<PAGE>
Deutsche Asset Management
Mutual Fund
Annual Report
October 31, 2000
Global Fixed Income
International Fixed Income
Each formerly a Morgan Grenfell Fund
A Member of the
Deutsche Bank Group [LOGO]
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders.................................... 3
Smaller Companies
Schedule of Investments................................. 8
Statement of Assets and Liabilities..................... 10
Statement of Operations................................. 11
Statements of Changes in Net Assets..................... 12
Financial Highlights.................................... 13
Notes to Financial Statements........................... 15
Report of Independent Accountants....................... 18
Tax Information......................................... 18
</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>
Smaller Companies
--------------------------------------------------------------------------------
Letter to Shareholders
We are pleased to present you with this annual report for Smaller Companies.
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-months 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/ Audrey M.T. Jones
/s/ John P. Callaghan
/s/ Doris R. Klug
Audrey M.T. Jones, John P. Callaghan and Doris R. Klug
Portfolio Managers of Smaller Companies
________________________________________________________________________________
Market Review
Overall, smaller capitalization stocks (i.e. stocks with market values among the
smallest 20% of all publicly traded firms) outperformed their large cap brethren
during the 12-months ended October 31, 2000. Within the small-cap sector, value
stocks outperformed growth stocks. For the fiscal year, the Russell 2000 Value
Index returned 17.30% as compared to 16.16% for the Russell 2000 Growth Index.
The S&P 500 Index had an annual return of 6.09% and the S&P SmallCap 600 Index
returned 25.26%.
Still, a theme of `volatility and reversal' dominated the smaller cap equity
market, as well as the broader equity markets. Following a nervous October, the
last two months of 1999 experienced significant strength in the equity markets,
as the 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, equity 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 this short-lived early weakness, the
small-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 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 S&P
SmallCap 600 Index overall. The small-cap market pulled back in March, as the
mid and large-cap markets reasserted themselves. Even Technology and Health
Care, especially Biotechnology, which had led the first calendar quarter's
performance charge, ended the month in negative territory.
The first half of the second calendar quarter continued the downslide of the S&P
SmallCap 600 Index 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 small-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 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 led to modest returns for the S&P SmallCap 600 Index for
the three-month period.
________________________________________________________________________________
3
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Letter to Shareholders
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 effect company revenues and earnings caused
stocks to yo-yo. In the small-cap market, the quarter began with a very brief
upswing in July, as inflationary fears subsided and the Federal Reserve Board
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 equity markets. August saw a turnaround, as the small-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 Federal Reserve Board once again refrained from raising
interest rates. September brought concerns about rising oil prices and revenue
and earnings weakness. The small-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 small-cap market's outperformance of
large-caps for the quarter.
Extremely high levels of volatility continued to characterize the US equity
markets in October. In line with the broader US equity markets, the small-cap
market, as represented by the S&P SmallCap 600 Index, ended the month relatively
flat, with a return of 0.63%. Earlier in the month, the Index had been down over
5%, and then it recovered somewhat. Within the small-cap market, the Energy and
Technology sectors had negative performance for the month. Such troubles were
primarily driven by falling oil prices for the Energy sector and earnings fears
for the Technology sectors. Most other sectors ended the month with slightly
positive performance, including Capital Goods, Consumer and Transportation.
Investment Review
The Fund significantly outperformed its key benchmark for the 12-month period,
particularly well worth noting given the extremely high volatility in the small-
cap equity market during this annual period. The Institutional Class of the Fund
had a total return of 40.50% for the 12-months ended October 31, 2000, as
compared to 25.26% for the S&P SmallCap 600 Index.
<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>
Smaller Companies Institutional Class/1/
(inception 6/30/95) 40.50% 51.98% 133.44% 146.28% 40.50% 14.97% 18.48% 18.39%
-----------------------------------------------------------------------------------------------------------------------------------
S&P SmallCap 600 Index/2/ 25.26% 24.83% 98.44% 112.77%/4/ 25.26% 7.67% 14.69% 15.21%/4/
-----------------------------------------------------------------------------------------------------------------------------------
Lipper SmallCap Growth Funds Average/3/ 38.47% 66.32% 134.75% 144.63%/4/ 38.47% 17.56% 17.79% 17.71%/4/
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Cumulative Total Returns Average Annual Total Returns
Past Past Since Past Past Since
Periods ended October 31, 2000 1-year 3-years inception 1-year 3-years inception
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Smaller Companies Investment Class/1/
(inception 7/11/97) 40.16% 50.84% 62.07% 40.16% 14.68% 15.72%
-----------------------------------------------------------------------------------------------------------------------------------
S&P SmallCap 600 Index/2/ 25.26% 24.83% 30.55%/4/ 25.26% 7.67% 8.55%/4/
-----------------------------------------------------------------------------------------------------------------------------------
Lipper SmallCap Growth Funds Average/3/ 38.47% 66.32% 73.93%/4/ 38.47% 17.56% 17.64%/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 S&P SmallCap 600 Index is an unmanaged index of 600 domestic companies
representative of US small-cap equity market performance. 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 June 30, 1995, for the
Institutional Class and July 31, 1997, for the Investment Class.
