. Such amounts are
eligible for the foreign tax credit. You should consult your tax advisor
relating to the appropriate treatment of foreign taxes paid.
[THIS PAGE INTENTIONALLY LEFT BLANK]
--------------------------------------------------------------------------------
17
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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.
Deutsche Asset Management is the marketing name for the asset management
activities of Deutsche Bank AG, Deutsche Fund Management, Inc., Bankers Trust
Company, DB Alex. Brown LLC, Deutsche Asset Management, Inc., and Deutsche Asset
Management Investment Services Limited.
Emerging Markets Debt CUSIP #61735K869
Institutional Class 356ANN (10/00)
Distributed by:
ICC Distributors, Inc.
