SEMI-ANNUAL REPORT
and supplement to prospectus dated April 30, 1998
Deutsche Top 50 World
Deutsche Top 50 Europe
Deutsche Top 50 Asia
Deutsche Top 50 US
Class A Shares and Class B Shares
Deutsche Funds [logo]
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the first Semi-Annual Report for Deutsche Top 50 World,
Deutsche Top 50 Europe, Deutsche Top 50 Asia and Deutsche Top 50 U.S.
On the following pages you will find complete financial information concerning
your investment in the Deutsche Funds. Also included is a list of fund holdings,
and the fund's financial statements.
Please note that this report covers financial activity in the funds through
February 28, 1998.
We are very proud of the funds we offer. The Deutsche Portfolios, in which the
Deutsche Funds invest, are managed by Deutsche Fund Management, Inc., and are
advised by the award-winning professionals at DWS International Portfolio
Management GmbH, and Deutsche Morgan Grenfell Investment Management Inc. These
funds are poised to take advantage of the dynamic changes occurring throughout
the world, including Europe, Asia and U.S. markets.* The Deutsche Funds seek to
provide you with a variety of ways to allocate assets within the international
portion of your portfolio, while seeking to enable you to minimize risks that
sometimes may be associated with international investing.
May I suggest that you take the time to review this report and familiarize
yourself with your fund's strategy and holdings. We believe that the true
measure of any fund's performance is over the longer term.
Thank you for selecting Deutsche Funds to pursue your financial goals. We are
committed to providing quality investment products, coupled with our further
commitment to the highest level of service possible.
Sincerely,
/s/ Brian Lee
Brian Lee
President
April 15, 1998
* Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards. Emerging markets structures may be less diverse and
mature, and their political systems may be less stable. In addition, Asian and
Pacific Rim countries may have relatively unstable governments, economies
based on only a few commodities or industries, and securities markets trading
infrequently or in low volumes.
Statements of Assets and Liabilities
Deutsche Funds, Inc.
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche
Top 50 Top 50 Top 50 Top 50
World Europe Asia US
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Assets:
Investments in corresponding Deutsche Portfolios at value $ 36,079 $ 15,908 $ 14,996 $1,038,124
- -----------------------------------------------------------------------
Receivable from Manager for expense reimbursement 54,349 54,490 49,523 66,634
- -----------------------------------------------------------------------
Deferred organization costs 11,553 11,560 11,636 11,553
- ----------------------------------------------------------------------- -------- ------- --------- ---------
Total assets 101,981 81,958 76,155 1,116,311
- ----------------------------------------------------------------------- -------- ------- --------- ---------
Liabilities:
- -----------------------------------------------------------------------
Service fees payable -- Class A 20 13 11 364
- -----------------------------------------------------------------------
Organization costs payable 12,588 12,595 12,588 12,588
- -----------------------------------------------------------------------
Accrued expenses and other liabilities 52,255 52,066 48,309 56,614
- ----------------------------------------------------------------------- -------- ------- --------- ---------
Total liabilities 64,863 64,674 60,908 69,566
- ----------------------------------------------------------------------- -------- ------- --------- ---------
Net assets $ 37,118 $ 17,284 $ 15,247 $1,046,745
- ----------------------------------------------------------------------- -------- ------- --------- ---------
Net Assets Consist of:
- -----------------------------------------------------------------------
Capital stock, $0.001 par value
(authorized 10,000,000 shares for each Fund) 3 1 1 75
- -----------------------------------------------------------------------
Paid-in capital 33,690 16,110 14,859 924,846
- -----------------------------------------------------------------------
Undistributed (accumulated) net investment income (loss) 115 (7) 1 (489)
- -----------------------------------------------------------------------
Undistributed (accumulated) net realized gain (loss)
on investments and foreign currency transactions 324 97 (661) 2,099
- -----------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and foreign currency 2,986 1,083 1,047 120,214
- ----------------------------------------------------------------------- -------- ------- --------- ---------
Net assets $ 37,118 $ 17,284 $ 15,247 $1,046,745
- ----------------------------------------------------------------------- -------- ------- --------- ---------
Computation of Net Asset Value, Redemption Price and Offering Price Per Share:
- -----------------------------------------------------------------------
Net assets -- Class A $ 37,118 $ 17,284 $ 15,247 $1,046,745
- ----------------------------------------------------------------------- -------- ------- --------- ---------
Shares outstanding -- Class A 2,756 1,291 1,304 75,089
- ----------------------------------------------------------------------- -------- ------- --------- ---------
Net asset value and redemption price per share -- Class A $13.47 $13.39 $11.69 $13.94
- ----------------------------------------------------------------------- -------- ------- --------- ---------
Offering price per share -- Class A $14.25 $14.17 $12.37 $14.75
- ----------------------------------------------------------------------- -------- ------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Statements of Operations
Deutsche Funds, Inc.
For the period from Commencement of Operations
through February 28, 1998(a) (unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche
Top 50 Top 50 Top 50 Top 50
World Europe Asia US
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Investment Income:
- -----------------------------------------------------------------------
Investment Income and Expenses allocated from the corresponding
Deutsche Portfolios:
- -----------------------------------------------------------------------
Dividend income $ 195 $ 28 $ 31 $ 1,949
- -----------------------------------------------------------------------
Less: foreign withholding taxes (1) (3) (2) --
- ----------------------------------------------------------------------- --------- --------- ---------- ----------
Net dividend income 194 25 29 1,949
- -----------------------------------------------------------------------
Interest income 52 53 44 1,344
- -----------------------------------------------------------------------
Expenses (966) (1,347) (209) (15,936)
- ----------------------------------------------------------------------- --------- --------- ---------- ----------
Net investment loss allocated from the corresponding
Deutsche Portfolios (720) (1,269) (136) (12,643)
- ----------------------------------------------------------------------- --------- --------- ---------- ----------
Expenses:
- -----------------------------------------------------------------------
Audit fees 2,055 2,055 1,891 2,055
- -----------------------------------------------------------------------
Legal fees 2,055 2,055 1,891 2,055
- -----------------------------------------------------------------------
Accounting fees 7,809 7,809 7,184 7,809
- -----------------------------------------------------------------------
Directors' fees and expenses 3,082 3,082 2,836 3,082
- -----------------------------------------------------------------------
Administration fees 5 4 3 164
- -----------------------------------------------------------------------
Insurance fees 452 452 415 452
- -----------------------------------------------------------------------
Reports to Shareholders 6,576 6,576 6,050 6,576
- -----------------------------------------------------------------------
Transfer agent fees 5,686 5,407 5,392 5,884
- -----------------------------------------------------------------------
Registration fees 20,630 20,630 18,978 20,630
- -----------------------------------------------------------------------
Other expenses 4,109 4,110 3,783 4,108
- -----------------------------------------------------------------------
Amortization of organization costs 1,035 1,035 952 1,035
- -----------------------------------------------------------------------
Service fees -- Class A 20 13 11 630
- ----------------------------------------------------------------------- --------- --------- ---------- ----------
Total expenses 53,514 53,228 49,386 54,480
- -----------------------------------------------------------------------
Less: Expense reimbursement (54,349) (54,490) (49,523) (66,634)
- ----------------------------------------------------------------------- --------- --------- ---------- ----------
Net expenses (835) (1,262) (137) (12,154)
- ----------------------------------------------------------------------- --------- --------- ---------- ----------
Net investment income (loss) 115 (7) 1 (489)
- ----------------------------------------------------------------------- --------- --------- ---------- ----------
Net Realized and Unrealized Gain (Loss) on Investments and Foreign
Currency allocated from the corresponding Deutsche Portfolios:
- -----------------------------------------------------------------------
Net realized gain (loss) on:
- -----------------------------------------------------------------------
Investments 335 14 (644) 2,099
- -----------------------------------------------------------------------
Foreign currency transactions (11) 83 (17) --
- -----------------------------------------------------------------------
Net change in unrealized appreciation/depreciation on:
- -----------------------------------------------------------------------
Investments 2,986 1,083 1,028 120,214
- -----------------------------------------------------------------------
Foreign currency -- -- 19 --
- ----------------------------------------------------------------------- --------- --------- ---------- ----------
Net Realized and Unrealized Gain (Loss) on Investments and Foreign
Currency from the corresponding Deutsche Portfolios 3,310 1,180 386 122,313
- ----------------------------------------------------------------------- --------- --------- ---------- ----------
Net Increase (Decrease) in Net Assets Resulting from Operations $ 3,425 $ 1,173 $ 387 $ 121,824
- ----------------------------------------------------------------------- --------- --------- ---------- ----------
(a) Commencement of operations: 10/2/97 10/2/97 10/14/97 10/2/97
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Statements of Changes in Net Assets
Deutsche Funds, Inc.
For the period from Commencement of Operations
through February 28, 1998(a) (unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche
Top 50 Top 50 Top 50 Top 50
World Europe Asia US
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
- -----------------------------------------------------------------------
Operations--
- -----------------------------------------------------------------------
Net investment income (loss) $ 115 $ (7) $ 1 $ (489)
- -----------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions 324 97 (661) 2,099
- -----------------------------------------------------------------------
Net change in unrealized appreciation/depreciation
on investments and foreign currency 2,986 1,083 1,047 120,214
- ----------------------------------------------------------------------- --------- --------- ---------- ----------
Net increase (decrease) in net assets resulting from operations 3,425 1,173 387 121,824
- ----------------------------------------------------------------------- --------- --------- ---------- ----------
Capital Share Transactions: Class A
- -----------------------------------------------------------------------
Net proceeds from shares sold 25,299 5,000 6,672 913,810
- -----------------------------------------------------------------------
Net cost of shares redeemed (2,718) -- (2,923) --
- ----------------------------------------------------------------------- --------- --------- ---------- ----------
Net increase in net assets resulting from capital share transactions 22,581 5,000 3,749 913,810
- ----------------------------------------------------------------------- --------- --------- ---------- ----------
Total increase (decrease) in net assets 26,006 6,173 4,136 1,035,634
- -----------------------------------------------------------------------
Net Assets:
- -----------------------------------------------------------------------
Beginning of period 11,112 11,111 11,111 11,111
- ----------------------------------------------------------------------- --------- --------- ---------- ----------
End of period(b) $ 37,118 $ 17,284 $ 15,247 $1,046,745
- ----------------------------------------------------------------------- --------- --------- ---------- ---------
Capital Shares -- Class A
- -----------------------------------------------------------------------
Shares outstanding, beginning of period 889 889 889 889
- -----------------------------------------------------------------------
Shares sold 2,073 402 677 74,200
- -----------------------------------------------------------------------
Shares redeemed (206) -- (262) --
- ----------------------------------------------------------------------- --------- --------- ---------- ----------
Capital shares outstanding, end of period 2,756 1,291 1,304 75,089
- ----------------------------------------------------------------------- --------- --------- ---------- ---------
(a) Commencement of operations: 10/2/97 10/2/97 10/14/97 10/2/97
(b) Including undistributed (accumulated) net investment income (loss). $ 115 $ (7) $ 1 $ (489)
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Financial Highlights
Deutsche Funds, Inc.
For the period from Commencement of Operations through
February 28, 1998 (a) (unaudited)
Selected data for a Class A share of common stock outstanding throughout the
period.
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche
Top 50 Top 50 Top 50 Top 50
World Europe Asia US
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $12.50 $12.50 $12.50 $12.50
- -----------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------
Net investment income (loss) 0.04 (0.01) -- (0.01)
- -----------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 0.93 0.90 (0.81) 1.45
- ----------------------------------------------------------------------- --------- --------- ---------- ----------
Increase (decrease) from investment operations 0.97 0.89 (0.81) 1.44
- ----------------------------------------------------------------------- --------- --------- ---------- ----------
Net asset value at end of period $13.47 $13.39 $11.69 $13.94
- ----------------------------------------------------------------------- --------- --------- ---------- ----------
Total Return (based on net asset value)(c)* 7.76% 7.12% (6.48)% 11.52%
- -----------------------------------------------------------------------
Ratios and Supplemental Data
- -----------------------------------------------------------------------
Net assets, end of period (000's) $ 37 $ 17 $ 15 $ 1,047
- -----------------------------------------------------------------------
Ratios to average net assets
- -----------------------------------------------------------------------
Expenses(b)** 1.60% 1.60% 1.60% 1.50%
- -----------------------------------------------------------------------
Net investment income (loss)(b)** 1.39% (0.13)% 0.02% (0.19)%
- -----------------------------------------------------------------------
(a) Commencement of operations: 10/2/97 10/2/97 10/14/97 10/2/97
(b) Includes the Fund's allocated portion of the corresponding Deutsche Portfolios' expenses net of expense reimbursements. Had
the Manager not undertaken to reimburse such expenses, the ratios of expenses and net investment income to average net assets
would have been as follows:
Expenses to average net assets** 659.25% 1,024.42% 1,113.74% 27.64%
Net investment income to average net assets** (656.27)% (1,022.96)% (1,112.10)% (26.34)%
(c) Total Return based on net asset value, excluding the effect of shareholder
transaction charges, assumes a purchase of common
stock at net asset value at commencement of operations and a sale on the
last day of the period, also at net asset value.
During the period, total return would have been lower had certain expenses
not been reimbursed by the Manager.
</TABLE>
* Not annualized
** Annualized
The accompanying notes are an integral part of the Financial Statements.
Notes to Financial Statements
Deutsche Funds, Inc.
February 28, 1998
Note 1 -- Organization
Deutsche Funds, Inc. (the "Company") was incorporated in Maryland on May 22,
1997 and is registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company. The Company currently
consists of eleven separate investment series (each a "Fund" and collectively
the "Funds"). The accompanying financial statements and notes thereto relate to
four of these Funds: Deutsche Top 50 World ("Top 50 World"); Deutsche Top 50
Europe ("Top 50 Europe"); Deutsche Top 50 Asia ("Top 50 Asia"); and Deutsche Top
50 US ("Top 50 US").
Each of the Funds will seek to achieve their respective investment objective by
investing substantially all of their assets in the corresponding portfolio of
Deutsche Portfolios (the "Portfolio Trust") having substantially the same
investment objective of each of the respective Funds. The Portfolio Trust is an
open-end management investment company and is comprised of ten portfolios (each
a "Portfolio"). The financial statements of four of the Portfolios, including
their portfolio of investments, are included elsewhere within this report and
should be read in conjuction with each Fund's financial statements.
The Company has not retained the services of an investment adviser since the
Funds seek to achieve their investment objective by investing all of their
investable assets in their corresponding Portfolio of the Portfolio Trust. Each
Portfolio is managed by Deutsche Fund Management, Inc. ("DFM"), an indirect
subsidiary of Deutsche Bank AG. Federated Services Company serves as
Administrator to the Funds and Federated Shareholder Services Company serves as
transfer agent and dividend disbursing agent to the Funds. Edgewood Services,
Inc. ("Edgewood") serves as distributor to the Funds (the "Distributor").
Each Fund recognizes daily a pro-rata portion of its corresponding Portfolio's
income and expenses, including fees paid to DFM and the amortization of
organization expenses. Each Fund offers two classes of shares to investors,
Class A and Class B. Both Class A Shares and Class B Shares are subject to a
Service Plan and Class B Shares are also subject to a Distribution Plan. Each
Class will bear its respective portion of the expenses under the Service and
Distribution Plans. The Funds commenced operations in October 1997. As of
February 28, 1998, only Class A Shares have been sold to the public.
Note 2 -- Significant Accounting Policies
The preparation of financial statements in conformity 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 Funds:
Investment Valuation
The value of a Fund's investment in the Portfolio included in the accompanying
Statements of Assets and Liabilities reflects the Fund's proportionate
beneficial interest in the net assets of the Portfolio (percentages as of
February 28, 1998 are listed below). Valuation of securities by the Portfolio is
discussed in Note 2 of the Portfolios' Notes to Financial Statements which are
included elsewhere in this report.
Fund Percentage Portfolio
Top 50 World 0.40% Top 50 World Portfolio (US Dollar)
Top 50 Europe 0.20% Top 50 Europe Portfolio (US Dollar)
Top 50 Asia 0.05% Top 50 Asia Portfolio (US Dollar)
Top 50 US 14.74% Top 50 US Portfolio (US Dollar)
From time to time, the Funds may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investments activities
of these shareholders could have a material impact on the Funds and Portfolios.
Investment Income, Expense, Realized and Unrealized Gains and Losses
The Funds record their proportionate share of the investment income, expense,
realized and unrealized gains and losses recorded by the Portfolios on a daily
basis. The investment income, expense, realized and unrealized gains and losses
are allocated daily to investors of the Portfolio based upon the amount of their
investment in the Portfolio. The Company accounts separately for the assets,
liabilities and operations of each Fund. Expenses attributable to each Fund are
charged directly to the respective Fund, while general Company expenses
attributable to more than one Fund of the Company are allocated among the
respective Funds. The investment income and expenses of each Fund (other than
class specific expenses, realized and unrealized gains and losses) are further
allocated to each class of shares based on their relative net asset values of
each Fund.
Federal Income Taxes
Each Fund is treated as a separate entity for federal income tax purposes. It is
the policy of each Fund to qualify for and elect treatment as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, as amended.
Accordingly, each Fund would not be subject to U.S. federal income taxes to the
extent it distributes substantially all of its taxable income including any net
capital gains for each fiscal year. In addition, by distributing, during each
calendar year, substantially all of its net investment income and capital gains,
each Fund would not be subject to U.S. Federal excise tax.
Distributions to Shareholders
Dividends from net investment income of all Funds are declared and paid at least
annually. Capital gains of each Fund, if any, are distributed at least annually.
Dividends and capital gains distributions are distributed in U.S. dollars. The
Funds record all dividend distributions to shareholders on ex-dividend date.
Deferred Organization Costs
Organization expenses incurred in connection with the organization and initial
registration of the Company were paid initially by DFM and will be reimbursed by
the Funds. Such organization expenses have been deferred and will be amortized
ratably over a period of sixty months from the commencement of operations of the
Funds. The amount paid by each Fund on any redemption by Edgewood (or any
subsequent holder) of such Fund's initial shares will be reduced by the pro-rata
portion of any unamortized organization expenses of the Funds.
Note 3 -- Significant Agreements and Transactions with Affiliates
The Company has retained the services of Federated Services Company as
Administrator. Under the Administration Agreement, Federated Services Company
will assist in the operations of the Funds subject to the direction and control
of the Board of Directors of the Company. For its services, Federated Services
Company receives a fee from each Fund, which is computed daily and paid monthly,
at an annual rate of 0.065% of the average daily net assets of each Fund up to
$500 million and 0.05% of such assets in excess of $500 million for the Fund's
then current fiscal year subject to a minimum of $75,000 for the first year and
$125,000 for the second year.
The Company has entered into a distribution agreement with Edgewood. Edgewood
will serve as principal distributor for shares of each Fund. Pursuant to the
Service and Distribution Plans, Class B Shares of the Funds are subject to the
Distribution Plan and Class A Shares and Class B Shares of the Funds are subject
to the Service Plan. Under the Distribution Plan, Class B Shares of each Fund
pay a fee to the Distributor in an amount computed at an annual rate of 0.75% of
the average daily net assets of the Fund represented by Class B Shares to
finance activity that is principally intended to result in the sale of Class B
Shares of the Fund. Under the Service Plan, each Fund pays to DFM, for the
provision of certain services to the holders of Class A Shares and Class B
Shares, a fee computed at an annual rate of 0.25% of the average daily net
assets of each such Class of Shares.
Federated Shareholder Services Company serves as the transfer agent and dividend
disbursing agent for each Fund. Federated Services Company and Federated
Shareholder Services Company are both affiliated with Edgewood Services Inc. IBT
Fund Services (Canada) Inc. will provide fund accounting services to the Funds.
Expense Reimbursements
DFM has voluntarily agreed that it will reimburse each Fund through at least
August 31, 1998, to the extent necessary to maintain each Fund's total operating
expenses (which includes expenses of the Fund and its pro-rata portion of
expenses of the corresponding Portfolio), at not more than 1.60% of the average
daily net assets of Class A Shares of the Funds, with the exception of Deutsche
Top 50 US for which DFM has voluntarily agreed to maintain its expenses at 1.50%
of average daily net assets for Class A.