--------------------------------------------------------------------------------
4
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Letter to Shareholders
Individual stock selection and sector positioning bolstered Fund performance. In
addition, we believe that concentration in a relatively limited number of names
in the portfolio--our best selections--while staying broadly diversified (88
holdings as of October 31, 2000) also aided performance. For example, among the
Fund's best performers during the annual period were Trigon Healthcare, Province
Healthcare Co. and Nanogen Inc. Given the narrowness of smaller cap market
outperformance overall, we believe our management team's stock-picking skills
were critical to the Fund's success. So, too, was our extensive research into
sectors.
In the last months of 1999, the Fund was overweight in two of the best
performing sectors, i.e. Technology and Health Care. The energy sector was a top
performer in the first quarter of 2000, and the Fund's overweight position there
boosted portfolio returns. Technology and Health Care continued to be winning
sectors during these months, and the Fund remained overweight there as well.
Also having a positive impact on relative performance was an underweight
position in the poorly performing Financials sector during the first half of the
year.
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 from April through September, (i.e. the Energy and Health
Care sectors). Further helping Fund performance during these five months were
underweighted positions in the Producer Durables and Transportation sectors.
Though still underweighted, the Fund's Transportation holdings contributed
positively to performance in October, as did Service, Credit Sensitive and
Capital Good companies. However monthly performance was hindered by the Fund's
overweighted positions in energy and technology stocks, mirroring the small-cap
market overall. The weighted average market cap/1/ of the Fund's investments on
October 31, 2000 was $1.534 billion. The weighted median market cap of the
Fund's investments on October 31, 2000 was $1.299 billion.
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 small-cap equity market in particular.
The small-cap universe, representing well over 90% of all publicly traded
domestic companies, continues to provide an excellent source for corporate
America and others to recognize value in those companies with solid fundamentals
early in their growth cycle. Additionally, we believe ongoing restructuring and
consolidation and increased merger and acquisition activity will continue to
create opportunities for small-cap investors.
Still, there are several risks to the equity markets in general, including the
small-cap market, over the next several months. These include valuation risk,
especially 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 continue to present the primary
investment risk. However, we remain optimistic regarding our opportunities to
find small-cap stocks that we believe are both bargains in a broader universe of
stocks and outperformers early in their growth cycle.
The outlook for profit growth remains strong and relative valuations in small-
cap stocks continue to be attractive. We expect superior earnings growth to be
the key driver of smaller companies' outperformance ahead. In addition, the
rapid rotation among sectors that the market is currently experiencing favors
our diversified investment approach. Consistent with this, we continue to seek
small-cap companies across economic sectors with above average growth prospects
selling at reasonable valuations with the potential to be the blue chips of the
future. Our focus remains on individual stock selection with the goal of
providing value-added performance relative to the universe of US smaller
companies.
___________________
/1 / Weighted Average Market Cap and Weighted Median Market Cap are indicators
of the size of companies in which the Fund invests. The Weighted Average
Market Cap is each security's weight in the portfolio (market price x
shares outstanding/total market value of portfolio) x market cap of the
security. The sum of these data points is the weighted average of the
portfolio. The Weighted Median Market Cap is the midpoint of market
capitalization (market price x shares outstanding) of the Fund's stocks,
weighted by the proportion of the Fund's assets invested in each stock.
Stocks representing half of the Fund's assets have a market capitalization
above the median, and the rest are below it.
