<PAGE>
Deutsche Asset Management
Mutual Fund
Annual Report
September 30, 2000
Micro Cap
Formerly Morgan Grenfell Microcap Fund
A Member of the
Deutsche Bank Group [/]
<PAGE>
Micro Cap
------------------------------------------------------------------------------
Table of Contents
Letter to Shareholders.................... 3
Micro Cap
Schedule of Investments................. 8
Statement of Assets and Liabilities..... 9
Statement of Operations................. 10
Statements of Changes in Net Assets..... 11
Financial Highlights.................... 12
Notes to Financial Statements........... 14
Report of Independent Accountants....... 17
Tax Information......................... 17
-----------------------
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>
Micro Cap
------------------------------------------------------------------------------
Letter to Shareholders
Deutsche Asset Management's Micro Cap (formerly the Morgan Grenfell Microcap
Fund, the "Fund") outperformed its benchmark for the twelve months ended
September 30, 2000, particularly noteworthy given the extremely high volatility
in the smaller capitalization US equity market during this time period. The Fund
had a total return of 64.49%/1/ for the annual period, as compared to 23.39% for
the Russell 2000 Index.
Market Review
A theme of "volatility and reversal" dominated the smaller cap equity market, as
well as the broader equity markets.
Overall, the fourth calendar quarter of 1999 experienced significant strength in
the equities markets, as the US 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, the
equities market strength was relatively narrow and confined primarily to the
technology and telecommunications sectors across all capitalizations.
January 2000 began with weakness in the broader markets, as investors looked
toward a number of possible Federal Reserve Board interest rate increases in the
first half of the year 2000 following a robust fourth quarter and holiday
selling season. Following this short-lived early weakness, the smaller cap
market resumed its strength, narrowly confined to technology, telecommunications
and select biotechnology issues where revenue and earnings growth was expected
to continue despite rising interest rates. In February, there was a sell off of
such "Old Economy" sectors as manufacturing and other cyclical industries;
however, the "New Economy" sectors--technology, telecommunications and
biotechnology--continued to do well, boosting the Russell 2000 Index overall.
The small cap market pulled back in March, ending the month down 6.6%, as the
mid and large cap markets reasserted themselves.
The first half of the second calendar quarter continued the sell-off that began
mid-March. The divergent sentiment toward "Old Economy" vs. "New Economy"
sectors continued. In addition, the near-certain prospect of higher interest
rates and the subsequent gradual slowdown in economic growth, combined with a
modest pickup in inflation, negatively affected the broad US equity markets. For
several reasons, the smaller cap market performed well during the second half of
the second quarter. Inflation fears subsided somewhat. Optimism arose that the
Federal Reserve Board could engineer a "soft landing" for the US economy after a
number
<TABLE>
<CAPTION>
Cumulative Total Returns Average Annual Total Returns
Past Past Since Past Past Since
Periods ended September 30, 2000 1 year 3 years inception 1 year 3 years inception
<S> <C> <C> <C> <C> <C> <C>
Micro Cap Institutional Class/1/
(inception 12/18/96) 64.49% 104.20% 177.30% 64.49% 26.87% 30.94%
Russell 2000 Index/2/ 23.39% 18.98% 50.63%/4/ 23.39% 5.96% 11.54%/4/
Lipper SmallCap Growth Average/3/ 56.57% 76.15% 116.85%/4/ 56.57% 19.78% 22.06%/4/
-------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Cumulative Total Returns Average Annual Total Returns
Past Past Since Past Past Since
Periods ended September 30, 2000 1 year 3 years inception 1 year 3 years inception
<S> <C> <C> <C> <C> <C> <C>
Micro Cap Investment Class/1/
(inception 8/21/97) 63.87% 102.92% 126.81% 63.87% 26.60% 30.12%
Russell 2000 Index/2/ 23.39% 18.98% 27.69%/4/ 23.39% 5.96% 8.25%/4/
Lipper SmallCap Growth Average/3/ 56.57% 76.15% 90.57%/4/ 56.57% 19.78% 22.20%/4/
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
-----------------
/1/Past performance is not indicative of future results. Market volatility can
significantly impact short term performance. Results of an investment made
today may differ substantially from the Fund's historical performance.
Investment return and principal value will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
These figures assume the reinvestment of dividend and capital gain
distributions. Performance figures for the classes differ because each class
maintains a distinct expense structure. Performance would have been lower
during the specified periods if certain fees and expenses had not been waived
by the Fund.