Portfolio of Investments
Top 50 World Portfolio (US Dollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ------------------- --------------------------------------------------------------------- ------------
<S> <C> <C>
Common Stocks -- 93.9%
France -- 7.2%
1,800 Axa-UAP $ 174,332
1,400 Elf-Aquitaine 159,533
310 L'OREAL 139,771
410 LVMH Co. 82,519
800 Total SA-B shares 87,873
-------------
Total 644,028
-------------
Germany -- 6.4%
- ---------------------------------------------------------------------------------------------------
3,800 Bayer AG 160,267
2,400 Daimler-Benz AG 196,620
1,000 Hoechst AG 38,757
1,600 Schering AG 179,861
-------------
Total 575,505
-------------
Hong Kong -- 1.0%
- ---------------------------------------------------------------------------------------------------
3,200 HSBC Holdings Plc 92,580
-------------
Italy -- 1.0%
- ---------------------------------------------------------------------------------------------------
16,000 ENI SpA 93,716
-------------
Japan -- 5.0%
- ---------------------------------------------------------------------------------------------------------------------
5,300 Canon, Inc. 121,467
18,000 Fujitsu Ltd. 202,696
1,400 Sony Corp. 126,566
-------------
Total 450,729
-------------
Netherlands -- 5.0%
- ---------------------------------------------------------------------------------------------------
7,900 Elsevier 148,820
2,700 Royal Dutch Petroleum Co. 147,831
2,300 Unilever NV 148,213
-------------
Total 444,864
-------------
Singapore -- 3.2%
- ---------------------------------------------------------------------------------------------------
39,100 Singapore Airlines Ltd. 289,540
-------------
Switzerland -- 5.9%
- ---------------------------------------------------------------------------------------------------
90 Nestle 157,776
74 Novartis AG 135,128
20 Roche Holding AG 234,379
-------------
Total 527,283
-------------
United Kingdom -- 4.4%
- ---------------------------------------------------------------------------------------------------
4,661 British Petroleum Co. Plc 64,180
5,700 Glaxo Wellcome Plc 162,371
17,073 Reuters Group Plc 171,876
-------------
Total 398,427
-------------
United States -- 54.8%
- ---------------------------------------------------------------------------------------------------
4,400 Abbott Laboratories 329,175
1,500 Bristol-Myers Squibb Co. 150,281
800 Chevron Corp. 64,900
4,950 Cisco Systems, Inc. 326,081
2,500 Citicorp 331,250
3,800 Colgate-Palmolive Co. 308,513
2,900 Eastman Kodak Co. 190,313
900 Exxon Corp. 57,488
2,200 Gillette Co. 237,325
4,600 Intel Corp. 412,562
1,500 International Business Machines Corp. 156,656
900 Lucent Technologies, Inc. 97,538
3,000 McDonald's Corp. 164,250
6,300 Medtronic, Inc. 334,688
1,300 Merck & Co., Inc. 165,831
3,300 Microsoft Corp. 279,675
2,000 Mobil Corp. 144,875
1,500 Monsanto Co. 76,313
6,500 Philip Morris Co., Inc. 282,344
2,000 Schlumberger Ltd. 150,750
1,200 Texaco, Inc. 66,975
3,600 The Boeing Co. 195,300
2,700 The Coca-Cola Co. 185,456
1,700 The Procter & Gamble Co. 144,394
500 The Walt Disney Co. 55,969
-------------
Total 4,908,902
-------------
Total Common Stocks (Cost $7,820,378) 8,425,574
-------------
Preferred Stocks -- 1.1%
- ---------------------------------------------------------------------------------------------------
Germany -- 1.1%
- ---------------------------------------------------------------------------------------------------
250 SAP AG 103,096
-------------
Total Preferred Stocks (Cost $88,019) 103,096
-------------
Total Investments -- 95.0% (Cost -- $7,908,397) 8,528,670
Other Assets in excess of liabilities -- 5.0% 444,546
-------------
Total Net Assets -- 100.0% $ 8,973,216
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Portfolio of Investments
Top 50 Europe Portfolio (US Dollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ------------------- --------------------------------------------------------------------- ------------
<S> <C> <C>
Common Stocks -- 88.8%
Austria -- 2.7%
- ---------------------------------------------------------------------------------------------------
3,000 Bank Austria AG $ 204,178
-------------
Denmark -- 1.9%
- ---------------------------------------------------------------------------------------------------
1,870 Coloplast AS B 147,421
-------------
France -- 10.8%
- ---------------------------------------------------------------------------------------------------
1,550 Axa-UAP 150,118
70 Carrefour Supermarche SA 42,059
1,100 Compagnie Generale des Eaux 173,279
1,300 Elf-Aquitaine 148,138
180 L'Air Liquide 29,124
40 Rexel SA 13,484
1,200 Schneider SA 74,784
980 Synthelabo 136,973
530 Total SA-B shares 58,216
-------------
Total 826,175
-------------
Germany -- 39.7%
- ---------------------------------------------------------------------------------------------------
3,002 Altana AG 239,993
2,582 BASF AG 94,022
4,261 Bayer AG 179,709
70 Buderus AG 31,568
1,013 Deutsche Pfandbrief-und Hypothekenbank AG 76,791
1,436 Duerr AG 48,293
1,872 Fresenius Medical Care AG 131,484
4,265 Gehe AG 225,730
9,702 Hoechst AG 376,024
454 Mannesmann AG 272,823
559 Rhoen-Klinikum AG 57,014
1,174 SAP AG 446,597
1,767 Schering AG 198,633
1,708 SGL Carbon AG 202,453
3,993 Siemens AG 245,786
3,162 Veba AG 212,241
-------------
Total 3,039,161
-------------
Italy -- 1.9%
- ---------------------------------------------------------------------------------------------------
24,900 ENI SpA 145,846
-------------
Netherlands -- 6.8%
- ---------------------------------------------------------------------------------------------------
6,620 Elsevier 124,706
2,720 International Nederlanden Groep 144,134
1,465 Koninklijke Ahold NV 44,873
1,206 Unilever NV 77,715
840 Wolters Kluwer NV 129,920
-------------
Total 521,348
-------------
Norway -- 1.6%
- ---------------------------------------------------------------------------------------------------
4,800 Tomra Systems ASA 120,044
-------------
Sweden -- 6.8%
- ---------------------------------------------------------------------------------------------------
3,980 AGA AB-A 54,735
1,660 AGA AB-B 20,963
7,340 Astra AB-A 148,213
6,230 Getinge Indutrier AB-B 111,388
1,630 Hoganas AB-B 54,007
1,460 Securitas AB-B 44,267
1,900 Telefonaktiebolaget LM Ericsson 86,472
-------------
Total 520,045
-------------
Switzerland -- 10.5%
- ---------------------------------------------------------------------------------------------------
780 Credit Suisse Group 140,996
105 Novartis AG 191,736
33 Roche Holding AG 386,726
41 Schweizerische Rueckversicherungs-Gesellschaft 86,503
-------------
Total 805,961
-------------
United Kingdom -- 6.1%
- ---------------------------------------------------------------------------------------------------
4,000 British Airport Authority Plc 37,404
6,200 Lloyds TSB Group Plc 93,343
22,900 Rentokil Initial Plc 113,153
4,600 Reuters Group Plc 46,309
8,600 Siebe Plc 177,948
-------------
Total 468,157
-------------
Total Common Stocks (Cost -- $6,321,358) 6,798,336
-------------
Preferred Stocks -- 5.0%
- ---------------------------------------------------------------------------------------------------
Germany
- ---------------------------------------------------------------------------------------------------
1,125 Fresenius AG 226,383
196 Rhoen-Klinikum AG 19,775
336 SAP AG 138,560
Total 384,718
-------------
Total Preferred Stocks (Cost -- $331,554) 384,718
-------------
Total Investments -- 93.8% (Cost -- $6,652,912) 7,183,054
Other Assets in excess of liabilities -- 6.2% 476,946
-------------
Total Net Assets -- 100.0% $ 7,660,000
-------------
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Portfolio of Investments
Top 50 Asia Portfolio (US Dollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ------------------- --------------------------------------------------------------------- ------------
<S> <C> <C>
Common Stocks -- 98.6%
- ---------------------------------------------------------------------------------------------------
Australia -- 2.6%
- ---------------------------------------------------------------------------------------------------
18,000 Amatil Ltd. Coca Cola $ 154,483
36,000 Australia & New Zealand Banking Group Ltd. 246,684
18,000 Broken Hill Proprietary Co., Ltd. 177,075
30,000 Woodside Petroleum Ltd. 183,996
-------------
Total 762,238
-------------
Hong Kong -- 17.5%
- ---------------------------------------------------------------------------------------------------
1,200,000 Cathay Pacific Airways 1,030,675
120,000 Cheung Kong Holdings Ltd. 840,814
300,000 Cheung Kong Infrastructure Holdings 924,120
36,000 HSBC Holdings Plc 1,041,524
180,000 Sun Hung Kai Properties Ltd. 1,348,402
-------------
Total 5,185,535
-------------
India -- 1.9%
- ---------------------------------------------------------------------------------------------------
20,000 Dr. Reddy's Laboratories Ltd. -- GDR 220,000
12,000 ITC Ltd. -- GDR 333,000
-------------
Total 553,000
-------------
Indonesia -- 5.5%
- ---------------------------------------------------------------------------------------------------
600,000 HM Sampoerna 341,899
555,000 PT Gudang Garam 685,223
1,550,000 PT Telekomunikasi Indonesia 606,145
-------------
Total 1,633,267
-------------
Japan -- 19.5%
- ---------------------------------------------------------------------------------------------------
19,000 Bridgestone Corp. 438,462
8,000 Canon, Inc. 183,347
90,000 Fujitsu Ltd. 1,013,481
53,000 Minebea Co., Ltd. 588,376
60 Nippon Telephone & Telegraph 551,943
70,000 Nomura Securities Co., Ltd. 965,900
4,000 Sankyo Co., Ltd. 107,534
26,000 Shiseido Co. 327,835
13,000 Sony Corp. 1,175,236
18,000 TERUMO Corp. 254,084
6,000 Toyota Motor Co. 166,059
-------------
Total 5,772,257
-------------
Korea -- 9.2%
- ---------------------------------------------------------------------------------------------------
8,000 Korea Electric Power Corp. -- ADR 85,500
56,780 Korea Electric Power Corp. 757,994
10,000 LG Electronics -- GDR 30,000
40,830 LG Electronics 615,029
6,390 Pohang Iron & Steel Co., Ltd. 304,043
16,000 Samsung Display Devices Co. 930,802
-------------
Total 2,723,368
-------------
Malaysia -- 4.9%
- ---------------------------------------------------------------------------------------------------
149,000 Malaysian Oxygen Bhd. 427,442
620,000 Nylex (Malaysia) Bhd. 332,233
193,400 O.Y.L. Industries Bhd. 690,901
-------------
Total 1,450,576
-------------
Philippines -- 5.0%
- ---------------------------------------------------------------------------------------------------
950,000 Ayala Corp. 447,832
233,000 Benpres Holdings Corp. 757,250
160,000 San Miquel Corp. B 265,493
-------------
Total 1,470,575
-------------
Singapore -- 20.4%
- ---------------------------------------------------------------------------------------------------
160,000 Cerebos Pacific Ltd. 440,358
200,000 City Developments 907,127
680,000 DBS Land Ltd. 1,053,255
114,000 Development Bank of Singapore 893,428
110,000 Fraser & Neave Ltd. 481,950
270,000 GP Batteries International Ltd. 874,730
200,000 Singapore Airlines Ltd. 1,481,024
-------------
Total 6,131,872
-------------
Taiwan -- 9.1%
- ---------------------------------------------------------------------------------------------------
50,000 Acer, Inc. -- GDR 587,500
20,000 Asustek Computer Inc. -- GDR 490,000
2,200 China Steel Corp. -- GDR -- 144A 30,195
3,000 President Enterprises Corp. -- GDR 36,000
53,800 Taiwan Semiconductor Manufacturing Co., Ltd. -- ADR 1,543,388
-------------
Total 2,687,083
-------------
United Kingdom -- 3.0%
- ---------------------------------------------------------------------------------------------------
61,000 Standard Chartered Plc. 880,725
-------------
Total Common Stocks (Cost -- $26,745,221) 29,250,496
-------------
Convertible Preferred Stocks -- 0.5%
- ---------------------------------------------------------------------------------------------------
Australia
- ---------------------------------------------------------------------------------------------------
5,000 National Australia Bank Ltd. 142,813
-------------
Total Convertible Preferred Stocks (Cost -- $138,425) 142,813
-------------
Total Investments -- 99.1% (Cost -- $26,883,646) 29,393,309
Other Assets in excess of liabilities -- 0.9% 259,791
-------------
Total Net Assets -- 100.0% $29,653,100
-------------
</TABLE>
Notes to the Portfolio of Investments:
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
144A -- Securities restricted for resale to qualified Institutional Buyers.
The accompanying notes are an interal part of the Financial Statements.
Portfolio of Investments
Top 50 US Portfolio (US Dollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ------------------- --------------------------------------------------------------------- ------------
<S> <C> <C>
Common Stocks -- 77.3%
- ---------------------------------------------------------------------------------------------------
Aerospace & Defense -- 1.3%
- ---------------------------------------------------------------------------------------------------
1,750 The Boeing Co. $ 94,938
-------------
Banking -- 3.9%
- ---------------------------------------------------------------------------------------------------
960 Citicorp 127,200
1,120 Household International, Inc. 145,460
-------------
Total 272,660
-------------
Beverages, Food & Tobacco -- 5.3%
- ---------------------------------------------------------------------------------------------------
1,620 Campbell Soup Co. 94,061
2,500 PepsiCo, Inc. 91,406
2,480 Philip Morris Co., Inc. 107,725
1,180 The Coca-Cola Co. 81,051
-------------
Total 374,243
-------------
Building Materials -- 2.5%
- ---------------------------------------------------------------------------------------------------
2,740 Home Depot, Inc. 174,846
-------------
Chemicals -- 1.4%
- ---------------------------------------------------------------------------------------------------
1,950 Monsanto Co. 99,206
-------------
Commercial Services -- 3.4%
- ---------------------------------------------------------------------------------------------------
3,700 Cendant Corp. 138,750
2,640 Service Corp. International 99,990
-------------
Total 238,740
-------------
Communications -- 1.9%
- ---------------------------------------------------------------------------------------------------
1,220 Lucent Technologies, Inc. 132,218
-------------
Computer Software & Processing -- 6.7%
- ---------------------------------------------------------------------------------------------------
2,750 Cognizant Corp. 137,328
1,750 First Data Corp. 59,500
1,970 HBO & Co. 106,626
2,000 Microsoft Corp. 169,500
-------------
Total 472,954
-------------
Computers & Information -- 6.6%
- ---------------------------------------------------------------------------------------------------
1,400 Cisco Systems, Inc. 92,225
3,430 EMC Corp. 131,198
1,820 Hewlett-Packard Co. 121,940
2,320 Symbol Technologies, Inc. 118,465
-------------
Total 463,828
-------------
Cosmetics & Personal Care -- 4.5%
- ---------------------------------------------------------------------------------------------------
1,780 Estee Lauder Co. Class A 104,130
1,060 Gillette Co. 114,348
1,150 The Procter & Gamble Co. 97,678
-------------
Total 316,156
-------------
Electric Utilities -- 1.4%
- ---------------------------------------------------------------------------------------------------
2,300 AES Corp. 101,200
-------------
Electrical Equipment -- 4.0%
- ---------------------------------------------------------------------------------------------------
1,670 General Electric Co. 129,843
1,710 Xerox Corp. 151,656
-------------
Total 281,499
-------------
Electronics -- 1.1%
- ---------------------------------------------------------------------------------------------------
880 Intel Corp. 78,925
-------------
Entertainment & Leisure -- 1.7%
- ---------------------------------------------------------------------------------------------------
1,100 The Walt Disney Co. 123,131
-------------
Financial Services -- 1.4%
- ---------------------------------------------------------------------------------------------------
1,590 Federal National Mortgage Association 101,462
-------------
Health Care Providers -- 0.9%
- ---------------------------------------------------------------------------------------------------
2,230 HEALTHSOUTH Corp. 60,210
-------------
Heavy Machinery -- 0.7%
- ---------------------------------------------------------------------------------------------------
1,400 U.S. Filter Corp. 47,513
-------------
Household Products -- 0.7%
- ---------------------------------------------------------------------------------------------------
1,250 Corning, Inc. 50,781
-------------
Insurance -- 8.3%
- ---------------------------------------------------------------------------------------------------
1,170 American International Group, Inc. 140,619
1,200 Chubb Corp. 95,775
425 General Re Corp. 90,525
2,620 Hartford Life, Inc. Class A 112,824
1,600 Marsh & McLennan Co., Inc. 138,700
-------------
Total 578,443
-------------
Medical Supplies -- 4.4%
- ---------------------------------------------------------------------------------------------------
1,320 Johnson & Johnson 99,660
1,910 Medtronic, Inc. 101,469
1,470 The Perkin-Elmer Corp. 107,586
-------------
Total 308,715
-------------
Metals -- 1.4%
- ---------------------------------------------------------------------------------------------------
1,300 Aluminum Company of America 95,388
-------------
Oil & Gas -- 3.2%
- ---------------------------------------------------------------------------------------------------
4,510 Newpark Resources, Inc. 86,818
1,870 Schlumberger Ltd. 140,951
-------------
Total 227,769
-------------
Pharmaceuticals -- 4.9%
- ---------------------------------------------------------------------------------------------------
1,180 Abbott Laboratories 88,279
1,140 Merck & Co., Inc. 145,421
1,250 Pfizer, Inc. 110,625
-------------
Total 344,325
-------------
Retailers -- 4.6%
- ---------------------------------------------------------------------------------------------------
3,200 AutoZone, Inc. 96,800
5,680 Staples, Inc. 119,990
2,370 Wal-Mart Stores, Inc. 109,761
-------------
Total 326,551
-------------
Telephone Systems -- 1.1%
- ---------------------------------------------------------------------------------------------------
1,270 AT & T Corp. $ 77,308
-------------
Total Investments -- 77.3% (Cost -- $4,886,143) 5,443,009
Other Assets in excess of liabilities -- 22.7% 1,597,809
-------------
Total Net Assets -- 100.0% $ 7,040,818
-------------
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Statements of Assets and Liabilities
Deutsche Portfolios
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Top 50 World Top 50 Europe Top 50 Asia Top 50 US
Portfolio Portfolio Portfolio Portfolio
(US Dollar) (US Dollar) (US Dollar) (US Dollar)
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Assets:
Investments, at value $8,528,670 $ 7,183,054 $29,393,309 $5,443,009
Cash 226,812 399,719 837,139 615,628
Foreign currency -- -- 514 --
Dividends receivable 35,211 7,932 3,585 1,997
Interest receivable 1,351 867 5,349 1,897
Receivable from
transactions in Investors'
Beneficial Interest 1,045,466 1,099,591 1,110,616 1,071,470
Deferred organization costs 60,494 60,494 60,927 60,494
------------- ------------- ------------ -----------
Total assets 9,898,004 8,751,657 31,411,439 7,194,495
------------- ------------- ------------ -----------
Liabilities:
Payable for investments purchased 756,276 927,610 1,496,641 --
Payable for transactions in Investors' Beneficial Interest -- -- 64,594 --
Investment management fees payable 24,276 19,927 58,531 13,124
Organization expenses payable 65,912 65,912 65,912 65,912
Accrued expenses and other liabilities 78,324 78,208 72,661 74,641
------------- ------------- ------------ -----------
Total liabilities 924,788 1,091,657 1,758,339 153,677
------------- ------------- ------------ -----------
Net assets $8,973,216 $ 7,660,000 $29,653,100 $7,040,818
Net Assets:
Applicable to Investors' Beneficial Interests $8,973,216 $ 7,660,000 $29,653,100 $7,040,818
Cost of investments $7,908,397 $ 6,652,912 $26,883,646 $4,886,143
Cost of foreign currency -- -- $ 499 --
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Statements of Operations
Deutsche Portfolios For the period from Commencement of Operations
through February 28, 1998(a) (unaudited)
<TABLE>
<CAPTION>
Top 50 World Top 50 Europe Top 50 Asia Top 50 US
Portfolio Portfolio Portfolio Portfolio
(US Dollar) (US Dollar) (US Dollar) (US Dollar)
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Investment Income:
Dividend income $ 48,002 $ 12,577 $ 37,627 $ 12,083
Less: foreign withholding
taxes (440) (1,424) (2,733) --
------------- ------------- ------------- ------------
Net dividend income 47,562 11,153 34,894 12,083
Interest income 11,916 14,823 50,934 8,612
------------- ------------- ------------- ------------
Total income 59,478 25,976 85,828 20,695
------------- ------------- ------------- ------------
Expenses:
Investment management fees 24,276 19,927 58,531 13,124
Operations agent fees 30,207 30,317 26,888 30,329
Administration agent fees 16,438 16,438 15,123 16,438
Custody and accounting fees 18,494 18,494 17,014 14,795
Audit fees 8,219 8,219 7,561 8,219
Legal fees 4,110 4,110 3,781 4,110
Trustees' fees and expenses 2,672 2,672 2,458 2,672
Insurance fees 534 534 491 534
Reports to shareholders 822 822 756 822
Other expenses 8,842 8,842 8,094 8,796
Amortization of organization costs 5,418 5,418 4,985 5,418
------------- ------------- ------------- ------------
Total expenses 120,032 115,793 145,682 105,257
------------- ------------- ------------- ------------
Net investment (loss) (60,554) (89,817) (59,854) (84,562)
------------- ------------- ------------- ------------
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency:
Net realized gain (loss) on:
Investments 27,576 6,039 (718,080) 3,925
Foreign currency transactions (5,125) 28,590 (16,208) --
Net change in unrealized appreciation/depreciation on:
Investments 620,273 530,141 2,509,663 556,866
Foreign currency 102 (1,767) (88) --
------------- ------------- ------------- ------------
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions: 642,826 563,003 1,775,287 560,791
------------- ------------- ------------- ------------
Net Increase (Decrease) in Net Assets Resulting from Operations $ 582,272 $ 473,186 $ 1,715,433 $ 476,229
------------- ------------- ------------- ------------
(a) Commencement of operations: 10/2/97 10/2/97 10/14/97 10/2/97
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Statements of Changes in Net Assets
Deutsche Portfolios
For the period from Commencement of Operations
through February 28, 1998(a) (unaudited)
<TABLE>
<CAPTION>
Top 50 World Top 50 Europe Top 50 Asia Top 50 US
Portfolio Portfolio Portfolio Portfolio
(US Dollar) (US Dollar) (US Dollar) (US Dollar)
------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
Increase (Decrease) In Net Assets:
Operations --
Net investment (loss) $ (60,554) $ (89,817) $ (59,854) $ (84,562)
Net realized gain (loss) on investments and foreign
currency transactions 22,451 34,629 (734,288) 3,925
Net change in unrealized appreciation (depreciation) on
investments and foreign currency 620,375 528,374 2,509,575 556,866
------------ ------------- ----------- -----------
Net increase (decrease) in net assets resulting from
operations 582,272 473,186 1,715,433 476,229
------------ ------------- ----------- -----------
Capital Transactions--Proceeds from contributions 8,694,313 8,364,553 28,723,628 6,982,362
Value of withdrawals (314,483) (1,188,851) (797,073) (428,885)
------------ ------------- ----------- -----------
Net increase in net assets from capital transactions 8,379,830 7,175,702 27,926,555 6,553,477
------------ ------------- ----------- -----------
Total increase in net assets 8,962,102 7,648,888 29,641,988 7,029,706
Net Assets:
Beginning of period 11,114 11,112 11,112 11,112
------------ ------------- ----------- -----------
End of period $8,973,216 $ 7,660,000 $29,653,100 $7,040,818
------------ ------------- ----------- -----------
(a) Commencement of operations: 10/2/97 10/2/97 10/14/97 10/2/97
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
Financial highlights
Deutsche Portfolios
For the period from Commencement of Operations
through February 28, 1998 (a) (unaudited)
<TABLE>
<CAPTION>
Top 50 World Top 50 Europe Top 50 Asia Top 50 US
Portfolio Portfolio Portfolio Portfolio
(US Dollar) (US Dollar) (US Dollar) (US Dollar)
------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 8,973 $ 7,660 $ 29,653 $ 7,041
Ratio of expenses to average daily net assets(b) 4.89% 5.75% 2.45% 6.73%
Ratio of net investment income (loss) to average
net assets(b) (2.47)% (4.46)% (1.01)% (5.41)%
Portfolio turnover(c) 62% 22% 9% 18%
Average commission rate per share(d) $0.1286 $0.1287 $0.0156 $0.0690
(a) Commencement of operations: 10/2/97 10/2/97 10/14/97 10/2/97
</TABLE>
(b) Annualized
(c) Not annualized
(d) Represents average brokerage commission rate per share of total security
trades on which brokerage commissions were charged.
