<PAGE>
Duetsche Asset Management
Mutual Fund
Semi-Annual Report
March 31, 2000
Micro Cap
Formerly Morgan Grenfell Micro Cap Fund
A Member of the
Deutsche Bank Group [/]
<PAGE>
Micro Cap
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Table of Contents
Letter to Shareholders.................... 3
Micro Cap
Schedule of Investments................. 6
Statement of Assets and Liabilities..... 7
Statement of Operations................. 8
Statements of Changes in Net Assets..... 9
Financial Highlights.................... 10
Notes to Financial Statements........... 12
----------------------
The Fund is not insured by the FDIC and is not a deposit, obligation of
or guaranteed by Deutsche Bank. The Fund is subject to investment
risks, including possible loss of principal amount invested.
----------------------
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2
<PAGE>
Micro Cap
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Letter to Shareholders
Deutsche Asset Management's Micro Cap (formerly the Morgan Grenfell Micro Cap
Fund, the "Fund") significantly outperformed its benchmark, the Russell 2000
Index, for the six months ended March 31, 2000, particularly noteworthy given
the extremely high volatility in the smaller capitalization U.S. equity market
during this time period. The Fund had a total return of 51.68%/1/ for the semi-
annual period, as compared to 26.83% for the Russell 2000 Index and 45.77% for
the Russell 2000 Growth Index./2/
MARKET REVIEW
First quarter 2000 market volatility had partly been based on changing
viewpoints as to whether to be in New Economy or Old Economy stocks. Now the
markets are focused on big, macro issues that have broad implications for the
entire market. The certain prospect of higher interest rates and the subsequent
gradual slowdown in economic growth, combined with a modest pickup in inflation,
has the potential to effect the U.S.market across the board. Strong synchronized
worldwide growth is leading to the absorption of excess global economic capacity
that further increases the importance of bringing U.S. economic growth back to a
reasonable pace. However, the outlook for profit growth remains strong and
relative valuations in small cap stocks continue to be attractive.
Still, a theme of "volatility and reversal" continued to dominate the smaller
cap equity market as well as the broader equity markets. In October the U.S.
equity markets were buffeted between fears that the economy may be overheating
and hopes that the strong growth/low inflation scenario would continue. There
was slight moderation in some of the more interest-sensitive, cyclical sectors
such as housing and autos, but domestic demand still had considerable momentum
and the export sector began to revive, buoyed by the pickup in global demand. By
mid-October, the equity markets gained strength, as investors disregarded
concerns of higher interest rates and focused on the positives of growth.
Overall, the fourth calendar quarter of 1999 experienced significant strength in
the equity markets, with higher participation by smaller cap companies and
cyclical stocks. A December market rally was sparked by a U.S. economy that
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. For the first time in five years, the smaller cap equity
market outperformed both its large cap and mid cap brethren for the annual
period ended December 31, 1999. However, this equity market strength was
relatively narrow and confined primarily to the technology and
telecommunications sectors across all capitalizations.
January 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 were 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 on
fears of higher interest rates. However, the "New Economy" sectors-technology,
telecommunications and biotechnology-continued to do well, boosting the Index
overall.
The smaller cap market pulled back in March, ending the month down 6.6%, 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 down over 11% and 31%, respectively. Despite
poor March performance, technology ended the quarter up over 21% and health care
ended up over 15%.
INVESTMENT STRATEGY
The Fund's weighted average market cap on March 31, 2000 was $352 million, with
individual companies in the portfolio ranging from capitalizations of about $1
billion to just $31 million. Given the very nature of their small size, micro
cap stocks are less impacted by macroeconomic factors or general market
conditions than other U.S. equity sectors. Rather, 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. Thus, 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 largest holdings during the semi-annual period
were Photon Dynamics, Zoll Medical Corp., Nanometrics, Inc., Isle of Capris
Casinos Inc. and LCC International, Inc. Each of these stocks contributed
positively to Fund performance.
Two additional factors that bolstered Fund performance were our concentration in
a relatively limited number of names in the portfolio while staying broadly
diversified
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3
<PAGE>
Micro Cap
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(66 holdings as of March 31, 2000) and, at the same time, our positioning across
economic sectors. Throughout most of the reporting period, the portfolio was
overweight in two top 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. Also to the benefit of the Fund, the portfolio was
underweight in the poorly performing financials, consumer discretionary and
industrials sectors.