/2/The Russell 2000 Index is an unmanaged capitalization weighted index that is
comprised of 2000 of the smallest stocks in the Russell 3000 Index. Index
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 December 31, 1996, for the
Institutional Class and August 31, 1997, for the Investment Class.
------------------------------------------------------------------------------
3
<PAGE>
Micro Cap
------------------------------------------------------------------------------
Letter to Shareholders
of interest rate increases. And finally, earnings growth estimates remained
strong. The health care and energy sectors led performance for the quarter, but
negative returns in technology and several other sectors pushed the Russell 2000
Index into negative territory for the three-month period.
The third quarter of 2000 proved to be difficult for stocks across all market
capitalizations. Concerns about rising energy prices, a weak euro, a slowing US
economy and how these factors would affect company revenues and earnings caused
stocks to yo-yo. In the smaller cap market, the quarter began with a very brief
upswing in July, as inflationary fears subsided and the Fed opted not to
increase interest rates. However, upward momentum reversed mid-July, as profit
warnings started an overall technology decline that carried over to the rest of
the US equities markets. August saw a turnaround, as the smaller cap market
trended upward with less intra-day volatility. Primarily driven by data showing
the US economy coming into better balance, with demand moderating and
productivity rising, the Fed once again refrained from raising interest rates.
September brought concerns about rising oil prices and revenue and earnings
weakness. The smaller cap market trended downward for the month with higher
intra-day volatility. Although negative returns from technology and producer
durables detracted, positive returns from health care, financial services and
energy contributed to the smaller cap market's outperformance of large caps for
the quarter.
Investment Strategy
The Fund's weighted average market cap on September 30, 2000 was $486.1 million,
and the weighted median market cap was $428.4 million. The destinies of micro
cap stocks are primarily controlled by the entrepreneurship of company
management, the execution of strategic business plans, and the particular
product or service they offer. Our ability to select individual stocks was key
to our outperformance of the Russell 2000 Index throughout the volatile
reporting period. For example, among the Fund's best performers during the
annual period were Cell Genesys Inc., Horizon Offshore Inc., Photon Dynamics
Inc., Isle of Capri Casinos, Costar Group Inc., and Zoll Medical.
Two additional factors that bolstered Fund performance were our concentration in
a relatively limited number of names in the portfolio while staying broadly
diversified (61 holdings as of September 30, 2000) and, at the same time, our
positioning across economic sectors.
In the fourth quarter of 1999, the Fund was overweight in two of the best
performing sectors, technology and health care. The energy sector was a top
performer in the first quarter of 2000 on the back of higher oil prices, and the
Fund's overweight position there, particularly in certain exploration and
production companies and oil service companies, also boosted Portfolio returns.
Technology and health care continued to be winning sectors during these months,
and the Fund remained overweight there as well. While we remained overweighted
in technology during the second half of the fiscal year when this sector
underperformed, we reduced the Fund's technology holdings somewhat. We also
increased the Fund's positions in the two best performing sectors during this
period, the energy and health care sectors. Also having a positive impact on
relative performance were underweight positions in the underperforming
financials sector during the first half of the year and in the producer durables
and transportation sectors during the second half.
One more factor that continued to help fuel performance was takeovers of several
companies in the Fund's portfolio, as corporate America and others recognized
value in these less well-known micro cap companies.
Manager Outlook
Our long-term outlook for the equity markets in general is favorable. Moderating
economic growth, contained inflationary pressures, high labor productivity, and
strong smaller cap profit estimates all contribute to our overall favorable
outlook for the smaller cap equities market in particular.
Still, there are several risks to the equities markets in general, including the
smaller cap market, over the rest of the year. These include valuation risk in
NASDAQ stocks, uncertainty over oil prices and higher overall energy costs, and
the SEC's new Regulation Full Disclosure (Reg FD), which could mean lower
overall market multiples as a result of less predictability of company earnings.
Earnings disappointments and valuations continue to present the primary
investment risk. However, we expect superior earnings growth to be the key
driver of smaller companies' potential outperformance ahead.