The accompanying notes are an integral part of the Financial Statements.
Notes to Financial Statements
Deutsche Portfolios
February 28, 1998 (unaudited)
Note 1 -- Organization
Deutsche Portfolios ("Portfolio Trust") was organized on June 20, 1997, as a
business trust under the laws of the State of New York and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Portfolio Trust currently consists of ten
separate investment series (each a "Portfolio" and collectively the
"Portfolios"), each of which is, in effect, a separate mutual fund. The
accompanying financial statements and notes relate to four of these Portfolios
which are Top 50 World Portfolio (US Dollar) ("Top 50 World Portfolio"), Top 50
Europe Portfolio (US Dollar) ("Top 50 Europe Portfolio"), Top 50 Asia Portfolio
(US Dollar) ("Top 50 Asia Portfolio"), and Top 50 US Portfolio (US Dollar) ("Top
50 US Portfolio").
The investment manager of the Portfolios is Deutsche Fund Management, Inc.
("DFM" or the "Manager"), an indirect subsidiary of Deutsche Bank AG. The
investment objective of each Portfolio is primarily to achieve high capital
appreciation, and as a secondary objective, reasonable dividend income. The
Portfolios commenced operations in October 1997.
Note 2 -- Significant Accounting Policies
The preparation of financial statements in conformity 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 Portfolios:
Security Valuation
The value of equity securities listed on a U.S. securities exchange are valued
at the last quoted sales price on the securities exchange or national securities
market on which such securities are primarily traded. Securities listed on a
foreign exchange considered by the Manager to be a primary market for the
securities are valued at the last quoted sale price available before the time
when net assets are valued. Unlisted securities, and securities for which the
Manager determines the listing exchange is not a primary market, are valued at
the average of the quoted bid-and-ask prices in the over-the-counter market.
Debt securities with a remaining maturity of less than 60 days are valued at
amortized cost, which approximates market value. Debt securities with a
maturity of 60 days or more are based on the last sales price on a national
securities exchange or in the absence of recorded sales, at the average of
readily available closing bid-and-asked prices on such exchanges or at the
average of the readily available closing bid and asked prices in the over-the-
counter market, if such exchange or market constitutes the broadest and most
representative market for the security. Any security for which market
quotations are not readily available, are priced in accordance with procedures
adopted by the Trustees of the Portfolio Trust.
Forward Foreign Currency Contracts
The Portfolio Trust enters into forward contracts with various counterparties.
Forward contracts are over-the-counter contracts for delayed delivery of
securities or currency in which the buyer agrees to buy and the seller agrees to
deliver a specified security or currency at a specified price on a specified
date. Because the terms of forward contracts are not standardized, they are not
traded on organized exchanges and generally can be terminated or closed-out only
by agreement of both parties to the contract. During the period the forward
contract is open, changes in the value of the contract are recognized as
unrealized gains or losses. When the forward contract is closed, the Portfolio
Trust records a realized gain or loss equal to the difference between the
proceeds from (or cost of) the close-out of the contract and the original
contract price.
Investment Transactions
Investment transactions are recorded on trade date. Cost of securities sold is
calculated using identified cost method. Dividend income is recorded on ex-
dividend date and interest income is recorded on an accrual basis. Such
dividend and interest income is recorded net of the unrecoverable portion of any
applicable foreign withholding tax.
Foreign Currency Translation
The books and records of the Portfolios are maintained in US Dollars. Assets
and liabilities denominated in foreign currency amounts are translated at the
relevant foreign exchange rate. Purchase and sales of investment securities,
income and expenses are recorded at the prevailing exchange rate on the
respective days of such transactions. The resultant gains and losses arising
from exchange rate fluctuations are identified separately in the Statements of
Operations, except for such amounts attributable to investments which are
included in net realized and unrealized gains and losses on investments.
Foreign investments may involve certain considerations and risks not typically
associated with those of domestic origin as a result of, among others, the
possibility of political and economic developments and the level of governmental
supervision and regulation of foreign securities markets.
Federal Income Taxes
Each Portfolio is treated as a partnership under the U.S. Internal Revenue Code
(the "Code"). Accordingly, each Portfolio will not be subject to any federal
income tax on its income and net realized gains (if any). However, each
investor in a Portfolio will be taxed on its allocable share of the
partnership's income and capital gains for purposes of determining its federal
tax liability. The determination of such share will be made in accordance with
the applicable sections of the Code. It is intended that each Portfolio's
assets, income and allocation will be managed in such a way that a regulated
investment company investing in the Portfolio will be able to satisfy the
requirements of Subchapter M of the Code, assuming that such investment company
invests all of its assets in the corresponding Portfolio.
Expenses
Expenses are recorded on an accrual basis. Expenses of the Portfolio Trust which
are directly identifiable to a specific Portfolio are charged to that Portfolio.
Expenses not directly attributable to a specific Portfolio are allocated among
the Portfolios in such a manner as deemed equitable by the Trustees.
Deferred Organization Expenses
Organization expenses incurred in connection with the organization and initial
registration of the Portfolio Trust were paid initially by DFM and will be
reimbursed by the Portfolios. Such organization expenses have been deferred and
will be amortized ratably over a period of sixty months from the commencement of
operations of the Portfolios. Any amount received by the Portfolio from its
corresponding Fund as a result of a redemption by Edgewood Services Inc.,
distributor of the Deutsche Funds, Inc. of any of its Initial Interest in the
Portfolio will be applied so as to reduce the amount of unamortized organization
expenses. The amount paid by the Portfolio Trust on any withdrawal by the
Deutsche Funds, Inc. of all or part of its Initial Interest in the Portfolios
will be reduced by a portion of any unamortized organization expenses of the
Portfolios, determined by the proportion of the amount of the Initial Interest
withdrawn to the aggregate amount of the Initial Interests in the Portfolios
then outstanding after taking into account any prior withdrawals of any portion
of the Initial Interests in the Portfolios.
Note 3 -- Significant Agreements and Transactions with Affiliates
The Portfolio Trust has entered into an Investment Management Agreement (the
"Management Agreement") with DFM, an indirect subsidiary of Deutsche Bank AG.
DFM retains overall responsibility for supervision of the investment management
program for each Portfolio but has delegated the day-to-day management of the
investment operations of each Portfolio to an investment advisor. As
compensation for the services rendered by DFM under the investment management
agreement with the Portfolio Trust with respect to each Portfolio, DFM receives
a fee from each Portfolio, which is computed daily and paid monthly, equal to
the following percentages of each Portfolio's average daily net assets on an
annualized basis for the Portfolio's then-current fiscal year:
Top 50 World Portfolio 1.00%
Top 50 Europe Portfolio 1.00%
Top 50 Asia Portfolio 1.00%
Top 50 US Portfolio 0.85%
DFM has retained the services of DWS International Portfolio Management GmbH
("DWS") as investment adviser of the Portfolios other than the Top 50 US
Portfolio (US Dollar). Deutsche Morgan Grenfell Investment Management, Inc.
("DMGIM") is the investment adviser of the Top 50 US Portfolio (US Dollar). The
advisers are indirect subsidiaries of Deutsche Bank AG. As compensation for
their services, DWS and DMGIM each receives a fee, paid by DFM, which is based
on the average daily net assets of the applicable Portfolio.
The Portfolio Trust has retained Federated Services Company as Operations Agent
to the Portfolios. As Operations Agent of the Portfolios, Federated Services
Company receives a fee from each Portfolio, which is computed daily and paid
monthly, at the annual rate of 0.035% of the average daily net assets of each
Portfolio for the Portfolio's then-current fiscal year, subject to a minimum fee
of $60,000 per Portfolio annually. Federated Services Company receives, in its
capacity as Administrator and Transfer Agent of the Deutsche Funds, Inc. and as
Operating Agent of the Portfolios, a minimum aggregate fee from each Portfolio,
its corresponding Fund and any other fund investing in each Portfolio, taken
together, of $75,000 for the first year of each Portfolio's operations and
$125,000 for the second year.
The Portfolio Trust has entered into an administrative agreement with IBT Trust
Company (Cayman) Ltd. ("IBT (Cayman)"). As Administrative Agent of the
Portfolios, IBT (Cayman) receives a fee from each Portfolio, which is computed
daily and paid monthly, at the annual rate of $5,000 per each Portfolio.
From commencement of operations to February 28, 1998, affiliates of Deutsche
Bank AG received brokerage commissions as a result of executing agency
transactions in portfolio securities in the amount of $7,090, $9,236, $0 and
$7,724, from the Top 50 World Portfolio, Top 50 Europe Portfolio, Top 50 Asia
Portfolio and Top 50 US Portfolio, respectively.
Note 4 -- Investment Portfolio Transactions
Purchases and sales of investments, exclusive of short-term securities, for each
Portfolio for the period from commencement of operations to February 28, 1998
are as follows:
Top 50 Top 50 Top 50 Top 50
World Portfolio Europe Portfolio Asia Portfolio US Portfolio
Purchases $11,228,603 $7,541,467 $28,798,173 $5,510,300
Sales $ 3,347,782 $ 894,594 $ 1,196,447 $ 628,082
At February 28, 1998, the cost of investments and the unrealized appreciation
(depreciation) of investments for each Portfolio were as follows:
<TABLE>
<CAPTION>
Top 50 Top 50 Top 50 Top 50
World Portfolio Europe Portfolio Asia Portfolio US Portfolio
<S> <C> <C> <C> <C>
Cost of Investments $7,908,397 $6,652,912 $26,883,646 $4,886,143
Gross Unrealized Appreciation 725,873 630,819 3,358,604 589,542
Gross Unrealized Depreciation (105,600) (100,678) (848,941) (32,676)
Net Unrealized Appreciation/(Depreciation) 620,273 530,141 2,509,663 556,866
</TABLE>
Note 5 -- Off-Balance Sheet Risk and Concentration of Credit Risk
The Statement of Assets and Liabilities includes the market or fair value of
contractual commitments involving forward settlement contracts. These
instruments may involve elements of market risk in excess of amounts reflected
on the Statements of Assets and Liabilities.
Notional amounts are indicative only of the volume of activity; they are not a
measure of market risk. Notional amounts of forward contracts include both
purchase and sale commitments. Notional amounts of futures include contracts
purchased as well as contracts sold. Market risk is influenced by the nature of
the items that comprise a particular category of financial instruments and by
the relationship among the various off-balance sheet categories as well as the
relationship between off-balance sheet items and items recorded on the
Portfolios' Statement of Assets and Liabilities. Credit risk is measured by the
loss the Portfolios would record if its counterparties failed to perform
pursuant to terms of their obligations to the Portfolios.
NOTES
Mutual funds are not deposits or obligations of any bank, are not guaranteed by
any bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the funds' prospectuses which contain facts
concerning their objective and policies, management fees, expenses and other
information.
Directors of the Corporation and
Trustees of the Portfolio Trust
Edward C. Schmults
Robert H. Wadsworth
Werner Walbroel
G. Richard Stamberger
Christian Strenger
Officers of the Corporation
Brian A. Lee
Joseph Cheung
Robert R. Gambee
Laura Weber
Edgewood Services, Inc., Distributor
GO2216-07 (4/98)
SEMI-ANNUAL REPORT
and supplement to prospectus dated April 30, 1998
Deutsche European Mid-Cap Fund
Deutsche German Equity Fund
Deutsche Japanese Equity Fund
Deutsche Global Bond Fund
Deutsche European Bond Fund
Class A Shares and Class B Shares
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the first Semi-Annual Report for Deutsche European Mid-
Cap Fund, Deutsche German Equity Fund, Deutsche Japanese Equity Fund, Deutsche
Global Bond Fund and Deutsche European Bond Fund.
On the following pages you will find complete financial information concerning
your investment in the Deutsche Funds. Also included is a list of fund holdings,
and the fund's financial statements.
Please note that this report covers financial activity in the funds through
February 28, 1998.
We are very proud of the funds we offer. The Deutsche Portfolios, in which the
Deutsche Funds invest, are managed by Deutsche Fund Management, Inc., and are
advised by the award-winning professionals at DWS International Portfolio
Management GmbH, in Frankfurt, Germany. These funds are poised to take advantage
of the dynamic changes occurring throughout the world, including Europe, Asia
and U.S. markets.* The Deutsche Funds seek to provide you with a variety of ways
to allocate assets within the international portion of your portfolio, while
seeking to enable you to minimize risks that sometimes may be associated with
international investing.
May I suggest that you take the time to review this report and familiarize
yourself with your fund's strategy and holdings. We believe that the true
measure of any fund's performance is over the longer term.
Thank you for selecting Deutsche Funds to pursue your financial goals. We are
committed to providing quality investment products, coupled with our further
commitment to the highest level of service possible.
Sincerely,
/s/ Brian Lee
Brian Lee
President
April 15, 1998
* Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards. Emerging markets structures may be less diverse and
mature, and their political systems may be less stable. In addition, Asian and
Pacific Rim countries may have relatively unstable governments, economies based
on only a few commodities or industries, and securities markets trading
infrequently or in low volumes.
STATEMENTS OF ASSETS AND LIABILITIES
Deutsche Funds, Inc.
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche Deutsche
European German Japanese Global European
Mid-Cap Equity Equity Bond Bond
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Assets:
Investments in corresponding Deutsche Portfolios at value $18,449 $19,574 $ 9,681 $12,073 $13,814
Receivable from Manager for expense reimbursement 48,961 48,962 48,561 49,415 48,812
Deferred organization costs 11,663 11,663 11,663 11,643 11,663
Total assets 79,073 80,199 69,905 73,131 74,289
Liabilities:
Service fees payable--Class A 12 13 9 11 11
Organization costs payable 12,595 12,595 12,588 12,588 12,595
Accrued expenses and other liabilities 47,396 47,387 47,068 48,019 47,336
Total liabilities 60,003 59,995 59,665 60,618 59,942
Net assets $19,070 $20,204 $10,240 $12,513 $14,347
Net Assets Consist of:
Capital stock, $0.001 par value
(authorized 10,000,000 shares for each Fund) 1 1 1 1 1
Paid-in capital 17,866 18,410 11,710 12,309 14,110
Undistributed (accumulated) net investment income (loss) (69) (51) (29) 163 174
Undistributed (accumulated) net realized gain (loss) on
investments and foreign currency transactions 234 410 (479) 3 41
Net unrealized appreciation (depreciation) of investments
and foreign currency 1,038 1,434 (963) 37 21
Net assets $19,070 $20,204 $10,240 $12,513 $14,347
Computation of Net Asset Value, Redemption Price and
Offering Price Per Share:
Net assets--Class A $19,070 $20,204 $10,240 $12,513 $14,347
Shares outstanding--Class A 1,446 1,469 944 983 1,126
Net asset value and redemption price per share--Class A $13.19 $13.75 $10.85 $12.73 $12.74
Offering price per share--Class A $13.96 $14.55 $11.48 $13.33 $13.34
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
STATEMENTS OF OPERATIONS
Deutsche Funds, Inc.
For the period from Commencement of Operations through February 28, 1998(a)
(unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche Deutsche
European German Japanese Global European
Mid-Cap Equity Equity Bond Bond
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Investment Income:
Investment Income and Expenses allocated from the
corresponding Deutsche Portfolios:
Dividend income $ 9 $ 37 $ 5 $ -- $ --
Less: foreign withholding taxes (2) (10) (1) -- --
Net dividend income 7 27 4 -- --
Interest income 3 4 25 218 232
Expenses (587) (601) (508) (384) (484)
Net investment loss allocated from the corresponding
Deutsche Portfolios (577) (570) (479) (166) (252)
Expenses:
Audit fees 1,849 1,849 1,836 1,877 1,849
Legal fees 1,849 1,849 1,836 1,877 1,849
Accounting fees 7,028 7,028 6,976 7,132 7,028
Directors' fees and expenses 2,774 2,774 2,754 2,815 2,774
Administration fees 3 3 2 3 3
Insurance fees 406 406 403 412 406
Reports to Shareholders 5,918 5,918 5,875 6,006 5,918
Transfer agent fees 5,414 5,405 5,398 5,413 5,350
Registration fees 18,567 18,567 18,429 18,842 18,567
Other expenses 3,701 3,699 3,668 3,753 3,699
Amortization of organization costs 932 932 925 945 932
Service fees--Class A 12 13 9 11 11
Total expenses 48,453 48,443 48,111 49,086 48,386
Less: Expense reimbursement (48,961) (48,962) (48,561) (49,415) (48,812)
Net expenses (508) (519) (450) (329) (426)
Net investment income (loss) (69) (51) (29) 163 174
Net Realized and Unrealized Gain (Loss) on Investments and Foreign
Currency allocated from the corresponding Deutsche Portfolios:
Net realized gain (loss) on:
Investments 88 285 (505) (8) (22)
Foreign currency transactions 146 125 26 11 63
Net change in unrealized appreciation/depreciation on:
Investments 1,038 1,434 (963) 39 26
Foreign currency -- -- -- (2) (5)
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency from the Deutsche Portfolios 1,272 1,844 (1,442) 40 62
Net Increase (Decrease) in Net Assets Resulting From Operations $ 1,203 $ 1,793 $ (1,471) $ 203 $ 236
(a) Commencement of operations: 10/17/97 10/17/97 10/20/97 10/15/97 10/17/97
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
Deutsche Funds, Inc.
For the period from Commencement of Operations through February 28, 1998(a)
(unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche Deutsche
European German Japanese Global European
Mid-Cap Equity Equity Bond Bond
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
Operations--
Net investment income (loss) $ (69) $ (51) $ (29) $ 163 $ 174
Net realized gain (loss) on investments and foreign currency
transactions 234 410 (479) 3 41
Net change in unrealized appreciation/depreciation on investments
and foreign currency 1,038 1,434 (963) 37 21
Net increase (decrease) in net assets resulting from operations 1,203 1,793 (1,471) 203 236
Capital Share Transactions: Class A
Net proceeds from shares sold 6,756 7,300 600 1,199 3,000
Net cost of shares redeemed -- -- -- -- --
Net increase in net assets resulting from capital share
transactions--Class A 6,756 7,300 600 1,199 3,000
Total increase (decrease) in net assets 7,959 9,093 (871) 1,402 3,236
Net Assets:
Beginning of period 11,111 11,111 11,111 11,111 11,111
End of period(b) $ 19,070 $ 20,204 $ 10,240 $ 12,513 $ 14,347
Capital Shares--Class A
Shares outstanding, beginning of period 889 889 889 889 889
Shares sold 557 580 55 94 237
Shares redeemed -- -- -- -- --
Capital shares outstanding, end of period 1,446 1,469 944 983 1,126
(a) Commencement of operations: 10/17/97 10/17/97 10/20/97 10/15/98 10/17/97
(b) Including undistributed (accumulated) net investment income (loss). $ (69) $ (51) $ (29) $ 163 $ 174
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
Deutsche Funds, Inc.
For the period from Commencement of Operations through February 28, 1998 (a)
(unaudited)
Selected data for a Class A share of common stock outstanding throughout
the period.
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche Deutsche
European German Japanese Global European
Mid-Cap Equity Equity Bond Bond
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 12.50 $ 12.50 $ 12.50 $ 12.50 $12.50
Investment operations:
Net investment income (loss) (0.05) (0.03) (0.03) 0.17 0.15
Net realized and unrealized gain (loss) on
investments and foreign currency 0.74 1.28 (1.62) 0.06 0.09
Increase (decrease) from investment operations 0.69 1.25 (1.65) 0.23 0.24
Net asset value at end of period $ 13.19 $ 13.75 $ 10.85 $ 12.73 $12.74
Total Return (based on net asset value)(c)* 5.52% 10.00% (13.20)% 1.84% 1.92%
Ratios and Supplemental Data
Net assets, end of period (000's) $ 19 $ 20 $ 10 $ 13 $ 14
Ratios to average net assets
Expenses(b)** 1.60% 1.60% 1.60% 1.30% 1.30%
Net investment income (loss)(b)** (1.40)% (0.99)% (0.82)% 3.85% 3.93%
(a) Commencement of operations: 10/17/97 10/17/97 10/20/97 10/15/97 10/17/97
</TABLE>
(b) Includes the Fund's allocated portion of the corresponding Deutsche
Portfolios' expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income to average net assets would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Expenses to average net assets 992.68% 953.73% 1,370.77% 1,167.16% 1,102.89%
Net investment income to average net assets** (992.47)% (953.13)% (1,369.95)% (1,162.02)% (1,097.66)%
</TABLE>
(c) Total Return based on net asset value, excluding the effect of shareholder
transaction charges, assumes a purchase of common stock at net asset value
at commencement of operations and a sale on the last day of the period, also
at net asset value. During the period, total return would have been lower
had certain expenses not been reimbursed by the Manager.
* Not annualized
** Annualized
The accompanying notes are an integral part of the Financial Statements.
NOTES TO FINANCIAL STATEMENTS
Deutsche Funds, Inc.
February 28, 1998
Note 1--Organization
Deutsche Funds, Inc. (the "Company") was incorporated in Maryland on May 22,
1997 and is registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company. The Company currently
consists of eleven separate investment series (each a "Fund" and collectively
the "Funds"). The accompanying financial statements and notes thereto relate to
five of these Funds: Deutsche European Mid-Cap Fund ("European Mid-Cap Fund");
Deutsche German Equity Fund ("German Equity Fund"), and Deutsche Japanese Equity
Fund ("Japanese Equity Fund") (collectively, the "Equity Funds"); and Deutsche
Global Bond Fund ("Global Bond Fund") and Deutsche European Bond Fund ("European
Bond Fund") (collectively, the "Bond Funds").
Each of the Funds will seek to achieve their respective investment objective by
investing substantially all of their assets in the corresponding portfolio of
Deutsche Portfolios (the "Portfolio Trust") having substantially the same
investment objective of each of the respective Funds. The Portfolio Trust is an
open-end management investment company and is comprised of ten portfolios (each
a "Portfolio"). The financial statements of five of the Portfolios, including
their portfolio of investments, are included elsewhere within this report and
should be read in conjuction with each Fund's financial statements.
The Company has not retained the services of an investment adviser since the
Funds seek to achieve their investment objective by investing all of their
investable assets in their corresponding Portfolio of the Portfolio Trust. Each
Portfolio is managed by Deutsche Fund Management, Inc. ("DFM"), an indirect
subsidiary of Deutsche Bank AG. Federated Services Company serves as
Administrator to the Funds and Federated Shareholder Services Company serves as
transfer agent and dividend disbursing agent to the Funds. Edgewood Services,
Inc. ("Edgewood") serves as distributor to the Funds (the "Distributor").