One more factor that continued to help fuel performance was takeovers of several
companies in the Fund's portfolio, as corporate America and venture capitalists
recognized value in these less well-known micro cap companies.
MANAGER OUTLOOK
Our outlook for the equity markets in general is favorable. The U.S. economy
continues to benefit from strong productivity-led growth without an apparent
rise in inflation. Fundamentals for corporate profits also remain solid across
most sectors of the smaller cap market, as consumer spending remains robust and
economic growth continues at a strong pace. Thus, the rest of the year 2000
should bring moderately higher stock prices, in our view, as well as
significantly improved market breadth.
At the same time, several risks, including valuation risk in NASDAQ stocks,
rising interest rates, and a significant rise in margin debt, may lead to higher
levels of volatility. Earnings disappointments continue to present the primary
investment risk. However, company earnings reports continue to be generally
positive to date, and we expect superior earnings growth to be the key driver of
smaller companies' outperformance ahead.
Although we anticipate future periods of volatility in the marketplace while
global and domestic economic and political events run their course, we remain
optimistic regarding our opportunities to find 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 U.S. 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.
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/3/
. focus on individual stock selection with the goal of providing value-added
performance relative to the universe of nearly 5,000 very small U.S. companies
. use extensive and intensive fundamental research seeking to identify companies
with innovation, leading or dominant position in their niche markets, a high
rate of return on invested capital, and the ability to finance a major part of
future growth from internal sources, and
. strictly adhere to our sell discipline which seeks 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/ Mary P. Dugan
-----------------
Audrey M. T. Jones, John P. Callaghan and Mary P. Dugan
Portfolio Managers of Micro Cap
Micro Cap
--------------------------------------------------------------------------------
4
<PAGE>
Micro Cap
--------------------------------------------------------------------------------
Performance Comparison
MICROCAP INSTITUTIONAL/4/ CLASS, RUSSELL 2000,
LIPPER SMALL CAP GROWTH & S&P 500
GROWTH OF A $250,000 INVESTMENT (SINCE DECEMBER 18, 1996)
[GRAPH APPEARS HERE -- SEE PLOT POINTS BELOW]
<TABLE>
<CAPTION>
Micro Cap, Institutional Shares Russell 2000 Lipper Small Cap Growth S&P 500
<S> <C> <C> <C> <C>
12/18/96 250,000 250,000 250,000 250,000
10/97 315,500 310,767 296,600 317,425
10/98 258,194 273,973 242,737 387,227
09/99 421,451 313,425 325,000 457,663
3/31/2000 639,257 387,125 591,975 537,800
</TABLE>
Average Annual Total Return for the Period Ended March 31, 2000. 1 year 105.28%.
Since 12/18/96/3/, 33.11%.
Benchmark returns are for the period beginning 12/31/96.
MICROCAP INVESTMENT/5/ CLASS, RUSSELL 2000,
LIPPER MICRO CAP FUND & S&P 500
GROWTH OF A $10,000 INVESTMENT (SINCE AUGUST 21, 1997)
[GRAPH APPEARS HERE -- SEE PLOT POINTS BELOW]
<TABLE>
<CAPTION>
Micro Cap, Investment Shares Russell 2000 Lipper Small Cap Growth S&P 500
<S> <C> <C> <C> <C>
8/1/97 10,000 10,000 10,000 10,000
10/97 10,128 10,261 11,864 10,196
10/98 8,264 9,046 9,709 12,438
Sep 1, 99 13,496 10,349 13,000 14,700
Mar 31, 2000 21,001 13,125 21,952 17,274
</TABLE>
Average Annual Total Return for the Period Ended March 31, 2000. 1 year 104.69%.
Since 8/31/97/3/, 32.93%.
Benchmark returns are for the period beginning 8/31/97.
--------------------------------------------------------------------------------
/1/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. Performance figures assume the reinvestment of dividends and
capital gain distributions. Performance would have been lower during the
specified period if certain fees and expenses had not been waived.
/2/The Russell 2000 Index is an unmanaged capitalization weighted index
comprised of 2000 of the smallest stocks in the Russell 3000 Index. The
Russell 2000 Growth Index is an unmanaged index comprised of securities in
the Russell 2000 Index with a greater than average growth orientation. The
S&P 500 Index is an unmanaged index which is a widely used indicator of
general market performance. The Lipper MicroCap Fund Index is made up of
funds that invest primarily in companies with a market capitalization of less
than $300 million at the time of purchase.