Although we anticipate future periods of volatility in the marketplace while
global and domestic economic and political events run their courses, we remain
optimistic regarding our opportunities to find micro cap stocks that we believe
are both bargains in a broader universe of stocks and winners early in their
growth cycle. We also believe that the vibrant US economy now in its tenth year
of expansion, with its high level of entrepreneurial activity and venture
capital backing, should continue to serve as a fertile breeding ground for many
attractive investment opportunities as early stage private companies shift to
public ownership.
------------------------------------------------------------------------------
4
<PAGE>
------------------------------------------------------------------------------
Given the recent high volatility in the stock market, it is important to keep in
mind that we remain disciplined in our process, and we continue to:
. focus on micro cap companies with above average growth prospects selling at
reasonable valuations with the potential to be the blue chips of the future/1/
. focus on individual stock selection with the goal of providing value-added
performance relative to the universe of nearly 5,000 very small US companies
. use extensive and intensive fundamental research to seek companies with
innovation, leading or dominant position in their niche markets, a high rate
of return on invested capital, and the ability to finance a major part of
future growth from internal sources, and
. strictly adhere to our sell discipline seeking to reduce exposure to stocks
with diminished appreciation potential.
As always, our primary objective is to provide capital appreciation for our
shareholders. We thank you for your continued support of Micro Cap.
/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 Micro Cap
September 30, 2000
-----------
/1/The Fund defines the micro capitalization equity universe as the bottom 5% of
the total domestic equity market capitalization, using a minimum market
capitalization of $10 million. It is important to note that while investment
in smaller, less seasoned companies may present more opportunities for
growth, they also involve greater risks--particularly in the short term--than
customarily associated with more established companies. Securities in which
the Fund may invest may have limited marketability and, therefore, may be
subject to wide fluctuations in market value. Additional risks of investing
in a fund of this type, which invests in newly emerging companies, include
the potential erratic earnings patterns, competitive conditions in the
industry, limited earnings history, and reliance on one or a limited number
of products.
------------------------------------------------------------------------------
5
<PAGE>
Micro Cap
------------------------------------------------------------------------------
Performance Comparison
MICROCAP INSTITUTIONAL/2/ CLASS, RUSSELL 2000 INDEX
AND LIPPER SMALL CAP GROWTH AVERAGE
GROWTH OF A $250,000 INVESTMENT (SINCE DECEMBER 18, 1996)/1/
[GRAPH APPEARS HERE -- SEE PLOT POINTS BELOW]
Micro Cap
Institutional Lipper Small Cap Russell
Class Growth Average 2000 Index
12/31/96 250,000 250,000 250,000
10/31/97 315,500 296,600 310,767
10/31/98 258,194 242,737 273,973
9/30/99 421,451 325,000 313,425
9/30/00 693,250 542,125 376,575
Average Annual Total Return for the Periods Ended September 30, 2000.
1 year 64.49%. Since 12/18/96/1/ 30.94%.
------------------------------------------------------------------------------
/1/The Fund's inception date.
/2/On February 28, 2000, the Institutional Shares were renamed the Institutional
Class.
Past performance is not indicative of future results. The Funds' recent
performance was achieved during favorable market conditions that may not be
sustained. 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 period if
certain fees and expenses had not been waived by the Fund.
The Russell 2000 Index is an unmanaged capitalization weighted index that is
comprised of 2000 of the smallest stocks in the Russell 3000 Index. The Lipper
Small Cap Growth Average is made up of funds that invest primarily in companies
with a market capitalization of less than $300 million at the time of purchase.
Benchmark returns are for the period beginning December 31, 1996.
------------------------------------------------------------------------------
6
<PAGE>
Micro Cap
------------------------------------------------------------------------------
Performance Comparison
MICROCAP INVESTMENT/2/ CLASS, RUSSELL 2000 INDEX
AND LIPPER SMALL CAP GROWTH AVERAGE
GROWTH OF A $10,000 INVESTMENT (SINCE AUGUST 21, 1997)/1/
[GRAPH APPEARS HERE -- SEE PLOT POINTS BELOW]
Micro Cap
Investment Lipper Small Cap Russell
Class Growth Average 2000 Index
8/31/97 10,000 10,000 10,000
10/31/97 10,128 11,864 10,261
10/31/98 8,264 9,709 9,046
9/30/99 13,496 13,000 10,349
9/30/00 22,681 19,057 12,769
Average Annual Total Return for the Periods Ended September 30, 2000.
1 year 63.87%. Since 8/21/97/1/ 30.12%.
