Annual
report
dated August 31, 1998
Deutsche Top 50 Europe (Class A Shares and Class B Shares) Deutsche European
Mid-Cap Fund (Class A Shares and Class B Shares) Deutsche German Equity Fund
(Class A Shares and Class B Shares) Deutsche European Bond Fund (Class A Shares
and Class B Shares)
PRESIDENT'S MESSAGE
Fellow Shareholders:
It is a pleasure to present the first Annual Report of the Deutsche Funds. This
report covers the fiscal year period from the Funds' commencement of operations,
through August 31, 1998.
By the end of second quarter 1998, the world's financial markets had risen to
record new levels, particularly the equity markets. Many of the world's leading
stock market indices, such as the Dow Jones Industrial Average (DJIA) in the
U.S., the DAX in Germany, the FTSE 100 in Great Britain and the CAC 40 in
France, achieved unprecedented highs.
This rise in the world's stock markets, which had continued unabated for six
years, saw a sizeable correction, mostly during the last two months of Deutsche
Funds' fiscal year. To put this correction in perspective, the DAX fell 17.63%,
while the CAC 40 fell 13.13%. The FTSE 100 fell 10.00%. U.S. stocks fared even
worse, relative to other world equity markets, falling 15.78% as measured by the
DJIA.
The reasons for this decline are now well known. Japan's economic situation, as
well as most of Asia's, led to a period of great volatility by the Funds' fiscal
year-end. The situation was compounded by the devaluation of Russia's currency,
which had a serious effect on the Russian economy. While the Deutsche Funds had
no exposure whatsoever to Russian paper, the performance of the Funds was not
immune to the impact of these economic situations elsewhere in the world.
Very few mutual fund investments can look good in down-markets. The Deutsche
Bank Mutual Fund Group has staked its reputation for 42 years on being among
those few. We have always felt that conserving capital in difficult markets
should be one of our primary concerns.
During such times, it's worth reiterating why investing internationally
continues to make sense. Foreign investing does involve special risks, including
currency risk, increased volatility of foreign securities and differences in
auditing and other financial standards. Also, emerging markets structures may be
less diverse and mature, and their political systems may be less stable.
Nevertheless, international investments are where we believe future economic
growth will mainly reside. Furthermore, by diversifying internationally, the
investor is able to absorb occasional economic downturns that may occur in
certain regions, but which might not affect other regions to the same extent.
The following pages provide you with investment reviews from each of the
Deutsche Funds' portfolio managers. They detail the events that took place in
their respective markets, and the relative impact on the Funds' portfolio
performance. These investment reviews include a synopsis of the Funds' major
buy-and-sell decisions. You are also able to see in graphic form the performance
of each Deutsche Fund, relative to its relevant benchmark index.
So far, the Funds have done well compared to their benchmarks. This underscores
the strength of our global expertise, with over 300 investment professionals
around the world.
With so many international funds to choose from, the Deutsche Funds are
gratified you have looked to us for your international equity or fixed income
investments. We will keep you up-to-date on the details of your investment on a
regular basis, combined with the highest level of service possible.
Sincerely,
/s/ Brian A. Lee
Brian A. Lee
President
Deutsche Funds, Inc.
October 30, 1998
The Deutsche Funds are not obligations or deposits of any bank and are not
insured.
INVESTMENT REVIEW
Deutsche Top 50 Europe
Since the inception of Deutsche Top 50 Europe Fund in October 1997, price rose
strongly in the European and international equity markets. Following significant
corrections in the fall of 1997, and amid the uncertainty in the Asian markets,
the markets were able to gain momentum. This momentum was perpetuated by rising
corporate profits, continued low inflation and interest rates, and a strong
decline in oil prices. Additionally, the positive financial and economic effects
resulting from the upcoming introduction of the single European currency, the
Euro, has helped to draw special attention and investment in European equities.
The momentum that was experienced throughout most of 1998, however, lost steam
most recently, due to the ongoing currency turmoil in the world's emerging
markets, especially in Russia, and the fear of a major economic slowdown. As a
result, stock prices in Europe, and the rest of the world, have seen major
corrections.
However, given the current situation,our long-term outlook on European equities
remains positive, especially as interest rates stay low, and corporate
restructuring continues to take place.
With respect to the fund itself, we are targeting companies which are
well-positioned to take advantage of the introduction of the single European
currency. We are focusing on stocks which meet our high standards in terms of
management quality, earnings growth and shareholder-oriented information
policies.
With the approach of the European Monetary Union ("EMU") and the associated
growing importance of the European equity markets, the fund increased the
weighting of stocks across Europe and reduced its allocation of German stocks.
Deutsche Top 50 Europe has concentrated on companies which stand out through
their restructuring potential in conjunction with their strong value-oriented
management strategies. The fund increased its overall holdings in the financial
sector due to significant restructuring potential over the next few years, in
the form of mergers, as well as internal strategy changes.
The fund bought large positions in the second largest European insurance
company, AXA-UAP of France, and Austria's largest bank, BankAustria.
Among German equity positions, the fund's management chose to maintain its
holding in SAP. As Europe's leading software producer, SAP has recorded strong
growth over the past several years and is likely to gain momentum from new
business arising from the transition of the Euro. The holding of SAP, which was
by far the single largest position in the portfolio, has provided above average
returns versus the market. Mannesmann is the second largest German position, and
made a large contribution to the fund's positive results. The cellular
telecommunications provider benefited from potentially promising
telecommunications activities both in Germany and abroad.
In France, the fund expanded its position in Alcatel. After the flotation of GEC
Alsthom in June 1998, and the finalization of the defense deal with Thomson-CSF,
Alcatel emerges as a potentially successful, broadly-based telecoms equipment
company. We also increased our weighting in the utility sector and added Suez
Lyonnaise des Eaux to the portfolio.
During the fiscal year, the fund's investment ratio varied. Against a backdrop
of Asian-related market uncertainty, the fund maintained cash at nearly 20% at
the end of 1997. With improvement in the investment outlook, the investment
ratio was raised significantly during the first quarter of 1998. At the end of
March 1998, the fund was again fully invested in equities. From the end of July
and onward, we gradually reduced our investment ratio to just below 90% due to
the problems in the Russian market.
Value-oriented management concepts are increasingly being implemented by German
and other European companies. Taking that into consideration, in addition to the
introduction of the EMU, which will become the second-largest equity market in
the world, leaves us to believe that Deutsche Top 50 Europe Fund offers
attractive investment opportunities.
Deutsche European Mid-Cap Fund
Prices of European equities rose strongly during the last quarter of 1997
through mid-summer 1998. During this time period, many of Europe's major equity
indices reached new highs and lead the world in equity market performance. The
upward trend in equity prices halted, however, towards the end of July 1998, due
to the economic crisis in Russia, and the growing possibility of a worldwide
economic slowdown.
Since the inception of Deutsche European Mid-Cap Fund on October 17, 1997, the
portion of German stocks versus other European stocks being held in the
portfolio was continually reduced. This reallocation of assets on a country-by-
country basis will continue to be done in order to more strongly take advantage
of opportunities throughout Europe. In addition, companies with above-average
earnings and price potential will be favored.
Within the portfolio, and with respect to individual holdings, Fresenius has
been one of our top ten holdings for most of the fiscal year. The company's
investment in a new dialysis center in the U.S. is expected to boost earnings of
the global leader in dialysis products. Profits were taken in the portfolio's
largest holding, SAP, Europe's leading software manufacturer, and the position
was reduced. After the strong performance of Bayerische Vereinsbank, due to the
merger with Bayerische Hypotheken-und Wechselbank, the position was sold.
Stronger gains were also recorded by Sixt, an auto rental company, and Porsche.
Companies with ideas and plans for new products, new services or new markets
will drive the future development of the German and European economy. Such
dynamic firms require sufficient equity capital in order to finance their future
growth. At the same time, private and institutional investors in Germany and
elsewhere are looking for highly profitable investment opportunities with
diversifiable risks. In response, Deutsche Borse launched a new trading segment
at the Frankfurt Stock Exchange, the Neuer Markt (or "new market") on March 10th
1997. This brings together growth companies and investors prepared to take a
risk. The companies listed in the Neuer Markt are fast-growing companies from
future-oriented sectors such as telecommunications, biotechnology, multimedia
and environmental technology, but also from traditional sectors with innovative
products or services. The portfolio was also able to take advantage of
investments in the "new market" with investments in such companies as Aixtron,
Qiagen, and MobilCom. Singulus was sold following a strong price increase.
Among the largest European positions were the French consulting and software
house of Cap Gemini, the Dutch detergent manufacturer Benckiser, the worldwide
provider of computer products Getronics and the major commercial Italian bank
Banca di Roma.
The overall rise in the European markets has, up until now, been carried by the
blue chips. Growth of small and mid-size stocks has been more restrained, and it
is management's opinion that this area of the equity market has considerable
upward potential.
Deutsche German Equity Fund
Since the beginning of the fiscal year, until the end of July 1998, prices of
German equities rose strongly. During this time period, despite periods of sharp
fluctuations, the German equity index, the DAX, was able to break through the
6,000 level for the first time ever.
Deutsche German Equity Fund was able to fully participate in the strong rise
experienced by German blue chips, achieving a total return (before sales charge)
of 15.68% for Class A Shares for the fiscal year.*
The fund's performance was heavily influenced by our holding in SAP. As Europe's
largest software producer, SAP was able to outperform the market and its
competitors due in part to its strong product offerings and worldwide
distribution. Automotive stocks were also highly weighted in the portfolio, with
Daimler-Chrysler as the largest position held at fiscal year-end. During the
fiscal year, holdings in Volkswagen and Continental were significantly expanded,
and profits were taken in BMW. Mannesman, a leading cellular telecommunications
provider benefited, as did Deutsche Telekom, from the strong outlook for
telecommunications activities both in Germany and abroad.
Bayerische Vereinsbank, also one of the biggest positions in the portfolio,
benefited from the merger announced with Bayerische Hypotheken-und Wechselbank.
The price of Metro, due to better than expected earnings growth and a promising
internationalization strategy, made a recovery during the latter part of the
fiscal year.
After a strong decrease in the DAX in August, we realized the correction was far
more severe than expected. Given the market levels at the end of the period,
however, it is our opinion that there is no earnings growth scenario in sight,
and that German blue chips seem to be attractively valued into the near-term.
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Total return for Class A Shares for the fiscal period ended
August 31, 1998, based on offering price was 9.30%. Total return for Class B
Shares for the fiscal period ended August 31, 1998, based on net asset value
and redemption value was 1.04% and(3.96)%, respectively.
Deutsche European Bond Fund
Deutsche European Bond Fund invests primarily in the fixed income securities of
European issuers and fixed income securities denominated in European currencies,
or in European Currency Units (ECU). The objective is to seek steady, high
income. For the fiscal year ended August 31, 1998, the fund's Class A Shares
achieved a total return (before sales charge) of 6.17%.**
The main factor which contributed to the fund's performance came from the
generally friendly bond markets, where the trend continued bullish almost
uninterruptedly throughout the fiscal year.
The 10-year interest yield in Germany has come down from 5.94% at the beginning
of the fiscal year to 4.43% by the end of August; a total of 1.51% lower. Also,
most of the European currencies were able to gain against the U.S. dollar,
especially the British pound.
In order to better participate in the positive sentiment, the fund's
dollar-weighted average maturity was gradually increased from 6.5 years to 7.4
years towards the end of February. From then on, the fund's average maturity was
increased to 7.8 years.
At the beginning of the period, the fund took advantage of the ongoing narrowing
in the yield differentials of the possible euro candidate currencies like the
Italian lira, the Spanish peseta, the Irish punt and ECU towards the Deutsche
mark. As this yield convergence took place in expectation of the European
Monetary Union, allocation in Spain was sold completely and Italian, Irish and
ECU exposures drastically reduced. Positions in the Deutsche mark, and the
Danish krone were increased, and a position in the French franc was established.
Also, the weight of the British pound in the portfolio was increased in order to
participate in the United Kingdom's high yields and strong currency. Allocations
in the Greek drachma, the Czech koruna and the Polish zloty were also acquired
during the fiscal year but, later partially sold again in Greek drachma, and
completely liquidated in Czech koruna and Polish zloty, after a substantial
rally in both yields and currencies of those countries.
The significant widening of credit spreads towards the end of the fiscal year
hurt performance somewhat. Although the credit quality in the Deutsche European
Bond Fund is very high, portfolio asset diversification requirements limit the
extent of investments in government bonds and necessitate a certain amount of
credit exposure.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Total return for Class A Shares for the fiscal period
ended August 31, 1998, based on offering price was 1.38%. Total return for
Class B Shares for the fiscal period ended August 31, 1998, based on net
asset value and redemption value was 3.44% and(1.56)%, respectively.
Deutsche Top 50 Europe--Class A
Growth of $10,000 Invested in Deutsche Top 50 Europe
The graph below illustrates the hypothetical investment of $10,000* in Class A
Shares of the Deutsche Top 50 Europe (the "Fund") from October 2, 1997
(commencement of operations) to August 31, 1998, compared to the MSCI Europe
Index.+
[Graphic representation omitted Please see Appendix A1.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998 Commencement of
Operations (10/2/97) (cumulative) (1.49)%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 5.5% ($10,000 investment minus $550 sales charge =
$9,450). The Fund's performance assumes the reinvestment of all dividends and
distributions. The MSCI Europe Index has been adjusted to reflect reinvestment
of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges.
+ The MSCI Europe Index is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
The index is unmanaged, and investments cannot be made in an index.
Deutsche Top 50 Europe--Class B
Growth of $10,000 Invested in Deutsche Top 50 Europe
The graph below illustrates the hypothetical investment of $10,000* in Class B
Shares of the Deutsche Top 50 Europe (the "Fund") from March 30, 1998 (inception
date) to August 31, 1998, compared to the MSCI Europe Index.+
[Graphic representation omitted Please see Appendix A2.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
INCEPTION DATE (3/30/98) (CUMULATIVE) (11.46)%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 5.00% contingent deferred sales charge imposed on any
redemption occurring within one year from the purchase date. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
MSCI Europe Index has been adjusted to reflect reinvestment of dividends on
securities in the index.
** Total return quoted reflects all applicable sales charges.
+ The MSCI Europe Index is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
The index is unmanaged, and investments cannot be made in an index.
Deutsche European Mid-Cap Fund--Class A
Growth of $10,000 Invested in Deutsche European Mid-Cap Fund
The graph below illustrates the hypothetical investment of $10,000* in Class A
Shares of the Deutsche European Mid-Cap Fund (the "Fund") from October 17, 1997
(commencement of operations) to August 31, 1998, compared to the MCSI Europe
Index.+
[Graphic representation omitted Please see Appendix A3.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
COMMENCEMENT OF OPERATIONS (10/17/97) (CUMULATIVE) 7.50%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 5.5% ($10,000 investment minus $550 sales charge =
$9,450). The Fund's performance assumes the reinvestment of all dividends and
distributions. The MSCI Europe Index has been adjusted to reflect reinvestment
of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges.
+ The MSCI Europe Index is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
The index is unmanaged, and investments cannot be made in an index.
Deutsche European Mid-Cap Fund--Class B
Growth of $10,000 Invested in Deutsche European Mid-Cap Fund
The graph below illustrates the hypothetical investment of $10,000* in Class B
Shares of the Deutsche European Mid-Cap Fund (the "Fund") from March 30, 1998
(inception date) to August 31, 1998, compared to the MSCI Europe Index.+
[Graphic representation omitted Please see Appendix A4.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
INCEPTION DATE (3/30/98) (CUMULATIVE) (4.60)%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 5.00% contingent deferred sales charge imposed on any
redemption occurring within one year from the purchase date. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
MSCI Europe Index has been adjusted to reflect reinvestment of dividends on
securities in the index.
** Total return quoted reflects all applicable sales charges.
+ The MSCI Europe Index is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
The index is unmanaged, and investments cannot be made in an index.