/3/The Fund's inception date.
/4/On February 28, 2000 the Institutional Shares were renamed the Institutional
Class.
/5/On February 28, 2000 the Service Shares were renamed the Investment Class.
--------------------------------------------------------------------------------
5
<PAGE>
Micro Cap
--------------------------------------------------------------------------------
Schedule of Investments March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
COMMON STOCKS - 93.2%
CONSUMER - 9.8%
7,300 Championship Auto Racing Teams, Inc./1/........... $ 160,600
7,900 Cheesecake Factory, Inc./1/........................ 328,838
6,400 Corporate Executive Board Co./1/................... 324,800
18,100 Damark International, Inc. Cl A/1/................. 690,063
10,200 Deb Shops, Inc. ................................... 140,250
16,800 Homeseekers.com, Inc./1/........................... 258,300
5,000 Marketing Services Group, Inc./1/.................. 88,750
10,600 Quiksilver, Inc./1/................................ 186,162
12,200 Rare Hospitality International, Inc./1/............ 237,137
4,300 THQ, Inc./1/....................................... 76,862
8,500 Too, Inc./1/....................................... 268,281
28,600 Vans, Inc./1/...................................... 461,175
-----------
3,221,218
-----------
CREDIT SENSITIVE - 8.4%
60,000 BankUnited Financial Corp., Class A/1/............. 420,000
10,000 CoStar Group, Inc./1/.............................. 368,750
11,700 Dime Community Bancshares.......................... 185,006
4,000 E'Town Corp. ...................................... 253,000
21,900 Engle Homes, Inc. ................................. 213,525
26,900 InterCept Group, Inc./1/........................... 692,675
1,700 LendingTree, Inc./1/............................... 22,950
4,600 Netzee, Inc./1/.................................... 68,425
79,100 Republic Security Financial Corp. ................. 519,094
-----------
2,743,425
-----------
ENERGY - 7.9%
24,500 Basin Exploration, Inc./1/......................... 365,969
45,400 Callon Petroleum Co./1/............................ 550,475
34,100 Chieftain International, Inc./1/................... 686,263
7,300 Dril-Quip, Inc./1/................................. 344,013
13,600 Evergreen Resources, Inc./1/....................... 328,950
32,700 Horizon Offshore, Inc./1/.......................... 302,475
-----------
2,578,145
-----------
HEALTH CARE - 19.7%
30,700 Accredo Health, Inc./1/............................ 1,016,938
24,000 Aradigm Corp./1/................................... 501,000
13,500 Cell Genesys, Inc./1/.............................. 287,719
30,500 Coventry Health Care, Inc./1/...................... 259,250
9,600 CV Therapeutics, Inc./1/........................... 481,800
112,300 Nabi, Inc./1/...................................... 758,025
30,700 Province Healthcare Co./1/......................... 878,787
2,300 ResMed, Inc./1/.................................... 164,162
11,100 SonoSite, Inc./1/.................................. 369,075
20,800 SurModics, Inc./1/................................. 572,000
20,600 XOMA Ltd./1/....................................... 159,650
19,800 Zoll Medical Corp./1/.............................. 1,014,750
-----------
6,463,156
-----------
<CAPTION>
Shares Description Value
<C> <S> <C>
PROCESS INDUSTRIES - 2.0%
15,900 CompX International, Inc. Cl A/1/.................. $ 303,094
48,200 Dixie Group, Inc. Cl A/1/.......................... 213,888
7,500 Pope & Talbot, Inc. ............................... 137,812
-----------
654,794
-----------
SERVICE COMPANIES - 4.5%
32,500 Globecomm Systems, Inc./1/......................... 867,344
5,200 GT Group Telecom, Inc./1/.......................... 108,550
23,100 Startec Global Communications Corp./1/............ 485,100
-----------
1,460,994
-----------
TECHNOLOGY - 36.8%
74,200 Ansoft Corp./1/.................................... 919,383
47,400 Applied Films Corp./1/............................. 948,000
30,100 Computer Network Technology Corp./1/............... 526,750
14,100 Data Critical Corp./1/............................. 203,569
5,500 DBT Online, Inc./1/................................ 102,094
10,300 DSET Corp./1/...................................... 189,906
68,000 Exabyte Corp./1/................................... 505,750