5
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Performance Comparison
SMALLER COMPANIES INSTITUTIONAL CLASS1, S&P SMALLCAP 600 INDEX AND LIPPER SMALL
CAP GROWTH FUNDS AVERAGE GROWTH OF A $250,000 INVESTMENT (SINCE JUNE 30,
1995)/2/
6/30/95 250,000 250,000 250,000
10/31/95 268,075 274,753 263,750
10/31/96 322,903 329,888 328,600
10/31/97 426,141 394,627 405,100
10/31/98 378,984 335,450 350,250
10/31/99 442,473 503,848 479,225
10/31/2000 531,915 610,650 615,700
===== Smaller Companies Institutional Class $615,700
_____ S&P SmallCap 600 Index $531,915
----- Lipper Small Cap Growth Funds Average $610,650
Average Annual Total Return for the Periods Ended October 31, 2000
One-Year 40.50% Three-Year 14.97% Five-Year 18.48% Since 6/30/95/2/
18.39%
_____________________________
/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. The Fund's 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 periods if certain fees
and expenses had not been waived by the Fund.
The S&P SmallCap 600 Index is an unmanaged index of 600 domestic companies
representative of US small-cap equity market performance. 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.
Benchmark returns are for the period beginning June 30, 1995.
--------------------------------------------------------------------------------
6
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Performance Comparison
SMALLER COMPANIES INVESTMENT CLASS1, S&P SMALLCAP 600 INDEX AND LIPPER SMALL CAP
GROWTH FUNDS AVERAGEGROWTH OF A $10,000 INVESTMENT (SINCE JULY 11, 1997)/2/
7/11/97 10,000 10,000 10,000
10/31/97 10,745 10,457 10,489
10/31/98 9,264 9,300 9,148
10/31/99 11,564 10,420 12,769
10/31/00 16,207 13,053 17,418
===== Smaller Companies Investment Class $16,207
_____ S&P SmallCap 600 Index $13,053
----- Lipper Small Cap Growth Funds Average $17,418
Average Annual Total Return for the Periods Ended October 31, 2000
One-Year 40.16% Three-Year 14.68% Since 17/11/97/2/ 15.72%
__________________________
/1/ On February 28, 2000 the Service Shares were renamed the Investment Class.
/2/ The Fund's inception date.
Past performance is not indicative of future results. The Fund's 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 periods if certain fees
and expenses had not been waived by the Fund.
The S&P SmallCap 600 Index is an unmanaged index of 600 domestic companies
representative of US small-cap equity market performance. 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.
Benchmark returns are for the period beginning July 31, 1997.
--------------------------------------------------------------------------------
7
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Schedule of Investments October 31, 2000
<TABLE>
<CAPTION>
Shares Security Value
<C> <S> <C>
Common Stocks - 99.18%
Capital Goods - 2.01%
700 C&D Technologies Inc............. $ 41,388
1,600 Oshkosh Truck Corp............... 65,800
900 Park Electrochemical Corp........ 59,456
---------
166,644
---------
Consumer - 9.36%
2,400 Bally Total Fitness Holding
Corp.*......................... 59,850
1,800 BJ's Wholesale Club, Inc.*....... 59,288
2,000 Chico's FAS, Inc.*............... 64,750
2,900 Dal-Tile International, Inc.*.... 35,888
2,700 Furniture Brands International,
Inc.*.......................... 45,562
1,600 Gildan Activewear, Inc., Cl A*... 55,600
1,900 The Men's Wearhouse, Inc.*....... 55,575
3,400 Mowhawk Industries, Inc.*........ 74,162
1,400 Performance Food Group Co.*...... 56,700
700 RARE Hospitality International,
Inc.*.......................... 16,275
1,300 Salton, Inc.*.................... 29,737
1,000 The Timberland Co.*.............. 51,625
1,100 Too, Inc.*....................... 25,231
1,800 Trex Co.*........................ 67,275
2,300 WMS Industries, Inc.............. 51,175
800 Zale Corp.*...................... 27,100
---------
775,793
---------
Credit Sensitive - 16.89%
2,075 Astoria Financial Corp........... 77,813
3,100 Bank United Corp., Cl A.......... 175,731
1,800 Bottomline Technologies,
Inc.*.......................... 63,113
6,322 D.R. Horton, Inc................. 116,957