Deutsche German Equity Fund--Class A
Growth of $10,000 Invested in Deutsche* German Equity Fund
The graph below illustrates the hypothetical investment of $10,000* in Class A
Shares of the Deutsche German Equity Fund (the "Fund") from October 17, 1997
(commencement of operations) to August 31, 1998, compared to the MSCI Germany
Index.+
[Graphic representation omitted Please see Appendix A5.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
COMMENCEMENT OF OPERATIONS (10/17/97) (CUMULATIVE) 9.30%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 5.5% ($10,000 investment minus $550 sales charge =
$9,450). The Fund's performance assumes the reinvestment of all dividends and
distributions. The MSCI Germany Index has been adjusted to reflect
reinvestment of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges.
+ The MSCI Germany Index is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
The index is unmanaged, and investments cannot be made in an index.
Deutsche German Equity Fund--Class B
Growth of $10,000 Invested in Deutsche German Equity Fund
The graph below illustrates the hypothetical investment of $10,000* in Class B
Shares of the Deutsche German Equity Fund (the "Fund") from March 16, 1998
(inception date) to August 31, 1998, compared to the MSCI Germany Index.+
[Graphic representation omitted Please see Appendix A6.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
INCEPTION DATE (3/16/98) (CUMULATIVE) (3.96)%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 5.00% contingent deferred sales charge imposed on any
redemption occurring within one year from the purchase date. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
MSCI Germany Index has been adjusted to reflect reinvestment of dividends on
securities in the index.
** Total return quoted reflects all applicable sales charges.
+ The MSCI Germany Index is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
The index is unmanaged, and investments cannot be made in an index.
Deutsche European Bond Fund--Class A
Growth of $10,000 Invested in Deutsche European Bond Fund
The graph below illustrates the hypothetical investment of $10,000* in Class A
Shares of the Deutsche European Bond Fund (the "Fund") from October 17, 1997
(commencement of operations) to August 31, 1998, compared to the J.P. Morgan
European Government Bond Index.+
[Graphic representation omitted Please see Appendix A7.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
COMMENCEMENT OF OPERATIONS (10/17/97) (CUMULATIVE) 1.38%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 4.5% ($10,000 investment minus $450 sales charge =
$9,550). The Fund's performance assumes the reinvestment of all dividends and
distributions. The J.P. Morgan European Government Bond Index has been
adjusted to reflect reinvestment of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges.
+ The J.P. Morgan European Government Bond Index is not adjusted to reflect
sales charges, expenses, or other fees that the SEC requires to be reflected
in the Fund's performance. The index is unmanaged, and investments cannot be
made in an index.
Deutsche European Bond Fund--Class B
Growth of $10,000 Invested in Deutsche European Bond Fund
The graph below illustrates the hypothetical investment of $10,000* in Class B
Shares of the Deutsche European Bond Fund (the "Fund") from June 25, 1998
(inception date) to August 31, 1998, compared to the J.P. Morgan Global
Government Bond Index.+
[Graphic representation omitted Please see Appendix A8.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
Inception Date (6/25/98) (cumulative) (1.56)%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 5.00% contingent deferred sales charge imposed on any
redemption occurring within one year from the purchase date. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
J.P. Morgan Global Government Bond Index has been adjusted to reflect
reinvestment of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges.
+ The J.P. Morgan Global Government Bond Index is not adjusted to reflect sales
charges, expenses, or other fees that the SEC requires to be reflected in the
Fund's performance. The index is unmanaged, and investments cannot be made in
an index.
STATEMENTS OF ASSETS AND LIABILITIES
Deutsche Funds, Inc.
August 31, 1998
<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:
Investment in corresponding Deutsche Portfolio, at value $4,318,606 $6,601,928 $ 724,384 $ 96,296
Receivable from Manager for expense reimbursement 43,813 87,530 46,417 43,294
Receivable for capital shares sold 271,210 454,201 10,004 6,005
Foreign tax reclaim receivable 1,794 1,203 333 --
Other assets -- -- -- 239
Deferred organization costs 10,283 10,387 10,387 10,387
Total assets 4,645,706 7,155,249 791,525 156,221
Liabilities:
Payable for capital shares redeemed 16,072 91,363 2 --
Payable to corresponding Deutsche Portfolio for contributions 253,928 325,437 8,002 --
Transfer Agent fees payable 11,929 12,211 11,866 11,453
Distribution fees payable 2,485 3,804 338 88
Organization costs payable 12,339 12,339 12,339 12,339
Accrued expenses and other liabilities 20,415 21,348 18,928 18,472
Total liabilities 317,168 466,502 51,475 42,352
Net assets $4,328,538 $6,688,747 $ 740,050 $113,869
Net Assets Consist of:
Capital stock, $0.001 par value (authorized 250,000,000 shares for each Fund) 361 510 54 9
Paid-in capital 4,898,578 7,419,238 842,096 111,631
Undistributed (accumulated) net investment income (loss) (2,530) (5,105) 40 175
Undistributed net realized gain (loss) on
investments and foreign currency transactions (794) 127,118 9,904 48
Net unrealized appreciation (depreciation) of investments and foreign currency (567,077) (853,014) (112,044) 2,006
Net assets $4,328,538 $6,688,747 $ 740,050 $113,869
Computation of Net Asset Value, Redemption Price and Offering Price Per Share:
Net assets--Class A $1,208,144 $2,402,032 $ 461,764 $ 28,425
Shares outstanding--Class A 92,705 168,888 31,937 2,161
Net asset value and redemption price per share--Class A $13.03 $14.22 $14.46 $13.15
Offering price per share--Class A $13.79 $15.05 $15.30 $13.77
Net assets--Class B $3,120,394 $4,286,715 $ 278,286 $ 85,444
Shares outstanding--Class B 267,845 341,576 22,029 6,663
Net asset value, offering price and redemption price per share--Class B $11.65 $12.55 $12.63 $12.82
</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 to August 31, 1998(a)
<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 corresponding Deutsche Portfolio:
Dividend income $ 13,001 $ 21,893 $ 4,368 $ --
Less: Foreign withholding taxes (1,195) (4,328) (800) --
Net dividend income 11,806 17,565 3,568 --
Interest income 4,494 3,151 268 1,001
Expenses (22,613) (112,930) (14,469) (1,325)
Net investment loss allocated from corresponding
Deutsche Portfolio (6,313) (92,214) (10,633) (324)
Expenses:
Legal and audit fees 13,994 13,994 13,992 13,986
Accounting fees 17,463 16,714 16,807 15,771
Directors' fees and expenses 481 481 481 481
Administration fees 700 941 276 183
Reports to Shareholders 14,896 14,290 13,981 14,361
Transfer agent fees 26,890 27,234 26,844 26,409
Registration fees 36,033 35,992 34,345 34,177
Amortization of organization costs 2,305 2,201 2,201 2,201
Service fees--Class A 722 1,076 263 34
Service fees--Class B (b) 1,327 1,897 152 26
Distribution fees--Class B (b) 4,019 5,740 459 79
Total expenses 118,830 120,560 109,801 107,708
Less: Expense reimbursement (124,129) (208,350) (121,110) (108,642)
Net expense reimbursement in excess of total expenses (5,299) (87,790) (11,309) (934)
Net investment income (loss) (1,014) (4,424) 676 610
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency
allocated from corresponding Deutsche Portfolio:
Net realized gain (loss) on:
Investments 17,665 163,394 11,326 559
Foreign currency transactions (2,508) (4,842) (782) 77
Net change in unrealized appreciation/depreciation on:
Investments (567,354) (852,403) (111,993) 2,003
Foreign currency translations 277 (611) (51) 3
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency allocated from corresponding
Deutsche Portfolio (551,920) (694,462) (101,500) 2,642
Net Increase (Decrease) in Net Assets Resulting
from Operations $(552,934) $(698,886) $(100,824) $ 3,252
(a) Commencement of operations: 10/2/97 10/17/97 10/17/97 10/17/97
(b) Inception date 3/30/98 3/30/98 3/16/98 6/25/98
The accompanying notes are an integral part of the financial statements.
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
Deutsche Funds, Inc.
For the period from Commencement of Operations to August 31, 1998(a)
<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) $ (1,014) $ (4,424) $ 676 $ 610
Net realized gain on investments and foreign currency
transactions allocated
from corresponding Deutsche Portfolio 15,157 158,552 10,544 636
Net change in unrealized appreciation/depreciation on
investments and foreign currency translations allocated from
corresponding Deutsche Portfolio (567,077) (853,014) (112,044) 2,006
Net increase (decrease) in net assets resulting from operations (552,934) (698,886) (100,824) 3,252
Distributions to Shareholders:
Dividends from net investment income:
Class A -- -- -- (203)
Class B -- -- -- (400)
Total distributions -- -- -- (603)
Capital Share Transactions: Class A
Net proceeds from shares sold 1,500,448 2,861,890 638,075 25,533
Net proceeds from distributions reinvested -- -- -- 202
Net cost of shares redeemed (148,736) (281,385) (128,511) (9,296)
Net increase in net assets resulting from capital share
transactions--Class A 1,351,712 2,580,505 509,564 16,439
Capital Share Transactions: Class B(b)
Net proceeds from shares sold 3,652,990 4,950,740 320,200 83,269
Net proceeds from distributions reinvested -- -- -- 401
Net cost of shares redeemed (134,341) (154,723) (1) --
Net increase in net assets resulting from capital share
transactions -- Class B 3,518,649 4,796,017 320,199 83,670
Total increase in net assets 4,317,427 6,677,636 728,939 102,758
Net Assets:
Beginning of period 11,111 11,111 11,111 11,111
End of period(c) $4,328,538 $6,688,747 $ 740,050 $ 113,869
Capital Shares -- Class A
Shares outstanding, beginning of period 889 889 889 889
Shares sold 102,366 185,654 39,304 1,985
Reinvestment of distributions -- -- -- 16
Shares redeemed (10,550) (17,655) (8,256) (729)
Shares outstanding, end of period 92,705 168,888 31,937 2,161
Capital Shares -- Class B(b)
Shares outstanding, beginning of period -- -- -- --
Shares sold 278,086 353,382 22,029 6,631
Reinvestment of distributions -- -- -- 32
Shares redeemed (10,241) (11,806) -- --
Shares outstanding, end of period 267,845 341,576 22,029 6,663
(a) Commencement of operations: 10/2/97 10/17/97 10/17/97 10/17/97
(b) Inception date: 3/30/98 3/30/98 3/16/98 6/25/98
(c) Includes undistributed (accumulated) net investment income (loss) of: $ (2,530) $ (5,105) $ 40 $ 175
The accompanying notes are an integral part of the financial statements.
</TABLE>
FINANCIAL HIGHLIGHTS
Deutsche Funds, Inc.
For the period from Commencement of Operations to August 31, 1998(a)
<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>
Net asset value at beginning of period $12.50 $ 12.50 $ 12.50 $ 12.50
Investment operations:
Net investment income 0.02 0.01 0.02 0.19
Net realized and unrealized gain on investments and
foreign
currency allocated from corresponding
Deutsche Portfolio 0.51 1.71 1.94 0.58
Increase from investment operations 0.53 1.72 1.96 0.77
Distributions to Shareholders:
Dividends from net investment income -- -- -- (0.12)
Total distributions -- -- -- (0.12)
Net asset value at end of period $13.03 $ 14.22 $ 14.46 $ 13.15
Total Return (based on net asset value)(c)* 4.24% 13.76% 15.68% 6.17%
Ratios and Supplemental Data:
Net assets, end of period (000's) $1,208 $ 2,402 $ 462 $ 28
Ratios to average net assets:
Expenses(b)** 1.60% 1.60% 1.60% 1.30%
Net investment income (b)** 0.50% 0.23% 0.75% 2.67%
(a) Commencement of operations: 10/2/97 10/17/97 10/17/97 10/17/97
(b) Includes the Fund's allocated portion of the corresponding Deutsche
</TABLE>
Portfolio's 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** 16.53% 18.86% 73.61% 454.22%
Net investment loss to average net assets** (14.43)% (17.03)% (71.26)% (450.25)%
</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, reinvestment of distributions at net asset value
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.
FINANCIAL HIGHLIGHTS (CONTINUED)
Deutsche Funds, Inc.
For the period from Inception Date to August 31, 1998(a)
<TABLE>
<CAPTION>
Selected data for a Class B 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>
Net asset value at beginning of period $ 12.50 $ 12.50 $ 12.50 $ 12.50
Investment operations:
Net investment income (loss) (0.01) (0.02) (0.01) 0.08
Net realized and unrealized gain (loss) on investments and foreign
currency
allocated from corresponding
Deutsche Portfolio (0.84) 0.07 0.14 0.35
Increase (decrease) from investment operations (0.85) 0.05 0.13 0.43
Distributions to Shareholders:
Dividends from net investment income -- -- -- (0.11)
Total Distributions -- -- -- (0.11)
Net asset value at end of period $ 11.65 $ 12.55 $ 12.63 $ 12.82
Total Return (based on net asset value)(c)* (6.80)% 0.40% 1.04% 3.44%
Ratios and Supplemental Data:
Net assets, end of period (000's) $ 3,120 $ 4,287 $ 278 $ 85
Ratios to average net assets:
Expenses(b)** 2.35% 2.35% 2.35% 2.05%
Net investment income (loss)(b)** (0.46)% (0.70)% (0.19)% 2.38%
(a) Inception date: 3/30/98 3/30/98 3/16/98 6/25/98
(b) Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income (loss) to average net assets would have been as follows:
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Expenses to average net assets** 17.28% 19.61% 74.36% 454.97%
Net investment loss to average net assets** (15.39)% (17.96)% (72.20)% (450.54)%
</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
inception date, reinvestment of distributions at net asset value 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.
August 31, 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 seeks to achieve its respective investment objective by
investing substantially all of its assets in the corresponding portfolio of
Deutsche Portfolios (the "Portfolio Trust"), a New York business trust,
registered under the 1940 Act, having substantially the same investment
objective of each of the respective Funds. The Portfolio Trust is an open-end
management investment company and comprises ten portfolios (each a "Portfolio").
The financial statements of four of the corresponding Portfolios, including
their portfolio of investments, are included elsewhere within this report and
should be read in conjunction 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 Portfolios of the Portfolio Trust. Each
Portfolio is managed by Deutsche Fund Management, Inc. ("DFM" or the "Manager"),
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 costs. 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. As of August
31, 1998, Class B Shares of the Global Bond Fund have not been sold to the
public. Each Class will bear its respective portion of the expenses under the
Service and Distribution Plans. The Funds commenced operations during October
1997.
Note 2 -- Significant Accounting Policies
The Company prepares its financial statements in accordance with generally
accepted accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make certain estimates and assumptions that affect the reported amounts and
disclosures. Actual results could differ from those estimates. The following is
a summary of significant accounting policies followed by the Funds:
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 August
31, 1998 are listed below). Valuation of securities by the Portfolio is
discussed in Note 2 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report.
<TABLE>
<CAPTION>
Fund Percentage Portfolio
<S> <C> <C>
Top 50 Europe 22.99% Top 50 Europe Portfolio (US Dollar)
European Mid-Cap Fund 56.88% Provesta Portfolio (US Dollar)
German Equity Fund 17.98% Investa Portfolio (US Dollar)
European Bond Fund 1.46% European Bond Portfolio (US Dollar)
Investment Income, Expenses and Realized and Unrealized Gains and Losses
</TABLE>
The Funds record their proportionate share of the investment income, expenses
and realized and unrealized gains and losses recorded by the Portfolios on a
daily basis. The investment income, expenses, realized and unrealized gains and
losses are allocated daily to the 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), and realized and unrealized gains and losses
allocated from the Portfolio are further allocated to each Class of shares based
on their relative net asset value.
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. Accordingly, no
provision for federal income and excise tax is required.
Capital losses incurred after October 31 are deemed to arise on the first
business day of the following fiscal year for tax purposes. The following Funds
have incurred and elected to defer their capital losses incurred after October
31, 1997:
<TABLE>
<CAPTION>
Foreign Currency Capital Loss
Fund Loss Deferred Deferred
<S> <C> <C>
Top 50 Europe $2,530 $694
European Mid-Cap Fund $5,105 $ --
German Equity Fund $ 912 $ --
European Bond Fund $ -- $ --
Distributions to Shareholders
</TABLE>
Dividends from net investment income of the 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
dividends distributions to shareholders on ex-dividend date.