16,100 Interphase Corp./1/................................ 408,537
8,900 iPrint.com, Inc./1/................................ 171,325
38,900 LCC International, Inc. Cl A/1/.................... 1,541,412
21,000 Nanometrics, Inc./1/............................... 1,023,750
78,300 Navidec, Inc./1/................................... 1,213,650
15,100 Neose Technologies, Inc./1/........................ 486,031
19,600 Photon Dynamics, Inc./1/........................... 1,352,400
208,800 Read-Rite Corp./1/................................. 978,750
49,900 Secure Computing Corp./1/.......................... 848,300
200 Websense, Inc./1/.................................. 9,613
10,900 Zoran Corp./1/..................................... 613,806
-----------
12,043,026
-----------
TRANSPORTATION - 4.1%
10,500 Atlantic Coast Airlines Holdings, Inc./1/.......... 271,688
71,100 Isle of Capris Casinos, Inc./1/.................... 888,750
26,700 Providence & Worcester RR Co. ..................... 196,912
-----------
1,357,350
-----------
Total Investments
(Cost $25,959,740).............................. 93.2% 30,522,108
Other Assets in Excess
of Liabilities.................................. 6.8% 2,210,659
----- -----------
Net Assets 100.0% $32,732,767
===== ===========
</TABLE>
----------------------------------
/1/Non - income producing security
See Notes to Financial Statements.
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6
<PAGE>
Micro Cap
--------------------------------------------------------------------------------
Statement of Assets and Liabilities (Unaudited)
<TABLE>
<CAPTION>
As of
March 31, 2000
<S> <C>
Assets
Investments at Value (cost $25,959,740)............................................... $30,522,108
Cash.................................................................................. 6,259,439
Receivable for Securities Sold........................................................ 726,300
Receivable for Capital Shares Sold.................................................... 134,122
-----------
Total Assets........................................................................... 37,641,969
-----------
Liabilities
Due to Administrator.................................................................. 13,665
Due to Advisor........................................................................ 26,433
Payable for Securities Purchased...................................................... 4,073,963
Payable for Capital Shares Purchased.................................................. 734,452
Accrued Expenses and Other Liabilities................................................ 60,689
-----------
Total Liabilities...................................................................... 4,909,202
-----------
Net Assets............................................................................. $32,732,767
===========
Composition of Net Assets
Capital Shares of Institutional Class (unlimited authorization; $0.001 par value)..... $17,333,238
Based on 1,282,201 Outstanding Shares of Beneficial Interest
Capital Shares of Investment/1/ Class (unlimited authorization; $0.001 par value)..... 2,988,386
Based on 167,156 Outstanding Shares of Beneficial Interest
Accumulated Net Investment Loss....................................................... (89,855)
Accumulated Net Realized Gains on Investments......................................... 7,938,630
Net Unrealized Appreciation on Investments............................................ 4,562,368
-----------
Net Assets............................................................................. $32,732,767
===========
Computation of Net Asset Value
Net Assets -- Institutional/1/ Class.................................................. $28,972,408
Shares Outstanding -- Institutional Class............................................. 1,282,201
Net Asset Value....................................................................... $ 22.60
===========
Net Assets -- Investment/2/ Class..................................................... $ 3,760,359
Shares Outstanding -- Investment/1/ Class............................................. 167,156
Net Asset Value....................................................................... $ 22.50
===========
</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.