Each Fund recognizes daily a pro-rata portion of its corresponding Portfolio's
income and expenses, including fees paid to DFM and the amortization of
organization expenses. Each Fund offers two classes of shares to investors,
Class A and Class B. Both Class A Shares and Class B Shares are subject to a
Service Plan and Class B Shares are also subject to a Distribution Plan. Each
Class will bear its respective portion of the expenses under the Service and
Distribution Plans. The Funds commenced operations in October 1997. As of
February 28, 1998, only Class A Shares have been sold to the public.
Note 2--Significant Accounting Policies
The preparation of financial statements in conformity 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 Funds:
Investment Valuation
The value of a Fund's investment in the Portfolio included in the accompanying
Statements of Assets and Liabilities reflects the Fund's proportionate
beneficial interest in the net assets of the Portfolio (percentages as of
February 28, 1998 are listed below). Valuation of securities by the Portfolio is
discussed in Note 2 of the Portfolios' Notes to Financial Statements which are
included elsewhere in this report.
<TABLE>
<CAPTION>
Fund Percentage Portfolio
<S> <C> <C>
European Mid-Cap Fund 0.79% Provesta Portfolio (US Dollar)
German Equity Fund 0.81% Investa Portfolio (US Dollar)
Japanese Equity Fund 0.58% Japanese Equity Portfolio (US Dollar)
Global Bond Fund 0.40% Global Bond Portfolio (US Dollar)
European Bond Fund 0.59% European Bond Portfolio (US Dollar)
</TABLE>
From time to time, the Funds may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investments activities
of these shareholders could have a material impact on the Funds and Portfolios.
Investment Income, Expense, Realized and Unrealized Gains and Losses
The Funds record their proportionate share of the investment income, expense,
realized and unrealized gains and losses recorded by the Portfolio on a daily
basis. The investment income, expense, realized and unrealized gains and losses
are allocated daily to investors of the Portfolio based upon the amount of their
investment in the Portfolio. The Company accounts separately for the assets,
liabilities and operations of each Fund. Expenses attributable to each Fund are
charged directly to the respective Fund, while general Company expenses
attributable to more than one Fund of the Company are allocated among the
respective Funds. The investment income and expenses of each Fund (other than
class specific expenses, realized and unrealized gains and losses) are further
allocated to each class of shares based on their relative net asset values of
each Fund.
Federal Income Taxes
Each Fund is treated as a separate entity for federal income tax purposes. It is
the policy of each Fund to qualify for and elect treatment as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, as amended.
Accordingly, each Fund would not be subject to U.S. federal income taxes to the
extent it distributes substantially all of its taxable income including any net
capital gains for each fiscal year. In addition, by distributing, during each
calendar year, substantially all of its net investment income and capital gains,
each Fund would not be subject to U.S. Federal excise tax.
Distributions to Shareholders
Dividends from net investment income of all Funds are declared and paid at least
annually and, in the case of the Bond Funds, monthly. Capital gains of each
Fund, if any, are distributed at least annually. Dividends and capital gains
distributions are distributed in U.S. dollars. The Funds record all dividend
distributions to shareholders on ex-dividend date. During the period ended
Febuary 28, 1998, the Global Bond Fund and the European Bond Fund did not
distribute monthly dividends.
Deferred Organization Costs
Organization expenses incurred in connection with the organization and initial
registration of the Company were paid initially by DFM and will be reimbursed by
the Funds. Such organization expenses have been deferred and will be amortized
ratably over a period of sixty months from the commencement of operations of the
Funds. The amount paid by each Fund on any redemption by Edgewood (or any
subsequent holder) of such Fund's initial shares will be reduced by the pro-rata
portion of any unamortized organization expenses of the Funds.
Note 3--Significant Agreements and Transactions with Affiliates
The Company has retained the services of Federated Services Company as
Administrator. Under the Administration Agreement, Federated Services Company
will assist in the operations of the Funds subject to the direction and control
of the Board of Directors of the Company. For its services, Federated Services
Company receives a fee from each Fund, which is computed daily and paid monthly,
at an annual rate of 0.065% of the average daily net assets of each Fund up to
$500 million and 0.05% of such assets in excess of $500 million for the Fund's
then current fiscal year subject to a minimum of $75,000 for the first year and
$125,000 for the second year.
The Company has entered into a distribution agreement with Edgewood. Edgewood
will serve as principal distributor for shares of each Fund. Pursuant to the
Service and Distribution Plans, Class B Shares of the Funds are subject to the
Distribution Plan and Class A Shares and Class B Shares of the Funds are subject
to the Service Plan. Under the Distribution Plan, Class B Shares of each Fund
pay a fee to the Distributor in an amount computed at an annual rate of 0.75% of
the average daily net assets of the Fund represented by Class B Shares to
finance activity that is principally intended to result in the sale of Class B
Shares of the Fund. Under the Service Plan, each Fund pays to DFM, for the
provision of certain services to the holders of Class A Shares and Class B
Shares, a fee computed at an annual rate of 0.25% of the average daily net
assets of each such Class of Shares.
Federated Shareholder Services Company serves as the transfer agent and dividend
disbursing agent for each Fund. Federated Services Company and Federated
Shareholder Services Company are both affiliated with Edgewood Services Inc. IBT
Fund Services (Canada) Inc. will provide fund accounting services to the Funds.
Expense Reimbursements
DFM has voluntarily agreed that it will reimburse each Fund through at least
August 31, 1998, to the extent necessary to maintain each Fund's total operating
expenses (which includes expenses of the Fund and its pro-rata portion of
expenses of the corresponding Portfolio), at not more than 1.60% and 1.30% of
the average daily net assets of Class A Shares of the Equity Funds, and the Bond
Funds, respectively.
PORTFOLIO OF INVESTMENTS
Provesta Portfolio (USDollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<C> <S> <C>
Common Stocks--81.0%
France--4.5%
51 Banque Nationale de Paris $ 3,086
1,200 Business Objects SA--ADR 16,950
93 Cap Gemini SA . 10,705
113 Compagnie Financiere de Paribas 10,758
280 Groupe des Assurances Nationales 6,902
156 Sanofi SA 17,700
629 Schneider SA 39,199
Total 105,300
Germany--65.8%
121 Adidas AG 18,945
38 ADOLF AHLERS AG 8,694
153 Aixtron AG 29,481
823 Altana AG 65,791
75 AVA Allgemeine Handels der Verbraucher 24,809
7 Axa Colonia Konzern AG 853
58 A. Friedrich Flender AG 8,634
200 Bankgesellschaft Berlin AG 4,251
864 Bayerische Hypotheken-und Wechsel-Bank AG 40,965
1,387 Bayerische Vereinsbank AG 86,561
28 BDAG Balcke-Duerr AG 3,844
149 Beiersdorf AG 7,048
465 BERLINER ELEKTRO Holding AG 9,101
529 Berliner Kraft-und Licht (Bewag) AG 23,332
437 BERU AG 8,673
578 BHF-Bank AG 16,507
23 CeWe Color Holding AG 5,199
1,926 Continental AG 46,296
33 DBV-Winterthur Holding AG 14,646
520 Degussa AG 26,948
352 Deutsche Babcock AG 19,600
399 Deutsche Pfandbrief-und Hypothekenbank AG 30,246
444 Duerr AG 14,932
146 Escada AG 20,123
2,603 FAG Kugelfischer Georg Schaefer AG 35,733
99 Felten & Guilleaume Energietechnik AG 10,097
67 Fresenius AG 12,559
538 Fresenius Medical Care AG 37,788
340 Fried Krupp AG Hoesch-Krupp 61,857
59 Fuchs Petrolub AG Oel + Chemie 6,652
1,278 Gehe AG 67,640
555 Gerresheimer Glas AG 7,864
</TABLE>
Provesta Portfolio (USDollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<C> <S> <C>
Common Stocks--continued
Germany--continued
373 Heidelberger Druckmaschinen AG $ 21,551
267 Henkel KGaA 16,398
182 Hornbach Baumarkt AG 5,669
488 Hucke AG 10,762
102 IWKA AG 22,606
20 Karstadt AG 7,134
484 Kiekert AG 21,000
458 Kloeckner-Werke AG 31,487
86 KM Europa Metal AG--New 10,431
136 KM Europa Metal AG 16,833
100 LEONISCHE DRAHTWERKE AG 33,079
23 MAN AG 6,923
50 Mannheimer Versicherung AG 37,076
2,123 Metallgesellschaft AG 42,955
520 Metro AG 23,651
4 Nuernberger Beteiligungs AG 5,844
12 Nuernberger Beteiligungs AG B 18,127
1,106 Phoenix AG 23,171
68 Plettac AG 9,222
477 Praktiker Bau-und Heimwerkermaerkte AG 5,812
96 Rhoen-Klinikum AG 9,791
203 SAP AG 77,222
609 Schering AG 68,459
264 Schlott AG 5,007
470 SGL Carbon AG 55,710
207 Singulus Technologies AG 15,292
1,226 SKW Trostberg AG 41,873
33 Springer (Axel) Verlag AG 27,290
51 Varta AG 8,070
117 Verseidag AG 12,836
50 Wella AG 34,733
26 WMF-Wurttembergische Metallwarenfabrik AG 4,014
193 Wuensche AG 21,813
Total 1,527,510
Ireland--0.1%
25 CBT Group Plc--ADR 2,294
Italy--1.3%
21,400 Banca di Roma 29,549
Netherlands--6.6%
436 Benckiser NV B (Germany) 18,989
556 Benckiser NV B (Netherlands) 23,886
700 Getronics NV 27,846
566 Nutreco Holding NV 15,315
652 Qiagen NV 31,452
</TABLE>
Provesta Portfolio (USDollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<C> <S> <C>
Common Stocks--continued
Germany--continued
569 Unilever NV $ 36,667
Total 154,155
Spain--0.7%
225 Argentaria SA 16,770
Switzerland--2.0%
7 Baloise Holdings Ltd. 15,256
20 Kuehne & Nagel International AG 11,908
1 Lindt & Spruengli AG 19,441
Total 46,605
United Kingdom--0.0%
250 Cortecs Plc 704
Total Common Stocks (Cost -- $1,809,097) 1,882,887
Preferred Stocks--21.7%
Germany
150 Axa Colonia Konzern AG 17,036
96 BERLINER ELEKTRO Holding AG 1,683
319 Draegerwerk AG 6,578
63 Dyckerhoff AG 17,297
11 EDDING AG 3,226
325 Fresenius AG 65,400
67 Fuchs Petrolub AG Oel + Chemie 7,351
141 Gerry Weber International AG . 3,654
218 Hans Einhell AG 3,413
93 JADO Design Armatur & Beschlag AG 423
35 Jagenberg AG 2,701
161 Jungheinrich AG 25,297
22 Krones AG Hermann Kronseder Maschinenfabrik 6,853
31 MAN AG 7,260
49 Marschollek, Lautenschlaeger und Partner AG 16,074
1,267 Metro AG 43,657
26 Porsche AG 46,127
1,292 Prosieben Media AG 64,819
150 Rhoen-Klinikum AG 15,134
164 SAP AG 67,631
492 Sixt AG 47,604
30 Sto AG 10,767
23 Wella AG 17,245
47 WMF-Wurttembergische Metallwarenfabrik AG 6,633
Total 503,863
Total Preferred Stocks (Cost -- $468,185) 503,863
</TABLE>
<TABLE>
<CAPTION>
Provesta Portfolio (USDollar)
Value
Shares (Note 2)
<S> <C> <C>
Warrants--1.0%
Germany
21 Continental AG (Exp. Date: 7/6/00) $ 2,865
130 Allianz AG (Exp. Date: 6/30/99) 20,824
Total 23,689
Total Warrants (Cost--$24,316) 23,689
Total Investments--103.7% (Cost--$2,301,580) 2,410,439
Liabilities in excess of other assets--(3.7%) (85,758)
Total Net Assets--100.0% $2,324,681
</TABLE>
Notes to the Portfolio of Investments:
ADR--American Depository Receipt
The accompanying notes are an integral part of the Financial Statements.
PORTFOLIO OF INVESTMENTS
Investa Portfolio (USDollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
Common Stocks--82.3%
Automotive--12.3%
34 Bayerische Motoren Werke AG $ 34,301
1,394 Continental AG 33,508
2,248 Daimler-Benz AG 184,168
70 Volkswagen AG 46,098
Total 298,075
Banking--17.3%
2,200 Bayerische Hypotheken-und Wechsel-Bank AG 104,309
1,800 Bayerische Vereinsbank AG 112,336
383 BHF-Bank AG 10,938
2,300 Commerzbank AG 83,309
2,350 Dresdner Bank AG 106,627
Total 417,519
Chemicals--14.5%
1,530 BASF AG 55,714
2,435 Bayer AG 102,697
589 Degussa AG 30,524
4,140 Hoechst AG 160,455
Total 349,390
Communications--2.9%
3,478 Deutsche Telekom AG 70,275
Computer Software & Processing--4.1%
260 SAP AG 98,906
Electric Utilities--2.9%
1,050 Veba AG 70,479
Electrical Equipment--5.8%
2,295 Siemens AG 141,267
Heavy Construction--0.5%
369 Hochtief AG 12,816
Household Products--1.3%
510 Henkel KGaA 31,322
Industrial--Diversified--9.6%
63 Linde AG 41,714
193 Mannesmann AG 115,980
113 Preussag AG 36,663
166 Thyssen AG 36,561
Total 230,918
Insurance--5.2%
60 Allianz AG 18,905
237 Muenchener Rueckversicherungs-Gesellschaft AG 107,534
Total 126,439
</TABLE>
Investa Portfolio (US Dollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
Common Stocks--continued
Oil & Gas--0.6%
100 Royal Dutch Petroleum Co. (Netherlands) $ 5,475
175 Royal Dutch Petroleum Co. (Germany) 9,658
Total 15,133
Pharmaceuticals--2.6%
552 Schering AG 62,052
Retailers--2.7%
35 Karstadt AG 12,484
1,172 Metro AG 53,307
Total 65,791
Total Common Stock (Cost $1,871,069) 1,990,382
Preferred Stocks--14.0%
Automotive--0.8%
27 Bayerische Motoren Werke AG 18,458
Building Materials--0.8%
67 Dyckerhoff AG 18,395
Computer Software & Processing--4.8%
280 SAP AG 115,467
Electric Utilities--4.5%
2,327 RWE AG 108,983
Household Products--0.4%
150 Henkel KGaA 9,717
Industrial--Diversified--1.7%
177 MAN AG 41,453
Retailers--1.0%
722 Metro AG 24,878
Total Preferred Stocks (Cost $291,906) 337,351
Warrants--5.8%
Automotive--0.4%
65 Continental AG (Exp. Date: 7/6/00) 8,869
Chemicals--0.3%
44 BASF Finance Europe (Exp. Date: 4/9/01) 8,248
Electric Utilities--1.6%
85 Veba International Finance (Exp. Date: 4/6/98) 38,099
Electrical Equipment--0.1%
14 Siemens AG (Exp. Date: 6/2/98) 3,327
Insurance--3.4%
45,000 Allianz AG (Exp. Date: 6/30/99) 73,435
10 Muenchener Rueckversicherungs-Gesellschaft AG (Exp. Date: 3/13/98) 7,911
Total 81,346
Total Warrants (Cost $122,527) 139,889
Total Investments--102.1% (Cost--$2,285,502) 2,467,622
Liabilities in excess of other assets--(2.1%) (49,977)
Total Net Assets--100.0% $2,417,645
</TABLE>
Notes to the Portfolio of Investments:
The accompanying notes are an integral part of the Financial Statements.
PORTFOLIO OF INVESTMENTS
Japanese Equity Portfolio (USDollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
Common Stocks--99.3%
Automotive--4.9%
2,000 Bridgestone Corp. $ 46,154
1,000 Honda Motor Co., Ltd. 34,655
Total 80,809
Banking--12.4%
20,000 Sakura Bank Ltd. 83,743
3,000 Sanwa Bank 29,976
5,000 Sumitomo Trust & Banking 35,686
4,000 The Bank of Tokyo Mitsubishi 56,780
Total 206,185
Beverages, Food & Tobacco--5.5%
4,000 Ajinomoto Co., Inc. 39,655
6,000 Kirin Brewery Co., Ltd. 52,339
Total 91,994
Chemicals--2.3%
2,000 Dai Nippon Ink & Chemicals, Inc. 6,027
5,000 Sumitomo Bakelite Co., Ltd. 32,038
Total 38,065
Commercial Services--3.5%
2,000 Dainippon Printing Co., Ltd. 34,100
1,100 HIS Co., Ltd. 24,774
Total 58,874
Computer Software & Processing--11.2%
1,000 Fuji Soft ABC, Inc. 33,307
7,000 Fujitsu Ltd. 78,826
1,000 Hitachi Software Engineering Co., Ltd. 26,487
1 NTT Data Corp. 48,612
Total 187,232
Computers & Information--1.0%
1,000 Diamond Computer Service Co. 15,860
Electrical Equipment--7.9%
2,000 Matsushita Electric Industries 29,183
4,000 Minebea Co., Ltd. 44,409
4,000 Sumitomo Electric Industries 58,366
Total 131,958
Electronics--9.7%
5,000 Fujikura Ltd. 35,250
1,000 Sony Corp. 90,404
1,000 Tokyo Electron Ltd. 36,003
Total 161,657
</TABLE>
Japanese Equity Portfolio (USDollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
Common Stocks--continued
Entertainment & Leisure--1.1%
200 Nintendo Corp. Ltd. $ 18,398
Financial Services--5.3%
4,000 Nomura Securities Co., Ltd. 55,194
100 Shohkoh Fund & Co., Ltd. 33,386
Total 88,580
Food Retailers--3.3%
1,000 Ito-Yokado Co., Ltd. 54,718
Forest Products & Paper--2.1%
1,000 Uni Charm Corp. 35,686
Heavy Construction --1.6%
300 SMC Corp. 26,170
Heavy Machinery--0.7%
1,000 THK CO., Ltd. 11,895
Home Construcion, Furnishings & Appliances--2.4%
5,000 Daiwa House Industry Co., Ltd. 39,175
Industrial--Diversified--2.7%
20,000 Ishikawajima-Harima Heavy Industries Co., Ltd. 45,678
Insurance--1.0%
3,000 Mitsui Marine & Fire Insurance Co., Ltd. 16,749
Medical Supplies--1.6%
1,000 Hoya Corp 26,566
Office Equipment--2.8%
2,000 Canon, Inc. 45,837
Pharmaceuticals--4.9%
2,000 Sankyo Co., Ltd. 53,767
2,000 TERUMO Corp. 28,232
Total 81,999
Real Estate--2.6%
4,000 Mitsui Fudosan Co., Ltd. 43,140
Retailers--3.6%
2,000 Kao Corp. 27,121
2,000 Marui Co., Ltd. 32,831
Total 59,952
Telephone Systems--3.9%
7 Nippon Telephone & Telegraph 64,393
Textiles, Clothing & Fabrics--1.3%
4,000 Toray Industries, Inc. 21,570
Total Investments--99.3% (Cost--$1,827,720) 1,653,140
Other Assets in excess of liabilities--0.7% 11,231
Total Net Assets--100.0% $1,664,371
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
PORTFOLIO OF INVESTMENTS
Global Bond Portfolio (USDollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Market
Face Value
Currency Value (Note 2)
<S> <C> <C> <C>
Corporate Debt--34.3%
Japan--2.7%
Nippon Telephone & Telegraph
JPY 10,000,000 2.500% Due 07/25/07 $ 81,642
Multinational--5.3%
European Investment Bank
DEM 150,000 5.250% Due 04/15/04 84,806
World Bank
JPY 8,000,000 5.250% Due 03/20/02 73,814
Total 158,620
Netherlands--5.9%
Commerzbank Overseas Finance
ITL 120,000,000 10.800% Due 04/14/00 74,927
Telefonica Europe BV (Eurodollar)
USD 100,000 6.375% Due 01/08/03 100,600
Total 175,527
United Kingdom--10.2%
British Telecom Plc (Eurodollar)
USD 100,000 7.000% Due 05/23/07 105,950
Glaxo Wellcome Plc (Eurodollar)
USD 100,000 6.125% Due 01/25/06 99,900
Vodafone Group Plc
GBP 60,000 7.875% Due 11/06/01 101,149
Total 306,999
United States--10.2%
BMW U.S. Capital Corp.
USD 100,000 6.625% Due 03/15/04 101,700
Ford Motor Credit
USD 100,000 6.550% Due 09/10/02 101,130
Philip Morris Co., Inc.
USD 100,000 7.000% Due 07/15/05 101,900
Total 304,730
Total Corporate Debt (Cost --$1,035,542) 1,027,518
Sovereign Debt Obligations--38.3%
Australia--6.2%
Australia Government Bond
AUD 100,000 8.750% Due 01/15/01 73,985
AUD 150,000 7.500% Due 07/15/05 111,690
Total 185,675
Canada--3.3%
Province of Ontario (Yankee)
USD 100,000 6.000% Due 02/21/06 99,200
</TABLE>
Global Bond Portfolio (US Dollar)
<TABLE>
<CAPTION>
Market
Face Value
Currency Value (Note 2)
<S> <C> <C> <C>
Corporate Debt--continued
Denmark--4.1%
Kingdom of Denmark
DKK 750,000 7.000% Due 12/15/04 $ 120,660
Germany--9.1%
Deutschland Republic
DEM 150,000 8.500% Due 08/21/00 91,132
DEM 150,000 7.250% Due 10/21/02 92,042
Treuhandanstalt
DEM 150,000 6.500% Due 04/23/03 89,933
Total 273,107
Japan--2.9%
Japan-181 (10 Year Issue)
JPY 10,000,000 3.400% Due 06/20/05 88,541
Spain--2.9%
Spanish Government
DEM 150,000 5.750% Due 01/03/07 86,046
Sweden--2.5%
Kingdom of Sweden
ITL 120,000,000 10.000% Due 02/08/01 76,404
United Kingdom--7.3%
United Kingdom Treasury
GBP 60,000 8.500% Due 12/07/05 112,607
GBP 60,000 7.250% Due 12/07/07 107,075
Total 219,682
Total Sovereign Debt Obligations
(Cost--$1,139,385) 1,149,315
U.S. Government Agency Obligations--16.9%
United States--16.9%
Federal National Mortgage Association
USD 100,000 6.000% Due 08/15/00 101,000
USD 100,000 5.625% Due 11/30/00 100,140
USD 100,000 5.875% Due 11/30/01 100,859
USD 100,000 6.000% Due 07/31/02 101,469
USD 100,000 6.540% Due 09/10/07 103,687
Total U.S. Government Agency Obligations (Cost --$500,813) 507,155
Total Investments--89.5% (Cost--$2,675,740) 2,683,988
Other Assets in excess of liabilities--10.5% 315,423
Total Net Assets--100.0% $2,999,411
</TABLE>
Notes to the Portfolio of Investments:
Eurodollar--Bonds issued offshore that pay interest and principal in U.S.