Income and capital gain distributions are determined in accordance with federal
income tax regulations which may differ from generally accepted accounting
principles. 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. During the period ended
August 31, 1998, the following Funds reclassified permanent book and tax
differences to increase (decrease) the following accounts:
<TABLE>
<CAPTION>
Undistributed Net
Realized Gains
on Investments and
Undistributed Net Foreign Currency Paid-in
Fund Investment Income Transactions Capital
<S> <C> <C> <C>
Top 50 Europe $(1,516) $(15,951) $17,467
European Mid-Cap Fund $ (681) $(31,434) $32,115
German Equity Fund $ (636) $ (640) $ 1,276
European Bond Fund $ 168 $ (588) $ 420
</TABLE>
Deferred Organization Costs
Organization costs incurred in connection with the organization and initial
registration of the Company will be paid initially by DFM and will be reimbursed
by the Funds. Such organization costs 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 costs of the Fund.
Note 3 -- Significant Agreements and Transactions with Affiliates
The Company has retained the services of Federated Services Company
("Federated") as Administrator. Under the Administration Agreement, Federated
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
$200 million and 0.0525% of such assets in excess of $200 million for the Fund's
then current fiscal year. Federated in its capacity as Operations Agent for the
Portfolio Trust and Administrator of the Funds, receives a minimum aggregate fee
from each Fund, its corresponding Portfolio and any other funds investing in the
Portfolio Trust, taken together, 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
serves 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 any activity that is principally intended to result in the sale of Class
B Shares of the Fund. Under the Service Plan, each Fund will pay 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 and Federated Shareholder Services
Company are both affiliated with Edgewood. IBT Fund Services (Canada) Inc.
provides 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%, 2.35%, 1.30%
and 2.05% of the average daily net assets of Class A Shares and of Class B
Shares of the Equity Funds, and the European Bond Fund, respectively.
For the period ended August 31, 1998, DFM voluntarily reimbursed the following
expenses pursuant to this undertaking:
<TABLE>
<CAPTION>
Portfolio Fund Total
<S> <C> <C> <C>
Top 50 Europe Fund $ 5,299 $118,830 $124,129
European Mid-Cap Fund $87,790 $120,560 $208,350
German Equity Fund $11,309 $109,801 $121,110
European Bond Fund $ 934 $107,708 $108,642
</TABLE>
Note 4--Concentration of Ownership
From time to time the Funds may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the Fund and the Portfolio.
Note 5--Subsequent Event
On September 1, 1998, the Funds commenced an offering of Class C Shares to the
public.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Deutsche Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Deutsche Top 50 Europe Fund, Deutsche European Mid-Cap Fund, Deutsche German
Equity Fund and Deutsche European Bond Fund (four of the eleven funds
constituting Deutsche Funds, Inc., hereafter referred to as the "Funds") at
August 31, 1998, and the results of each of their operations, the changes in
each of their net assets and the financial highlights for each of the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
1177 Avenue of the Americas
New York, New York 10036
October 16, 1998
1998 Federal Tax Notice (Unaudited)
For the year ended August 31, 1998, the European Mid-Cap Fund has elected,
pursuant to Section 853 of the Internal Code, to pass through foreign taxes of
$4,328 to its shareholders.The European Mid-Cap Fund generated net foreign
source income of $58,993 with respect to this election.
PORTFOLIO OF INVESTMENTS
Top 50 Europe Portfolio (US Dollar)
August 31, 1998
<TABLE>
<CAPTION>
Market
Shares Description Value
<C> <S> <C>
Common Stocks--86.9%
Austria--1.1%
3,800 Bank Austria AG $ 208,328
Denmark--0.9%
1,870 Coloplast A/S - B Shares 165,672
France--25.7%
5,500 Alcatel Alsthom 888,372
22,000 Alstom* 513,488
5,750 Axa 690,486
3,000 Elf-Aquitaine 306,469
1,750 Groupe Danone 475,645
1,602 L'Air Liquide 221,909
4,300 Paribas 373,818
4,500 Suez Lyonnaise des Eaux 745,877
1,230 Total SA - B Shares 123,364
2,400 Vivendi 491,163
Total 4,830,591
Germany--27.9%
3,002 Altana AG 190,679
8,582 BASF AG 343,124
9,461 Bayer AG 355,197
70 Buderus AG 31,759
2,113 Deutsche Pfandbrief-und Hypothekenbank AG 159,377
2,036 Duerr AG 66,970
4,372 Fresenius Medical Care AG 215,711
6,265 Gehe AG 384,790
14,602 Hoechst AG 597,893
7,040 Mannesmann AG 634,810
559 Rhoen-Klinikum AG 52,308
1,274 SAP AG 661,096
3,967 Schering AG 382,459
3,208 SGL Carbon AG 283,813
7,793 Siemens AG 506,039
7,462 Veba AG 376,126
Total 5,242,151
Italy--1.0%
34,900 ENI SpA 182,509
Netherlands--6.4%
13,420 Elsevier NV 165,234
10,071 ING Groep NV 593,171
8,024 Koninklijke Ahold NV 235,899
2,706 Unilever NV 186,850
148 Wolters Kluwer NV 24,440
Total 1,205,594
</TABLE>
Top 50 Europe Portfolio (US Dollar)
<TABLE>
<CAPTION>
Market
Shares Description Value
<S> <C> <C>
Common Stocks--continued
Norway--1.8%
12,400 Tomra Systems ASA $ 334,698
Sweden--7.3%
10,480 AGA AB-A 145,782
25,260 AGA AB-B 345,133
10,830 Getinge Indutrier AB-B 184,799
4,245 Hoganas AB-B 74,534
5,160 Securitas AB-B 264,144
15,200 Telefonaktiebolaget LM Ericsson 354,279
Total 1,368,671
Switzerland--7.8%
2,280 Credit Suisse Group 399,682
325 Novartis AG 505,446
280 Roche Holding AG 289,759
121 Schweizerische Rueckversicherungs-Gesellschaft 267,838
Total 1,462,725
United Kingdom--7.0%
35,000 General Electric Co. plc 241,867
32,000 Lloyds TSB Group plc 393,975
38,900 Rentokil Initial plc 234,889
23,600 Reuters Group plc 197,526
70,400 Siebe plc 251,940
Total 1,320,197
Total Common Stocks (Cost--$17,431,201) 16,321,136
Preferred Stocks--3.1%
Germany--3.1%
825 Fresenius AG 122,349
196 Rhoen-Klinikum AG 17,896
786 SAP AG 445,755
Total 586,000
Total Preferred Stocks (Cost--$478,293) 586,000
Total Investments--90.0% (Cost--$17,909,494) 16,907,136
Other assets in excess of liabilities--10.0% 1,874,740
Total Net Assets--100.0% $18,781,876
Notes to the Portfolio of Investments:
</TABLE>
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
Top 50 Europe Portfolio (US Dollar)
Industry sector diversification of the Top 50 Europe Portfolio's investments as
a percentage of net assets as of August 31, 1998 was as follows:
<TABLE>
<CAPTION>
Percentage of
Industry Sector Net Assets
<S> <C>
Chemicals 12.2%
Industrial--Diversified 9.3%
Pharmaceuticals 7.3%
Financial Services 6.7%
Banking 6.2%
Computer Software & Processing 5.9%
Electrical Equipment 5.3%
Commercial Services 5.3%
Telephone Systems 4.7%
Insurance 4.6%
Beverages, Food & Tobacco 3.5%
Heavy Machinery 3.1%
Electric Utilities 2.7%
Oil & Gas 2.6%
Health Care Providers 2.2%
Wholesalers 2.0%
Communications 1.9%
Medical Supplies 1.9%
Food Retailers 1.2%
Media--Broadcasting & Publishing 1.0%
Metals 0.4%
Total 90.0%
</TABLE>
The accompanying notes are an integral part of the financial statements.
PORTFOLIO OF INVESTMENTS
Provesta Portfolio (US Dollar)
August 31, 1998
<TABLE>
<CAPTION>
Market
Shares Description Value
<C> <S> <C>
Common Stocks--74.2%
France--4.2%
291 Banque Nationale de Paris $ 19,220
5,225 Business Objects SA--ADR* 46,372
1,000 Cap Gemini SA 157,294
242 Compagnie Financiere de Paribas* 20,363
115 Dassault Systems SA 5,932
90 Rhone-Poulenc SA 4,544
650 Sanofi SA 72,888
2,800 Schneider SA 166,698
Total 493,311
Germany--54.7%
500 1&1 Aktiengesellschaft & Co. KGaA* 50,190
200 A. Friedrich Flender AG* 33,460
1,000 Adidas AG 117,961
1,600 ADOLF AHLERS AG 33,573
1,500 Aixtron AG 242,443
3,475 Altana AG 220,723
310 AVA Allgemeine Handels der Verbraucher* 109,879
50 Axa Colonia Konzern AG 5,671
90 Barmag AG 27,817
150 BDAG Balcke-Duerr AG* 25,861
1,050 Beiersdorf AG 55,975
2,350 BERLINER ELEKTRO Holding AG 34,651
1,800 BERU AG 40,628
2,900 BHF-Bank AG 105,257
100 CeWe Color Holding AG 19,622
8,000 Continental AG 214,144
160 DBV-Winterthur Holding AG 60,795
2,600 Degussa AG 129,019
1,950 Deutsche Babcock AG* 106,718
1,768 Deutsche Pfandbrief-und Hypothekenbank AG 133,355
1,900 Duerr AG 62,496
700 Escada AG 93,291
10,500 FAG Kugelfischer Georg Schaefer AG 139,936
400 Felten & Guilleaume Energietechnik AG 66,920
275 Fresenius AG 38,989
2,000 Fresenius Medical Care AG 98,679
1,500 Fried.Krupp AG Hoesch-Krupp 216,923
15 Fuchs Petrolub AG Oel & Chemie* 1,616
4,925 Gehe AG 302,488
2,000 Gerresheimer Glas AG 32,099
155 Gesco Industrie Holding AG 3,499
120 Gold-Zack AG* 31,985
</TABLE>
Provesta Portfolio (US Dollar)
<TABLE>
<CAPTION>
Market
Shares Description Value
<C> <S> <C>
Common Stocks--continued
Germany--continued
1,475 Heidelberger Druckmaschinen AG $ 102,053
1,125 Henkel KGaA 77,518
520 Hornbach Baumarkt AG 20,053
2,050 Hucke AG 30,227
4,750 IWKA AG 91,859
525 Kali und Salz Beteiligungs AG* 61,929
1,800 Kiekert AG 72,988
1,700 Kloeckner-Werke AG* 101,713
1,825 KM Europa Metal AG 98,945
150 Krones AG* 5,529
425 Leonische Drahtwerke AG 136,179
200 MAN AG 58,924
2,000 Mannesmann AG 180,344
280 Mannheimer Versicherung AG 155,617
8,750 Metallgesellschaft AG 145,147
700 MobilCom AG 184,597
5,900 Norddeutsche Affinerie AG* 71,604
44 Nuernberger Beteiligungs AG B 50,655
18 Nuernberger Beteiligungs AG 22,254
4,225 Phoenix AG 98,239
225 Plettac AG 24,244
2,000 Praktiker Bau-und Heimwerkermaerkte AG 24,953
400 Rhoen-Klinikum AG 37,430
700 SAP AG 363,239
2,825 Schering AG 272,359
1,000 Schlott AG 21,267
1,850 SGL Carbon AG 163,670
5,500 SKW Trostberg AG 162,196
255 Springer (Axel) Verlag AG 157,631
500 Tarkett AG 10,775
3,250 Teldafax AG* 137,867
210 Varta AG 34,597
500 Verseidag AG 63,801
220 Wella AG 169,058
1,100 WMF-Wuerttembergische Metallwarenfabrik AG 19,651
8,000 Wuensche AG* 67,147
Total 6,352,922
Ireland--0.1%
160 CBT Group plc--ADR* 7,520
Italy--3.7%
164,500 Banca di Roma* 318,262
500 Banca Popolare di Bergamo Credito Varesino SpA 10,607
1,275 Banca Popolare di Brescia 29,108
</TABLE>
Provesta Portfolio (US Dollar)
<TABLE>
<CAPTION>
Market
Shares Description Value
<C> <S> <C>
Common Stocks--continued
Italy--continued
3,900 Banca Popolare di Milano $ 28,536
5,000 Banca Popolare di Novara 37,604
Total 424,117
Netherlands--8.5%
1,750 ASM Lithography Holding NV* 34,739
3,144 Benckiser NV B (Deutschemark) 180,977
556 Benckiser NV B (Netherlands Guilder) 31,714
400 Equant NV* 16,643
6,400 Getronics NV 326,457
2,357 Nutreco Holding NV 84,100
2,875 Qiagen NV* 142,177
2,500 Unilever NV 172,626
Total 989,433
Portugal--0.7%
6,350 Banco Mello SA 75,754
Spain--1.4%
3,750 Argentaria SA 71,877
1,275 Banco Popular Espanol SA 85,917
Total 157,794
Switzerland--0.9%
73 Baloise Holdings Ltd. 55,731
2 Lindt & Spruengli AG 48,406
Total 104,137
Total Common Stocks (Cost--$9,522,527) 8,604,988
Preferred Stocks--19.0%
Germany--19.0%
675 Axa Colonia Konzern AG 56,655
365 BERLINER ELEKTRO Holding AG 4,864
1,350 Draegerwerk AG 23,740
250 Dyckerhoff AG 85,068
40 EDDING AG 11,229
300 Fielmann AG 10,957
1,500 Fresenius AG 222,452
325 Fuchs Petrolub AG Oel & Chemie 32,808
370 JADO Design Armatur & Beschlag AG* 1,574
650 Jungheinrich AG 110,588
350 Krones AG 12,902
125 MAN AG 26,300
200 Marschollek, Lautenschlaeger und Partner AG 100,947
4,350 Metro AG 170,221
129 Porsche AG 278,001
4,900 Prosieben Media AG 255,657
625 Rhoen-Klinikum AG 57,066
</TABLE>
Provesta Portfolio (US Dollar)
<TABLE>
<CAPTION>
Market
Shares Description Value
<S> <C> <C>
Preferred Stocks--continued
Germany--continued
425 SAP AG $ 241,025
1,700 Sixt AG* 321,046
125 Sto AG 41,471
125 Wella AG 113,424
2,000 WMF-Wuerttembergische Metallwarenfabrik AG 29,944
Total Preferred Stocks (Cost--$2,266,166) 2,207,939
Warrants--0.1%
Germany--0.1%
100 Continental AG (Exp. Date: 7/6/00)* 15,482
Total Warrants (Cost--$19,114) 15,482
Total Investments--93.3% (Cost--$11,807,807) 10,828,409
Other assets in excess of other liabilities--6.7% 777,654
Total Net Assets--100.0% $11,606,063
Notes to the Portfolio of Investments:
</TABLE>
* Non-income producing security.
ADR -- American Depository Receipt
The accompanying notes are an integral part of the financial statements.
Provesta Portfolio (US Dollar)
Industry sector diversification of the Provesta Portfolio's investments as a
percentage of net assets as of August 31, 1998 was as follows:
<TABLE>
<CAPTION>
Percentage of
Industry Sector Net Assets
<S> <C>
Industrial--Diversified 9.2%
Banking 7.9%
Automotive 7.4%
Computer Software & Processing 7.2%
Heavy Machinery 7.1%
Pharmaceuticals 4.9%
Chemicals 4.5%
Health Care Providers 3.9%
Media--Broadcasting & Publishing 3.6%
Insurance 3.5%
Textiles, Clothing & Fabrics 3.5%
Commercial Services 2.9%
Household Products 2.9%
Cosmetics & Personal Care 2.9%
Retailers 2.9%
Computers & Information 2.8%
Telephone Systems 2.8%
Beverages, Food & Tobacco 2.6%
Wholesalers 2.6%
Metals 1.5%
Financial Services 1.3%
Medical & Bio-Technology 1.2%
Electrical Equipment 1.2%
Building Materials 1.2%
Advertising 0.4%
Electronics 0.3%
Oil & Gas 0.3%
Containers & Packaging 0.3%
Medical Supplies 0.2%
Consumer Services 0.2%
Entertainment & Leisure 0.1%
Total 93.3%
</TABLE>
The accompanying notes are an integral part of the financial statements.