--------------------------------------------------------------------------------
7
<PAGE>
Micro Cap
--------------------------------------------------------------------------------
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
For the six
months ended
March 31, 2000
<S> <C>
Investment Income
Dividends............................................................ $ 27,288
Interest............................................................. 80,345
-----------
107,633
-----------
Expenses
Investment Advisory Fees............................................. 194,069
Administration Fees.................................................. 28,463
Custody Fees......................................................... 23,837
Registration & Filing Fees........................................... 18,045
Professional Fees.................................................... 17,009
Printing Fees........................................................ 9,463
Legal Fees........................................................... 7,331
Trustees' Fees and Expenses.......................................... 5,098
Service Plan Fees.................................................... 3,025
Transfer Agent Fees.................................................. 1,209
Insurance Fees....................................................... 944
Miscellaneous Expenses............................................... 2,110
-----------
Total Expenses......................................................... 310,603
Less: Fee Waivers or Expense Reimbursements............................ (113,115)
-----------
Net Expenses........................................................... 197,488
-----------
Expenses in Excess of Investment Income................................ (89,855)
-----------
Realized and Unrealized Gain On Investments
Net Realized Gain from Investments................................... 8,114,438
Net Change in Unrealized Appreciation/Depreciation on Investments.... 2,293,558
-----------
Net Realized and Unrealized Gain on Investments........................ 10,407,996
Net Increase in Net Assets from Operations............................. $10,318,141
===========
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
8
<PAGE>
Micro Cap
--------------------------------------------------------------------------------
Statements of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
For the six For the eleven For the
months ended months ended year ended
March 31, 2000 Sept. 30, 1999 Oct. 31, 1998
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Expenses in Excess of Investment Income.......... $ (89,855) $ (161,813) $ (70,160)
Net Realized Gain from Investment
Transactions.................................... 8,114,438 2,901,017 (1,303,092)
Net Change in Unrealized Appreciation/
Depreciation on Investments..................... 2,293,558 5,015,840 (3,151,030)
----------- ----------- -----------
Net Increase in Net Assets from Operations......... 10,318,141 7,755,044 (4,524,282)
----------- ----------- -----------
Distributions to Shareholders:
Distributions from Realized Gains
Institutional/1/ Class.......................... (1,481,476) -- (129,704)
Investment/2/ Class............................. (130,444) -- (3,729)
----------- ----------- -----------
Total Distributions................................ (1,611,920) -- (133,433)
Capital Share Transactions:
Net Proceeds from Sales of Shares............... 13,741,192 4,379,721 20,187,420
Net Proceeds from Dividend
Reinvestments.................................. 1,495,866 -- 132,609
Net Cost of Shares Redeemed..................... (9,593,665) (9,150,944) (3,548,982)
----------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Capital Share Transactions....... 5,643,393 (4,771,223) 16,771,047
----------- ----------- -----------
Total Increase in Net Assets....................... 14,349,614 2,983,821 12,113,332
Net Assets:
Beginning of Period............................... 18,383,153 15,399,332 3,286,000
----------- ----------- -----------
End of Period..................................... $32,732,767 $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.
--------------------------------------------------------------------------------
9
<PAGE>
Micro Cap
--------------------------------------------------------------------------------
Financial Highlights
Contained below are selected data for a share outstanding, total investment
return, ratios to average net assets and other supplemental data for the periods
indicated for Micro Cap Institutional Class.
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS/3/ For the period
For the six For the eleven For the Dec. 18, 1996/2/
months ended months ended year ended through
March 31, 2000/4/ 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 Investment Income.......... (0.07) (0.14) (0.05) (0.04)
Net Realized and Unrealized Gain
(Loss) on Investment............................ 7.92 6.40 (2.18) 2.66
------- ------- ------- ------
Total from Investment Operations.................. 7.85 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.................... $ 22.60 $ 16.16 $ 9.90 $12.62
======= ======= ======= ======
Total Investment Return........................... 51.68% 63.23% (18.16)% 26.20%
Ratios to Average Net Assets:
Ratio of Expenses to
Average Net Assets............................... 1.49%/1/ 1.49%/1/ 1.49% 1.63%/1/
Ratio of Expenses in Excess of Investment
Income to Average Net Assets..................... (0.67)%/1/ (1.07)%/1/ (0.75)% (0.49)%/1/
Ratio of Expenses to Average
Net Assets (Excluding
Expense Limitations)............................. 2.37%/1/ 3.00%/1/ 2.59% 3.39%/1/
Ratio of Expenses in Excess of Investment
Income to Average Net Assets
(Excluding Expense Limitations).................. (1.55)%/1/ (2.58)%/1/ (1.85)% (2.25)%/1/
Supplemental Data:
Net Assets at End of Year
(000 omitted).................................... $28,972 $17,000 $14,363 $3,276
Portfolio Turnover................................ 89% 115% 85% 272%
</TABLE>
--------------------------------------------------------------------------------
/1/Annualized.
/2/Inception Date.
/3/On February 28, 2000 the Institutional Shares were renamed the Institutional
Class.
/4/Unaudited.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
10
<PAGE>
Micro Cap
--------------------------------------------------------------------------------
Financial Highlights
Contained below are selected data for a share outstanding, total investment
return, ratios to average net assets and other supplemental data for the periods
indicated for Micro Cap Investment Class.