5,700 Dime Bancorp, Inc................ 139,294
6,500 Golden State Bancorp, Inc........ 169,812
3,300 Hibernia Corp., Cl A............. 39,394
2,800 Labranche & Co., Inc.*........... 110,950
6,100 Lennar, Corp..................... 195,962
5,800 LNR Property Corp................ 125,425
5,000 Philadelphia Suburban Corp....... 117,187
8,200 Sovereign Bancorp, Inc........... 68,162
---------
1,399,800
---------
Energy - 9.91%
3,000 BJ Services Co.*................. 157,313
2,600 Devon Energy Corp................ 131,040
3,400 DevX Energy, Inc.*............... 23,800
10,700 Global Industries, Ltd.*......... 112,350
600 Hydrogenics Corp.*............... 7,237
4,000 Input/Output, Inc.*.............. $ 33,750
6,200 Marine Drilling Companies,
Inc.*.......................... 148,025
3,400 National - Oilwell, Inc.*........ 99,450
3,600 Veritas DGC, Inc.*............... 108,000
---------
820,965
---------
Health Care - 23.82%
1,200 Accredo Health, Inc.*............ 51,900
700 Aurora Biosciences Corp.*........ 42,656
3,000 Bindley Western Industries,
Inc............................ 107,813
19,500 Caremark Rx, Inc.*............... 243,750
4,900 Cell Genesys, Inc.*.............. 113,006
4,600 Coventry Health Care, Inc.*...... 83,950
1,800 Discovery Partners
International*................. 27,000
200 Eden Bioscience Corp.*........... 7,575
1,900 Enzon, Inc.*..................... 135,375
5,500 ICN Pharmaceuticals, Inc......... 209,344
1,612 Priority Healthcare Corp.,
CL A*.......................... 86,645
400 Priority Healthcare Corp.,
CL B*.......................... 21,500
7,950 Province Healthcare Co.*......... 334,894
6,600 ResMed, Inc.*.................... 168,300
1,000 SonoSite, Inc.*.................. 12,750
3,000 Trigon Healthcare, Inc.*......... 215,062
9,200 XOMA Ltd.*....................... 112,125
---------
1,973,645
---------
Process Industries - 1.79%
1,700 Bowater, Inc..................... 92,013
1,600 Rayonier, Inc.................... 56,300
---------
148,313
---------
Service Companies - 3.43%
2,700 Alamosa PCS Holdings, Inc.*...... 41,006
1,400 GT Group Telecom, Inc., Cl B*.... 13,606
6,100 Pac-West Telecomm, Inc.*......... 52,994
3,780 Price Communications Corp.*...... 81,743
1,900 SBA Communications Corp.*........ 95,238
---------
284,587
---------
Technology - 28.00%
2,300 ATMI, Inc.*...................... 43,412
4,100 Avocent Corp.*................... 290,844
1,400 Caliper Technologies Corp.*...... 78,925
2,600 Cognex Corp.*.................... 87,100
4,500 Computer Network Technology
Corp.*......................... 136,758
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
8
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Schedule of Investments October 31, 2000
<TABLE>
<CAPTION>
Shares Security Value
<C> <S> <C>
7,400 Credence Systems Corp.*....... $ 138,750
5,600 Dendrite International, Inc.*. 121,800
4,000 Documentum, Inc.*............. 340,000
1,600 Dupont Photomasks, Inc.*...... 89,800
4,800 InFocus Corp.*................ 212,100
2,400 IntraNet Solutions, Inc.*..... 111,600
4,000 LookSmart, Ltd.*.............. 28,250
4,400 Mentor Graphics Corp.*........ 103,125
1,500 PC-Tel, Inc.*................. 25,875
4,900 Photronics, Inc.*............. 110,556
2,900 Symyx Technologies*........... 136,844
2,200 Tech Data Corp.*.............. 91,575
800 TTM Technologies, Inc.*....... 16,000
14,300 Western Digital Corp.*........ 85,800
2,100 WJ Communications, Inc.*...... 31,500
800 Zoran Corp*................... 40,100
------------
2,320,714
------------
Transportation - 3.97%
3,650 Atlantic Coast Airlines
Holdings, Inc.*............. $ 130,488
1,400 Tidewater, Inc................ 64,662
5,200 USFreightways Corp............ 133,900
------------
329,050
------------
Total Common Stocks
(Cost $6,462,439).............. 99.18% $8,219,511
Other Assets in Excess
of Liabilities................. 0.82 68,072
-------- ----------
Total Net Assets................. 100.00% $8,287,583
======== ==========
</TABLE>
--------------------------------------------------------------------------------
*Non-income producing security
See Notes to Financial Statements.