PORTFOLIO OF INVESTMENTS
Investa Portfolio (US Dollar)
August 31, 1998
<TABLE>
<CAPTION>
Market
Shares Description Value
<S> <C> <C>
Common Stocks--88.2%
Germany--88.2%
Automotive--16.3%
4 Bayerische Motoren Werke AG--New* $ 2,926
10 Bayerische Motoren Werke AG 7,429
975 Chrysler Corp. 44,119
1,845 Continental AG 49,387
4,100 Daimler-Benz AG 369,705
2,523 Volkswagen AG 181,430
Total 654,996
Banking--15.3%
2,900 Bayerische Hypotheken-und Wechsel-Bank AG 164,793
2,201 Bayerische Vereinsbank AG 167,887
450 BHF-Bank AG 16,333
4,530 Commerzbank AG 131,021
3,000 Dresdner Bank AG 134,917
Total 614,951
Chemicals--13.5%
2,900 BASF AG 115,947
3,450 Bayer AG 129,524
886 Degussa AG 43,966
6,200 Hoechst AG 253,865
Total 543,302
Communications--3.6%
5,530 Deutsche Telekom AG 146,459
Computer Software & Processing--5.8%
450 SAP AG 233,513
Electric Utilities--5.6%
3,190 RWE AG 152,870
1,420 Veba AG 71,576
Total 224,446
Electrical Equipment--4.9%
3,050 Siemens AG 198,052
Heavy Construction--0.5%
509 Hochtief AG 19,485
Household Products--1.3%
770 Henkel KGaA 53,057
Industrial--Diversified--10.5%
70 Linde AG 40,889
2,275 Mannesmann AG 205,141
162 Preussag AG 54,665
300 Thyssen AG 56,315
105 Viag AG 65,800
Total 422,810
</TABLE>
Investa Portfolio (US Dollar)
<TABLE>
<CAPTION>
Market
Shares Description Value
<S> <C> <C>
Common Stocks--continued
Germany--continued
Insurance--5.2%
100 Allianz AG $ 28,696
18 Muenchener Rueckversicherungs-Gesellschaft AG - New* 6,931
451 Muenchener Rueckversicherungs-Gesellschaft AG 174,821
Total 210,448
Oil & Gas--0.4%
195 Royal Dutch Petroleum Co.--(Deutschemark) 8,643
205 Royal Dutch Petroleum Co.--(Netherlands Guilder) 9,126
Total 17,769
Pharmaceuticals--1.8%
772 Schering AG 74,429
Retailers--1.8%
1,291 Metro AG 72,849
Textiles, Clothing & Fabrics--1.7%
577 Adidas Salomon AG 68,063
Total Common Stocks (Cost--$3,518,316) 3,554,629
Preferred Stocks--7.2%
Germany--7.2%
Automotive--0.4%
9 Bayerische Motoren Werke AG - New* 3,981
28 Bayerische Motoren Werke AG 12,703
Total 16,684
Building Materials - 0.7%
79 Dyckerhoff AG 26,881
Computer Software & Processing--3.4%
240 SAP AG 136,108
Household Products--0.2%
120 Henkel KGaA 9,596
Industrial--Diversified--1.3%
252 MAN AG 53,021
Retailers--1.2%
1,200 Metro AG 46,957
Total Preferred Stocks (Cost--$245,102) 289,247
Warrants--4.9%
Germany--4.9%
Automotive--0.4%
92 Continental AG (Exp. Date: 7/6/00; Strike Price DEM 19.90)* 14,244
Banking --1.0%
800 Commerzbank AG (Exp. Date: 6/15/00; Strike Price DEM 55.00)* 7,713
2,000 Dresdner Bank AG (Exp. Date: 4/30/02; Strike Price DEM 55.00)* 34,254
Total 41,967
Chemicals--0.4%
70 BASF Finance Europe (Exp. Date: 4/9/01; Strike Price DEM 30.80)* 15,482
Electric Utilities--0.3%
1,180 Veba AG (Exp. Date: 6/7/99; Strike Price DEM 37.90)* 13,384
</TABLE>
Investa Portfolio (US Dollar)
<TABLE>
<CAPTION>
Market
Shares Description Value
<S> <C> <C>
Warrants--continued
Germany--continued
Insurance--2.8%
43,500 Allianz AG (Exp. Date: 6/30/99; Strike Price 294.72)* $ 57,974
420 Allianz AG (Exp. Date: 6/30/99; Strike Price 294.70)* 55,022
18 Muenchener Rueckversicherungs-Gesellschaft AG (Exp. Date 6/3/02; Strike Price DEM 635.00)* 730
TOTAL 113,726
Total Warrants (Cost--$271,004) 198,803
Total Investments--100.3% (Cost--$4,034,422) 4,042,679
Liabilities in excess of other assets--(0.3)% (14,104)
Total Net Assets--100.0% $4,028,575
Notes to the Portfolio of Investments:
</TABLE>
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
PORTFOLIO OF INVESTMENTS
European Bond Portfolio (US Dollar)
August 31, 1998
<TABLE>
<CAPTION>
Par Market
Currency Value Description Value
<S> <C> <C> <C>
Corporate Debt--22.1%
Austria--3.6%
Oesterreichische Postsparkasse AG
DEM 400,000 5.250% Due 11/11/02 $ 236,602
Denmark--0.1%
Nykredit AS
DKK 42,901 6.000% Due 10/01/26 6,318
Multinational--3.7%
World Bank
DEM 400,000 5.875% Due 11/10/03 245,109
Netherlands--3.0%
Commerzbank Overseas Finance
ITL 120,000,000 10.800% Due 04/14/00 75,747
LB Schleswig-Holsteinische Finance
DEM 200,000 5.625% Due 07/30/07 120,399
Total 196,146
Sweden--1.1%
Swedish Export Credit
ITL 120,000,000 10.750% Due 06/09/00 76,333
United Kingdom--9.2%
National Grid Co. plc
GBP 170,000 8.000% Due 03/29/06 316,507
Sudwest LB Capital Markets
DEM 500,000 4.625% Due 02/17/03 291,782
Total 608,289
United States--1.4%
KFW International Finance
GBP 50,000 7.250% Due 07/23/07 92,084
Total Corporate Debt (Cost--$1,397,116) 1,460,881
Mortgage Backed Securities--4.0%
Denmark--4.0%
Nykredit AS
DKK 1,800,000 6.000% Due 10/01/29 260,378
Total Mortgage Backed Securities (Cost--$262,944) 260,378
Sovereign Debt Obligations--65.3%
Austria--4.4%
Republic of Austria International Bond
DEM 500,000 4.300% Due 07/15/03 288,663
Belgium--4.2%
Kingdom of Belgium International Bond
DEM 450,000 6.250% Due 10/06/03 279,448
</TABLE>
European Bond Portfolio
<TABLE>
<CAPTION>
Par Market
Currency Value Description Value
<S> <C> <C> <C>
Sovereign Debt Obligations--continued
Denmark--9.6%
Kingdom of Denmark
DKK 1,000,000 7.000% Due 12/15/04 $ 167,808
DKK 2,700,000 7.000% Due 11/15/07 466,269
Total 634,077
Finland--3.5%
Finland International Bond
FRF 1,200,000 7.000% Due 06/15/04 233,505
France--4.3%
French Treasury Bill
ECU 250,000 4.500% Due 07/12/02 285,676
Germany--17.5%
Deutschland Republic
DEM 725,000 6.000% Due 09/15/03 450,016
DEM 825,000 6.000% Due 07/04/07 530,802
DEM 250,000 6.500% Due 07/04/27 173,255
Total 1,154,073
Great Britain--7.1%
United Kingdom Gilts
GBP 245,000 7.750% Due 09/08/06 471,346
Greece--3.7%
Hellenic Republic Bond
GRD 40,000,000 9.800% Due 03/21/00 125,585
ECU 100,000 5.750% Due 03/31/08 116,677
Total 242,262
Ireland--1.8%
Irish Gilt
IEP 75,000 6.250% Due 10/18/04 116,728
Norway--3.8%
Norwegian Government
NOK 2,000,000 5.750% Due 11/30/04 251,202
Spain--4.2%
Spanish Government International Bond
DEM 450,000 5.750% Due 01/03/07 277,406
Sweden--1.2%
Kingdom of Sweden International Bond
ITL 120,000,000 10.000% Due 02/08/01 77,917
Total Sovereign Debt Obligations (Cost--$4,147,361) 4,312,303
</TABLE>
European Bond Portfolio
<TABLE>
<CAPTION>
Par Market
Currency Value Description Value
<S> <C> <C> <C>
U.S. Government Agency Obligations--4.4%
United States--4.4%
Federal National Mortgage Association--Global
DEM 500,000 5.000% Due 02/16/01 $ 291,357
Total U.S. Government Agency Obligations (Cost--$281,985) 291,357
Total Investments--95.8% (Cost--$6,089,406) 6,324,919
Other assets in excess of liabilities--4.2% 274,927
Total Net Assets--100.0% $6,599,846
</TABLE>
Notes to the Portfolio of Investments:
Currency abbreviations defined:
DEM--German Deutschemark
DKK--Denmark Krona
ECU--European Currency Unit
FRF--French Franc
GBP--Great Britain Pound
GRD--Greek Drachma
IEP--Irish Pound
ITL--Italian Lira
NOK--Norwegian Krona
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF ASSETS AND LIABILITIES
Deutsche Portfolios
August 31, 1998
<TABLE>
<CAPTION>
Top 50 European
Europe Provesta Investa Bond
Portfolio Portfolio Portfolio Portfolio
(US Dollar) (US Dollar) (US Dollar) (US Dollar)
<S> <C> <C> <C> <C>
Assets:
Investments, at value $16,907,136 $10,828,409 $4,042,679 $6,324,919
Cash 1,701,611 553,625 94,755 81,910
Foreign currency -- 79,648 -- --
Dividends receivable 18,044 610 35 --
Interest receivable 7,960 1,447 529 188,938
Receivable for investments sold -- -- -- 106,505
Receivable for Investors' Beneficial Interest for contributions 308,624 399,037 4,991 --
Unrealized appreciation on forward foreign currency contracts -- -- -- 1,825
Deferred organization costs 53,848 54,390 54,390 54,390
Total assets 18,997,223 11,917,166 4,197,379 6,758,487
Liabilities:
Payable for investments purchased -- 79,200 -- --
Investment management fees payable 87,638 31,021 21,527 21,836
Organization costs payable 65,414 65,414 65,414 65,414
Accrued expenses and other liabilities 62,295 135,468 81,863 71,391
Total liabilities 215,347 311,103 168,804 158,641
Net assets $18,781,876 $11,606,063 $4,028,575 $6,599,846
Net Assets:
Applicable to Investors' Beneficial Interests $18,781,876 $11,606,063 $4,028,575 $6,599,846
Cost of investments $17,909,494 $11,807,807 $4,034,422 $6,089,406
Cost of foreign currency $ -- $ 78,337 $ -- $ --
The accompanying notes are an integral part of the financial statements.
</TABLE>
STATEMENTS OF OPERATIONS
Deutsche Portfolios
For the period from Commencement of Operations to August 31, 1998(a)
<TABLE>
<CAPTION>
Top 50 European
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 $ 164,915 $ 58,993 $ 70,946 $ --
Less: foreign withholding taxes (38,245) (14,904) (18,540) --
Net dividend income 126,670 44,089 52,406 --
Interest income (net of interest expense of $0, $125, $211 and $533,
respectively) 49,847 7,586 3,167 158,269
Total income 176,517 51,675 55,573 158,269
Expenses:
Investment management fees 87,638 31,021 21,527 21,836
Operations agent fees 66,445 64,498 65,197 65,157
Administrative agent fees 36,556 34,889 34,889 34,889
Custody and accounting fees 68,797 170,298 71,441 48,412
Legal and audit fees 24,728 34,728 34,728 34,729
Trustees' fees and expenses 120 120 120 120
Other expenses 11,094 11,305 11,141 11,140
Amortization of organization costs 12,064 11,522 11,522 11,522
Total expenses 307,442 358,381 250,565 227,805
Net investment loss (130,925) (306,706) (194,992) (69,536)
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency:
Net realized gain on:
Investments 148,061 396,045 198,387 63,460
Foreign currency transactions 12,173 15,942 13,959 14,071
Net change in unrealized appreciation/depreciation on:
Investments (1,002,358) (979,398) 8,257 235,513
Foreign currency translations 391 (41) -- 6,225
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency (841,733) (567,452) 220,603 319,269
Net Increase (Decrease) in Net Assets Resulting from Operations $ (972,658) $(874,158) $ 25,611 $ 249,733
(a) Commencement of operations: 10/2/97 10/17/97 10/17/97 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 to August 31, 1998(a)
<TABLE>
<CAPTION>
Top 50 European
Europe Provesta Investa Bond
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 $ (130,925) $ (306,706) $ (194,992) $ (69,536)
Net realized gain on investments and foreign currency transactions 160,234 411,987 212,346 77,531
Net change in unrealized appreciation/depreciation on investments
and foreign currency translations (1,001,967) (979,439) 8,257 241,738
Net increase (decrease) in net assets resulting from operations (972,658) (874,158) 25,611 249,733
Capital Transactions:
Proceeds from contributions 25,907,115 16,189,162 5,858,332 10,703,739
Withdrawals (6,163,693) (3,720,053) (1,866,480) (4,364,738)
Net increase in net assets from capital transactions 19,743,422 12,469,109 3,991,852 6,339,001
Total increase in net assets 18,770,764 11,594,951 4,017,463 6,588,734
Net Assets:
Beginning of period 11,112 11,112 11,112 11,112
End of period $18,781,876 $11,606,063 $ 4,028,575 $ 6,599,846
(a) Commencement of operations: 10/2/97 10/17/97 10/17/97 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 to August 31, 1998(a)
<TABLE>
<CAPTION>
Top 50 European
Europe Provesta Investa Bond
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) $ 18,782 $ 11,606 $ 4,029 $ 6,600
Ratio of expenses to average net assets(b) 3.49% 9.77% 9.87% 7.79%
Ratio of net investment loss to average net assets(b) (1.49)% (8.36)% (7.68)% (2.38)
Portfolio turnover(c) 27% 82% 93% 177%
(a) Commencement of operations: 10/2/97 10/17/97 10/17/97 10/17/97
(b) Annualized (c) Not annualized </TABLE> The accompanying notes are an
integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
Deutsche Portfolios
August 31, 1998
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:
Top 50 Europe Portfolio (US Dollar) ("Top 50 Europe Portfolio"), Provesta
Portfolio (US Dollar) ("Provesta Portfolio"), 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 during October 1997.
The Portfolio Trust operates under a "Hub and Spoke(R)" structure where the
beneficial interest holders of each respective Portfolio invest substantially
all of their investable assets in the respective Portfolio ("Hub and Spoke(R)"
is a registered service mark of Signature Financial Group, Inc.). From time to
time, a beneficial interest holder of each respective Portfolio may own a
significant percentage of the Portfolio. Investment activities of the beneficial
interest holders could have a material impact on the Portfolio.
The beneficial interest holders of the Portfolios at August 31, 1998 were as
follows:
<TABLE>
<CAPTION>
Top 50 Europe Portfolio:
<S> <C>
Deutsche Top 50 Europe Fund $ 4,318,606
DB Top 50 Europe Fund 14,463,270
$18,781,876
Provesta Portfolio:
Deutsche European Mid-Cap Fund $ 6,601,928
DB European Mid-Cap Fund 5,004,135
$11,606,063
Investa Portfolio:
Deutsche German Equity Fund $ 724,384
DB German Equity Fund 3,304,191
$ 4,028,575
European Bond Portfolio:
Deutsche European Bond Fund $ 96,296
DB European Bond Fund 6,503,550
$ 6,599,846
</TABLE>
Note 2--Significant Accounting Policies
The Company prepares its financial statements in accordance with accounting
principles generally accepted in the United States of America. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make certain 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:
Investment Valuation
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 the 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 good faith in accordance with fair valuation procedures adopted by the
Trustees of the Portfolio Trust.