------------------------------------------------------------------------------
/1/The Fund's inception date.
/2/On February 28, 2000, the Service Shares were renamed the Investment Class.
Past performance is not indicative of future results. The Funds' recent
performance was achieved during favorable market conditions that may not be
sustained. 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 period if
certain fees and expenses had not been waived by the Fund.
The Russell 2000 Index is an unmanaged capitalization weighted index that is
comprised of 2000 of the smallest stocks in the Russell 3000 Index. The Lipper
Small Cap Growth Average is made up of funds that invest primarily in companies
with a market capitalization of less than $300 million at the time of purchase.
Benchmark returns are for the period beginning August 31, 1997.
------------------------------------------------------------------------------
7
<PAGE>
Micro Cap
------------------------------------------------------------------------------
Schedule of Investments September 30, 2000
<TABLE>
<CAPTION>
Shares Security Value
<S> <C> <C>
COMMON STOCKS - 89.8%
CAPITAL GOODS - 0.8%
7,200 Measurement Specialities,
Inc.*........................... $ 347,400
-----------
CONSUMER - 9.2%
28,300 Christopher & Banks Corp.*....... 1,100,163
11,000 Coldwater Creek, Inc.*........... 297,000
17,000 Fred's, Inc...................... 381,437
26,600 Genesco, Inc.*................... 450,538
20,250 RARE Hospitality International,
Inc.*........................... 412,594
22,400 Sharper Image Corp.*............. 394,800
44,200 Tuesday Morning Corp.*........... 345,312
28,000 Vans, Inc.*...................... 430,500
-----------
3,812,344
-----------
CREDIT SENSITIVE - 5.9%
60,000 BankUnited Financial Corp.,
Class A*........................ 442,500
10,000 CoStar Group, Inc.*.............. 370,000
11,700 Dime Community Bancshares........ 289,575
4,000 E'Town Corp...................... 267,500
21,900 Engle Homes, Inc................. 340,819
31,500 The InterCept Group, Inc.*....... 734,344
-----------
2,444,738
-----------
ENERGY - 8.6%
45,400 Callon Petroleum Co.*............ 717,887
26,500 Chieftain International, Inc.*... 548,219
7,300 Dril-Quip, Inc.*................. 291,088
21,000 Evergreen Resources, Inc.*....... 729,750
39,400 Horizon Offshore, Inc.*.......... 694,425
38,900 Unit Corp.*...................... 573,775
-----------
3,555,144
-----------
HEALTHCARE - 24.4%
28,100 Accredo Health, Inc.*............ 1,373,388
22,100 Aradigm Corp.*................... 506,919
14,400 Cell Genesys, Inc.*.............. 432,000
23,500 Coventry Health Care, Inc.*...... 355,438
5,800 Discovery Partners
International*.................. 117,813
112,300 Nabi*............................ 786,100
18,900 NeoRx Corp.*..................... 463,050
18,600 Neose Technologies, Inc.*........ 899,775
26,000 Province Healthcare Co.*......... 1,038,375
20,600 RehabCare Group, Inc.*........... 875,500
4,700 SonoSite, Inc.*.................. 87,831
13,200 SurModics, Inc.*................. 722,700
9,600 Vical, Inc.*..................... 248,400
122,200 XOMA Ltd.*....................... 1,764,262
8,600 Zoll Medical Corp.*.............. 419,250
-----------
10,090,801
-----------
<CAPTION>
Shares Security Value
<S> <C> <C>
Process Industries - 1.8%
7,500 Pope & Talbot, Inc............... $ 107,344
19,800 Universal Compression
Holdings, Inc.*................. 612,562
-----------
719,906
-----------
SERVICE COMPANIES - 4.3%
14,000 Avert, Inc.*..................... 280,000
38,600 Globecomm Systems, Inc.*......... 496,975
24,900 MCSi, Inc.*...................... 837,262
23,100 Startec Global Communications
Corp.*.......................... 137,156
-----------
1,751,393
-----------
TECHNOLOGY - 30.9%
61,100 Ansoft Corp.*.................... 809,575
47,400 Applied Films Corp.*............. 1,285,725
60,000 Avid Technology, Inc.*........... 840,000
25,500 Avistar Communications Corp.*.... 172,125
27,400 ClickAction, Inc.*............... 250,025
17,150 CyberOptics Corp.*............... 314,059
30,300 Merix Corp.*..................... 1,963,819
25,100 Nanometrics, Inc.*............... 1,341,281
19,600 Photon Dynamics, Inc.*........... 739,900
128,400 Read-Rite Corp.*................. 1,444,500
44,500 Secure Computing Corp.*.......... 1,159,781
36,200 SkillSoft Corp.*................. 665,175
15,900 Supertex, Inc.*.................. 800,962
3,700 TTM Technologies, Inc.*.......... 86,950
40,000 ValiCert, Inc.*.................. 700,000
3,700 Zoran Corp.*..................... 180,375
-----------
12,754,252
-----------
TRANSPORTATION - 3.9%
10,500 Atlantic Coast Airlines
Holdings, Inc.*................. 337,969
28,500 Innovative Solutions and
Support, Inc.*.................. 488,062
50,100 Isle of Capri Casinos, Inc.*..... 776,550
-----------
1,602,581
-----------
Total Investments
(Cost $26,772,715).............. 89.8% 37,078,559
Other Assets in Excess
of Liabilities.................. 10.2 4,218,696
----- -----------
Net Assets....................... 100.0% $41,297,255
===== ===========
</TABLE>
------------------------------------------
*Non - income producing security
See Notes to Financial Statements.