--------------------------------------------------------------------------------
9
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Statement of Assets and Liabilities
October 31, 2000
Assets
Investment at value (cost $6,462,439)............................ $8,219,511
Cash............................................................. 85,338
Receivable for securities sold................................... 82,326
Dividend and interest receivable................................. 442
Due from advisor................................................. 22,615
----------
Total Assets...................................................... 8,410,232
----------
Liabilities
Due to administrator............................................. 3,301
Payable for securities purchased................................. 61,701
Payable for capital shares sold.................................. 18,801
Accrued expenses and other...................................... 38,846
----------
Total Liabilities................................................. 122,649
----------
Net Assets........................................................ $8,287,583
==========
Composition of Net Assets
Paid-in capital.................................................. $4,677,926
Accumulated net realized gains on investments.................... 1,852,585
Net unrealized appreciation on investments....................... 1,757,072
----------
Net Assets........................................................ $8,287,583
----------
Net Asset Value, Offering and Redemption Price Per Share
(Net assets divided by shares outstanding)
Institutional Class/1/........................................... $ 19.66
==========
Investment Class/2/.............................................. $ 19.50
==========
--------------------------------------------------------------------------------
/1/ Net asset value, redemption price and offering price per share (based on net
assets of $7,817,923 and 397,582 shares outstanding at October 31, 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 $469,660 and 24,080 shares outstanding at October 31, 2000 and
$0.001 par value, unlimited number of shares authorized). On February 28,
2000 the Investment Shares were renamed the Investment Class.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
10
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Statement of Operations
<TABLE>
<CAPTION>
For the
year ended
October 31, 2000
<S> <C>
Investment Income
Interest................................................................ $ 24,632
Dividends............................................................... 23,772
----------
Total Investment Income.................................................... 48,404
----------
Expenses
Investment advisory fee................................................. 81,330
Professional fees....................................................... 59,870
Custody fee............................................................. 37,556
Printing fees........................................................... 27,559
Administration fees..................................................... 17,892
Registration and filing fees............................................ 14,233
Trustees' fees.......................................................... 12,227
Servicing plan fees..................................................... 1,104
Miscellaneous expenses.................................................. 2,493
----------
Total Expenses............................................................. 254,264
Less: Fee Waivers or Expense Reimbursements................................ (154,185)
----------
Net Expenses............................................................... 100,079
----------
Expenses in Excess of Income............................................... (51,675)
----------
Realized and Unrealized Gain on Investments
Net realized gain from investment transactions.......................... 2,292,160
Net change in unrealized appreciation/depreciation on investments....... 441,410
----------
Net Realized and Unrealized Gain on Investments............................ 2,733,570
----------
Net Increase in Net Assets from Operations................................. $2,681,895
==========
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
11
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
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
Expenses in excess of income............................................... $ (51,675) $ (51,059)
Net realized gain (loss) on investments.................................... 2,292,160 (5,110)
Net change in unrealized appreciation/depreciation on investments.......... 441,410 1,451,701
----------- ------------
Net Increase in Net Assets from Operations.................................... 2,681,895 1,395,532
----------- ------------
Distributions to Shareholders
Net investment income
Institutional Class..................................................... -- (13,875)
Investment Class........................................................ -- (2,181)
----------- ------------
Total Distributions........................................................... -- (16,056)
----------- ------------
Capital Share Transactions:
Institutional Class/1/:
Proceeds from sales of shares........................................... 733,005 4,044,216
Dividend reinvestments.................................................. -- --
Cost of shares redeemed................................................. (1,760,815) (3,695,423)
----------- ------------
Increase (decrease) in net assets from Institutional
class transactions....................................................... (1,027,810) 348,793
----------- ------------
Investment Class/2/:
Proceeds from sales of shares........................................... 20,512 484,187
Dividend reinvestments.................................................. -- --
Cost of shares redeemed................................................. (25,984) (1,304,490)
----------- ------------
Decrease in net assets from Investment Class transactions.................. (5,472) (820,303)
----------- ------------
Net Decrease in Net Assets from Capital Transactions.......................... (1,033,282) (471,510)
----------- ------------
Total Increase in Net Assets.................................................. 1,648,613 907,966
Net Assets:
Beginning of year.......................................................... 6,638,970 5,731,004
----------- ------------
End of year................................................................ $ 8,287,583 $ 6,638,970
=========== ============
</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.