Forward Foreign Currency Contracts
The Portfolio Trust may enter into forward foreign currency contracts with
various counterparties for purposes of hedging its existing portfolio of
investments and settling foreign investment transactions. Forward foreign
currency 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, including the accretion of discounts and
amortization of premiums 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 spot
foreign currency exchange rate in effect at the time net assets are valued.
Purchases and sales of investment securities, income and expenses are reported
at the prevailing exchange rate on the respective days of such transactions. The
resultant realized and unrealized 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. These include, 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 the 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
expense allocation will be managed in such a way that a regulated investment
company investing in the Portfolio will satisfy the requirements of Subchapter M
of the Code, assuming that such investment company invests substantially 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 Costs
Organization costs 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 costs 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
costs. 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 costs 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. 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 DWS International Portfolio Management GmbH ("DWS")as investment
adviser to the Portfolios. As compensation for the services rendered by DFM
under the 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:
<TABLE>
<CAPTION>
<S> <C>
Top 50 Europe Portfolio 1.00%
Provesta Portfolio 0.85%
Investa Portfolio 0.85%
European Bond Portfolio 0.75%
</TABLE>
The advisers are indirect subsidiaries 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 of the Deutsche Funds, Inc. and as Operations 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 agreement with IBT Trust Company
(Cayman) Ltd. ("IBT (Cayman)"). Pursuant to that agreement, IBT (Cayman)
provides sub-administrative services to the Portfolios, for which it receives a
fee from each Portfolio, which is computed daily and paid monthly, at an annual
rate of 0.025% on the first $200 million, 0.02% on the next $800 million and
0.01% on assets in excess of $1 billion, subject to a minimum of $40,000 during
the first year of the Portfolio's operations, $45,000 in the second year of
operations and $50,000 in the third year.
From commencement of operations through August 31, 1998, affiliates of Deutsche
Bank AG received brokerage commissions in the following amounts from each
Portfolio as a result of executing agency transactions in portfolio securities:
<TABLE>
<CAPTION>
<S> <C>
Top 50 Europe Portfolio $15,174
Provesta Portfolio $40,876
Investa Portfolio $20,824
European Bond Portfolio $--
</TABLE>
Certain trustees and officers of the Portfolios are affiliated with Deutsche
Bank AG. These persons are not paid by the Portfolios for serving in these
capacities.
Note 4--Investment Portfolio Transactions
Purchases and sales of investments, excluding short-term securities, for each
Portfolio for the period from commencement of operations to August 31, 1998 were
as follows: <TABLE> <CAPTION>
Top 50
Europe Provesta Investa
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Purchases $20,698,857 $14,897,846 $ 6,490,443
Sales $ 2,937,424 $ 3,486,084 $ 2,653,882
European
Bond
Portfolio
Purchases
U.S. Government $ 171,304
Non-U.S. Government 10,784,104
Total $10,955,408
Sales
U.S. Government $ --
Non-U.S. Government 4,907,531
Total $ 4,907,531 </TABLE> At August 31, 1998, the cost of investments and the
unrealized appreciation (depreciation) of investments for Federal income tax
purposes for each Portfolio
were as follows:
<TABLE>
<CAPTION>
Top 50 European
Europe Provesta Investa Bond
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Cost of Investments $17,931,706 $11,859,850 $4,072,887 $6,092,005
Gross Unrealized Appreciation 910,537 290,413 246,806 256,359
Gross Unrealized Depreciation (1,935,107) (1,321,854) (277,014) (23,445)
Net Unrealized Appreciation (Depreciation) (1,024,570) (1,031,441) (30,208) 232,914
</TABLE>
Note 5--Forward and Spot Foreign Currency Contracts
Certain Portfolios had forward and spot foreign currency contracts which
contractually obligate the Portfolio to deliver or receive currencies at
specified future dates. The following contracts were open at August 31, 1998:
<TABLE>
<CAPTION>
Local/ Foreign
Settlement Notional Contract Current Unrealized
Date Amount U.S. $ Value U.S. Value Gain (Loss)
<S> <C> <C> <C> <C> <C>
Provesta Portfolio
Sale Deutsche Mark 09/02/98 789 $ 448 $ 448 $ --
European Bond Portfolio
Sale Deutsche Mark 09/01/98 190,802 $108,330 $106,505 $1,825
</TABLE>
Note 6--Off-Balance Sheet Risk and Concentration of Credit Risk
The Statements of Assets and Liabilities include the market or fair value of
contractual commitments involving forward settlement contracts. These
instruments 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 foreign currency 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 various off-balance sheet categories as well as
the relationship between off-balance sheet items and items recorded on the
Portfolios' Statements of Assets and Liabilities. Credit risk is measured by the
loss the Portfolio would record if its counterparties failed to perform pursuant
to terms of their obligations to the Portfolio. Because the Portfolios enter
into forward foreign currency contracts, credit risk exists with counterparties.
It is the policy of the Portfolios to transact the majority of its securities
activity with broker-dealers, banks and regulated exchanges that the Manager
considers to be well established.
Note 7--Line of Credit Agreement
The Portfolio Trust has established a revolving line of credit with Investors
Bank and Trust Company ("IBT"). Borrowing under the line of Credit may not
exceed the lesser of $15,000,000 or 33% of the total assets of the Portfolio
Trust. Interest is payable on outstanding borrowings at the Federal Funds Rate
plus 0.50%. Additionally, the line of credit includes an annual commitment fee
equal to 0.07% per annum on the difference between $15,000,000 and the average
daily amount of outstanding borrowings. During the period ended August 31, 1998,
the Portfolios periodically utilized the line of credit and incurred interest
expense as disclosed in the Statements of Operations. At August 31, 1998, there
were no borrowings outstanding under the line of credit agreement.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Beneficial Interest Holders of Deutsche Portfolios
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Top 50 Europe Portfolio (US
Dollar), Provesta Portfolio (US Dollar), Investa Portfolio (US Dollar) and
European Bond Portfolio (US Dollar), (four of the ten portfolios constituting
Deutsche Portfolios, hereafter referred to as the "Portfolio Trust") at August
31, 1998, and the results of each of their operations, the changes in each of
their net assets and the financial highlights for each of the periods indicated,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at August
31, 1998 by correspondence with the custodian and brokers, provides a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036
October 16, 1998
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
GO2332-05 (10/98)
Annual
report
dated August 31, 1998
Deutsche US Money Market Fund
Class A Shares and Class B Shares
[logo]
PRESIDENT'S MESSAGE
Fellow Shareholders:
It is a pleasure to present the first Annual Report of the Deutsche Funds. This
report covers the fiscal year period from the Funds' commencement of operations,
through August 31, 1998.
By the end of second quarter 1998, the world's financial markets had risen to
record new levels, particularly the equity markets. Many of the world's leading
stock market indices, such as the Dow Jones Industrial Average (DJIA) in the
U.S., the DAX in Germany, the FTSE 100 in Great Britain and the CAC 40 in
France, achieved unprecedented highs.
This rise in the world's stock markets, which had continued unabated for six
years, saw a sizeable correction, mostly during the last two months of Deutsche
Funds' fiscal year. To put this correction in perspective, the DAX fell 17.63%,
while the CAC 40 fell 13.13%. The FTSE 100 fell 10.00%. U.S. stocks fared even
worse, relative to other world equity markets, falling 15.78% as measured by the
DJIA.
The reasons for this decline are now well known. Japan's economic situation, as
well as most of Asia's, led to a period of great volatility by the Funds' fiscal
year-end. The situation was compounded by the devaluation of Russia's currency,
which had a serious effect on the Russian economy. While the Deutsche Funds had
no exposure whatsoever to Russian paper, the performance of the Funds was not
immune to the impact of these economic situations elsewhere in the world.
Very few mutual fund investments can look good in down-markets. The Deutsche
Bank Mutual Fund Group has staked its reputation for 42 years on being among
those few. We have always felt that conserving capital in difficult markets
should be one of our primary concerns.
During such times, it's worth reiterating why investing internationally
continues to make sense. Foreign investing does involve special risks, including
currency risk, increased volatility of foreign securities and differences in
auditing and other financial standards. Also, 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 that are based on only a few commodities or industries,
and securities markets trading infrequently or in low volumes. Nevertheless,
international investments are where we believe future economic growth will
mainly reside. Furthermore, by diversifying internationally, the investor is
able to absorb occasional economic downturns that may occur in certain regions,
but which might not affect other regions to the same extent.
The following page provides you with an investment review from the Deutsche
Funds' portfolio manager. It details the events that took place in the market,
and the relative impact on the Funds' portfolio performance. This investment
review includes a synopsis of the Funds' major buy-and-sell decisions.
With so many international funds to choose from, the Deutsche Funds are
gratified you have looked to us for your international investments. We will keep
you up-to-date on the details of your investment on a regular basis, combined
with the highest level of service possible.
Sincerely,
/s/ Brian A. Lee
Brian A. Lee
President
Deutsche Funds, Inc.
October 30, 1998
The Deutsche Funds are not obligations or deposits of any bank and are not
insured.
INVESTMENT REVIEW
Deutsche US Money Market Funds
The Deutsche US Money Market Fund (the "Class A and Class B Fund") and the
Deutsche Institutional US Money Market Fund (the "Class Y Fund"), collectively,
the "Money Market Funds," share the same objective of generating a high level of
current income as is consistent with the preservation of capital and the
maintenance of liquidity.* The asset base of the Deutsche US Money Market
Portfolio, in which the Money Market Funds invest, grew from $160 million to
$300 million, as of August 31, 1998. As of August 31, 1998, shares of the Class
B Fund and the Class Y Fund have not been sold to the public.
As of August 31, 1998, the 7-day yield of the US Money Market Fund was 5.02%**
for Class A shareholders. The dollar-weighted average maturity was 32 days.
To a large degree, a money market fund's yield is determined by the prevailing
monetary policy and the federal funds target rate. Since the spring of last
year, U.S. monetary policy has been remarkably stable. As a matter of fact, a
period of 17 months -- and still counting--of unchanged interest rates is
unprecedented in U.S. post-war history. The federal funds target rate remained
at 5.50% since March of 1997 through August 31, 1998. Inflation has remained
subdued throughout the period, so the Federal Open Market Committee did not see
reasons to change administered interest rates, prior to August 31, 1998.
The low inflation rate was surprising, considering that the domestic economy has
grown at annual rates significantly above 2.5%, mostly considered the non-
inflationary growth rate of the economy. In addition, compensation for employees
increased by annual rates of around 4%. The combination of these two would
normally have lead to inflation. In this business cycle, however, U.S.
corporations were under such strong competitive pressures that they just could
not--or did not want to--raise product prices. Inflation, thus, was not allowed
to happen. Large gains in productivity were offsetting inflationary threats.
Those productivity gains not only contained inflationary pressures, but at the
same time increased corporate profitability. The stock market reflected the
higher profits by surging almost uninterrupted for more than 7 years.
Since the summer of last year, another development helped contain inflation. The
political, economic, and currency crisis that started in Asia and has now spread
to a large number of newly industrialized or developing countries, most notably
Russia, has helped contain domestic inflation as well. Import prices into the
U.S. continue to fall for domestic consumers as well as manufacturers,
restraining inflation further. Despite the buoyant economy, the Federal Reserve
Board (the "Fed") declined to raise interest rates during the Funds' fiscal year
ended August 31, 1998.
The economic weakness in Asia and around the world had another effect on U.S.
fixed income markets. Investors, globally, have become worried about their
investments in those emerging economies and are using their money to buy U.S.
Treasuries instead. This raises the prices of these securities and thus
depresses yields. This "flight to quality" trade has recently inverted the U.S.
yield curve (i.e., giving longer dated Treasuries lower yields than short term
ones).
In this environment of stable interest rates and a flat-to-inverted yield curve,
our portfolio management team decided to keep the average maturity in the Money
Market Fund portfolio relatively short. We felt that the risks of extending the
average maturity were not rewarded sufficiently. To add yield, we bought a
relatively large position in commercial paper and other corporate securities. At
the end of the reporting period, the portfolio consisted of approximately 75%
corporate and bank debt, with the remaining assets invested in U.S. government
agency issues. The main investments were in bank/finance paper and in automobile
credit receivables.
Also, the fund has voluntarily restricted itself to buying only first tier
securities (e.g. short-term A1 and higher, or long-term A and higher, as rated
by Standard & Poor's,+ P1 by Moody's, etc.) in order to qualify for a rating
from Standard & Poor's. We expect Standard & Poor's decision within the next
couple of weeks.
Going forward, there is a fair chance that monetary policy by the Fed will be
further eased. The domestic economy is in an exceptional balance of non-
inflationary growth. However, if the developments in the emerging markets
continue to deteriorate, a situation might evolve where a further easing of
monetary policy is advisable. Deutsche Bank, with its global research staff,
will monitor the developments very closely. Should we come to the conclusion
that a further easing interest rates in the U.S. is likely to happen, we would
extend the average maturity of the portfolio, thus locking in higher rates for
longer periods of time.
* 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.
** Performance quoted represents past performance and is not indicative of
future results. Yield will vary. Yields quoted for money market funds most
closely reflect the fund's current earnings. There is no similar performance
information to report for Class B Shares through August 31, 1998 since there
were no public sales.
+ Standard & Poor's is an index consisting of common stocks of industrial,
utility, transportation, and financial companies in the United States market.
This index is unmanaged, and investments cannot be made in an index.
STATEMENT OF ASSETS AND LIABILITIES
Deutsche Funds, Inc.
August 31, 1998
<TABLE>
<CAPTION>
Deutsche
US
Money Market
Fund
<S> <C>
Assets:
Investment in Deutsche US Money Market Portfolio, at value $730,727
Cash --
Receivable from Manager for expense reimbursement 31,792
Other accounts receivable --
Deferred organization costs 2,538
Total assets 765,057
Liabilities:
Organization costs payable 6,045
Distributions payable from income 3,079
Distribution fees payable 149
Transfer agent fee payable 16,945
Accrued expenses and other liabilities 11,543
Total liabilities 37,761
Net assets $727,296
Net Assets Consist of:
Capital Stock, $0.001 par value (authorized 5,000,000,000 shares) 727
Paid-in capital 726,569
Net assets $727,296 Computation of Net Asset Value, Redemption Price and
Offering Price Per Share: Shares outstanding 727,296 Net asset value, redemption
price and offering price per share $1.00 </TABLE> The accompanying notes are an
integral part of the financial statements.
STATEMENT OF OPERATIONS
Deutsche Funds, Inc.
For the period from Commencement of Operations to August 31, 1998(a)
<TABLE>
<CAPTION>
Deutsche
US
Money Market
Fund
<S> <C>
Investment Income and Expenses allocated from Deutsche US Money Market
Portfolio:
Interest Income $ 14,949
Expenses (793)
Net investment income allocated from Deutsche US Money Market Portfolio 14,156
Expenses:
Registration fees 50,290
Legal and audit fees 12,491
Directors' fees and expenses 481
Administration fees 120
Reports to Shareholders 20,421
Custody and accounting fees 4,455
Transfer agent fees 22,830
Other expenses 927
Amortization of organization costs 3,756
Service fees--Class A 669
Total expenses 116,440
Less: Expense reimbursement (115,762)
Net expenses 678
Net investment income 13,478
Net Increase in Net Assets Resulting From Operations $ 13,478
(a) Commencement of operations: 3/25/98
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Deutsche Funds, Inc.
For the period from Commencement of Operations to August 31, 1998(a)
<TABLE>
<CAPTION>
Deutsche
US
Money Market
Fund
<S> <C>
Increase (Decrease) In Net Assets:
Operations--
Net investment income $ 13,478
Net increase in net assets resulting from operations 13,478
Distributions to shareholders--
Dividends from net investment income
Class A (13,478)
Capital Share Transactions: Class A--
Net proceeds from shares sold 2,773,253
Net proceed from shares reinvested 10,409
Net cost of shares redeemed (2,056,466)
Net increase in net assets resulting from capital share transactions--Class A 727,196
Total increase in net assets 727,196
Net Assets--
Beginning of period 100
End of period $ 727,296
Capital Shares: Class A--
Shares outstanding, beginning of period 100
Shares sold 2,773,254
Shares reinvested 10,409
Shares redeemed (2,056,467)
Capital shares outstanding, end of period 727,296
(a) Commencement of operations: 3/25/98
</TABLE>
The accompanying notes are an integral part of the financial statements.