------------------------------------------------------------------------------
8
<PAGE>
Micro Cap
------------------------------------------------------------------------------
Statement of Assets and Liabilities
Sept. 30, 2000
Assets
Investments at value (cost $26,772,715)...................... $37,078,559
Cash......................................................... 5,248,633
Receivable for securities sold............................... 712,835
Receivable for shares of beneficial interest subscribed...... 464,631
-----------
Total Assets.................................................... 43,504,658
-----------
Liabilities
Due to administrator......................................... 14,129
Due to advisor............................................... 22,743
Payable for securities purchased............................. 2,095,014
Accrued expenses and other liabilities....................... 75,517
-----------
Total Liabilities............................................... 2,207,403
-----------
Net Assets...................................................... $41,297,255
-----------
Composition of Net Assets
Paid-in capital.............................................. $28,157,621
Accumulated net realized gains on investments................ 2,833,790
Net unrealized appreciation on investments................... 10,305,844
-----------
Net Assets...................................................... $41,297,255
===========
Net Asset Value, Offering and Redemption Price Per Share
(Net assets divided by shares outstanding)
Institutional class/1/....................................... $ 24.52
===========
Investment class/2/.......................................... $ 24.36
===========
------------------------------------------------------------------------------
/1/Net asset value, redemption price and offering price per share (based on net
assets of $36,744,912 and 1,498,744 shares outstanding at September 30, 2000
and $0.001 par value, unlimited number of shares authorized). On February 28,
2000 the Institutional Shares were renamed the Institutional Class.
/2/Net asset value, redemption price and offering price per share (based on net
assets of $4,552,343 and 186,866 shares outstanding at September 30, 2000 and
$0.001 par value, unlimited number of shares authorized). On February 28,
2000 the Service Shares were renamed the Investment Class.
See Notes to Financial Statements.
------------------------------------------------------------------------------
9
<PAGE>
Micro Cap
------------------------------------------------------------------------------
Statement of Operations
For the
year ended
Sept. 30, 2000
Investment Income
Dividends................................................. $ 54,169
Interest.................................................. 158,476
-----------
Total Investment Income...................................... 212,645
-----------
Expenses
Investment advisory fees.................................. 443,507
Administration fees....................................... 65,048
Professional fees......................................... 59,394
Custody fees.............................................. 49,564
Printing fees............................................. 26,780
Registration and filing fees.............................. 24,125
Trustees' fees and expenses............................... 9,348
Service plan fees......................................... 7,815
Miscellaneous expenses.................................... 4,015
-----------
Total Expenses............................................... 689,596
Less: Fee Waivers or Expense Reimbursements.................. (238,728)
-----------
Net Expenses................................................. 450,868
-----------
Expenses in Excess of Income................................. (238,223)
-----------
Realized and Unrealized Gain on Investments
Net realized gain from investment
transactions............................................. 5,856,543
Net change in unrealized
appreciation/depreciation on
investments.............................................. 8,037,034
-----------
Net Realized and Unrealized Gain on
Investments................................................. 13,893,577
-----------
Net Increase in Net Assets from Operations................... $13,655,354
===========
See Notes to Financial Statements.