--------------------------------------------------------------------------------
12
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Financial Highlights
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS/1/
For the years ended
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Per share operating Performance:
Net asset value, beginning of Year................... $13.99 $11.22 $ 14.72 $13.10 $10.55
------ ------ ------- ------ ------
Income from Investment Operations:
Net investment (expenses in excess of) income..... (0.11) 0.00 (0.01) (0.03) (0.02)
Net realized and unrealized gain
(loss) on investment............................ 5.78 2.80 (1.81) 2.87 2.61
------ ------ ------- ------ ------
Total from investment operations..................... 5.67 2.80 (1.82) 2.84 2.59
------ ------ ------- ------ ------
Distributions to Shareholders:
Net investment income............................. -- (0.03) -- -- (0.04)
Realized capital gain from investment
transactions.................................... -- -- (1.68) (1.22) --
------ ------ ------- ------ ------
Total distributions............................... -- (0.03) (1.68) (1.22) (0.04)
------ ------ ------- ------ ------
Net asset value, end of Year......................... $19.66 $13.99 $ 11.22 $14.72 $13.10
====== ====== ======= ====== ======
Total investment return.............................. 40.50% 25.03% (13.54)% 23.29% 24.58%
Supplemental Data and Ratios:
Net Assets at End of Year (000 omitted).............. $7,818 $6,299 $ 4,734 $5,724 $4,115
Ratio of Expenses to Average Net Assets.............. 1.25% 1.25% 1.25% 1.25% 1.25%
Ratio of Expenses to Average
Net Assets (Excluding Expense Limitations)........ 3.15% 4.40% 2.44% 2.63% 2.55%
Ratio of Net Investment (Expenses in Excess of)
Income to Average Net Assets...................... (0.55)% (0.78)% 0.26% (0.29)% (0.23)%
Ratio of Expenses in Excess of Investment
Income to Average Net Assets
(Excluding Expense Limitations)................... (2.45)% (3.93)% (0.93)% (1.67)% (1.53)%
Portfolio Turnover................................... 122% 105% 108% 122% 141%
</TABLE>
________________________________________________________________________________
/1/ On February 28, 2000 the Institutional Shares were renamed the
Institutional Class.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
13
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Financial Highlights
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
INVESTMENT CLASS/1/ For the period
July 11, 1997/2/
For the years ended through
2000 1999 1998 Oct. 31, 1997
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period............... $13.91 $11.18 $14.71 $13.77
--------- --------- --------- ---------
Income from Investment Operations:
Net investment (expenses in excess of) income... (0.16) 0.00 (0.05) (0.03)
Net realized and unrealized gain
(loss) on investment.......................... 5.75 2.76 (1.80) 0.97
--------- --------- --------- ---------
Total from Investment Operations................... 5.59 2.76 (1.85) 0.94
--------- --------- --------- ---------
Distributions to Shareholders:
Net investment income........................... -- (0.03) -- --
Realized capital gain from investment
transactions.................................. -- -- (1.68) --
--------- --------- --------- ---------
Total distributions............................. -- (0.03) (1.68) --
--------- --------- --------- ---------
Net Asset Value, End of Period..................... $19.50 $13.91 $11.18 $14.71
========= ========= ========= =========
Total Investment Return............................ 40.16% 24.74% (13.79)% 7.45%
Supplemental Data and Ratios:
Net Assets at End of Period (000 Omitted).......... $470 $340 $997 $6
Ratio of Expenses to Average Net Assets............ 1.50% 1.50% 1.50% 1.50%/3/
Ratio of Expenses to Average
Net Assets (Excluding Expense Limitations)...... 3.40% 3.98% 2.76% 2.79%/3/
Ratio of Net Investment (Expenses in Excess of)
Income to Average Net Assets.................... (2.17)% (1.03)% 0.09% (0.77)%/3/
Ratio of Expenses in Excess of Investment
Income to Average Net Assets
(Excluding Expense Limitations)................. (4.07)% (3.51)% (1.17)% (2.06)%/3/
Portfolio Turnover................................. 122% 105% 108% 122%
</TABLE>
------------------------------------------------------------------------------
/1/ On February 28, 2000 the Service Shares were renamed the Investment Class.
/2/ Commencement of operations.