FINANCIAL HIGHLIGHTS
Deutsche Funds, Inc.
For the period from Commencement of Operations to August 31, 1998(a)
Selected data for a Class A Share of common stock outstanding throughout the
period.
<TABLE>
<CAPTION>
Deutsche
US
Money Market
Fund
<S> <C>
Net asset value at beginning of period $ 1.00
Investment operations:
Net investment income 0.02
Distributions to shareholders:
Net investment income (0.02)
Net asset value at end of period $ 1.00
Total Return (based on net asset value)(c)* 2.46%
Ratios and Supplemental Data:
Net assets, end of period (000's) $ 727
Ratio to average net assets:
Expenses**(b) 0.55%
Net investment income**(b) 5.04%
</TABLE>
(a) Commencement of operations: 3/25/98
(b) Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's 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** 43.80% Net investment income to average
net assets** (38.21)%
(c) Total Return based on net asset value, excluding the effect of shareholder
transactions charges, assumes a purchase of common stock at net asset value
at commencement of operations, reinvestment of distributions at net asset
value 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.
August 31, 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 (the "Funds"). The accompanying
financial statements and notes relate to the Deutsche US Money Market Fund (the
"Fund").
The Fund seeks to achieve its respective investment objective by investing
substantially all of its 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
the Fund. The financial statements of the Portfolio, including its portfolio of
investments, are included elsewhere within this report and should be read in
conjunction with this report.
The Company has not retained the services of an investment adviser since the
Fund seeks to invest all of its 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 serves as the
Administrator to the Fund and Federated Shareholder Services Company serves as
the transfer agent and dividend disbursing agent to the Fund. Edgewood Services,
Inc. ("Edgewood") serves as the distributor to the Fund.
The Fund records daily a pro-rata portion of the Portfolio's income and
expenses, including fees paid to DFM and the amortization of organization costs.
Additionally, the 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.
As of August 31, 1998, Class B Shares of the Fund have not been sold to the
public.
Note 2 -- Significant Accounting Policies
The Company prepares its financial statements in accordance with generally
accepted accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make certain estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates. The following is a summary of significant accounting policies
followed by the Fund:
Valuation
The value of the Fund's investment in the Portfolio included in the accompanying
Statement of Assets and Liabilities reflects the Fund's proportionate beneficial
interest in the net assets of the Portfolio. As of August 31, 1998, the Fund's
investment in the Portfolio represented 0.25% of the Portfolio's net assets.
Valuation of securities of the Portfolio is discussed in Note 2 of the
Portfolio's Notes to Financial Statements which are included elsewhere in this
report.
Investment Income, Expenses and Realized Gains and Losses
The Fund records its share of investment income, including accretion of discount
and amortization of premium, expenses and realized gains and losses, of the
Portfolio on a daily basis. Such activity is 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
of the Funds. Expenses attributable to the Fund are charged directly to the
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 the Fund (other than Class specific expenses), and realized gains
and losses allocated from the Portfolio are further allocated to each Class of
shares based on their respective net asset values.
Federal Income Taxes
The Fund is treated as a separate entity for federal income tax purposes. It is
the policy of the Fund to qualify for and elect treatment as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, as amended.
Accordingly, the 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. Accordingly, no
federal income and excise tax provision is required.
Distributions to Shareholders
All of the Fund's 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 principles. 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 costs incurred in connection with the organization and initial
registration of the Company have been paid initially by DFM and will be
reimbursed by the Fund. Such organization costs have been deferred and will be
amortized ratably over a period of sixty months from the commencement of
operations of the Fund. The amount paid by the Fund on any redemption by
Edgewood (or any subsequent holder) of the Fund's initial shares will be reduced
by the pro-rata portion of any unamortized organization costs of the Fund.
Note 3--Significant Agreements and Transactions with Affiliates
The Company has retained the services of Federated Services Company
("Federated") as Administrator. Under the Administration Agreement, Federated
assists in the operations of the Fund subject to the direction and control of
the Board of Directors of the Company. For its services, Federated receives a
fee from the 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 the Fund, the average net assets of the Portfolio have not reached
$325 million, the Administrator's fee will be increased to an annual rate of
0.065% of the average daily net assets of the 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
serves as principal distributor for shares of the Fund. The Company has adopted
a Service Plan and a Distribution Plan in accordance with Rule 12b-1 of the 1940
Act whereby Class A Shares and Class B Shares are subject to the Service Plan.
Under the Service Plan, the Class A Shareholders and Class B 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 each of the Class A Shares and Class B
Shares. Under the Distribution Plan, Class B Shareholders also pay Edgewood an
annual fee of 0.75% of the average daily net assets of Class B Shares to finance
any activity which results in the sale of Class B Shares.
Federated Shareholder Services Company serves as the transfer agent and dividend
disbursing agent for the Fund. Federated and Federated Shareholder Services
Company are both affiliated with Edgewood. IBT Fund Services (Canada) Inc.
("IBT") provides fund accounting and sub administrative services to the Fund.
For these services IBT receives an annual fee of 0.40% of average daily net
assets for the Fund.
Expense Reimbursements
DFM together with IBT Fund Services (Canada) Inc. ("IBT"), its affiliates, and
other service providers have voluntarily agreed that they will waive their fees
and/or reimburse the Fund through at least one year from the Fund's commencement
of operations, to the extent necessary to maintain the Fund's total operating
expenses (which includes expenses of the Fund and its pro-rata portion of
expenses of the Portfolio, but does not cover extraordinary expenses during the
period) 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 Fund. For the period
ended August 31, 1998, DFM reimbursed $115,762 and IBT reimbursed $0 of fees and
expenses allocated from the Portfolio and incurred by the Fund pursuant to this
agreement.
Note 4--Concentration of Ownership
From time to time the Fund may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the Fund and the Portfolio.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Deutsche Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Deutsche U.S. Money Market Fund (one of the eleven funds constituting
Deutsche Funds, Inc., hereafter referred to as the "Fund") at August 31, 1998,
and the results its operations, the changes in its net assets and the financial
highlights for the period March 25, 1998 (commencement of operations) through
August 31, 1998, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
October 16, 1998
PORTFOLIO OF INVESTMENTS
US Money Market Portfolio (US Dollar)
August 31, 1998
<TABLE>
<CAPTION>
Par Market
Value Description Value
<S> <C> <C>
Certificates of Deposit 10.1%
Abbey National Plc--Yankee CD
$10,000,000 5.59% Due 10/30/98 $ 10,000,536
Barclays Bank Plc--Euro CD
10,000,000 5.65% Due 03/02/99 9,992,995
Dresdner Bank AG (New York)
10,000,000 5.53% Due 09/04/98 10,000,000
Total Certificates of Deposit (Cost--$29,993,531) 29,993,531
Commercial Paper--58.7%
Bank of New York Co. (The), Inc.
10,000,000 5.50% Due 10/01/98 9,954,167
Cargill Financial
6,650,000 5.55% Due 09/01/98 6,650,000
CIT Group (The), Inc.
6,000,000 5.52% Due 10/02/98 5,971,480
Daimler-Benz North America Corp.
10,000,000 5.48% Due 11/09/98 9,894,967
Eastman Kodak Co.
5,000,000 5.50% Due 09/17/98 4,987,779
Exxon Imperial Inc.
10,000,000 5.50% Due 09/10/98 9,986,250
E. I. du Pont de Nemours & Co.
5,000,000 5.50% Due 09/22/98 4,983,958
Ford Motor Credit Corp.
7,000,000 5.52% Due 10/05/98 6,963,507
General Electric Capital Corp.
10,000,000 5.51% Due 10/13/98 9,935,717
General Motors Acceptance Corp.
5,000,000 5.50% Due 10/29/98 4,955,694
IBM Credit Corp.
5,000,000 5.50% Due 10/22/98 4,961,042
International Lease Finance Corp.
12,000,000 5.81% Due 09/01/98 12,000,000
KFW International Finance
10,000,000 5.50% Due 10/09/98 9,941,944
Merrill Lynch & Co., Inc.
10,000,000 5.52% Due 10/16/98 9,930,999
Morgan Stanley, Dean Witter & Co.
10,000,000 5.51% Due 09/23/98 9,966,328
Nestle Capital Corp.
8,000,000 5.46% Due 09/03/98 7,997,573
Petrofina Delaware, Inc.
10,000,000 5.50% Due 09/03/98 9,996,944
Union Bank of Switzerland Finance (Delaware) Inc.
$10,000,000 5.52% Due 09/14/98 $ 9,980,076
USAA Capital Corp.
7,365,000 5.50% Due 10/02/98 7,330,119
Walt Disney (The) Co.
10,000,000 5.50% Due 09/02/98 9,998,472
Xerox Corp.
7,000,000 5.50% Due 09/11/98 6,989,305
Total Commercial Paper (Cost--$173,376,321) 173,376,321
Corporate Debt -- 5.6%
Associates Corporation of North America
5,975,000 6.25% Due 03/15/99 5,990,275
AT&T Corp.
2,600,000 5.50% Due 02/01/99 2,595,446
Ford Motor Credit Corp.
3,000,000 5.37% Due 09/08/98 2,999,743
General Motors Acceptance Corp.
5,000,000 5.88% Due 09/21/98 5,000,119
Total Corporate Debt (Cost--$16,585,583) 16,585,583
U.S. Government Agency Obligations -- 25.2%
Federal Farm Credit Bureau
8,400,000 5.70% Due 11/03/98 8,401,887
Federal Home Loan Bank
6,000,000 5.70% Due 09/01/98 6,000,000
Federal Home Loan Bank
2,500,000 5.44% Due 09/04/98 2,498,867
Federal Home Loan Mortgage Corp.
30,000,000 5.70% Due 09/01/98 30,000,000
Federal Home Loan Mortgage Corp.
20,000,000 5.47% Due 09/17/98 19,951,378
Federal Home Loan Mortgage Corp.
7,601,000 5.46% Due 09/18/98 7,581,402
Total U.S. Government Agency Obligations (Cost--$74,433,534) 74,433,534
Total Investments at Amortized Cost--99.6% (Cost--$294,388,969) 294,388,969
Other assets in excess of liabilities--0.4% 1,153,885
Total Net Assets--100.0% $295,542,854
</TABLE>
Notes to the Portfolio of Investments:
Euro CD -- U.S. Dollar-denominated certificates of deposit issued by foreign
branches of domestic banks. Yankee CD -- U.S. Dollar-denominated certificates of
deposit issued by a U.S.
branch of a foreign bank and held in the U.S.
The accompanying notes are an integral part of the financial statements.
Industry sector diversification of the US Money Market Portfolio's investments
as a percentage of net assets as of August 31, 1998 was as follows:
<TABLE>
<CAPTION>
Percentage of
Industry Sector Net Assets
<C> <S>
U.S. Government 25.2%
Automotive 14.6%
Bank Obligations on CD, TD and BA 10.1%
Banking 10.1%
Financial Services 8.7%
Oil & Gas 6.7%
Beverages, Food & Tobacco 4.9%
Aerospace & Defense 4.1%
Entertainment & Leisure 3.4%
Electrical Equipment 3.4%
Office Equipment 2.4%
Electronics 1.7%
Chemicals 1.7%
Computers & Information 1.7%
Telephone Systems 0.9%
Total 99.6%
</TABLE>
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
Deutsche US Money Market Portfolio (US Dollar)
August 31, 1998
<TABLE>
<S> <C>
Assets:
Investments, at value $294,388,969
Cash 470,713
Interest receivable 999,791
Deferred organization costs 60,668
Total assets 295,920,141
Liabilities:
Investment management fees payable 215,792
Accrued expenses and other liabilities 96,081
Organization costs payable 65,414
Total liabilities 377,287
Net assets applicable to Investors' Beneficial Interests $295,542,854
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENT OF OPERATIONS
Deutsche US Money Market Portfolio (US Dollar)
For the period from Commencement of Operations to August 31, 1998(a)
<TABLE>
<S> <C>
Investment Income:
Interest income $8,031,912
Expenses:
Investment management fees 215,792
Administrative agent fees 56,920
Operations agent fees 28,933
Custody and accounting fees 10,876
Licensing fees 11,140
Legal and audit Fees 24,728
Trustees' fees and expenses 121
Amortization of organization costs 5,244
Total expenses 353,754
Net investment income 7,678,158
Net Increase in Net Assets Resulting From Operations $7,678,158
(a) Commencement of operations: 3/25/98
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Deutsche US Money Market Portfolio (US Dollar)
For the period from Commencement of Operations to August 31, 1998(a)
<TABLE>
<S> <C>
Increase In Net Assets:
Operations --
Net investment income $ 7,678,158
Net increase in net assets resulting from operations 7,678,158
Capital Transactions--
Proceeds from contributions 1,153,007,875
Withdrawals (865,143,389)
Net increase in net assets from capital transactions 287,864,486
Total increase in net assets 295,542,644
Net Assets:
Beginning of period 210
End of period $ 295,542,854
(a) Commencement of operations 3/25/98 </TABLE> The accompanying notes are an
integral part of the financial statements.
FINANCIAL HIGHLIGHTS
Deutsche US Money Market Portfolio (US Dollar) For the period
from Commencement of Operations to August 31, 1998(a)
<TABLE>
<S> <C>
Ratios/Supplemental Data:
Net assets, end of period (000's) $295,543
Ratio of expenses to average net assets (b) 0.25%
Ratio of net investment income to average net assets (b) 5.34%
</TABLE>
(a) Commencement of operations: 3/25/98
(b) Annualized
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
Deutsche US Money Market Portfolio
August 31, 1998
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. 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.
The Portfolio Trust operates under a "Hub and Spoke(R)" structure where the
beneficial interest holders of the Portfolio invest substantially all of their
investable assets in the Portfolio ("Hub and Spoke(R)" is a registered service
mark of Signature Financial Group, Inc.). The beneficial interest holders of the
Portfolio at August 31, 1998 were as follows:
<TABLE>
<S> <C>
Deutsche US Money Market Fund $ 730,727
DB US Money Market Fund 294,812,127
$295,542,854
</TABLE>
Note 2 -- Significant Accounting Policies
The Portfolio Trust prepares its financial statements in accordance with
accounting principles generally accepted in the United States of America. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain 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:
Investment 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 the Portfolio's Amortized Cost
Procedures and certain conditions as specified under Rule 2a-7 of the 1940 Act.
Investment Transactions
Investment transactions are recorded on trade date. Interest income, including
the amortization of premium and the accretion of discount, is accrued daily.
Federal Income Taxes
The Portfolio is considered a partnership under the U.S. Internal Revenue Code
(the "Code"). Accordingly, it will not be subject to any Federal income tax on
its income and net realized gains (if any). However, each investor in the
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 the Portfolio's assets, income and
allocation will be managed in such a way that a regulated investment company
investing in a Portfolio will satisfy the requirements of Subchapter M of the
Code, assuming that the investment company invests substantially 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 Costs
Organization costs incurred in connection with the organization and initial
registration of the Portfolio Trust were paid initially by DFM and will be
reimbursed by the Portfolio. Such organization costs have been deferred and will
be amortized ratably over a period of sixty months from the commencement of
operations of the Portfolio. Any amount received by the Portfolio from its
corresponding Fund as a result of a redemption by Edgewood Services Inc.,
("Edgewood") 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 costs. The amount paid by the Portfolio Trust on any
withdrawal by the beneficial interest holders of all or part of its Initial
Interest in the Portfolio will be reduced by a portion of any unamortized
organization costs of the Portfolio, determined by the proportion of the amount
of the Initial Interest withdrawn to the aggregate amount of the Initial
Interests in the Portfolio then outstanding after taking into account any prior
withdrawals of any portion of the Initial Interests in the Portfolio.
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 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
Bank Securities Investment Management ("DBSIM") as the investment adviser. The
adviser is an indirect subsidiary of Deutsche Bank AG. As compensation for its
services, DBSIM receives a fee paid by 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 Portfolio. As Operations Agent of the Portfolio, 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 will 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.