Dollars.
Yankee--U.S. Dollar denominated bonds issued by non-U.S. companies in the U.S.
Currency Abbreviations Defined:
AUD--Australian Dollar
DEM--German Deutschemark
DKK--Denmark Krona
GBP--Great British Pound
ITL--Italian Lira
JPY--Japanese Yen
USD--United States Dollar
The accompanying notes are an integral part of the Financial Statements.
PORTFOLIO OF INVESTMENTS
European Bond Portfolio (USDollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Market
Face Value
Currency Value (Note 2)
<S> <C> <C> <C>
Corporate Debt--19.7%
Denmark--3.6%
Nykredit AS
DKK 598,640 6.000% Due 10/01/26 $ 84,949
Multinational--4.8%
Nordic Investment Bank
DEM 200,000 4.875% Due 03/01/01 111,862
Netherlands-- 8.1%
Commerzbank Overseas Finance
ITL 120,000,000 10.800% Due 04/14/00 74,927
Schleswig-Holsteinische Finance
DEM 200,000 5.625% Due 07/30/07 113,736
Total 188,663
Sweden--3.2%
Swedish Export Credit
ITL 120,000,000 10.750% Due 06/09/00 75,329
Total Corporate Debt (Cost--$458,508) 460,803
U.S. Government Agency Obligations--12.0%
United States--12.0%
Federal National Mortgage
Association--Global
DEM 500,000 5.000% Due 02/16/01 280,480
Total U.S. Government Agency Obligations (Cost--$282,283) 280,480
Sovereign Debt Obligations--64.4%
Austria--3.8%
Republic of Austria
DEM 150,000 6.000% Due 02/01/06 88,444
Belgium--3.8%
Kingdom of Belgium
DEM 150,000 6.250% Due 10/06/03 88,817
Denmark--6.9%
Kingdom of Denmark
DKK 1,000,000 7.000% Due 12/15/04 160,881
France--11.6%
French Treasury Bill
ECU 250,000 4.500% Due 07/12/02 271,434
Germany--14.0%
Deutschland Republic
DEM 150,000 6.000% Due 09/15/03 88,320
DEM 250,000 6.000% Due 01/05/06 147,890
DEM 150,000 6.250% Due 01/04/24 91,298
Total 327,508
</TABLE>
European Bond Portfolio (US Dollar)
<TABLE>
<CAPTION>
Market
Face Value
Currency Value (Note 2)
<S> <C> <C> <C>
Sovereign Debt Obligations--continued
Ireland--4.7%
Irish Gilt
IEP 75,000 6.250% Due 10/18/04 $ 109,226
Norway--4.9%
Norwegian Government
NOK 500,000 5.750% Due 11/30/04 68,251
NOK 350,000 6.750% Due 01/15/07 51,041
Total 119,292
Spain--3.7%
Spanish Government
DEM 150,000 5.750% Due 01/03/07 86,046
Sweden--3.3%
Kingdom of Sweden
ITL 120,000,000 10.000% Due 02/08/01 76,404
United Kingdom--7.7%
United Kingdom Gilts
GBP 100,000 7.750% Due 09/08/06 181,175
Total Sovereign Debt Obligations (Cost--$1,791,695) 1,509,227
Total Investments--96.1% (Cost--$2,250,203) 2,250,510
Other Assets in excess of liabilities--3.9% 91,913
Total Net Assets--100.0% $2,342,423
</TABLE>
Notes to the Portfolio of Investments:
Currency Abbreviations Defined:
DEM--German Deutschemark
DKK--Denmark Krona
GBP--Great British Pound
IEP--Irish Pound
ITL--Italian Lira
NOK--Norwegian Krona
ECU--European Currency Unit
The accompanying notes are an integral part of the Financial Statements.
STATEMENTS OF ASSETS AND LIABILITIES
Deutsche Portfolios
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Provesta Investa Japanese Equity Global Bond European Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
(US Dollar) (US Dollar) (US Dollar) (US Dollar) (US Dollar)
<S> <C> <C> <C> <C> <C>
Assets:
Investments, at value $2,410,439 $2,467,622 $1,653,140 $2,683,988 $2,250,510
Cash 5,800 2,662 92,617 344,078 125,545
Foreign currency 2,425 535 -- -- --
Dividends receivable -- -- 610 -- --
Interest receivable 32 51 305 57,185 49,924
Receivable from securities sold 9,618 21,238 -- -- --
Receivable from transactions in Investors'Beneficial
Interest 9,953 9,986 -- -- --
Deferred organization costs 61,036 61,036 61,072 60,964 61,036
Total assets 2,499,303 2,563,130 1,807,744 3,146,215 2,487,015
Liabilities:
Payable for investments purchased 29,789 535 -- -- --
Unrealized depreciation on forward foreign
currency contracts -- 14 -- -- --
Investment management fees payable 6,485 6,593 5,400 7,704 6,256
Organization expenses payable 65,912 65,912 65,912 65,912 65,912
Accrued expenses and other liabilities 72,436 72,431 72,061 73,188 72,424
Total liabilities 174,622 145,485 143,373 146,804 144,592
Net assets $2,324,681 $2,417,645 $1,664,371 $2,999,411 $2,342,423
Net Assets:
Applicable to Investors' Beneficial Interests $2,324,681 $2,417,645 $1,664,371 $2,999,411 $2,342,423
Cost of investments $2,301,580 $2,285,502 $1,827,720 2,675,740 $2,250,203
Cost of foreign currency $2,448 $536 -- -- --
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
STATEMENTS OF OPERATIONS
Deutsche Portfolios
For the period from Commencement of Operations though February 28, 1998(a)
(unaudited)
<TABLE>
<CAPTION>
Japanese Global European
Provesta Investa Equity Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
(US Dollar) (US Dollar) (US Dollar) (US Dollar) (US Dollar)
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividend income $ 1,402 $ 5,816 $ 871 $ -- $ --
Less: foreign withholding taxes (370) (1,551) (160) -- --
Net dividend income 1,032 4,265 711 -- --
Interest income 603 736 4,456 54,786 44,574
Total income 1,635 5,001 5,167 54,786 44,574
Expenses:
Investment management fees 6,485 6,593 5,400 7,704 6,256
Operations agent fees 27,544 27,540 27,370 27,888 27,526
Administration agent fees 14,795 14,795 14,685 15,014 14,795
Custody and accounting fees 16,644 16,644 16,520 16,891 16,644
Audit fees 7,397 7,397 7,342 7,506 7,397
Legal fees 3,699 3,699 3,672 3,754 3,699
Trustees' fees and expenses 2,404 2,404 2,387 2,440 2,404
Insurance fees 481 481 477 488 481
Reports to shareholders 740 740 734 751 740
Other expenses 7,917 7,918 7,860 8,035 7,917
Amortization of organization costs 4,876 4,876 4,840 4,948 4,876
Total expenses 92,982 93,087 91,287 95,419 92,735
Net investment (loss) (91,347) (88,086) (86,120) (40,633) (48,161)
Realized and Unrealized Gain (Loss) on Investments and Foreign
Currency:
Net realized gain (loss) on:
Investments 10,674 36,791 (91,002) (2,939) (4,830)
Foreign currency transactions 26,274 23,007 4,731 1,153 11,565
Net change in unrealized appreciation/depreciation on:
Investments 108,859 182,120 (174,579) 8,248 306
Foreign currency (11) (44) 8 (925) (1,354)
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency: 145,796 241,874 (260,842) 5,537 5,687
Net Increase (Decrease) in Net Assets Resulting from Operations $ 54,449 $ 153,788 ($346,962) ($35,096) ($42,474)
(a) Commencement of operations: 10/17/97 10/17/97 10/20/97 10/15/97 10/17/97
The accompanying notes are an integral part of the Financial
Statements.
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
Deutsche Portfolios
For the period from Commencement of Operations through February 28, 1998(a)
(unaudited)
<TABLE>
<CAPTION>
Provesta Investa Japanese Equity Global Bond European Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
(USDollar) (USDollar) (USDollar) (USDollar) (USDollar)
<S> <C> <C> <C> <C> <C>
Increase (Decrease) In Net Assets:
Operations--
Net investment (loss) $ (91,347) $ (88,086) $ (86,120) $ (40,633) $ (48,161)
Net realized gain (loss) on investments and
foreign currency transactions 36,948 59,798 (86,271) (1,786) 6,735
Net change in unrealized appreciation (depreciation) on
investments and foreign currency 108,848 182,076 (174,571) 7,323 (1,048)
Net increase (decrease) in net assets
resulting from operations 54,449 153,788 (346,962) (35,096) (42,474)
Capital Transactions--
Proceeds from contributions 2,278,724 2,252,980 2,000,450 3,023,649 2,474,351
Value of withdrawals (19,604) (235) (229) (254) (100,566)
Net increase in net assets from capital transactions 2,259,120 2,252,745 2,000,221 3,023,395 2,373,785
Total increase in net assets 2,313,569 2,406,533 1,653,259 2,988,299 2,331,311
Net Assets:
Beginning of period 11,112 11,112 11,112 11,112 11,112
End of period $2,324,681 $2,417,645 $1,664,371 $2,999,411 $2,342,423
(a) Commencement of operations: 10/17/97 10/17/97 10/20/97 10/15/97 10/17/97
The accompanying notes are an integral part of the
Financial Statements.
</TABLE>
FINANCIAL HIGHLIGHTS
Deutsche Portfolios
For the period from Commencement of Operations through February 28, 1998 (a)
(unaudited)
<TABLE>
<CAPTION>
Provesta Investa Japanese Equity Global Bond European Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
(USDollar) (USDollar) (USDollar) (USDollar) (USDollar)
<S> <C> <C> <C> <C> <C>
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 2,325 $ 2,417 $ 1,664 $ 2,999 $ 2,342
Ratio of expenses to average daily net assets(b) 12.17% 11.98% 14.60% 9.22% 11.11%
Ratio of net investment income (loss) average
net assets(b) (11.96)% (11.34)% (13.78)% (3.92)% (5.77)%
Portfolio turnover(c) 23% 17% 41% 22% 29%
Average commission rate per share(d) $ 0.2242 $ 0.1809 $ 0.0503 -- --
(a) Commencement of operations: 10/17/97 10/17/97 10/20/97 10/15/97 10/17/97
</TABLE>
(b) Annualized
(c) Not annualized
(d) Represents average brokerage commission rate per share of total security
trades on which brokerage commissions were charged.
The accompanying notes are an integral part of the Financial Statements.
NOTES TO FINANCIAL STATEMENTS
Deutsche Portfolios
February 28, 1998 (unaudited)
Note 1--Organization
Deutsche Portfolios ("Portfolio Trust") was organized on June 20, 1997, as a
business trust under the laws of the State of New York and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Portfolio Trust currently consists of ten
separate investment series (each a "Portfolio" and collectively the
"Portfolios"), each of which is, in effect, a separate mutual fund. The
accompanying financial statements and notes relate to five of these Portfolios
which are Provesta Portfolio (US Dollar) ("Provesta Portfolio"), Investa
Portfolio (US Dollar) ("Investa Portfolio") and Japanese Equity Portfolio (US
Dollar) ("Japanese Equity Portfolio") (collectively, the "Equity Portfolios"),
and Global Bond Portfolio (US Dollar) ("Global Bond Portfolio") and European
Bond Portfolio (US Dollar) ("European Bond Portfolio") (collectively, the "Bond
Portfolios").
The investment manager of the Portfolios is Deutsche Fund Management, Inc.
("DFM" or the "Manager"), an indirect subsidiary of Deutsche Bank AG. The
investment objective of the Equity Portfolios is primarily to achieve high
capital appreciation, and as a secondary objective, reasonable dividend income.
The investment objective of the Bond Portfolios is to achieve steady, high
income. The Portfolios commenced operations in October 1997.
Note 2--Significant Accounting Policies
The preparation of financial statements in conformity 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 Portfolios:
Security Valuation
The value of equity securities listed on a U.S. securities exchange are valued
at the last quoted sales price on the securities exchange or national securities
market on which such securities are primarily traded. Securities listed on a
foreign exchange considered by the Manager to be a primary market for the
securities are valued at the last quoted sale price available before the time
when net assets are valued. Unlisted securities, and securities for which the
Manager determines the listing exchange is not a primary market, are valued at
the average of the quoted bid-and-ask prices in the over-the-counter market.
Debt securities with a remaining maturity of less than 60 days are valued at
amortized cost, which approximates market value. Debt securities with a maturity
of 60 days or more are based on the last sales price on a national securities
exchange or in the absence of recorded sales, at the average of readily
available closing bid-and-asked prices on such exchanges or at the average of
the readily available closing bid and asked prices in the over-the-counter
market, if such exchange or market constitutes the broadest and most
representative market for the security. Any security for which market
quotations are not readily available, are priced in accordance with procedures
adopted by the Trustees of the Portfolio Trust.
Forward Foreign Currency Contracts
The Portfolio Trust enters into forward contracts with various counterparties.
Forward contracts are over-the-counter contracts for delayed delivery of
securities or currency in which the buyer agrees to buy and the seller agrees to
deliver a specified security or currency at a specified price on a specified
date. Because the terms of forward contracts are not standardized, they are not
traded on organized exchanges and generally can be terminated or closed-out only
by agreement of both parties to the contract. During the period the forward
contract is open, changes in the value of the contract are recognized as
unrealized gains or losses. When the forward contract is closed, the Portfolio
Trust records a realized gain or loss equal to the difference between the
proceeds from (or cost of) the close-out of the contract and the original
contract price.
Note 3--Significant Agreements and Transactions with Affiliates
The Portfolio Trust has entered into an Investment Management Agreement (the
"Management Agreement") with DFM, an indirect subsidiary of Deutsche Bank AG.
DFM retains overall responsibility for supervision of the investment management
program for each Portfolio but has delegated the day-to-day management of the
investment operations of each Portfolio to an investment advisor. As
compensation for the services rendered by DFM under the investment management
agreement with the Portfolio Trust with respect to each Portfolio, DFM receives
a fee from each Portfolio, which is computed daily and paid monthly, equal to
the following percentages of each Portfolio's average daily net assets on an
annualized basis for the Portfolio's then-current fiscal year:
Provesta Portfolio 0.85%
Investa Portfolio 0.85%
Japanese Equity Portfolio 0.85%
Global Bond Portfolio 0.75%
European Bond Portfolio 0.75%
DFM has retained the services of DWS International Portfolio Management GmbH
("DWS") as investment adviser of the Portfolios. The adviser is an indirect
subsidiary of Deutsche Bank AG. As compensation for its services, DWS receives a
fee, paid by DFM, which is based on the average daily net assets of the
applicable Portfolio.
Deutsche Portfolios
The Portfolio Trust has retained Federated Services Company as Operations Agent
to the Portfolios. As Operations Agent of the Portfolios, Federated Services
Company receives a fee from each Portfolio, which is computed daily and paid
monthly, at the annual rate of 0.035% of the average daily net assets of each
Portfolio for the Portfolio's then-current fiscal year, subject to a minimum fee
of $60,000 per Portfolio annually. Federated Services Company receives, in its
capacity as Administrator and Transfer Agent of the Deutsche Funds, Inc. and as
Operating Agent of the Portfolios, a minimum aggregate fee from each Portfolio,
its corresponding Fund and any other fund investing in each Portfolio, taken
together, of $75,000 for the first year of each Portfolio's operations and
$125,000 for the second year.
The Portfolio Trust has entered into an administrative agreement with IBT Trust
Company (Cayman) Ltd. ("IBT (Cayman)"). As Administrative Agent of the
Portfolios, IBT (Cayman) receives a fee from each Portfolio, which is computed
daily and paid monthly, at the annual rate of $5,000 per each Portfolio.
From commencement of operations to February 28, 1998, affiliates of Deutsche
Bank AG received brokerage commissions as a result of executing agency
transactions in portfolio securities in the amount of $8,846 and $6,979 from
Provesta Portfolio and Investa Portfolio, respectively.
Note 4--Investment Portfolio Transactions
Purchases and sales of investments, exclusive of short-term securities, for each
Portfolio for the period from commencement of operations, to February 28, 1998
are as follows:
<TABLE>
<CAPTION>
Provesta Investa Japanese
Portfolio Portfolio Equity Portfolio
<S> <C> <C> <C>
Purchases $2,699,625 $2,545,443 $2,456,907
Sales $ 408,719 $ 296,732 $ 538,185
</TABLE>
<TABLE>
<CAPTION>
Global Bond European
Portfolio Bond Portfolio
<S> <C> <C>
Purchases
U.S. Government $ 789,438 $ 277,766
Non-U.S. Government 2,340,436 2,466,117
Total $3,129,874 $ 2,743,883
Sales
U.S. Government $ 298,125 $ --
Non-U.S. Government 153,070 488,850
Total $ 451,195 $ 488,850
</TABLE>
At February 28, 1998, the cost of investments and the unrealized appreciation
(depreciation) of investments for each Portfolio were as follows:
<TABLE>
<CAPTION>
Provesta Investa Japanese Global Bond European
Portfolio Portfolio Equity Portfolio Portfolio Bond Portfolio
<S> <C> <C> <C> <C> <C>
Cost of Investments $2,301,580 $2,285,502 $1,827,720 $2,675,740 $2,250,203
Gross Unrealized Appreciation 197,084 226,946 17,863 28,768 17,010
Gross Unrealized Depreciation (88,225) (44,826) (192,442) (20,520) (16,704)
Net Unrealized Appreciation/(Depreciation) 108,859 182,120 (174,579) 8,248 306
</TABLE>
Deutsche Portfolios
Note 5--Forward Foreign Currency Contracts
Certain Portfolios had forward foreign currency contracts which contractually
obligate the Portfolio to deliver or receive currencies at specified future
dates. The following contracts were open at February 28, 1998:
<TABLE>
<CAPTION>
Foreign
Settlement Contract Current Unrealized
Provesta Portfolio Date U.S. $ Value Value Gain (Loss)
<S> <C> <C> <C> <C> <C>
Purchase Deutsche Mark 03/02/98 $21,133 $21,147 $ 14
Sale Deutsche Mark 03/02/98 9,613 9,620 (7)
Purchase French Franc 03/31/98 1,457 1,450 (7)
Investa Portfolio
Sale British Pound 03/02/98 $21,229 $21,243 $(14)
</TABLE>
Note 6--Off-Balance Sheet Risk and Concentration of Credit Risk
The Statement of Assets and Liabilities includes the market or fair value of
contractual commitments involving forward settlement contracts. These
instruments involve elements of market risk in excess of amount reflected on the
Statement of Assets and Liabilities.
Notional amounts are indicative only of the volume of activity; they are not a
measure of market risk. Notional amounts of forward contracts include both
purchase and sale commitments. Market risk is influenced by the nature of the
items that comprise a particular category of financial instruments and by the
relationship among the various off-balance sheet categories as well as the
relationship between off-balance sheet items and items recorded on the
Portfolios' Statement of Assets and Liabilities. Credit risk is measured by the
loss the Portfolios would record if its counterparties failed to perform
pursuant to terms of their obligations to the Portfolios.
Mutual funds are not deposits or obligations of any bank, are not guaranteed by
any bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the funds' prospectuses which contain facts
concerning their objective and policies, management fees, expenses and other
information.
Directors of the Corporation and
Trustees of the Portfolio Trust
Edward C. Schmults
Robert H. Wadsworth
Werner Walbroel
G. Richard Stamberger
Christian Strenger
Officers of the Corporation
Brian A. Lee
Joseph Cheung
Robert R. Gambee
Laura Weber
Edgewood Services, Inc., Distributor
GO2216-08 (4/98)
SEMI-ANNUAL REPORT
and supplement to prospectus dated April 30, 1998
Deutsche Top 50 Europe
Deutsche European Mid-Cap Fund
Deutsche German Equity Fund
Deutsche European Bond Fund
Class A Shares and Class B Shares
[LOGO OF DEUTSCHE FUNDS]
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the first Semi-Annual Report for Deutsche Top 50 Europe,
Deutsche European Mid-Cap Fund, Deutsche German Equity Fund and Deutsche
European Bond Fund.
On the following pages you will find complete financial information concerning
your investment in Deutsche Funds. Also included is a list of fund holdings, and
the fund's financial statements.
Please note that this report covers financial activity in the funds through
February 28, 1998.
We are very proud of the funds we offer. The Deutsche Portfolios, in which the
Deutsche Funds invest, are managed by Deutsche Fund Management, Inc., and are
advised by the award-winning professionals at DWS International Portfolio
Management GmbH, in Frankfurt, Germany. These funds are poised to take advantage
of the dynamic changes occurring in European markets.* The Deutsche Funds seek
to provide you with a variety of ways to allocate assets within the
international portion of your portfolio, while seeking to enable you to minimize
risks that sometimes may be associated with international investing.
May I suggest that you take the time to review this report and familiarize
yourself with your fund's strategy and holdings. We believe that the true
measure of any fund's performance is over the longer term.
Thank you for selecting Deutsche Funds to pursue your financial goals. We are
committed to providing quality investment products, coupled with our further
commitment to the highest level of service possible.
Sincerely,
/s/ Brian Lee
Brian Lee
President
April 15, 1998
* Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards. In addition, emerging markets structures may be less
diverse and mature, and their political systems may be less stable.
STATEMENTS OF ASSETS AND LIABILITIES
Deutsche Funds, Inc.