------------------------------------------------------------------------------
10
<PAGE>
Micro Cap
------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the eleven For the
year ended months ended year ended
Sept. 30, 2000 Sept. 30, 1999 Oct. 31, 1998
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Expenses in excess of income.............. $ (238,223) $ (161,813) $ (70,160)
Net realized gain (loss) from investment
transactions............................. 5,856,543 2,901,017 (1,303,092)
Net change in unrealized appreciation/
depreciation on investments.............. 8,037,034 5,015,840 (3,151,030)
------------ ----------- -----------
Net Increase in Net Assets from Operations... 13,655,354 7,755,044 (4,524,282)
------------ ----------- -----------
Distributions to Shareholders:
Distributions from realized gains
Institutional Class/1/................... (1,481,476) -- (129,704)
Investment Class/2/...................... (130,444) -- (3,729)
------------ ----------- -----------
Total Distributions.......................... (1,611,920) -- (133,433)
------------ ----------- -----------
Capital Share Transactions:
Proceeds from sales of shares............ 24,353,759 4,379,721 20,187,420
Dividend reinvestments................... 1,495,865 -- 132,609
Cost of shares redeemed.................. (14,978,956) (9,150,944) (3,548,982)
------------ ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Capital Share
Transactions............................ 10,870,668 (4,771,223) 16,771,047
------------ ----------- -----------
Total Increase in Net Assets................. 22,914,102 2,983,821 12,113,332
Net Assets:
Beginning of period........................ 18,383,153 15,399,332 3,286,000
------------ ----------- -----------
End of period.............................. $ 41,297,255 $18,383,153 $15,399,332
============ =========== ===========
</TABLE>
------------------------------------------------------------------------------
/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.
------------------------------------------------------------------------------
11
<PAGE>
Micro Cap
------------------------------------------------------------------------------
Financial Highlights
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS/3/ For the Period
For the For the eleven For the Dec. 18, 1996/2/
year ended months ended year ended through
Sept. 30, 2000 Sept. 30, 1999 Oct. 31, 1998 Oct. 31, 1997
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period............ $ 16.16 $ 9.90 $ 12.62 $10.00
-------- ------- ------- ------
Income from Investment Operations:
Expenses in excess of income................. (0.14) (0.14) (0.05) (0.04)
Net realized and unrealized gain
(loss) on investment........................ 9.91 6.40 (2.18) 2.66
-------- ------- ------- ------
Total from Investment Operations................ 9.77 6.26 (2.23) 2.62
-------- ------- ------- ------
Distributions to Shareholders:
Realized capital gain from investment
transactions................................ (1.41) -- (0.49) --
-------- ------- ------- ------
Total Distributions............................. (1.41) -- (0.49) --
-------- ------- ------- ------
Net Asset Value, End of Period.................. $ 24.52 $ 16.16 $ 9.90 $12.62
======== ======= ======= ======
Total Investment Return......................... 64.49% 63.23% (18.16)% 26.20%
Supplemental Data and Ratios:
Net Assets at End of Period
(000 omitted)................................ $ 36,745 $17,000 $14,363 $3,276
Ratio of Expenses to
Average Net Assets........................... 1.49% 1.49%/1/ 1.49% 1.63%/1/
Ratio of Expenses in Excess of Investment
Income to Average Net Assets................. (0.78)% (1.07)%/1/ (0.75)% (0.49)%/1/
Ratio of Expenses to Average
Net Assets (Excluding Expense
Limitations)................................ 2.30% 3.00%/1/ 2.59% 3.39%/1/
Ratio of Expenses in Excess of Investment
Income to Average Net Assets
(Excluding Expense Limitations).............. (1.59)% (2.58)%/1/ (1.85)% (2.25)%/1/
Portfolio Turnover.............................. 137% 115% 85% 272%
</TABLE>
------------------------------------------------------------------------------
/1/Annualized.
/2/Inception Date.
/3/On February 28, 2000 the Institutional Shares were renamed the Institutional
Class.
See Notes to Financial Statements.