/3/ Annualized.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
14
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
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 Smaller Companies (the "Fund"), formerly Morgan Grenfell
Smaller Companies 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 advisor, 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 and distribute dividends annually to
shareholders from net investment income, if any. 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,
--------------------------------------------------------------------------------
15
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Notes to Financial Statements
permanent differences as of October 31, 2000 have been primarily attributable to
certain net operating losses 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 purposes, have been reclassified to the following
accounts:
Undistributed Accumulated
Net Investment Net Realized Paid-in
Fund Income (Loss) Gains (Losses) Capital
---- ------------- -------------- -------
Smaller Companies $51,675 $(309,780) $258,105
G. 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.
H. 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.
I. 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.
J. 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.
K. 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 BankAG, pursuant
to which the Administrator will receive an annual fee of 0.22% based on the
average daily net assets of the Fund.
The Administrator generally assists in all matters relating to the
administration of the Fund, including the coordination and monitoring of any
third parties furnishing services to the Fund, preparation and maintenance of
financial accounting records, and the provision of necessary office space,
equipment and personnel to perform administrative and clerical functions. The
Administrator is also responsible for engaging an accounting agent, custodian
and transfer agent for the 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 CompanyCapital 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, DeAM, Inc. serves as the Investment
Advisor ("Advisor") for the Fund. Under the agreement, DeAM,Inc. receives on a
monthly basis, a fee at an annual rate of 1.00% of the Fund's average daily net
assets.
The Investment Advisor has contractually agreed to reduce its fees and reimburse
the Fund through February 28, 2002, to the extent necessary, to limit the Fund's
operating expenses to 1.25% of the average daily net assets of the Institutional
Class and 1.50% of the average daily net assets of the Investment Class.
Certain officers and/or Trustees of the Trust are affiliated with the
Administrator or the Advisor.
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 of the Fund pays service fees at an aggregate annual rate
of up to 0.25% of the Investment Class average daily net assets. Service plan
fees are payable to Service Organizations that have agreements with the Trust,
and are intended to compensate Service Organizations for providing personal
services and/ or account maintenance services to their customers who invest in
the Investment Class.
--------------------------------------------------------------------------------
16
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Notes to Financial Statements
At October 31, 2000 the Fund was a participant in a revolving credit facility
with Fleet National Bank 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
the fund under the credit facility for the year ended October 31, 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 October 31, 2000, were
$9,656,580 and $10,650,313, respectively.
For federal income tax purposes, the tax basis of investments held at October
31, 2000 was $6,467,562. The aggregate gross unrealized appreciation was
$2,180,995 and the aggregate gross unrealized depreciation was $429,046 for all
investments as of October 31, 2000.
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 40,220 $ 733,005 308,629 $ 4,044,216
Reinvestment of
Distributions -- -- -- --
Shares Redeemed (92,859) (1,760,815) (280,485) (3,695,423)
------- ----------- -------- -----------
Net Increase
(Decrease) (52,639) $(1,027,810) 28,144 $ 348,793
======= =========== ======== ===========
Investment Class
Shares Sold 1,171 $ 20,512 40,472 $ 484,187
Reinvestment of
Distributions -- -- -- --
Shares Redeemed (1,548) (25,984) (105,181) (1,304,490)
------- ----------- -------- -----------
Net Decrease (377) $ (5,472) (64,709) $ (820,303)
======= =========== ======== ===========
</TABLE>
Note 5--Fund Reorganization
At its meeting on August 19, 1999, the Board of Trustees approved a tax-free
transfer of substantially all of the assets of Smaller Companies to Deutsche
Small Cap, an affiliate of the Trust, and assumption by Deutsche Small Cap of
all of the liabilities of Smaller Companies, in exchange solely for the shares
of common stock of Deutsche Small Cap and the distribution of shares of Deutsche
Small Cap to the shareholders of Smaller Companies in liquidation of Smaller
Companies. This reorganization requires exemptive relief from the SEC. The
reorganization is expected in 2001.
--------------------------------------------------------------------------------
17
<PAGE>
Smaller Companies
--------------------------------------------------------------------------------
Report of Independent Accountants
To the Board of Trustees of Morgan Grenfell Investment Trust and Shareholders of
Smaller Companies:
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 Smaller Companies fund (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.
The Fund hereby designates the following earned amount as 20% rate capital gain
dividends for the fiscal year ended October 31, 2000, $1,279,106.
--------------------------------------------------------------------------------
18
<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.
Smaller Companies
CUSIP #61735K844
Investment Class 61735K745
Institutional Class 362/366ANN (10/00)
Distributed by:
ICC Distributors, Inc.