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche
Deutsche European German European
Top 50 Mid-Cap Equity Bond
Europe Fund Fund Fund
<S> <C> <C> <C> <C>
Assets:
Investments in corresponding Deutsche Portfolios at value $15,908 $18,449 $19,574 $13,814
Receivable from Manager for expense reimbursement 54,490 48,961 48,962 48,812
Deferred organization costs 11,560 11,663 11,663 11,663
Total assets 81,958 79,073 80,199 74,289
Liabilities:
Service fees payable--Class A 13 12 13 11
Organization costs payable 12,595 12,595 12,595 12,595
Accrued expenses and other liabilities 52,066 47,396 47,387 47,336
Total liabilities 64,674 60,003 59,995 59,942
Net assets $17,284 $19,070 $20,204 $14,347
Net Assets Consist of:
Capital stock, $0.001 par value (authorized 10,000,000 shares for each Fund) 1 1 1 1
Paid-in capital 16,110 17,866 18,410 14,110
Undistributed (accumulated) net investment income (loss) (7) (69) (51) 174
Undistributed (accumulated) net realized gain (loss) on
investments and foreign currency transactions 97 234 410 41
Net unrealized appreciation (depreciation) of investments and foreign currency 1,083 1,038 1,434 21
Net assets $17,284 $19,070 $20,204 $14,347
Computation of Net Asset Value, Redemption Price and
Offering Price Per Share:
Net assets--Class A $17,284 $19,070 $20,204 $14,347
Shares outstanding--Class A 1,291 1,446 1,469 1,126
Net asset value and redemption price per share--Class A $13.39 $13.19 $13.75 $12.74
Offering price per share--Class A $14.17 $13.96 $14.55 $13.34
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
STATEMENTS OF OPERATIONS
Deutsche Funds, Inc.
For the period from Commencement of Operations through February 28, 1998(a)
(unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche
Deutsche European German European
Top 50 Mid-Cap Equity Bond
Europe Fund Fund Fund
<S> <C> <C> <C> <C>
Investment Income:
Investment Income and Expenses allocated from the corresponding
Deutsche Portfolios:
Dividend income $ 28 $ 9 $ 37 $ --
Less: foreign withholding taxes (3) (2) (10) --
Net dividend income 25 7 27 --
Interest income 53 3 4 232
Expenses (1,347) (587) (601) (484)
Net investment loss allocated from the corresponding
Deutsche Portfolios (1,269) (577) (570) (252)
Expenses:
Audit fees 2,055 1,849 1,849 1,849
Legal fees 2,055 1,849 1,849 1,849
Accounting fees 7,809 7,028 7,028 7,028
Directors' fees and expenses 3,082 2,774 2,774 2,774
Administration fees 4 3 3 3
Insurance fees 452 406 406 406
Reports to Shareholders 6,576 5,918 5,918 5,918
Transfer agent fees 5,407 5,414 5,405 5,350
Registration fees 20,630 18,567 18,567 18,567
Other expenses 4,110 3,701 3,699 3,699
Amortization of organization costs 1,035 932 932 932
Service fees--Class A 13 12 13 11
Total expenses 53,228 48,453 48,443 48,386
Less: Expense reimbursement (54,490) (48,961) (48,962) (48,812)
Net expenses (1,262) (508) (519) (426)
Net investment income (loss) (7) (69) (51) 174
Net Realized and Unrealized Gain (Loss) on Investments and Foreign
Currency allocated from the corresponding Deutsche Portfolios:
Net realized gain (loss) on:
Investments 14 88 285 (22)
Foreign currency transactions 83 146 125 63
Net change in unrealized appreciation/depreciation on:
Investments 1,083 1,038 1,434 26
Foreign currency -- -- -- (5)
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency from the Deutsche Portfolios 1,180 1,272 1,844 62
Net Increase (Decrease) in Net Assets Resulting From Operations $ 1,173 $ 1,203 $ 1,793 $ 236
(a) Commencement of operations: 10/2/97 10/17/97 10/17/97 10/17/97
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
Deutsche Funds, Inc.
For the period from Commencement of Operations through February 28, 1998(a)
(unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche
Deutsche European German European
Top 50 Mid-Cap Equity Bond
Europe Fund Fund Fund
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
Operations--
Net investment income (loss) $ (7) $ (69) $ (51) $ 174
Net realized gain (loss) on investments and foreign currency transactions 97 234 410 41
Net change in unrealized appreciation/depreciation on investments
and foreign currency 1,083 1,038 1,434 21
Net increase (decrease) in net assets resulting from operations 1,173 1,203 1,793 236
Capital Share Transactions: Class A
Net proceeds from shares sold 5,000 6,756 7,300 3,000
Net cost of shares redeemed -- -- -- --
Net increase in net assets resulting from capital share
transactions--Class A 5,000 6,756 7,300 3,000
Total increase (decrease) in net assets 6,173 7,959 9,093 3,236
Net Assets:
Beginning of period 11,111 11,111 11,111 11,111
End of period(b) $ 17,284 $ 19,070 $ 20,204 $ 14,347
Capital Shares--Class A
Shares outstanding, beginning of period 889 889 889 889
Shares sold 402 557 580 237
Shares redeemed -- -- -- --
Capital shares outstanding, end of period 1,291 1,446 1,469 1,126
(a) Commencement of operations: 10/2/97 10/17/97 10/17/97 10/17/97
(b) Including undistributed (accumulated) net investment income (loss). $ (7) $ (69) $ (51) $ 174
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
Deutsche Funds, Inc.
For the period from Commencement of Operations through February 28, 1998 (a)
(unaudited)
<TABLE>
<CAPTION>
Selected data for a Class A share of common stock outstanding throughout the
period.
Deutsche Deutsche Deutsche
Deutsche European German European
Top 50 Mid-Cap Equity Bond
Europe Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 12.50 $ 12.50 $ 12.50 $12.50
Investment operations:
Net investment income (loss) (0.01) (0.05) (0.03) 0.15
Net realized and unrealized gain (loss) on
investments and foreign currency 0.90 0.74 1.28 0.09
Increase (decrease) from investment operations 0.89 0.69 1.25 0.24
Net asset value at end of period $ 13.39 $ 13.19 $ 13.75 $12.74
Total Return (based on net asset value)(c)* 7.12% 5.52% 10.00% 1.92%
Ratios and Supplemental Data
Net assets, end of period (000's) $ 17 $ 19 $ 20 $ 14
Ratios to average net assets
Expenses(b)** 1.60% 1.60% 1.60% 1.30%
Net investment income (loss)(b)** (0.13)% (1.40)% (0.99)% 3.93%
(a) Commencement of operations: 10/2/97 10/17/97 10/17/97 10/17/97
</TABLE>
(b) Includes the Fund's allocated portion of the corresponding Deutsche
Portfolios' expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income to average net assets would have been as follows:
<TABLE>
<S> <C> <C> <C> <C>
Expenses to average net assets** 1,024.42% 992.68% 953.73% 1,102.89%
Net investment income to average net assets** (1,022.96)% (992.47)% (953.13)% (1,097.66)%
</TABLE>
(c) Total Return based on net asset value, excluding the effect of shareholder
transaction charges, assumes a purchase of common stock at net asset value
at commencement of operations and a sale on the last day of the period,
also at net asset value. During the period, total return would have been
lower had certain expenses not been reimbursed by the Manager.
* Not annualized
** Annualized
The accompanying notes are an integral part of the Financial Statements.
NOTES TO FINANCIAL STATEMENTS
Deutsche Funds, Inc.
February 28, 1998
Note 1--Organization
Deutsche Funds, Inc. (the "Company") was incorporated in Maryland on May 22,
1997 and is registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company. The Company currently
consists of eleven separate investment series (each a "Fund" and collectively
the "Funds"). The accompanying financial statements and notes thereto relate to
four of these Funds: Deutsche Top 50 Europe ("Top 50 Europe"); Deutsche European
Mid-Cap Fund ("European Mid-Cap Fund"); and Deutsche German Equity Fund ("German
Equity Fund") (collectively, the "Equity Funds"); and Deutsche European Bond
Fund ("European Bond Fund").
Each of the Funds will seek to achieve their respective investment objective by
investing substantially all of their assets in the corresponding portfolio of
Deutsche Portfolios (the "Portfolio Trust") having substantially the same
investment objective of each of the respective Funds. The Portfolio Trust is an
open-end management investment company and is comprised of ten portfolios (each
a "Portfolio"). The financial statements of four of the Portfolios, including
their portfolio of investments, are included elsewhere within this report and
should be read in conjuction with each Fund's financial statements.
The Company has not retained the services of an investment adviser since the
Funds seek to achieve their investment objective by investing all of their
investable assets in their corresponding Portfolio of the Portfolio Trust. Each
Portfolio is managed by Deutsche Fund Management, Inc. ("DFM"), an indirect
subsidiary of Deutsche Bank AG. Federated Services Company serves as
Administrator to the Funds and Federated Shareholder Services Company serves as
transfer agent and dividend disbursing agent to the Funds. Edgewood Services,
Inc. ("Edgewood") serves as distributor to the Funds (the "Distributor").
Each Fund recognizes daily a pro-rata portion of its corresponding Portfolio's
income and expenses, including fees paid to DFM and the amortization of
organization expenses. Each Fund offers two classes of shares to investors,
Class A and Class B. Both Class A Shares and Class B Shares are subject to a
Service Plan and Class B Shares are also subject to a Distribution Plan. Each
Class will bear its respective portion of the expenses under the Service and
Distribution Plans. The Funds commenced operations in October 1997. As of
February 28, 1998, only Class A Shares have been sold to the public.
Note 2--Significant Accounting Policies
The preparation of financial statements in conformity 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 Funds:
Investment Valuation
The value of a Fund's investment in the Portfolio included in the accompanying
Statements of Assets and Liabilities reflects the Fund's proportionate
beneficial interest in the net assets of the Portfolio (percentages as of
February 28, 1998 are listed below). Valuation of securities by the Portfolio is
discussed in Note 2 of the Portfolios' Notes to Financial Statements which are
included elsewhere in this report.
<TABLE>
<CAPTION>
Fund Percentage Portfolio
<S> <C> <C>
Top 50 Europe 0.20% Top 50 Europe Portfolio (US Dollar)
European Mid-Cap Fund 0.79% Provesta Portfolio (US Dollar)
German Equity Fund 0.81% Investa Portfolio (US Dollar)
European Bond Fund 0.59% European Bond Portfolio (US Dollar)
</TABLE>
From time to time, the Funds may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investments activities
of these shareholders could have a material impact on the Funds and Portfolios.
Investment Income, Expense, Realized and Unrealized Gains and Losses
The Funds record their proportionate share of the investment income, expense,
realized and unrealized gains and losses recorded by the Portfolio on a daily
basis. The investment income, expense, realized and unrealized gains and losses
are allocated daily to investors of the Portfolio based upon the amount of their
investment in the Portfolio. The Company accounts separately for the assets,
liabilities and operations of each Fund. Expenses attributable to each Fund are
charged directly to the respective Fund, while general Company expenses
attributable to more than one Fund of the Company are allocated among the
respective Funds. The investment income and expenses of each Fund (other than
Class specific expenses, realized and unrealized gains and losses) are further
allocated to each class of shares based on their relative net asset values of
each Fund.
Federal Income Taxes
Each Fund is treated as a separate entity for federal income tax purposes. It is
the policy of each Fund to qualify for and elect treatment as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, as amended.
Accordingly, each Fund would not be subject to U.S. federal income taxes to the
extent it distributes substanially all of its taxable income including any net
capital gains for each fiscal year. In addition, by distributing, during each
calendar year, substantially all of its net investment income and capital gains,
each Fund would not be subject to U.S. Federal excise tax.
Deutsche Funds, Inc.
Distributions to Shareholders
Dividends from net investment income of all Funds are declared and paid at least
annually and, in the case of the European Bond Fund, monthly. Capital gains of
each Fund, if any, are distributed at least annually. Dividends and capital
gains distributions are distributed in U.S. dollars. The Funds record all
dividend distributions to shareholders on ex-dividend date. During the period
ended Febuary 28, 1998, the European Bond Fund did not distribute monthly
dividends.
Deferred Organization Costs
Organization expenses incurred in connection with the organization and initial
registration of the Company were paid initially by DFM and will be reimbursed by
the Funds. Such organization expenses have been deferred and will be amortized
ratably over a period of sixty months from the commencement of operations of the
Funds. The amount paid by each Fund on any redemption by Edgewood (or any
subsequent holder) of such Fund's initial shares will be reduced by the pro-rata
portion of any unamortized organization expenses of the Funds.
Note 3--Significant Agreements and Transactions with Affiliates
The Company has retained the services of Federated Services Company as
Administrator. Under the Administration Agreement, Federated Services Company
will assist in the operations of the Funds subject to the direction and control
of the Board of Directors of the Company. For its services, Federated Services
Company receives a fee from each Fund, which is computed daily and paid monthly,
at an annual rate of 0.065% of the average daily net assets of each Fund up to
$500 million and 0.05% of such assets in excess of $500 million for the Fund's
then current fiscal year subject to a minimum of $75,000 for the first year and
$125,000 for the second year.
The Company has entered into a distribution agreement with Edgewood. Edgewood
will serve as principal distributor for shares of each Fund. Pursuant to the
Service and Distribution Plans, Class B Shares of the Funds are subject to the
Distribution Plan and Class A Shares and Class B Shares of the Funds are subject
to the Service Plan. Under the Distribution Plan, Class B Shares of each Fund
pay a fee to the Distributor in an amount computed at an annual rate of 0.75% of
the average daily net assets of the Fund represented by Class B Shares to
finance activity that is principally intended to result in the sale of Class B
Shares of the Fund. Under the Service Plan, each Fund pays to DFM, for the
provision of certain services to the holders of Class A Shares and Class B
Shares, a fee computed at an annual rate of 0.25% of the average daily net
assets of each such Class of Shares.
Federated Shareholder Services Company serves as the transfer agent and dividend
disbursing agent for each Fund. Federated Services Company and Federated
Shareholder Services Company are both affiliated with Edgewood Services Inc. IBT
Fund Services (Canada) Inc. will provide fund accounting services to the Funds.
Expense Reimbursements
DFM has voluntarily agreed that it will reimburse each Fund through at least
August 31, 1998, to the extent necessary to maintain each Fund's total operating
expenses (which includes expenses of the Fund and its pro-rata portion of
expenses of the corresponding Portfolio), at not more than 1.60% and 1.30% of
the average daily net assets of Class A Shares of the Equity Funds, and the
European Bond Fund, respectively.
PORTFOLIO OF INVESTMENTS
Top 50 Europe Portfolio (USDollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<C> <S> <C>
Common Stocks--88.8%
Austria--2.7%
3,000 Bank Austria AG $ 204,178
Denmark--1.9%
1,870 Coloplast AS B 147,421
France--10.8%
1,550 Axa-UAP 150,118
70 Carrefour Supermarche SA 42,059
1,100 Compagnie Generale des Eaux 173,279
1,300 Elf-Aquitaine 148,138
180 L'Air Liquide 29,124
40 Rexel SA 13,484
1,200 Schneider SA 74,784
980 Synthelabo 136,973
530 Total SA-B shares 58,216
Total 826,175
Germany--39.7%
3,002 Altana AG 239,993
2,582 BASF AG 94,022
4,261 Bayer AG 179,709
70 Buderus AG 31,568
1,013 Deutsche Pfandbrief-und Hypothekenbank AG 76,791
1,436 Duerr AG 48,293
1,872 Fresenius Medical Care AG 131,484
4,265 Gehe AG 225,730
9,702 Hoechst AG 376,024
454 Mannesmann AG 272,823
559 Rhoen-Klinikum AG 57,014
1,174 SAP AG 446,597
1,767 Schering AG 198,633
1,708 SGL Carbon AG 202,453
3,993 Siemens AG 245,786
3,162 Veba AG 212,241
Total 3,039,161
Italy--1.9%
24,900 ENI SpA 145,846
Netherlands--6.8%
6,620 Elsevier 124,706
2,720 International Nederlanden Groep 144,134
1,465 Koninklijke Ahold NV 44,873
1,206 Unilever NV 77,715
840 Wolters Kluwer NV 129,920
Total 521,348
</TABLE>
Top 50 Europe Portfolio
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
Common Stocks--continued
Norway--1.6%
4,800 Tomra Systems ASA $ 120,044
Sweden--6.8%
3,980 AGA AB-A 54,735
1,660 AGA AB-B 20,963
7,340 Astra AB-A 148,213
6,230 Getinge Indutrier AB-B 111,388
1,630 Hoganas AB-B 54,007
1,460 Securitas AB-B 44,267
1,900 Telefonaktiebolaget LM Ericsson 86,472
Total 520,045
Switzerland--10.5%
780 Credit Suisse Group 140,996
105 Novartis AG 191,736
33 Roche Holding AG 386,726
41 Schweizerische Rueckversicherungs-Gesellschaft 86,503
Total 805,961
United Kingdom--6.1%
4,000 British Airport Authority Plc 37,404
6,200 Lloyds TSB Group Plc 93,343
22,900 Rentokil Initial Plc 113,153
4,600 Reuters Group Plc 46,309
8,600 Siebe Plc 177,948
Total 468,157
Total Common Stocks (Cost -- $6,321,358) 6,798,336
Preferred Stocks--5.0%
Germany
1,125 Fresenius AG 226,383
196 Rhoen-Klinikum AG 19,775
336 SAP AG 138,560
Total 384,718
Total Preferred Stocks (Cost--$331,554) 384,718
Total Investments--93.8% (Cost--$6,652,912) 7,183,054
Other Assets in excess of liabilities--6.2% 476,946
Total Net Assets--100.0% $7,660,000
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
PORTFOLIO OF INVESTMENTS
Provesta Portfolio (USDollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<C> <S> <C>
Common Stocks--81.0%
France--4.5%
51 Banque Nationale de Paris $ 3,086
1,200 Business Objects SA--ADR 16,950
93 Cap Gemini SA . 10,705
113 Compagnie Financiere de Paribas 10,758
280 Groupe des Assurances Nationales 6,902
156 Sanofi SA 17,700
629 Schneider SA 39,199
Total 105,300
Germany--65.8%
121 Adidas AG 18,945
38 ADOLF AHLERS AG 8,694
153 Aixtron AG 29,481
823 Altana AG 65,791
75 AVA Allgemeine Handels der Verbraucher 24,809
7 Axa Colonia Konzern AG 853
58 A. Friedrich Flender AG 8,634
200 Bankgesellschaft Berlin AG 4,251
864 Bayerische Hypotheken-und Wechsel-Bank AG 40,965
1,387 Bayerische Vereinsbank AG 86,561
28 BDAG Balcke-Duerr AG 3,844
149 Beiersdorf AG 7,048
465 BERLINER ELEKTRO Holding AG 9,101
529 Berliner Kraft-und Licht (Bewag) AG 23,332
437 BERU AG 8,673
578 BHF-Bank AG 16,507
23 CeWe Color Holding AG 5,199
1,926 Continental AG 46,296
33 DBV-Winterthur Holding AG 14,646
520 Degussa AG 26,948
352 Deutsche Babcock AG 19,600
399 Deutsche Pfandbrief-und Hypothekenbank AG 30,246
444 Duerr AG 14,932
146 Escada AG 20,123
2,603 FAG Kugelfischer Georg Schaefer AG 35,733
99 Felten & Guilleaume Energietechnik AG 10,097
67 Fresenius AG 12,559
538 Fresenius Medical Care AG 37,788
340 Fried Krupp AG Hoesch-Krupp 61,857
59 Fuchs Petrolub AG Oel + Chemie 6,652
1,278 Gehe AG 67,640
555 Gerresheimer Glas AG 7,864
373 Heidelberger Druckmaschinen AG 21,551
</TABLE>
Provesta Portfolio (USDollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<C> <S> <C>
Common Stocks--continued
Germany--continued
267 Henkel KGaA $ 16,398
182 Hornbach Baumarkt AG 5,669
488 Hucke AG 10,762
102 IWKA AG 22,606
20 Karstadt AG 7,134
484 Kiekert AG 21,000
458 Kloeckner-Werke AG 31,487
86 KM Europa Metal AG--New 10,431
136 KM Europa Metal AG 16,833
100 LEONISCHE DRAHTWERKE AG 33,079
23 MAN AG 6,923
50 Mannheimer Versicherung AG 37,076
2,123 Metallgesellschaft AG 42,955
520 Metro AG 23,651
4 Nuernberger Beteiligungs AG 5,844
12 Nuernberger Beteiligungs AG B 18,127
1,106 Phoenix AG 23,171
68 Plettac AG 9,222
477 Praktiker Bau-und Heimwerkermaerkte AG 5,812
96 Rhoen-Klinikum AG 9,791
203 SAP AG 77,222
609 Schering AG 68,459
264 Schlott AG 5,007
470 SGL Carbon AG 55,710
207 Singulus Technologies AG 15,292
1,226 SKW Trostberg AG 41,873
33 Springer (Axel) Verlag AG 27,290
51 Varta AG 8,070
117 Verseidag AG 12,836
50 Wella AG 34,733
26 WMF-Wurttembergische Metallwarenfabrik AG 4,014
193 Wuensche AG 21,813
Total 1,527,510
Ireland--0.1%
25 CBT Group Plc--ADR 2,294
Italy--1.3%
2,400 Banca di Roma 29,549
Netherlands--6.6%
436 Benckiser NV B (Germany) 18,989
556 Benckiser NV B (Netherlands) 23,886
700 Getronics NV 27,846
566 Nutreco Holding NV 15,315
652 Qiagen NV 31,452
569 Unilever NV 36,667
Total 154,155
</TABLE>
Provesta Portfolio (USDollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<C> <S> <C>
Common Stocks--continued
Spain--0.7%
225 Argentaria SA $ 16,770
Switzerland--2.0%
7 Baloise Holdings Ltd. 15,256
20 Kuehne & Nagel International AG 11,908
1 Lindt & Spruengli AG 19,441
Total 46,605
United Kingdom--0.0%
250 Cortecs Plc 704
Total Common Stocks (Cost -- $1,809,097) 1,882,887
Preferred Stocks--21.7%
Germany
150 Axa Colonia Konzern AG 17,036
96 BERLINER ELEKTRO Holding AG 1,683
319 Draegerwerk AG 6,578
63 Dyckerhoff AG 17,297
11 EDDING AG 3,226
325 Fresenius AG 65,400
67 Fuchs Petrolub AG Oel + Chemie 7,351
141 Gerry Weber International AG . 3,654
218 Hans Einhell AG 3,413
93 JADO Design Armatur & Beschlag AG 423
35 Jagenberg AG 2,701
161 Jungheinrich AG 25,297
22 Krones AG Hermann Kronseder Maschinenfabrik 6,853
31 MAN AG 7,260
49 Marschollek, Lautenschlaeger und Partner AG 16,074
1,267 Metro AG 43,657
26 Porsche AG 46,127
1,292 Prosieben Media AG 64,819
150 Rhoen-Klinikum AG 15,134
164 SAP AG 67,631
492 Sixt AG 47,604
30 Sto AG 10,767
23 Wella AG 17,245
47 WMF-Wurttembergische Metallwarenfabrik AG 6,633
Total 503,863
Total Preferred Stocks (Cost -- $468,185) 503,863
</TABLE>
Provesta Portfolio (USDollar)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
Warrants--1.0%
Germany
21 Continental AG (Exp. Date: 7/6/00) $ 2,865
130 Allianz AG (Exp. Date: 6/30/99) 20,824
Total 23,689
Total Warrants (Cost--$24,316) 23,689
Total Investments--103.7% (Cost--$2,301,580) 2,410,439
Liabilities in excess of other assets--(3.7%) (85,758)
Total Net Assets--100.0% $2,324,681
</TABLE>
Notes to the Portfolio of Investments:
ADR--American Depository Receipt
The accompanying notes are an integral part of the Financial Statements.