------------------------------------------------------------------------------
12
<PAGE>
Micro Cap
------------------------------------------------------------------------------
Financial Highlights
<TABLE>
<CAPTION>
INVESTMENT CLASS/3/ For the Period
For the For the eleven For the Aug. 21, 1997/2/
year ended months ended year ended through
Sept. 30, 2000 Sept. 30, 1999 Oct. 31, 1998 Oct. 31, 1997
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period............ $16.12 $ 9.88 $ 12.62 $12.12
------ ------ ------- ------
Income from Investment Operations:
Expenses in excess of income................. (0.14) (0.14) (0.06) (0.02)
Net realized and unrealized gain
(loss) on investment........................ 9.79 6.38 (2.19) 0.52
------ ------ ------- ------
Total from Investment Operations................ 9.65 6.24 (2.25) 0.50
------ ------ ------- ------
Distributions to Shareholders:
Realized capital gain from investment
transactions................................ (1.41) -- (0.49) --
------ ------ ------- ------
Total Distributions............................. (1.41) -- (0.49) --
------ ------ ------- ------
Net Asset Value, End of Period.................. $24.36 $16.12 $ 9.88 $12.62
====== ====== ======= ======
Total Investment Return......................... 63.87% 63.16% (18.33)% 3.87%
Supplemental Data and Ratios:
Net Assets at End of Period
(000 omitted)................................ $4,552 $1,383 $ 1,036 $ 10
Ratio of Expenses to
Average Net Assets........................... 1.74% 1.74%/1/ 1.74% 1.74%/1/
Ratio of Expenses in Excess of Investment
Income to Average Net Assets................. (1.05)% (1.29)%/1/ (0.98)% (1.15)%/1/
Ratio of Expenses to Average
Net Assets (Excluding Expense
Limitations)................................ 2.55% 3.25%/1/ 2.68% 3.52%/1/
Ratio of Expenses in Excess of Investment
Income to Average Net Assets
(Excluding Expense Limitations).............. (1.86)% (2.80)%/1/ (1.92)% (2.93)%/1/
Portfolio Turnover.............................. 137% 115% 85% 272%
</TABLE>
------------------------------------------------------------------------------
/1/Annualized.
/2/Inception Date.
/3/On February 28, 2000, the Service Shares were renamed the Investment Class.
See Notes to Financial Statements.
------------------------------------------------------------------------------
13
<PAGE>
Micro Cap
------------------------------------------------------------------------------
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 fourteen separate investment portfolios
(collectively, the "Funds"). The accompanying financial statements and notes
thereto relate to Micro Cap (the "Fund"), formerly Morgan Grenfell Microcap
Fund. The Fund's prospectus provides a description of the Fund's investment
objectives, policies and strategies.
B. Valuation of Securities
Securities listed on a securities exchange for which market quotations are
readily available are valued at the last quoted sales price on the principal
exchange on which they are traded on the valuation date or, if there is no such
reported sale on the valuation date, at the most recently quoted bid price.
Unlisted securities for which market quotations are readily available are valued
at the most recently quoted bid price. Short-term investments are valued at
amortized cost which approximates market value. Other securities for which
market quotations are not readily available or securities whose market
quotations do not, in the opinion of the Investment Adviser, reflect market
value are valued at fair value using methods determined in good faith by the
Board of Trustees.
C. Securities Transactions and Interest Income
Securities transactions are accounted for on a trade date basis. 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 dividends daily and pay them monthly 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. 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 gains distributions determined annually in accordance
with federal tax regulations which may differ from accounting principles
generally accepted in the United States. 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 or accumulated net realized
gain, as appropriate, in the period that the differences arise. Accordingly,
permanent differences as of September 30, 2000 have been primarily attributable
to certain net operating losses, redemption-in-kind transactions and the
utilization of earnings and profits distributed to shareholders on redemption of
shares as a part of the dividends paid deduction for income tax
------------------------------------------------------------------------------
14
<PAGE>
Micro Cap
------------------------------------------------------------------------------
Notes to Financial Statements
purposes, have been reclassified to the following accounts:
Undistributed Accumulated
Net Investment Net Realized Paid-in
Fund Income (Loss) Gains (Losses) Capital
---- --------------- -------------- -------
Micro Cap $238,223 $(2,846,945) $2,608,722
G. 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, on a monthly basis, a fee at an annual
rate of 0.22% based upon the average daily net assets of the Fund. The
Administrator generally assists in all matters relating to the administration of
the Fund, including the coordination and monitoring of any third parties
furnishing services to the Fund, preparation and maintenance of financial
accounting records, and the provision of necessary office space, equipment and
personnel to perform administrative and clerical functions. The Administrator is
also responsible for engaging an accounting agent, custodian and transfer agent
for the Fund's operations. Fees for services rendered by the accounting agent
and the transfer agent are paid by the Administrator and not the Fund. 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.