Certain trustees and officers of the Portfolio are affiliated with Deutsche Bank
AG. These persons are not paid by the Portfolio for serving in these capacities.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of Deutsche Portfolios
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the US Money Market Portfolio (US
Dollar), (one of the ten portfolios constituting Deutsche Portfolios, hereafter
referred to as the "Portfolio Trust") at August 31, 1998, and the results its
operations, the changes in its net assets and the financial highlights for the
period March 25, 1998 (commencement of operations) through August 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at August
31, 1998 by correspondence with the custodian and brokers, provides a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036
October 16, 1998
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
GO2332-06 (10/98)
Annual
report
dated August 31, 1998
Deutsche European Mid-Cap Fund (Class A Shares and Class B Shares) Deutsche
German Equity Fund (Class A Shares and Class B Shares) Deutsche Japanese Equity
Fund (Class A Shares and Class B Shares) Deutsche Global Bond Fund (Class A
Shares) Deutsche European Bond Fund (Class A Shares and Class B Shares)
[logo]
PRESIDENT'S MESSAGE
Fellow Shareholders:
It is a pleasure to present the first Annual Report of the Deutsche Funds. This
report covers the fiscal year period from the Funds' commencement of operations,
through August 31, 1998.
By the end of second quarter 1998, the world's financial markets had risen to
record new levels, particularly the equity markets. Many of the world's leading
stock market indices, such as the Dow Jones Industrial Average (DJIA) in the
U.S., the DAX in Germany, the FTSE 100 in Great Britain and the CAC 40 in
France, achieved unprecedented highs.
This rise in the world's stock markets, which had continued unabated for six
years, saw a sizeable correction, mostly during the last two months of Deutsche
Funds' fiscal year. To put this correction in perspective, the DAX fell 17.63%,
while the CAC 40 fell 13.13%. The FTSE 100 fell 10.00%. U.S. stocks fared even
worse, relative to other world equity markets, falling 15.78% as measured by the
DJIA.
The reasons for this decline are now well known. Japan's economic situation, as
well as most of Asia's, led to a period of great volatility by the Funds' fiscal
year-end. The situation was compounded by the devaluation of Russia's currency,
which had a serious effect on the Russian economy. While the Deutsche Funds had
no exposure whatsoever to Russian paper, the performance of the Funds was not
immune to the impact of these economic situations elsewhere in the world.
Very few mutual fund investments can look good in down-markets. The Deutsche
Bank Mutual Fund Group has staked its reputation for 42 years on being among
those few. We have always felt that conserving capital in difficult markets
should be one of our primary concerns.
During such times, it's worth reiterating why investing internationally
continues to make sense. Foreign investing does involve special risks, including
currency risk, increased volatility of foreign securities and differences in
auditing and other financial standards. Also, 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 that are based on only a few commodities or industries,
and securities markets trading infrequently or in low volumes. Nevertheless,
international investments are where we believe future economic growth will
mainly reside. Furthermore, by diversifying internationally, the investor is
able to absorb occasional economic downturns that may occur in certain regions,
but which might not affect other regions to the same extent.
The following pages provide you with investment reviews from each of the
Deutsche Funds' portfolio managers. They detail the events that took place in
their respective markets, and the relative impact on the Funds' portfolio
performance. These investment reviews include a synopsis of the Funds' major
buy-and-sell decisions. You are also able to see in graphic form the performance
of each Deutsche Fund, relative to its relevant benchmark index.
So far, the Funds have done well compared to their benchmarks. This underscores
the strength of our global expertise, with over 300 investment professionals
around the world.
With so many international funds to choose from, the Deutsche Funds are
gratified you have looked to us for your international equity or fixed income
investments. We will keep you up-to-date on the details of your investment on a
regular basis, combined with the highest level of service possible.
Sincerely,
/s/ Brian A. Lee
Brian A. Lee
President
Deutsche Funds, Inc.
October 30, 1998
The Deutsche Funds are not obligations or deposits of any bank and are not
insured.
INVESTMENT REVIEW
Deutsche European Mid-Cap Fund
Prices of European equities rose strongly during the last quarter of 1997
through mid-summer 1998. During this time period, many of Europe's major equity
indices reached new highs and lead the world in equity market performance. The
upward trend in equity prices halted, however, towards the end of July 1998, due
to the economic crisis in Russia, and the growing possibility of a worldwide
economic slowdown.
Since the inception of Deutsche European Mid-Cap Fund on October 17, 1997, the
portion of German stocks versus other European stocks being held in the
portfolio was continually reduced. This reallocation of assets on a country-by-
country basis will continue to be done in order to more strongly take advantage
of opportunities throughout Europe. In addition, companies with above-average
earnings and price potential will be favored.
Within the portfolio, and with respect to individual holdings, Fresenius has
been one of our top ten holdings for most of the fiscal year. The company's
investment in a new dialysis center in the U.S. is expected to boost earnings of
the global leader in dialysis products. Profits were taken in the portfolio's
largest holding, SAP, Europe's leading software manufacturer, and the position
was reduced. After the strong performance of Bayerische Vereinsbank, due to the
merger with Bayerische Hypotheken-und Wechselbank, the position was sold.
Stronger gains were also recorded by Sixt, an auto rental company, and Porsche.
Companies with ideas and plans for new products, new services or new markets
will drive the future development of the German and European economy. Such
dynamic firms require sufficient equity capital in order to finance their future
growth. At the same time, private and institutional investors in Germany and
elsewhere are looking for highly profitable investment opportunities with
diversifiable risks. In response, Deutsche Borse launched a new trading segment
at the Frankfurt Stock Exchange, the Neuer Markt (or "new market") on March 10,
1997. This brings together growth companies and investors prepared to take a
risk. The companies listed in the Neuer Markt are fast-growing companies from
future-oriented sectors such as telecommunications, biotechnology, multimedia
and environmental technology, but also from traditional sectors with innovative
products or services. The portfolio was also able to take advantage of
investments in the "new market" with investments in such companies as Aixtron,
Qiagen, and MobilCom. Singulus was sold following a strong price increase.
Among the largest European positions were the French consulting and software
house of Cap Gemini, the Dutch detergent manufacturer Benckiser, the worldwide
provider of computer products Getronics and the major commercial Italian bank
Banca di Roma.
The overall rise in the European markets has, up until now, been carried by the
blue chips. Growth of small and mid-size stocks has been more restrained, and it
is management's opinion that this area of the equity market has considerable
upward potential.
Deutsche German Equity Fund
Since the beginning of the fiscal year, until the end of July 1998, prices of
German equities rose strongly. During this time period, despite periods of sharp
fluctuations, the German equity index, the DAX, was able to break through the
6,000 level for the first time ever.
Deutsche German Equity Fund was able to fully participate in the strong rise
experienced by German blue chips, achieving a total return (before sales charge)
of 15.68% for Class A Shares for the fiscal year.*
The fund's performance was heavily influenced by our holding in SAP. As Europe's
largest software producer, SAP was able to outperform the market and its
competitors due in part to its strong product offerings and worldwide
distribution. Automotive stocks were also highly weighted in the portfolio, with
Daimler-Chrysler as the largest position held at fiscal year-end. During the
fiscal year, holdings in Volkswagen and Continental were significantly expanded,
and profits were taken in BMW. Mannesman, a leading cellular telecommunications
provider benefited, as did Deutsche Telekom, from the strong outlook for
telecommunications activities both in Germany and abroad.
Bayerische Vereinsbank, also one of the biggest positions in the portfolio,
benefited from the merger announced with Bayerische Hypotheken-und Wechselbank.
The price of Metro, due to better than expected earnings growth and a promising
internationalization strategy, made a recovery during the latter part of the
fiscal year.
After a strong decrease in the DAX in August, we realized the correction was far
more severe than expected. Given the market levels at the end of the period,
however, it is our opinion that there is no earnings growth scenario in sight
and that German blue chips seem to be attractively valued into the near-term.
Deutsche Japanese Equity Fund
The period since the launch of the Deutsche Japanese Equity Fund has been
characterized by a deepening financial and economic crisis in Japan. Several
large scale and headline-grabbing bankruptcies in the third quarter of 1997 led
to a considerable weakening of the stock market at the end of last year. Various
announcements of the government's intentions to bolster the economy through
massive spending led to a rally in the beginning of 1998. This rally soon
petered out as it became increasingly clear that Japan's ruling party was unable
or unwilling to tackle the most important problem in Japan: a banking crisis of
major proportions. A growing political opposition then led to the ousting of the
prime minister, Mr. Hashimoto. The new government, now under Mr. Obuchi is still
dominated by the ruling party and has so far failed to convince the Japanese,
let alone foreign observers, of its ability to deal with the banks. In the
summer of 1998, the Japanese equity index, the Nikkei Index, hit a new 12 year
low.
In the long-term, the opposition's criticism will lead to the introduction of
more radical changes in the banking system. There is a growing consensus towards
the need for closing down and/or cutting back some financial institutions, and
for the need of using public funds to stabilize the financial system.
*Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Total return for Class A Shares for the fiscal period ended August 31,
1998, based on offering price was 9.32%. Total return for Class B Shares for
the fiscal period ended August 31, 1998, based on net asset value and
redemption value was 1.04% and (3.96)%, respectively.
The Japanese manufacturing sector is suffering from a very sluggish economic
environment, due to the decline of Asian demand and from increased competition
in some product areas due to weaker Asian currencies. Restructuring and real
cost cutting has been too slow, so that the current fiscal year is proving
difficult for many companies. Companies with strong market positions in the
U.S. and/or Europe have shown much better development. A few areas of domestic
growth such as software, services, and telecommunications, have also allowed
some domestic companies to show earnings growth.
Given this market environment, Deutsche Japanese Equity Fund has concentrated on
high-quality companies in the industrial sectors which still offer the greatest
potential for growth.
Major positions in the fund are in export-oriented companies with solid brand
names such as Sony, Bridgestone, Honda, Fujitsu and Nintendo. Also, smaller
software and information technology (IT) service companies, such as NTT Data,
Softbank, Fugi Soft, Bellsystem 24 and Diamond Computer, make up a significant
portion of the fund.
Due to the very uncertain situation of the Japanese banks, the fund has been
underweighted in this sector, and will remain so until a more certain outlook is
determined. Other financial service companies, on the other hand, are enjoying
very healthy growth in Japan, and this sector is represented by names such as
ORIX and Shohkoh Fund. Deutsche Japanese Equity Fund has avoided the raw
material related sectors and companies such as steel and major chemicals.
Deutsche Global Bond Fund
Deutsche Global Bond Fund pursues its investment objective by investing
primarily in fixed income securities of issuers worldwide. The broadly
diversified portfolio invests at least 65% of its total assets in bonds, and the
portfolio includes securities of at least three different countries.
The total return of the fund's Class A Shares since inception, (October 15,
1997), was 3.85% (before sales charge).* The fund underperformed its benchmark,
the J.P. Morgan Global Government Bond Index,** due to the general emerging
market crises in Asia and Russia. This became evident in the fund itself because
a wider spread of difference in credit rating was held and the average duration
was less than that of the benchmark.
Between the fund's inception on October 15, 1997 and August 31, 1998, the fund
was overweighted in the dollar currency bloc (i.e., U.S. dollar, Canadian dollar
and Australian dollar), but underweighted in average duration, because of a
positive growth outlook at the beginning of the year. The "flight to quality" at
the end of the reporting period caused by the emerging market crises added to
the fund's inability to outperform its benchmark. The sharp depreciation of the
overweighted position in Canadian dollar and Australian dollar-denominated
investments decreased the fund's performance, although the Australian dollar
bond market showed a spread contraction against the U.S. market.
The European weight of the portfolio was increased throughout the year to 43% of
total assets. The main focus within Europe has been on German issues (13.1% of
net assets at the end of the reporting period), which had a steep yield curve
compared to other European yield curves; in the United Kingdom (12.8%), which
had one of the strongest economies in Europe; and in Denmark (8.0%), which had
an attractive yield pick up against the core European markets.
New positions were established in the Czech koruna (2%), in the Polish zloty
(1.5%) and in the Greek drachma (1.8%) to take advantage of the ongoing
convergence of the eastern European countries. We plan to increase the positions
in these three countries after a stabilization in the emerging markets,
especially Russia.
We underweighted Japan due to weak economic growth and financial instability,
with an allocation of approximately 4.1%. The underweighting of the Japanese yen
added to return, while the underweighting in the Japanese bond market decreased
performance.
Deutsche European Bond Fund
Deutsche European Bond Fund invests primarily in the fixed income securities of
European issuers and fixed income securities denominated in European currencies,
or in European Currency Units (ECU). The objective is to seek steady, high
income. For the fiscal year ended August 31,1998, the fund's Class A Shares
achieved a total return (before sales charge) of 6.17%.***
The main factor which contributed to the fund's performance came from the
generally friendly bond markets, where the trend continued bullish almost
uninterruptedly throughout the fiscal year.
The 10-year interest yield in Germany came down from 5.94% at the beginning of
the fiscal year to 4.43% by the end of August; a total of 1.51% lower. Also,
most of the European currencies were able to gain against the U.S. dollar,
especially the British pound.
In order to better participate in the positive sentiment, the fund's average
dollar-weighted maturity was gradually increased from 6.5 years to 7.4 years
towards the end of February. From then on, the fund's average maturity was
increased to 7.8 years
At the beginning of the period, the fund took advantage of the ongoing narrowing
in the yield differentials of the possible Euro candidate currencies like the
Italian lira, the Spanish peseta, the Irish punt and ECU towards the Deutsche
mark. As this yield convergence took place in expectation of the European
Monetary Union, allocation in Spain was sold completely and Italian, Irish and
ECU exposures drastically reduced. Positions in the Deutsche mark, and the
Danish krone were increased, and a position in the French franc was established.
Also the weight of the British pound in the portfolio was increased in order to
participate in the United Kingdom's high yields and strong currency. Allocations
in the Greek drachma, the Czech koruna and the Polish zloty were also acquired
during the fiscal year but, later partially sold again in Greek drachma, and
completely liquidated in Czech koruna and Polish zloty, after a substantial
rally in both yields and currencies of those countries.
The significant widening of credit spreads towards the end of the fiscal year
hurt performance somewhat. Although the credit quality in the Deutsche European
Bond Fund is very high, portfolio asset diversification requirements limit the
extent of investments in government bonds and necessitate a certain amount of
credit exposure.
* Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Total return for Class A Shares for the fiscal period ended
August 31, 1998, based on offering price was (0.83)%. There is no similar
performance information to report for Class B Shares through August 31, 1998
since there were no public sales.
** J.P. Morgan Global Government Index is a standard unmanaged foreign
securities index representing major government bond markets. Investments cannot
be made in an index.
*** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Total return for Class A Shares for the fiscal period ended
August 31, 1998, based on offering price was 1.38%. Total return for Class B
Shares for the fiscal period ended August 31, 1998, based on net asset value
and redemption value was 3.44% and (1.56)%, respectively.
Deutsche European Mid-Cap Fund--Class A
Growth of $10,000 Invested in Deutsche European Mid-Cap Fund
The graph below illustrates the hypothetical investment of $10,000* in Class A
Shares of the Deutsche European Mid-Cap Fund (the "Fund") from October 17, 1997
(commencement of operations) to August 31, 1998, compared to the MSCI Europe
Index.+
[Graphic representation omitted. Please see Appendix A9.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
COMMENCEMENT OF OPERATIONS (10/17/97) (CUMULATIVE) 7.50%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
*Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 5.5% ($10,000 investment minus $550 sales charge =
$9,450). The Fund's performance assumes the reinvestment of all dividends and
distributions. The MSCI Europe Index has been adjusted to reflect reinvestment
of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges.
+ The MSCI Europe Index is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
The index is unmanaged, and investments cannot be made in an index.
Deutsche European Mid-Cap Fund--Class B
Growth of $10,000 Invested in Deutsche European Mid-Cap Fund
The graph below illustrates the hypothetical investment of $10,000* in Class B
Shares of the Deutsche European Mid-Cap Fund (the "Fund") from March 30, 1998
(inception date) to August 31, 1998, compared to the MSCI Europe Index.+
[Graphic representation omitted. Please see Appendix A10.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
INCEPTION DATE (3/30/98) (CUMULATIVE) (4.60)%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 5.00% contingent deferred sales charge imposed on any
redemption occurring within one year from the purchase date. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
MSCI Europe Index has been adjusted to reflect reinvestment of dividends on
securities in the index.