PORTFOLIO OF INVESTMENTS
Investa Portfolio (USDollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
Automotive--12.3%
34 Bayerische Motoren Werke AG $ 34,301
1,394 Continental AG 33,508
2,248 Daimler-Benz AG 184,168
70 Volkswagen AG 46,098
Total 298,075
Banking--17.3%
2,200 Bayerische Hypotheken-und Wechsel-Bank AG 104,309
1,800 Bayerische Vereinsbank AG 112,336
383 BHF-Bank AG 10,938
2,300 Commerzbank AG 83,309
2,350 Dresdner Bank AG 106,627
Total 417,519
Chemicals--14.5%
1,530 BASF AG 55,714
2,435 Bayer AG 102,697
589 Degussa AG 30,524
4,140 Hoechst AG 160,455
Total 349,390
Communications--2.9%
3,478 Deutsche Telekom AG 70,275
Computer Software & Processing--4.1%
260 SAP AG 98,906
Electric Utilities--2.9%
1,050 Veba AG 70,479
Electrical Equipment--5.8%
2,295 Siemens AG 141,267
Heavy Construction--0.5%
369 Hochtief AG 12,816
Household Products--1.3%
510 Henkel KGaA 31,322
Industrial--Diversified--9.6%
63 Linde AG 41,714
193 Mannesmann AG 115,980
113 Preussag AG 36,663
166 Thyssen AG 36,561
Total 230,918
Insurance--5.2%
60 Allianz AG 18,905
237 Muenchener Rueckversicherungs-Gesellschaft AG 107,534
Total 126,439
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
Common Stocks--continued
Oil & Gas--0.6%
100 Royal Dutch Petroleum Co. (Netherlands) $ 5,475
175 Royal Dutch Petroleum Co. (Germany) 9,658
Total 15,133
Pharmaceuticals--2.6%
552 Schering AG 62,052
Retailers--2.7%
35 Karstadt AG 12,484
1,172 Metro AG 53,307
Total 65,791
Total Common Stock (Cost $1,871,069) 1,990,382
Preferred Stocks--14.0%
Automotive--0.8%
27 Bayerische Motoren Werke AG 18,458
Building Materials--0.8%
67 Dyckerhoff AG 18,395
Computer Software & Processing--4.8%
280 SAP AG 115,467
Electric Utilities--4.5%
2,327 RWE AG 108,983
Household Products--0.4%
150 Henkel KGaA 9,717
Industrial--Diversified--1.7%
177 MAN AG 41,453
Retailers--1.0%
722 Metro AG 24,878
Total Preferred Stocks (Cost $291,906) 337,351
Warrants--5.8%
Automotive--0.4%
65 Continental AG (Exp. Date: 7/6/00) 8,869
Chemicals--0.3%
44 BASF Finance Europe (Exp. Date: 4/9/01) 8,248
Electric Utilities--1.6%
85 Veba International Finance (Exp. Date: 4/6/98) 38,099
Electrical Equipment--0.1%
14 Siemens AG (Exp. Date: 6/2/98) 3,327
Insurance--3.4%
45,000 Allianz AG (Exp. Date: 6/30/99) 73,435
10 Muenchener Rueckversicherungs-Gesellschaft AG
(Exp. Date: 3/13/98) 7,911
Total 81,346
Total Warrants (Cost $122,527) 139,889
Total Investments--102.1% (Cost--$2,285,502) 2,467,622
Liabilities in excess of other assets--(2.1%) (49,977)
Total Net Assets--100.0% $2,417,645
</TABLE>
Notes to the Portfolio of Investments:
The accompanying notes are an integral part of the Financial Statements.
PORTFOLIO OF INVESTMENTS
European Bond Portfolio (USDollar)
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Market
Face Value
Currency Value (Note 2)
<S> <C> <C> <C>
Corporate Debt--19.7%
Denmark--3.6%
Nykredit AS
DKK 598,640 6.000% Due 10/01/26 $ 84,949
Multinational--4.8%
Nordic Investment Bank
DEM 200,000 4.875% Due 03/01/01 111,862
Netherlands-- 8.1%
Commerzbank Overseas Finance
ITL 120,000,000 10.800% Due 04/14/00 74,927
Schleswig-Holsteinische Finance
DEM 200,000 5.625% Due 07/30/07 113,736
Total 188,663
Sweden--3.2%
Swedish Export Credit
ITL 120,000,000 10.750% Due 06/09/00 75,329
Total Corporate Debt (Cost--$458,508) 460,803
U.S. Government Agency Obligations--12.0%
United States--12.0%
Federal National Mortgage Association--Global
DEM 500,000 5.000% Due 02/16/01 280,480
Total U.S. Government Agency Obligations
(Cost--$282,283) 280,480
Sovereign Debt Obligations--64.4%
Austria--3.8%
Republic of Austria
DEM 150,000 6.000% Due 02/01/06 88,444
Belgium--3.8%
Kingdom of Belgium
DEM 150,000 6.250% Due 10/06/03 88,817
Denmark--6.9%
Kingdom of Denmark
DKK 1,000,000 7.000% Due 12/15/04 160,881
France--11.6%
French Treasury Bill
ECU 250,000 4.500% Due 07/12/02 271,434
Germany--14.0%
Deutschland Republic
DEM 150,000 6.000% Due 09/15/03 88,320
DEM 250,000 6.000% Due 01/05/06 147,890
DEM 150,000 6.250% Due 01/04/24 91,298
Total 327,508
</TABLE>
European Bond Portfolio (USDollar)
<TABLE>
<CAPTION>
Market
Face Value
Currency Value (Note 2)
<S> <C> <C> <C>
Sovereign Debt Obligations--continued
Ireland--4.7%
Irish Gilt
IEP 75,000 6.250% Due 10/18/04 $ 109,226
Norway--4.9%
Norwegian Government
NOK 500,000 5.750% Due 11/30/04 68,251
NOK 350,000 6.750% Due 01/15/07 51,041
Total 119,292
Spain--3.7%
Spanish Government
DEM 150,000 5.750% Due 01/03/07 86,046
Sweden--3.3%
Kingdom of Sweden
ITL 120,000,000 10.000% Due 02/08/01 76,404
United Kingdom--7.7%
United Kingdom Gilts
GBP 100,000 7.750% Due 09/08/06 181,175
Total Sovereign Debt Obligations (Cost--$1,791,695) 1,509,227
Total Investments--96.1% (Cost--$2,250,203) 2,250,510
Other Assets in excess of liabilities--3.9% 91,913
Total Net Assets--100.0% $2,342,423
</TABLE>
Notes to the Portfolio of Investments:
Currency Abbreviations Defined:
DEM--German Deutschemark
DKK--Denmark Krona
GBP--Great British Pound
IEP--Irish Pound
ITL--Italian Lira
NOK--Norwegian Krona
ECU--European Currency Unit
The accompanying notes are an integral part of the Financial Statements.
STATEMENTS OF ASSETS AND LIABILITIES
Deutsche Portfolios
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Top 50 Europe Provesta Investa European Bond
Portfolio Portfolio Portfolio Portfolio
(US Dollar) (US Dollar) (US Dollar) (US Dollar)
<S> <C> <C> <C> <C>
Assets:
Investments, at value $7,183,054 $2,410,439 $2,467,622 $2,250,510
Cash 399,719 5,800 2,662 125,545
Foreign currency -- 2,425 535 --
Dividends receivable 7,932 -- -- --
Interest receivable 867 32 51 49,924
Receivable from securities sold -- 9,618 21,238 --
Receivable from transactions in Investors' Beneficial Interest 1,099,591 9,953 9,986 --
Deferred organization costs 60,494 61,036 61,036 61,036
Total assets 8,751,657 2,499,303 2,563,130 2,487,015
Liabilities:
Payable for investments purchased 927,610 29,789 535 --
Unrealized depreciation on forward foreign currency contracts -- -- 14 --
Investment management fees payable 19,927 6,485 6,593 6,256
Organization expenses payable 65,912 65,912 65,912 65,912
Accrued expenses and other liabilities 78,208 72,436 72,431 72,424
Total liabilities 1,091,657 174,622 145,485 144,592
Net assets $7,660,000 $2,324,681 $2,417,645 $2,342,423
Net Assets:
Applicable to Investors' Beneficial Interests $7,660,000 $2,324,681 $2,417,645 $2,342,423
Cost of investments $6,652,912 $2,301,580 $2,285,502 $2,250,203
Cost of foreign currency -- $2,448 $536 --
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
STATEMENTS OF OPERATIONS
Deutsche Portfolios
For the period from Commencement of Operations though February 28, 1998(a)
(unaudited)
<TABLE>
<CAPTION>
European
Top 50 Europe Provesta Investa Bond
Portfolio Portfolio Portfolio Portfolio
(US Dollar) (US Dollar) (US Dollar) (US Dollar)
<S> <C> <C> <C> <C>
Investment Income:
Dividend income $ 12,577 $ 1,402 $ 5,816 $ --
Less: foreign withholding taxes (1,424) (370) (1,551) --
Net dividend income 11,153 1,032 4,265 --
Interest income 14,823 603 736 44,574
Total income 25,976 1,635 5,001 44,574
Expenses:
Investment management fees 19,927 6,485 6,593 6,256
Operations agent fees 30,317 27,544 27,540 27,526
Administration agent fees 16,438 14,795 14,795 14,795
Custody and accounting fees 18,494 16,644 16,644 16,644
Audit fees 8,219 7,397 7,397 7,397
Legal fees 4,110 3,699 3,699 3,699
Trustees' fees and expenses 2,672 2,404 2,404 2,404
Insurance fees 534 481 481 481
Reports to shareholders 822 740 740 740
Other expenses 8,842 7,917 7,918 7,917
Amortization of organization costs 5,418 4,876 4,876 4,876
Total expenses 115,793 92,982 93,087 92,735
Net investment (loss) (89,817) (91,347) (88,086) (48,161)
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency:
Net realized gain (loss) on:
Investments 6,039 10,674 36,791 (4,830)
Foreign currency transactions 28,590 26,274 23,007 11,565
Net change in unrealized appreciation/depreciation on:
Investments 530,141 108,859 182,120 306
Foreign currency (1,767) (11) (44) (1,354)
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency: 563,003 145,796 241,874 5,687
Net Increase (Decrease) in Net Assets Resulting
from Operations $473,186 $ 54,449 $ 153,788 ($42,474)
(a) Commencement of operations: 10/2/97 10/17/97 10/17/97 10/17/97
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
Deutsche Portfolios
For the period from Commencement of Operations through February 28, 1998(a)
(unaudited)
<TABLE>
<CAPTION>
Top 50 Europe Provesta Investa European Bond
Portfolio Portfolio Portfolio Portfolio
(USDollar) (USDollar) (USDollar) (USDollar)
<S> <C> <C> <C> <C>
Increase (Decrease) In Net Assets:
Operations--
Net investment (loss) $ (89,817) $ (91,347) $ (88,086) $ (48,161)
Net realized gain (loss) on investments and foreign currency
transactions 34,629 36,948 59,798 6,735
Net change in unrealized appreciation (depreciation) on investments
and foreign currency 528,374 108,848 182,076 (1,048)
Net increase (decrease) in net assets resulting from operations 473,186 54,449 153,788 (42,474)
Capital Transactions--
Proceeds from contributions 8,364,553 2,278,724 2,252,980 2,474,351
Value of withdrawals (1,188,851) (19,604) (235) (100,566)
Net increase in net assets from capital transactions 7,175,702 2,259,120 2,252,745 2,373,785
Total increase in net assets 7,648,888 2,313,569 2,406,533 2,331,311
Net Assets:
Beginning of period 11,112 11,112 11,112 11,112
End of period $ 7,660,000 $2,324,681 $2,417,645 $2,342,423
(a) Commencement of operations: 10/2/97 10/17/97 10/17/97 10/17/97
</TABLE>
The accompanying notes are an integral part of the Financial
Statements.
FINANCIAL HIGHLIGHTS
Deutsche Portfolios
For the period from Commencement of Operations through February 28, 1998 (a)
(unaudited)
<TABLE>
<CAPTION>
Top 50 Europe Provesta Investa European Bond
Portfolio Portfolio Portfolio Portfolio
(USDollar) (USDollar) (USDollar) (USDollar)
<S> <C> <C> <C> <C>
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 7,660 $ 2,325 $ 2,417 $ 2,342
Ratio of expenses to average daily net 5.75% 12.17% 11.98% 11.11%
assets(b)
Ratio of net investment income (loss) average (4.46)% (11.96)% (11.34)% (5.77)%
net assets(b)
Portfolio turnover(c) 22% 23% 17% 29%
Average commission rate per share(d) $ 0.1287 $ 0.2242 $ 0.1809 --
(a) Commencement of operations: 10/2/97 10/17/97 10/17/97 10/17/97
(b) Annualized
</TABLE>
(c) Not annualized
(d) Represents average brokerage commission rate per share of total security
trades on which brokerage commissions were charged.
The accompanying notes are an integral part of the Financial Statements.
NOTES TO FINANCIAL STATEMENTS
Deutsche Portfolios
February 28, 1998 (unaudited)
Note 1--Organization
Deutsche Portfolios ("Portfolio Trust") was organized on June 20, 1997, as a
business trust under the laws of the State of New York and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Portfolio Trust currently consists of ten
separate investment series (each a "Portfolio" and collectively the
"Portfolios"), each of which is, in effect, a separate mutual fund. The
accompanying financial statements and notes relate to four of these Portfolios
which are Top 50 Europe Portfolio (US Dollar) ("Top 50 Europe Portfolio"),
Provesta Portfolio (US Dollar) ("Provesta Portfolio"), and Investa Portfolio (US
Dollar) ("Investa Portfolio") (collectively, the "Equity Portfolios"), and
European Bond Portfolio (US Dollar) ("European Bond Portfolio").
The investment manager of the Portfolios is Deutsche Fund Management, Inc.
("DFM" or the "Manager"), an indirect subsidiary of Deutsche Bank AG. The
investment objective of the Equity Portfolios is primarily to achieve high
capital appreciation, and as a secondary objective, reasonable dividend income.
The investment objective of the European Bond Portfolio is to achieve steady,
high income. The Portfolios commenced operations in October 1997.
Note 2--Significant Accounting Policies
The preparation of financial statements in conformity 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 Portfolios:
Security Valuation
The value of equity securities listed on a U.S. securities exchange are valued
at the last quoted sales price on the securities exchange or national securities
market on which such securities are primarily traded. Securities listed on a
foreign exchange considered by the Manager to be a primary market for the
securities are valued at the last quoted sale price available before the time
when net assets are valued. Unlisted securities, and securities for which the
Manager determines the listing exchange is not a primary market, are valued at
the average of the quoted bid-and-ask prices in the over-the-counter market.
Debt securities with a remaining maturity of less than 60 days are valued at
amortized cost, which approximates market value. Debt securities with a
maturity of 60 days or more are based on the last sales price on a national
securities exchange or in the absence of recorded sales, at the average of
readily available closing bid-and-asked prices on such exchanges or at the
average of the readily available closing bid and asked prices in the over-the-
counter market, if such exchange or market constitutes the broadest and most
representative market for the security. Any security for which market
quotations are not readily available, are priced in accordance with procedures
adopted by the Trustees of the Portfolio Trust.
Forward Foreign Currency Contracts
The Portfolio Trust enters into forward contracts with various counterparties.
Forward contracts are over-the-counter contracts for delayed delivery of
securities or currency in which the buyer agrees to buy and the seller agrees to
deliver a specified security or currency at a specified price on a specified
date. Because the terms of forward contracts are not standardized, they are not
traded on organized exchanges and generally can be terminated or closed-out only
by agreement of both parties to the contract. During the period the forward
contract is open, changes in the value of the contract are recognized as
unrealized gains or losses. When the forward contract is closed, the Portfolio
Trust records a realized gain or loss equal to the difference between the
proceeds from (or cost of) the close-out of the contract and the original
contract price.
Investment Transactions
Investment transactions are recorded on trade date. Cost of securities sold is
calculated using identified cost method. Dividend income is recorded on ex-
dividend date and interest income is recorded on an accrual basis. Such
dividend and interest income is recorded net of the unrecoverable portion of any
applicable foreign withholding tax.
Foreign Currency Translation
The books and records of the Portfolios are maintained in US Dollars. Assets
and liabilities denominated in foreign currency amounts are translated at the
relevant foreign exchange rate. Purchase and sales of investment securities,
income and expenses are recorded at the prevailing exchange rate on the
respective days of such transactions. The resultant gains and losses arising
from exchange rate fluctuations are identified separately in the Statements of
Operations, except for such amounts attributable to investments which are
included in net realized and unrealized gains and losses on investments.
Foreign investments may involve certain considerations and risks not typically
associated with those of domestic origin as a result of, among others, the
possibility of political and economic developments and the level of governmental
supervision and regulation of foreign securities markets.
Federal Income Taxes
Each Portfolio is treated as a partnership under the U.S. Internal Revenue Code
(the "Code"). Accordingly, each Portfolio will not be subject to any federal
income tax on its income and net realized gains (if any). However, each
investor in a Portfolio will be taxed on its allocable share of the
partnership's income and capital gains for purposes of determining its federal
tax liability. The determination of such share will be made in accordance with
the applicable sections of the Code. It is intended that each Portfolio's
assets, income and allocation will be managed in such a way that a regulated
investment company investing in the Portfolio will be able to satisfy the
requirements of Subchapter M of the Code, assuming that such investment company
invests all of its assets in the corresponding Portfolio.
Deutsche Portfolios
Expenses
Expenses are recorded on an accrual basis. Expenses of the Portfolio Trust
which are directly identifiable to a specific Portfolio are charged to that
Portfolio. Expenses not directly attributable to a specific Portfolio are
allocated among the Portfolios in such a manner as deemed equitable by the
Trustees.
Deferred Organization Expenses
Organization expenses incurred in connection with the organization and initial
registration of the Portfolio Trust were paid initially by DFM and will be
reimbursed by the Portfolios. Such organization expenses have been deferred and
will be amortized ratably over a period of sixty months from the commencement of
operations of the Portfolios. Any amount received by the Portfolio from its
corresponding Fund as a result of a redemption by Edgewood Services Inc.,
distributor of the Deutsche Funds, Inc. of any of its Initial Interest in the
Portfolio will be applied so as to reduce the amount of unamortized organization
expenses. The amount paid by the Portfolio Trust on any withdrawal by the
Deutsche Funds, Inc. of all or part of its Initial Interest in the Portfolios
will be reduced by a portion of any unamortized organization expenses of the
Portfolios, determined by the proportion of the amount of the Initial Interest
withdrawn to the aggregate amount of the Initial Interests in the Portfolios
then outstanding after taking into account any prior withdrawals of any portion
of the Initial Interests in the Portfolios.
Note 3--Significant Agreements and Transactions with Affiliates
The Portfolio Trust has entered into an Investment Management Agreement (the
"Management Agreement") with DFM, an indirect subsidiary of Deutsche Bank AG.
DFM retains overall responsibility for supervision of the investment management
program for each Portfolio but has delegated the day-to-day management of the
investment operations of each Portfolio to an investment advisor. As
compensation for the services rendered by DFM under the investment management
agreement with the Portfolio Trust with respect to each Portfolio, DFM receives
a fee from each Portfolio, which is computed daily and paid monthly, equal to
the following percentages of each Portfolio's average daily net assets on an
annualized basis for the Portfolio's then-current fiscal year:
Top 50 Europe Portfolio 1.00%
Provesta Portfolio 0.85%
Investa Portfolio 0.85%
European Bond Portfolio 0.75%
DFM has retained the services of DWS International Portfolio Management GmbH
("DWS") as investment adviser of the Portfolios. The adviser is an indirect
subsidiary of Deutsche Bank AG. As compensation for its services, DWS receives
a fee, paid by DFM, which is based on the average daily net assets of the
applicable Portfolio.
The Portfolio Trust has retained Federated Services Company as Operations Agent
to the Portfolios. As Operations Agent of the Portfolios, Federated Services
Company receives a fee from each Portfolio, which is computed daily and paid
monthly, at the annual rate of 0.035% of the average daily net assets of each
Portfolio for the Portfolio's then-current fiscal year, subject to a minimum fee
of $60,000 per Portfolio annually. Federated Services Company receives, in its
capacity as Administrator and Transfer Agent of the Deutsche Funds, Inc. and as
Operating Agent of the Portfolios, a minimum aggregate fee from each Portfolio,
its corresponding Fund and any other fund investing in each Portfolio, taken
together, of $75,000 for the first year of each Portfolio's operations and
$125,000 for the second year.
The Portfolio Trust has entered into an administrative agreement with IBT Trust
Company (Cayman) Ltd. ("IBT (Cayman)"). As Administrative Agent of the
Portfolios, IBT (Cayman) receives a fee from each Portfolio, which is computed
daily and paid monthly, at the annual rate of $5,000 per each Portfolio.
From commencement of operations to February 28, 1998, affiliates of Deutsche
Bank AG received brokerage commissions as a result of executing agency
transactions in portfolio securities in the amount of $9,236, $8,846 and $6,979,
from the Top 50 Europe Portfolio, Provesta Portfolio, and Investa Portfolio,
respectively.