<TABLE>
<CAPTION>
INVESTMENT CLASS/3/ For the period
For the six For the eleven For the Aug. 21, 1997/2/
months ended months ended year ended through
March 31, 2000/4/ 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 Investment Income.......... (0.03) (0.14) (0.06) (0.02)
Net Realized and Unrealized Gain
(Loss) on Investment............................ 7.82 6.38 (2.19) 0.52
------ ------ ------- ------
Total from Investment Operations.................. 7.79 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.................... $22.50 $16.12 $ 9.88 $12.62
====== ====== ======= ======
Total Investment Return........................... 51.36% 63.16% (18.33)% 3.87%
Ratios to Average Net Assets:
Ratio of Expenses to
Average Net Assets............................... 1.74%/1/ 1.74%/1/ 1.74% 1.74%/1/
Ratio of Expenses in Excess of Investment
Income to Average Net Assets..................... (0.88)%/1/ (1.29)%/1/ (0.98)% (1.15)%/1/
Ratio of Expenses to Average
Net Assets (Excluding
Expense Limitations)............................. 2.52%/1/ 3.25%/1/ 2.68% 3.52%/1/
Ratio of Expenses in Excess of Investment
Income to Average Net Assets
(Excluding Expense Limitations).................. (1.66)%/1/ (2.80)%/1/ (1.92)% (2.93)%/1/
Supplemental Data:
Net Assets at End of Year
(000 omitted).................................... $3,760 $1,383 $ 1,036 $ 10
Portfolio Turnover................................ 89% 115% 85% 272%
</TABLE>
--------------------------------------------------------------------------------
/1/Annualized.
/2/Inception Date.
/3/On February 28, 2000, the Service Shares were renamed the Investment Class.
/4/Unaudited.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
11
<PAGE>
Micro Cap
--------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)
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 twenty-two 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. Security Valuation
Securities listed on a securities exchange for which market quotations are
readily available are valued at the last quoted sales price on the principal
exchange on which they are traded on the valuation date or, if there is no such
reported sale on the valuation date, at the most recently quoted bid price.
Unlisted securities for which market quotations are readily available are valued
at the most recently quoted bid price. Short-term investments are valued at
amortized cost which approximates market value. Other securities for which
market quotations are not readily available or securities whose market
quotations do not, in the opinion of the Investment Adviser, reflect market
value are valued at fair value using methods determined in good faith by the
valuation committee of the Board of Trustees.
C. Income Taxes
It is the intention of the Fund to qualify as a regulated investment company and
to distribute all of its taxable income. Accordingly, no provision for federal
income taxes is considered necessary.
D. Net Asset Value Per Share
The net asset value per share is calculated on a daily basis by dividing the
assets of each class of shares, less its liabilities, by the number of
outstanding shares of the respective class.
E. 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.
F. Repurchase Agreements
Securities pledged as collateral for repurchase agreements are held by the
custodian banks until maturity of the repurchase agreements. Provisions of the
repurchase agreements and procedures adopted by the Trust require that the
market value of the collateral, including accrued interest thereon, is
sufficient in the event of default by the counterparty.
The Fund may also invest in tri-party repurchase agreements. Securities held as
collateral for tri-party repurchase agreements are maintained in a segregated
account by the broker's custodian bank until maturity of the repurchase
agreement. Provisions of the agreements require that the market value of the
collateral, including accrued interest thereon, is sufficient in the event of
default.
If the counterparty defaults and the value of the collateral declines or if the
counterparty enters an insolvency proceeding, realization of the collateral by
the Fund may be delayed or limited.
G. Distributions
Distributions from net investment income and net realized capital gains are
determined in accordance with U.S. federal income tax regulations, which may
differ from those amounts determined under generally accepted accounting
principles. To the extent these differences are permanent, they are charged or
credited to paid-in capital in the period that the difference arises.
H. Expenses
Expenses that are directly related to the Fund are charged directly to the Fund.
Other operating expenses of the Trust are prorated to the Fund on the basis of
relative net assets. Deutsche Asset Management, Inc. absorbed all expenses of
organizing the Trust.
I. Other
Security transactions are accounted for on the date the security is purchased or
sold (trade date). Costs used in determining net realized capital gains and
losses on the sale of investment securities are those of the specific securities
sold adjusted for the accretion and amortization of original issue discounts and
purchase premiums during the respective holding period. Dividend income is
recognized on the ex-dividend date and interest income is recognized using the
accrual method.