Under the advisory agreement with the Trust, DeAM, Inc. serves as the Investment
Advisor ("Investment Advisor") for the Fund. Under the agreement, DeAM receives
on a monthly basis, a fee at an annual rate of 1.50% of the Fund's average daily
net assets.
The Investment Advisor has voluntarily agreed to reduce its investment advisory
fees and/or reimburse the Fund through January 31, 2000 to the extent necessary
to limit the Fund's operating expenses to 1.49% of the average daily net assets
for the Institutional Class and 1.74% of the average daily net assets for the
Investment Class.
Certain officers and/or Trustees of the Trust are affiliated with the
Administrator or the Investment Adviser.
ICC Distributors Inc. provides distribution services to the Fund.
The Trust, on behalf of the Fund, has adopted a service plan pursuant to which
the Investment Class pays service fees at an aggregate annual rate of up to
0.25% of the Fund's 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.
At September 30, 2000 the Fund was a participant in a revolving credit facility
in the amount of $50,000,000 which expires on February 27, 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. No
amounts were drawn down or outstanding for this fund under the credit facility
for the year ended September 30, 2000.
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 September 30, 2000, were
$47,774,862 and $36,916,624, respectively.
For federal income tax purposes, the tax basis of investments held at September
30, 2000 was $26,822,898. The aggregate gross unrealized appreciation was
$11,552,173 and the aggregate gross unrealized depreciation was $1,296,513 for
all investments as of September 30, 2000.
------------------------------------------------------------------------------
15
<PAGE>
Micro Cap
------------------------------------------------------------------------------
Notes to Financial Statements
Note 4--Capital Share Transactions
At September 30, 2000, there were an unlimited number of shares authorized.
Transactions in shares during the year were as follows:
<TABLE>
<CAPTION>
For the Eleven
Year Ended Months Ended Year Ended
September 30, 2000 September 30, 1999 October 31, 1998
---------------------- --------------------- ----------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Institutional Class
Shares Sold 963,575 $ 20,604,123 298,149 $ 3,848,230 1,444,154 $18,023,858
Reinvestment of
Distributions 81,421 1,365,424 -- -- 11,373 128,979
Shares Redeemed (597,968) (13,186,262) (697,276) (8,514,681) (264,431) $(2,784,723)
-------- ------------ -------- ----------- --------- -----------
Net Increase
(Decrease) 447,028 $ 8,783,285 (399,127) $(4,666,451) 1,191,096 $15,368,114
======== ============ ======== =========== ========= ===========
Investment Class
Shares Sold 177,350 $ 3,749,636 36,267 $ 531,491 168,183 $ 2,163,562
Reinvestment of
Distributions 7,806 130,441 -- -- 320 3,630
Shares Redeemed (84,046) (1,792,694) (55,428) (636,263) (64,347) (764,259)
-------- ------------ -------- ----------- --------- -----------
Net Increase
(Decrease) 101,110 $ 2,087,383 (19,161) $ (104,772) 104,156 $ 1,402,933
======== ============ ======== =========== ========= ===========
</TABLE>
------------------------------------------------------------------------------
16
<PAGE>
Micro Cap
------------------------------------------------------------------------------
Report of Independent Accountants
To the Board of Trustees and Shareholders of
Morgan Grenfell Micro Cap Fund:
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 Micro Cap Fund (one of the
funds comprising the Morgan Grenfell Investment Trust, hereafter referred to as
the "Fund") at September 30, 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 September 30, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
November 8, 2000
------------------------------------------------------------------------------
Tax Information (Unaudited) For the Tax Year Ended September 30, 2000
The amounts may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The Fund hereby designates the following earned amount as 20% rate capital gain
dividends for the fiscal year ended September 30, 2000, $2,263,585.
Of the ordinary income distributions made during the fiscal year ended September
30, 2000, 3.36% qualifies for the dividends received deduction available to
corporate shareholders.
------------------------------------------------------------------------------
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.
Micro Cap
Investment Class CUSIP #61735K778
Institutional Class 61735K786
MICROANN (09/00)
Distributed by:
ICC Distributors, Inc.