Deutsche Portfolios
Note 4--Investment Portfolio Transactions
Purchases and sales of investments, exclusive of short-term securities, for each
Portfolio for the period from commencement of operations, to February 28, 1998
are as follows:
Top 50 Provesta Investa
Europe Portfolio Portfolio Portfolio
Purchases $7,541,467 $2,699,625 $2,545,443
Sales $ 894,594 $ 408,719 $ 296,732
European
Bond Portfolio
Purchases
U.S. Government $ 277,766
Non-U.S. Government 2,466,117
Total $2,743,883
Sales
U.S. Government $ --
Non-U.S. Government 488,850
Total $ 488,850
At February 28, 1998, the cost of investments and the unrealized appreciation
(depreciation) of investments for each Portfolio were as follows:
<TABLE>
<CAPTION>
Top 50 Provesta Investa European
Europe Portfolio Portfolio Portfolio Bond Portfolio
<S> <C> <C> <C> <C>
Cost of Investments $6,652,912 $2,301,580 $2,285,502 $2,250,203
Gross Unrealized Appreciation 630,819 197,084 226,946 17,010
Gross Unrealized Depreciation (100,678) (88,225) (44,826) (16,704)
Net Unrealized Appreciation/(Depreciation) 530,141 108,859 182,120 306
</TABLE>
Note 5--Forward Foreign Currency Contracts
Certain Portfolios had forward foreign currency contracts which contractually
obligate the Portfolio to deliver or receive currencies at specified future
dates. The following contracts were open at February 28, 1998:
<TABLE>
<CAPTION>
Foreign
Settlement Contract Current Unrealized
Provesta Portfolio Date U.S. $ Value Value Gain (Loss)
<S> <C> <C> <C> <C> <C>
Purchase Deutsche Mark 03/02/98 $21,133 $21,147 $ 14
Sale Deutsche Mark 03/02/98 9,613 9,620 (7)
Purchase French Franc 03/31/98 1,457 1,450 (7)
Investa Portfolio
Sale British Pound 03/02/98 $21,229 $21,243 $(14)
</TABLE>
Note 6--Off-Balance Sheet Risk and Concentration of Credit Risk
The Statement of Assets and Liabilities includes the market or fair value of
contractual commitments involving forward settlement contracts. These
instruments may involve elements of market risk in excess of amounts reflected
on the Statement of Assets and Liabilities.
Notional amounts are indicative only of the volume of activity; they are not a
measure of market risk. Notional amounts of forward contracts include both
purchase and sale commitments. Notional amounts of futures include contracts
purchased as well as contracts sold. Market risk is influenced by the nature of
the items that comprise a particular category of financial instruments and by
the relationship among the various off-balance sheet categories as well as the
relationship between off-balance sheet items and items recorded on the
Portfolios' Statement of Assets and Liabilities. Credit risk is measured by the
loss the Portfolios would record if its counterparties failed to perform
pursuant to terms of their obligations to the Portfolios.
Mutual funds are not deposits or obligations of any bank, are not guaranteed by
any bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the funds' prospectuses which contain facts
concerning their objective and policies, management fees, expenses and other
information.
Directors of the Corporation and
Trustees of the Portfolio Trust
Edward C. Schmults
Robert H. Wadsworth
Werner Walbroel
G. Richard Stamberger
Christian Strenger
Officers of the Corporation
Brian A. Lee
Joseph Cheung
Robert R. Gambee
Laura Weber
Edgewood Services, Inc., Distributor
GO2216-09 (4/98)
SEMI-ANNUAL REPORT
and supplement to prospectus dated April 30, 1998
Deutsche US Money Market Funds
Class A and Class B Fund and Class Y Fund
Deutsche Funds [LOGO]
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the first Semi-Annual Report for Deutsche US Money
Market Funds.*
On the following pages you will find complete financial information concerning
your investment in Deutsche Funds. Please note that this report covers financial
activity in the funds through February 28, 1998.
Thank you for selecting Deutsche Funds to pursue your financial goals. We are
committed to providing quality investment products, coupled with our further
commitment to the highest level of service possible.
Sincerely,
/s/ Brian Lee
Brian Lee
President
April 15, 1998
* Money market funds seek to maintain a stable net asset value of $1.00 per
share. There is no assurance that they will be able to do so. An investment
in the fund is not insured or guaranteed by the U.S. government.
** Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
STATEMENTS OF ASSETS AND LIABILITIES
Deutsche Funds, Inc.
February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche
US Institutional US
Money Market Money Market
Fund Fund
(Class A) (Class Y)
------------ ----------------
<S> <C> <C>
Assets:
- ------------------------------------------------------------------------------
Investments in corresponding Deutsche Portfolios at value $ 100 $ 100
- ------------------------------------------------------------------------------
Cash 68,000 18,000
- ------------------------------------------------------------------------------
Deferred organization costs 6,294 6,294
- ------------------------------------------------------------------------------ ------- -------
Total assets 74,394 24,394
- ------------------------------------------------------------------------------ ------- -------
Liabilities:
- ------------------------------------------------------------------------------
Organization costs payable 6,294 6,294
- ------------------------------------------------------------------------------
Total liabilities 6,294 6,294
- ------------------------------------------------------------------------------ ------- -------
Net assets $68,100 $18,100
- ------------------------------------------------------------------------------ ------- -------
Net Assets Consist of:
- ------------------------------------------------------------------------------
Capital Stock, $0.001 par value (authorized 10,000,000 shares per Fund) 68 18
- ------------------------------------------------------------------------------
Paid-in capital 68,032 18,082
- ------------------------------------------------------------------------------ ------- -------
Net assets $68,100 $18,100
- ------------------------------------------------------------------------------ ------- -------
Computation of Net Asset Value, Redemption Price and Offering Price Per Share:
- ------------------------------------------------------------------------------
Shares outstanding 68,100 18,100
- ------------------------------------------------------------------------------ ------- -------
Net asset value, redemption price and offering price per share $1.00 $1.00
- ------------------------------------------------------------------------------ ------- -------
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
Deutsche Funds, Inc.
For the period ended February 28, 1998(a) (unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche
US Institutional US
Money Market Money Market
Fund Fund
(Class A) (Class Y)
------------ ----------------
<S> <C> <C>
Increase (Decrease) In Net Assets:
- ----------------------------------------------------
Operations--
- ----------------------------------------------------
Net investment income $ -- $ --
- ----------------------------------------------------
Net realized gain on investments -- --
- ----------------------------------------------------
Net change in unrealized appreciation on investments -- --
- ---------------------------------------------------- ------- -------
Net increase in net assets resulting from operations -- --
- ---------------------------------------------------- ------- -------
Capital Transactions--
- ----------------------------------------------------
Proceeds from contributions 68,000 18,000
- ----------------------------------------------------
Value of withdrawals -- --
- ---------------------------------------------------- ------- -------
Net increase in net assets from capital transactions 68,000 18,000
- ---------------------------------------------------- ------- -------
Total increase in net assets 68,000 18,000
- ----------------------------------------------------
Net Assets:
- ----------------------------------------------------
Beginning of period 100 100
- ---------------------------------------------------- ------- -------
End of period $68,100 $18,100
- ---------------------------------------------------- ------- -------
Capital Shares
- ----------------------------------------------------
Shares outstanding, beginning of period 100 100
- ----------------------------------------------------
Shares sold 68,000 18,000
- ----------------------------------------------------
Shares redeemed -- --
- ---------------------------------------------------- ------- -------
Capital shares outstanding, end of period 68,100 18,100
- ---------------------------------------------------- ------- -------
</TABLE>
(a) The Funds have not commenced investment operations.
The accompanying notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
Deutsche Funds, Inc.
For the period ended February 28, 1998(a) (unaudited)
Selected data for a share of common stock outstanding throughout the period.
<TABLE>
<CAPTION>
Deutsche Deutsche
US Institutional US
Money Market Money Market
Fund Fund
(Class A) (Class Y)
------------ ----------------
<S> <C> <C>
Net asset value at beginning of period $1.00 $1.00
- ------------------------------------------------
Investment operations:
- ------------------------------------------------
Net investment income -- --
- ------------------------------------------------
Net realized and unrealized gain on investments -- --
- ------------------------------------------------ ----- -----
Increase from investment operations -- --
- ------------------------------------------------ ----- -----
Net asset value at end of period $1.00 $1.00
- ------------------------------------------------ ----- -----
Total Return -- --
- ------------------------------------------------
Ratios and Supplemental Data
- ------------------------------------------------
Net assets, end of period (000's) $ 68 $ 18
- ------------------------------------------------
Ratio to average net assets -- --
- ------------------------------------------------
Expenses -- --
- ------------------------------------------------
Net investment income -- --
- ------------------------------------------------
</TABLE>
(a) The Funds have not commenced investment operations.
The accompanying notes are an integral part of the Financial Statements.
NOTES TO FINANCIAL STATEMENTS
Deutsche Funds, Inc.
February 28, 1998 (unaudited)
Note 1 -- Organization
Deutsche Funds, Inc. (the "Company") was incorporated in Maryland on May 22,
1997 and is registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company. The Company currently
consists of eleven separate investment series (the "Funds"). The accompanying
financial statements and notes relate to the Deutsche US Money Market Fund and
Deutsche Institutional US Money Market Fund, (each a "Fund" and collectively the
"Money Market Funds") each of which is, in effect, a separate mutual fund. As of
February 28, 1998 the Funds have not commenced investment operations.
Each of the Money Market Funds seeks to achieve their respective investment
objective by investing substantially all of their assets in the US Money Market
Portfolio (US Dollar) (the "Portfolio", one of the ten portfolios constituting
the Deutsche Portfolios (the "Portfolio Trust")) having substantially the same
investment objective of each of the Money Market Funds.
The Company has not retained the services of an investment adviser since the
Money Market Funds will seek to achieve their investment objective by investing
all of their investable assets in the Portfolio. The Portfolio is managed by
Deutsche Fund Management, Inc. ("DFM"), an indirect subsidiary of Deutsche Bank
AG. Federated Services Company is the Administrator to the Money Market Funds
and Federated Shareholder Services Company is the transfer agent and dividend
disbursing agent to the Money Market Funds. Edgewood Services, Inc. ("Edgewood")
is the distributor to the Money Market Funds.
Each Fund will absorb daily a pro-rata portion of the Portfolio's income and
expenses, including fees paid to DFM and the amortization of organization
expenses. Additionally, the Deutsche US Money Market Fund offers two classes of
shares to investors, Class A and Class B. Both Class A Shares and Class B Shares
are subject to a Service Plan and Class B Shares are also subject to a
Distribution Plan. Each Class will bear their respective portion of the expenses
under the Service and Distribution Plan. As of February 28, 1998, only Class A
Shares of the Deutsche US Money Market Fund have been sold to the public; shares
of the Deutsche Institutional US Money Market Fund have not been sold to the
public.
Note 2 -- Significant Accounting Policies
The preparation of financial statements in conformity 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 Funds:
Investment Valuation
The value of each Fund's investment in the Portfolio included in the
accompanying Statements of Assets and Liabilities reflects each Fund's
proportionate beneficial interest in the net assets of the Portfolio
(percentages as of February 28, 1998 are listed below). Valuation of securities
by the Portfolio is discussed in Note 2 of the Portfolios' Notes to Financial
Statements which are included elsewhere in this report.
<TABLE>
<CAPTION>
Fund Percentage Portfolio
- ------------------------------------------ ----------- -------------------------------------
<S> <C> <C>
Deutsche USMoney Market Fund 47.62% US Money Market Portfolio (US Dollar)
Deutsche Institutional USMoney Market Fund 47.62% US Money Market Portfolio (US Dollar)
</TABLE>
Investment Income, Expense and Realized Gains and Losses
The Money Market Funds record its share of the investment income, expense and
realized gains and losses recorded by the Portfolio on a daily basis. The
investment income, including accretion of discount and amortization of premium,
expenses and realized gains and losses are allocated daily to investors of the
Portfolio based upon the amount of their investment in the Portfolio.
Federal Income Taxes
Each Fund is treated as a separate entity for Federal income tax purposes. It is
the policy of each Fund to qualify for and elect treatment as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, as amended.
Accordingly, each Fund would not be subject to U.S. federal income taxes to the
extent it distributes substantially all of its taxable income including any net
capital gains for each fiscal year. In addition, by distributing, during each
calendar year, substantially all of its net investment income and capital gains,
each Fund would not be subject to U.S. federal excise tax.
Distributions to Shareholders
All of the Money Market Funds' net income and short-term capital gains and
losses, if any, are declared as a dividend daily and paid monthly. Income and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principals.
These differences, which could be temporary or permanent in nature, may result
in reclassification of distributions; however, net investment income, net
realized gains and net assets are not affected.
Deferred Organization Costs
Organization expenses incurred in connection with the organization and initial
registration of the Company will be paid initially by DFM and reimbursed by the
Funds. Such organization expenses have been deferred and will be amortized
ratably over a period of sixty months from the commencement of operations of the
Money Market Funds. The amount paid by each Fund on any redemption by Edgewood
(or any subsequent holder) of such Fund's initial shares will be reduced by the
pro-rata portion of any unamortized organization expenses of the Money Market
Funds.
Note 3 -- Significant Agreements and Transactions with Affiliates
The Company has retained the services of Federated Services Company as
Administrator. Under the Administration Agreement, Federated Services Company
will assist in the operations of the Money Market Funds subject to the direction
and control of the Board of Directors of the Company. For its services,
Federated Services Company will receive a fee from each Fund, which is computed
daily and paid monthly, at an annual rate of 0.045% of each Fund's average daily
net assets. If after the first year of operations of each Fund, the average net
assets of the Portfolio have not reached $325 million, the Administrator's fee
would be increased to an annual rate of 0.065% of the average daily net assets
of each Fund up to $200 million and 0.0525% of such assets in excess of $200
million for the Fund's then current fiscal year.
The Company has entered into a distribution agreement with Edgewood. Edgewood
will serve as principal distributor for shares of the Funds. The Company has
adopted a Service Plan in accordance with Rule 12b-1 of the 1940 Act whereby
Class A Shares are subject to the Service Plan. Under the Service Plan, the
Class A Shareholders pay DFM for the provision of certain services a fee
computed at an annual rate of 0.25% of the average daily net assets of the Class
A Shares.
Federated Shareholder Services Company serves as the transfer agent and dividend
disbursing agent for the Money Market Funds. Federated Services Company and
Federated Shareholder Services Company are both affiliated with Edgewood. IBT
Fund Services (Canada) Inc. provides fund accounting services to the Money
Market Funds.
DFM together with IBT Fund Services (Canada) Inc., its affiliates, and other
service providers have voluntarily agreed that they will waive their fees and/or
reimburse each Fund through at least one year from the Money Market Funds'
commencement of operations, to the extent necessary to maintain each Fund's
total operating expenses (which includes expenses of each Fund and its pro-rata
portion of expenses of the corresponding Portfolio, but does not cover
extraordinary expenses during the period) at not more than 0.20% of the average
daily net assets of Deutsche Institutional US Money Market Fund, and at not more
than 0.55% and 1.30% of the average daily net assets of Class A Shares and Class
B Shares, respectively, of the Deutsche US Money Market Fund.
STATEMENT OF ASSETS AND LIABILITIES
Deutsche Portfolios
February 28, 1998 (unaudited)
US
Money Market
Portfolio
(US Dollar)
------------
Assets:
- --------------------------------------------------------------
Cash $ 210
- --------------------------------------------------------------
Deferred organization costs 65,912
- -------------------------------------------------------------- -------
Total assets 66,122
- -------------------------------------------------------------- -------
Liabilities:
- --------------------------------------------------------------
Organization costs payable 65,912
- -------------------------------------------------------------- -------
Total liabilities 65,912
- -------------------------------------------------------------- -------
Net assets $ 210
- -------------------------------------------------------------- -------
Net Assets:
- --------------------------------------------------------------
Applicable to Investors' Beneficial Interests $ 210
- --------------------------------------------------------------
The accompanying notes are an integral part of the Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
Deutsche Portfolios
For the period ended February 28, 1998(a) (unaudited)
US
Money Market
Portfolio
(US Dollar)
------------
Increase (Decrease) In Net Assets:
- --------------------------------------------------------------
Operations--
- --------------------------------------------------------------
Net investment income --
- --------------------------------------------------------------
Net realized gain on investments --
- --------------------------------------------------------------
Net change in unrealized appreciation on investments --
- -------------------------------------------------------------- ----
Net increase in net assets resulting from operations --
- -------------------------------------------------------------- ----
Capital Transacztions--
- --------------------------------------------------------------
Proceeds from contributions --
- --------------------------------------------------------------
Value of withdrawals --
- --------------------------------------------------------------
Net increase in net assets from capital transactions --
- -------------------------------------------------------------- ----
Total increase in net assets --
- -------------------------------------------------------------- ----
Net Assets:
- --------------------------------------------------------------
Beginning of period 210
- --------------------------------------------------------------
End of period $210
- -------------------------------------------------------------- ----
(a) The Portfolio has not commenced investment operations.
The accompanying notes are an integral part of the Financial Statements.
FINANCIAL HIGHLIGHTS
Deutsche Portfolios
For the period ended February 28, 1998(a) (unaudited)
US
Money Market
Portfolio
(US Dollar)
------------
Ratios/Supplemental Data
- --------------------------------------------------------------
Net assets, end of period $210
- --------------------------------------------------------------
Ratio of expenses to average daily net assets --
- --------------------------------------------------------------
Ratio of net investment income to average net assets --
- --------------------------------------------------------------
(a) The Portfolio has not commenced investment operations.
The accompanying notes are an integral part of the Financial Statements.
NOTES TO FINANCIAL STATEMENTS
Deutsche Portfolios
February 28, 1998 (unaudited)
Note 1 -- Organization
Deutsche Portfolios ("Portfolio Trust") was organized on June 20, 1997, as a
business trust under the laws of the State of New York and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Portfolio Trust currently consists of ten
separate investment series (the "Portfolios"), each of which is, in effect, a
separate mutual fund. The accompanying financial statements and notes relate to
the US Money Market Portfolio (US Dollar) (the "Portfolio").
Deutsche Fund Management, Inc. ("DFM"), an indirect subsidiary of Deutsche Bank
AG, serves as investment manager (the "Manager") to the Portfolio Trust.
Investors Bank & Trust Company serves as the custodian to the Portfolio Trust.
IBT Fund Services (Canada) Inc. serves as the fund accounting agent to the
Portfolio Trust.
The Declaration of Trust of the Portfolios permits its Trustees to issue
interests in the Portfolio Trust. The investment objective of the Portfolio is
primarily to achieve as high a level of current income as is consistent with the
preservation of capital and the maintenance of liquidity.
Note 2 -- Significant Accounting Policies
The preparation of financial statements in conformity with generally 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 Portfolio:
Security Valuation
Money market instruments are valued at amortized cost, which the Trustees have
determined in good faith to be fair value. The Portfolio's use of amortized cost
is subject to the Portfolio's compliance with certain conditions as specified
under Rule 2a-7 of the 1940 Act.
Investment Transactions
Investment transactions are recorded on trade date. Cost of securities sold is
calculated using identified cost method. Interest income, including the
amortization of premium and the accretion of discount is accrued daily.
Federal Income Taxes
Each Portfolio is considered a partnership under the U.S. Internal Revenue Code
(the "Code"). Each Portfolio therefore believes that it will not be subject to
any Federal income tax on its income and net realized gains (if any). However,
each investor in a Portfolio will be taxed on its allocable share of the
partnership's income and capital gains for purposes of determining its federal
tax liability. The determination of such share will be made in accordance with
the applicable sections of the Code. It is intended that each Portfolio's
assets, income and allocation will be managed in such a way that a regulated
investment company investing in a Portfolio will be able to satisfy the
requirements of Subchapter M of the Code, assuming that the investment company
invested all of its assets in the corresponding Portfolio.
Expenses
Expenses are recorded on an accrual basis. Expenses of the Portfolio Trust which
are directly identifiable to a specific Portfolio are allocated to that
Portfolio. Expenses not directly attributable to a specific Portfolio are
allocated among the Portfolios in such a manner as deemed equitable by the Board
of Trustees.
Deferred Organization Expenses
Organization expenses incurred in connection with the organization and initial
registration of the Portfolio Trust will be paid initially by DFM and reimbursed
by the Portfolios. Such organization expenses have been deferred and will be
amortized ratably over a period of sixty months from the commencement of
operations of the Portfolios. Any amount redeemed from the Portfolio from its
corresponding Fund as a result of a redemption by Edgewood Services Inc.,
distributor of the Deutsche Funds, Inc., of any of its Initial Interest in the
Portfolio will be applied so as to reduce the amount of unamortized organization
expenses. The amount paid by the Portfolio Trust on any withdrawal by the Money
Market Funds of all or part of its Initial Interest in the Portfolios will be
reduced by a portion of any unamortized organization expenses of the Portfolios,
determined by the proportion of the amount of the Initial Interest withdrawn to
the aggregate amount of the Initial Interests in the Portfolios then outstanding
after taking into account any prior withdrawals of any portion of the Initial
Interests in the Portfolios.
Note 3 -- Significant Agreements and Transactions with Affiliates
The Portfolio Trust has retained the services of DFM as Manager. DFM retains
overall responsibility for supervision of the investment management program for
the Portfolio but has delegated the day-to-day management of the investment
operations of the Portfolio to an Adviser. As compensation for the services
rendered by DFM under the investment management agreement ("Management
Agreement") with the Portfolio Trust with respect to the Portfolio, DFM receives
a fee from the Portfolio, which is computed daily and paid monthly, equal to
0.15% of the average daily net assets of the Portfolio on an annualized basis
for the Portfolio's then-current fiscal year. DFM has retained the services of
Deutsche Morgan Grenfell Investment Management, Inc. ("DMGIM") as the investment
adviser. The adviser is an indirect subsidiary of Deutsche Bank AG. As
compensation for its services DMGIM receives a fee paid from DFM which is based
on the average daily net assets of the Portfolio.
The Portfolio Trust has retained Federated Services Company as Operations Agent
to the Portfolios. As Operations Agent of the Portfolios, Federated Services
Company receives a fee from the Portfolio, which is computed daily and paid
monthly, at the annual rate of 0.015% of the average daily net assets of the
Portfolio. If after the first year of operations, the average net assets of the
Portfolio have not reached $325 million, the Operations Agent's fee would be
increased to an annual rate of 0.035% of the average daily net assets of the
Portfolio. Federated Services Company is affiliated with Edgewood.
The Portfolio Trust has entered into an administrative agreement with IBT Trust
Company (Cayman) Ltd. ("IBT (Cayman)"). As Administrative Agent of the
Portfolios, IBT (Cayman) receives a fee from the Portfolio, which is computed
daily and paid monthly, at the annual rate of 0.025% of the average daily net
assets of the Portfolio.
Mutual funds are not deposits or obligations of any bank, are not guaranteed by
any bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal. Although money market funds seek to maintain a stable net
asset value of $1.00, there is no assurance that they will be able to do so.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the funds' prospectuses which contain facts
concerning their objective and policies, management fees, expenses and other
information.
Directors of the Corporation and
Trustees of the Portfolio Trust
Edward C. Schmults
Robert H. Wadsworth
Werner Walbroel
G. Richard Stamberger
Christian Strenger
Officers of the Corporation
Brian A. Lee
Joseph Cheung
Robert R. Gambee
Laura Weber
Edgewood Services, Inc., Distributor
GO2216-10 (4/98)