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Notes to Financial Statements (Unaudited)
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies followed by the Fund.
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. ("DAMI"), formerly Morgan Grenfell
Inc. (the "Administrator"), an affiliate of Deutsche Bank AG, pursuant to which
the Administrator will receive, on a monthly basis, a fee at an annual rate of
0.22% based upon the average daily net assets of the Fund. The Administrator
generally assists in all matters relating to the administration of the Fund,
including the coordination and monitoring of any third parties furnishing
services to the Fund, preparation and maintenance of financial accounting
records, and the provision of necessary office space, equipment and personnel to
perform administrative and clerical functions. The Administrator is also
responsible for engaging an accounting agent, custodian and transfer agent for
the Fund's operations. Fees for services rendered by the accounting agent and
the transfer agent are paid by the Administrator and not the Fund. At a meeting
held on August 19, 1999, the Board of Trustees of the Trust adopted a resolution
to approve a transfer agent agreement between Investment Company Capital Corp.,
Inc., an affiliate of the Deutsche Bank AG, and the Trust, replacing DST
Systems, Inc., effective November 22, 1999.
Under the advisory agreement with the Trust, DAMI serves as the Investment
Adviser ("Investment Adviser") for the Fund. Under the advisory agreement, the
Investment Adviser receives on a monthly basis, a fee at an annual rate of 1.50%
of the Fund's average daily net assets.
The Investment Adviser has voluntarily agreed to reduce its investment advisory
fees and/or reimburse the Fund to the extent necessary to limit the Fund's
operating expenses to 1.49% of the average daily net assets for the
Institutional Class and 1.74% of the average daily net assets for the 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.
Note 3--Investment Transactions
The aggregate cost of securities purchased and the aggregate proceeds of
securities sold for the period ended March 31, 2000, excluding short-term
investments, were $22,820,388 and $20,226,493, respectively.
For federal income tax purposes, the cost of securities owned at March 31, 2000
and the net realized gains or losses on securities sold for the period then
ended was not materially different from the amounts reported for financial
reporting purposes. The gross unrealized appreciation, gross unrealized
depreciation and net unrealized appreciation on the Fund's investments at March
31, 2000 were $7,044,623, $2,482,255 and $4,562,368, respectively.
Note 4--Capital Share Transactions
<TABLE>
<CAPTION>
Period Ended Year Ended
March 31, 2000 September 30, 1999
-------------------------- ------------------------
Shares Amount Shares Amount
--------- ------------- --------- ------------
<S> <C> <C> <C> <C>
Institutional Class
Shares sold 530,908 $11,174,353 298,149 $ 3,848,230
Reinvestment of
distributions 81,421 1,365,424 -- --
Shares redeemed (381,844) (8,576,609) (697,276) (8,514,681)
-------- ----------- -------- -----------
Net increase
(decrease) 230,485 $ 3,963,168 (399,127) $(4,666,451)
======== =========== ======== ===========
Investment Class
Shares sold 121,508 $ 2,566,837 36,267 $ 531,491
Reinvestment of
distributions 7,806 130,441 -- --
Shares redeemed (47,914) (1,017,053) (55,428) (636,263)
-------- ----------- -------- -----------
Net increase
(decrease) 81,400 $ 1,680,225 (19,161) $ (104,772)
======== =========== ======== ===========
</TABLE>
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Notes to Financial Statements (Unaudited)
Note 5--Credit Agreement
By an agreement dated November 2, 1998, certain Portfolios of the Trust
including the Fund entered into a Credit Agreement (the "Agreement") with
BankBoston, N.A. (the "Lender"). The maximum aggregate credit available to all
the participating portfolios under the Agreement, which expired on October 31,
1999, was $50,000,000. The Agreement has been extended to February 27, 2001.
Interest payments on borrowings are payable by the borrowing Funds at the
federal funds rate plus 1.00% per annum and the borrowings are payable on
demand. The participating Funds are also subject to a commitment fee of 0.10%
per annum of the unused portion of the maximum aggregate credit available under
the Agreement. During the period ended March 31, 2000, the Fund did not make any
borrowings under the Agreement.
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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.
Micro Cap CUSIP #61735K778
Morgan Grenfell Investment Trust 61735K786
363/365SA (03/00)
Distributed by:
ICC Distributors, Inc.