** Total return quoted reflects all applicable sales charges.
+ The MSCI Europe Index is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
The index is unmanaged, and investments cannot be made in an index.
Deutsche German Equity Fund--Class A
Growth of $10,000 Invested in Deutsche German Equity Fund
The graph below illustrates the hypothetical investment of $10,000* in Class A
Shares of the Deutsche German Equity Fund (the "Fund") from October 17, 1997
(commencement of operations) to August 31, 1998, compared to the MSCI Germany
Index.+
[Graphic representation omitted. Please see Appendix A11.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
COMMENCEMENT OF OPERATIONS (10/17/97) (CUMULATIVE) 9.32%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
*Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 5.5% ($10,000 investment minus $550 sales charge =
$9,450). The Fund's performance assumes the reinvestment of all dividends and
distributions. The MSCI Germany Index has been adjusted to reflect reinvestment
of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges.
+The MSCI Germany Index is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance. The
index is unmanaged, and investments cannot be made in an index.
Deutsche German Equity Fund--Class B
Growth of $10,000 Invested in Deutsche German Equity Fund
The graph below illustrates the hypothetical investment of $10,000* in Class B
Shares of the Deutsche German Equity Fund (the "Fund") from March 16, 1998
(inception date) to August 31, 1998, compared to the MSCI Germany Index.+
[Graphic representation omitted. Please see Appendix A12.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
INCEPTION DATE (3/16/98) (CUMULATIVE) (3.96)%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
*Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 5.00% contingent deferred sales charge imposed on any
redemption occurring within one year from the purchase date. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
MSCI Germany Index has been adjusted to reflect reinvestment of dividends on
securities in the index.
** Total return quoted reflects all applicable sales charges.
+The MSCI Germany Index is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance. The
index is unmanaged, and investments cannot be made in an index.
Deutsche Japanese Equity Fund--Class A
Growth of $10,000 Invested in Deutsche Japanese Equity Fund
The graph below illustrates the hypothetical investment of $10,000* in Class A
Shares of the Deutsche Japanese Equity Fund (the "Fund") from October 20, 1997
(commencement of operations) to August 31, 1998, compared to the MSCI Japan
Index.+
[Graphic representation omitted. Please see Appendix A13.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
COMMENCEMENT OF OPERATIONS (10/20/97) (CUMULATIVE) (25.53)%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
*Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 5.5% ($10,000 investment minus $550 sales charge =
$9,450). The Fund's performance assumes the reinvestment of all dividends and
distributions. The MSCI Japan Index has been adjusted to reflect reinvestment
of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges.
+The MSCI Japan Index is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance. The
index is unmanaged, and investments cannot be made in an index.
Deutsche Japanese Equity Fund--Class B
Growth of $10,000 Invested in Deutsche Japanese Equity Fund
The graph below illustrates the hypothetical investment of $10,000* in Class B
Shares of the Deutsche Japanese Equity Fund (the "Fund") from August 10, 1998
(inception date) to August 31, 1998, compared to the MSCI Japan Index.+
[Graphic representation omitted. Please see Appendix A14.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
INCEPTION DATE (8/10/98) (CUMULATIVE) (7.96)%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
*Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 5.00% contingent deferred sales charge imposed on any
redemption occurring within one year from the purchase date. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
MSCI Japan Index has been adjusted to reflect reinvestment of dividends on
securities in the index.
** Total return quoted reflects all applicable sales charges.
+The MSCI Japan Index is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance. The
index is unmanaged, and investments cannot be made in an index.
Deutsche Global Bond Fund--Class A
Growth of $10,000 Invested in Deutsche Global Bond Fund
The graph below illustrates the hypothetical investment of $10,000* in Class A
Shares of the Deutsche Global Bond Fund (the "Fund") from October 15, 1997
(commencement of operations) to August 31, 1998, compared to the J.P. Morgan
Global Government Bond Index.+
[Graphic representation omitted. Please see Appendix A15.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
COMMENCEMENT OF OPERATIONS (10/15/97) (CUMULATIVE) (0.83)%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
*Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 4.5% ($10,000 investment minus $450 sales charge =
$9,550). The Fund's performance assumes the reinvestment of all dividends and
distributions. The J.P. Morgan Global Government Bond Index has been adjusted
to reflect reinvestment of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges.
+The J.P. Morgan Global Government Bond Index is not adjusted to reflect sales
charges, expenses, or other fees that the SEC requires to be reflected in the
Fund's performance. The index is unmanaged, and investments cannot be made in
an index.
Deutsche European Bond Fund--Class A
Growth of $10,000 Invested in Deutsche European Bond Fund
The graph below illustrates the hypothetical investment of $10,000* in Class A
Shares of the Deutsche European Bond Fund (the "Fund") from October 17, 1997
(commencement of operations) to August 31, 1998, compared to the J.P. Morgan
European Government Bond Index.+
[Graphic representation omitted. Please see Appendix A16.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
COMMENCEMENT OF OPERATIONS (10/17/97) (CUMULATIVE) 1.38%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
*Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 4.5% ($10,000 investment minus $450 sales charge =
$9,550). The Fund's performance assumes the reinvestment of all dividends and
distributions. The J.P. Morgan European Government Bond Index has been adjusted
to reflect reinvestment of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges.
+The J.P. Morgan European Government Bond Index is not adjusted to reflect
sales charges, expenses, or other fees that the SEC requires to be reflected in
the Fund's performance. The index is unmanaged, and investments cannot be made
in an index.
Deutsche European Bond Fund--Class B
Growth of $10,000 Invested in Deutsche European Bond Fund
The graph below illustrates the hypothetical investment of $10,000* in Class B
Shares of the Deutsche European Bond Fund (the "Fund") from June 25, 1998
(inception date) to August 31, 1998, compared to the J.P. Morgan European
Government Bond Index.+
[Graphic representation omitted. Please see Appendix A17.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
INCEPTION DATE (6/25/98) (CUMULATIVE) (1.56)%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
*Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 5.00% contingent deferred sales charge imposed on any
redemption occurring within one year from the purchase date. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
J.P. Morgan Global Government Bond Index has been adjusted to reflect
reinvestment of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges.
+The J.P. Morgan European Government Bond Index is not adjusted to reflect
sales charges, expenses, or other fees that the SEC requires to be reflected in
the Fund's performance. The index is unmanaged, and investments cannot be made
in an index.
STATEMENTS OF ASSETS AND LIABILITIES
Deutsche Funds, Inc.
August 31, 1998
<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:
Investment in corresponding Deutsche Portfolio, at value $6,601,928 $ 724,384 $283,848 $ 72,133 $ 96,296
Receivable from Manager for expense reimbursement 87,530 46,417 45,025 43,678 43,294
Receivable for capital shares sold 454,201 10,004 -- -- 6,005
Foreign tax reclaim receivable 1,203 333 -- -- --
Other assets -- -- -- -- 239
Deferred organization costs 10,387 10,387 10,394 10,373 10,387
Total assets 7,155,249 791,525 339,267 126,184 156,221
Liabilities:
Payable for capital shares redeemed 91,363 2 -- -- --
Payable to corresponding Deutsche Portfolio for contributions 325,437 8,002 -- -- --
Transfer Agent fees payable 12,211 11,866 11,584 11,519 11,453
Distribution fees payable 3,804 338 155 40 88
Organization costs payable 12,339 12,339 12,339 12,339 12,339
Accrued expenses and other liabilities 21,348 18,928 18,245 18,055 18,472
Total liabilities 466,502 51,475 42,323 41,953 42,352
Net assets $6,688,747 $ 740,050 $296,944 $ 84,231 $113,869
Net Assets Consist of:
Capital stock, $0.001 par value (authorized 250,000,000
shares for each Fund) 510 54 25 7 9
Paid-in capital 7,419,238 842,096 307,693 83,736 111,631
Undistributed (accumulated) net investment income (loss) (5,105) 40 (27) (36) 175
Undistributed (accumulated) net realized gain (loss) on
investments and foreign currency transactions 127,118 9,904 (2,898) 58 48
Net unrealized appreciation (depreciation) of investments
and foreign currency (853,014) (112,044) (7,849) 466 2,006
Net assets $6,688,747 $ 740,050 $296,944 $ 84,231 $113,869
Computation of Net Asset Value, Redemption Price
and Offering Price Per Share:
Net assets--Class A $2,402,032 $ 461,764 $ 14,286 $ 84,231 $ 28,425
Shares outstanding--Class A 168,888 31,937 1,451 6,587 2,161
Net asset value and redemption price per share--Class A $14.22 $14.46 $9.85 $12.79 $13.15
Offering price per share--Class A $15.05 $15.30 $10.42 $13.39 $13.77
Net assets--Class B $4,286,715 $ 278,286 $282,658 -- $ 85,444
Shares outstanding--Class B 341,576 22,029 23,332 -- 6,663
Net asset value, offering price and redemption
price per share--Class B $12.55 $12.63 $12.11 -- $12.82
</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 to August 31, 1998(a)
<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
corresponding Deutsche Portfolio:
Dividend income $ 21,893 $ 4,368 $ 25 $ -- $ --
Less: Foreign withholding taxes (4,328) (800) (4) -- --
Net dividend income 17,565 3,568 21 -- --
Interest income 3,151 268 194 2,239 1,001
Expenses (112,930) (14,469) (3,057) (3,106) (1,325)
Net investment loss allocated from corresponding
Deutsche Portfolio (92,214) (10,633) (2,842) (867) (324)
Expenses:
Legal and audit fees 13,994 13,992 13,994 13,992 13,986
Accounting fees 16,714 16,807 15,640 15,784 15,771
Directors' fees and expenses 481 481 481 481 481
Administration fees 941 276 182 196 183
Reports to Shareholders 14,290 13,981 14,279 14,352 14,361
Transfer agent fees 27,234 26,844 26,530 26,435 26,409
Registration fees 35,992 34,345 34,194 34,213 34,177
Amortization of organization costs 2,201 2,201 2,194 2,215 2,201
Service fees--Class A 1,076 263 26 113 34
Service fees--Class B (b) 1,897 152 35 -- 26
Distribution fees--Class B (b) 5,740 459 105 -- 79
Total expenses 120,560 109,801 107,660 107,781 107,708
Less: Expense reimbursement (208,350) (121,110) (110,222) (110,294) (108,642)
Net expense reimbursement in excess of total expenses (87,790) (11,309) (2,562) (2,513) (934)
Net investment income (loss) (4,424) 676 (280) 1,646 610
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency allocated from corresponding
Deutsche Portfolio:
Net realized gain (loss) on:
Investments 163,394 11,326 (7,690) (384) 559
Foreign currency transactions (4,842) (782) 4,154 (115) 77
Net change in unrealized appreciation/depreciation on:
Investments (852,403) (111,993) (7,864) 465 2,003
Foreign currency translations (611) (51) 15 1 3
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency allocated from corresponding
Deutsche Portfolio (694,462) (101,500) (11,385) (33) 2,642
Net Increase (Decrease) in Net Assets Resulting
from Operations $(698,886) $(100,824) $ (11,665) $ 1,613 $ 3,252
(a) Commencement of operations: 10/17/97 10/17/97 10/20/97 10/15/97 10/17/97
(b) Inception date: 3/30/98 3/16/98 8/10/98 -- 6/25/98
</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 to August 31, 1998(a)
<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) $ (4,424) $ 676 $ (280) $ 1,646 $ 610
Net realized gain (loss) on investments and foreign currency
transactions allocated from corresponding Deutsche Portfolio 158,552 10,544 (3,536) (499) 636
Net change in unrealized appreciation/depreciation on
investments and foreign currency translations allocated from
corresponding Deutsche Portfolio (853,014) (112,044) (7,849) 466 2,006
Net increase (decrease) in net assets resulting from operations (698,886) (100,824) (11,665) 1,613 3,252
Distributions to Shareholders:
Dividends from net investment income:
Class A -- -- -- (1,204) (203)
Class B -- -- -- -- (400)
Total distributions -- -- -- (1,204) (603)
Capital Share Transactions: Class A
Net proceeds from shares sold 2,861,890 638,075 7,050 172,958 25,533
Net proceeds from distributions reinvested -- -- -- 1,203 202
Net cost of shares redeemed (281,385) (128,511) (1,079) (101,450) (9,296)
Net increase in net assets resulting from capital share
transactions--Class A 2,580,505 509,564 5,971 72,711 16,439
Capital Share Transactions: Class B(b)
Net proceeds from shares sold 4,950,740 320,200 291,662 -- 83,269
Net proceeds from distributions reinvested -- -- -- -- 401
Net cost of shares redeemed (154,723) (1) (135) -- --
Net increase in net assets resulting from capital share
transactions -- Class B 4,796,017 320,199 291,527 -- 83,670
Total increase in net assets 6,677,636 728,939 285,833 73,120 102,758
Net Assets:
Beginning of period 11,111 11,111 11,111 11,111 11,111
End of period(c) $6,688,747 $ 740,050 $ 296,944 $ 84,231 $ 113,869
Capital Shares -- Class A
Shares outstanding, beginning of period 889 889 889 889 889
Shares sold 185,654 39,304 667 13,535 1,985
Reinvestment of distributions -- -- -- 95 16
Shares redeemed (17,655) (8,256) (105) (7,932) (729)
Shares outstanding, end of period 168,888 31,937 1,451 6,587 2,161
Capital Shares -- Class B(b)
Shares outstanding, beginning of period -- -- -- -- --
Shares sold 353,382 22,029 23,343 -- 6,631
Reinvestment of distributions -- -- -- -- 32
Shares redeemed (11,806) -- (11) -- --
Shares outstanding, end of period 341,576 22,029 23,332 -- 6,663
(a) Commencement of operations: 10/17/97 10/17/97 10/20/97 10/15/97 10/17/97
(b) Inception date: 3/30/98 3/16/98 8/10/98 -- 6/25/98
(c) Includes undistributed (accumulated) net investment
income (loss) of: $ (5,105) $ 40 $ (27) $ (36) $ 175
</TABLE>
The accompanying notes are an integral part of the financial statements.
FINANCIAL HIGHLIGHTS
Deutsche Funds, Inc.
For the period from Commencement of Operations to August 31, 1998(a)
<TABLE>
<CAPTION>
Selected data for a Class A share of common stock outstanding throughout the
period.
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) 0.01 0.02 (0.07) 0.26 0.19
Net realized and unrealized gain (loss) on
investments
and foreign currency allocated from
corresponding Deutsche Portfolio 1.71 1.94 (2.58) 0.22 0.58
Increase (decrease) from investment operations 1.72 1.96 (2.65) 0.48 0.77
Distributions to Shareholders:
Dividends from net investment income -- -- -- (0.19) (0.12)
Total distributions -- -- -- (0.19) (0.12)
Net asset value at end of period $14.22 $ 14.46 $ 9.85 $ 12.79 $ 13.15
Total Return (based on net asset value)(c)* 13.76% 15.68% (21.20)% 3.85% 6.17%
Ratios and Supplemental Data:
Net assets, end of period (000's) $2,402 $ 462 $ 14 $ 84 $ 28
Ratios to average net assets:
Expenses(b)** 1.60% 1.60% 1.60% 1.30% 1.30%
Net investment income (loss)(b)** 0.23% 0.75% (1.00)% 3.62% 2.67%
(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
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income (loss) to average net assets would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Expenses to average net assets** 18.86% 73.61% 454.24% 243.87% 454.22%
Net investment loss to average net assets** (17.03)% (71.26)% (453.64)% (238.95)% (450.25)%
</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, reinvestment of distributions at net asset value
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.
FINANCIAL HIGHLIGHTS (CONTINUED) Deutsche Funds, Inc.
For the period from Inception Date to August 31, 1998(a)
Selected data for a Class B 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
Investment operations:
Net investment income (loss) (0.02) (0.01) (0.01) -- 0.08
Net realized and unrealized gain (loss)
on investments
and foreign currency allocated
from corresponding Deutsche Portfolio 0.07 0.14 (0.38) -- 0.35
Increase (decrease) from investment
operations 0.05 0.13 (0.39) -- 0.43
Distributions to Shareholders:
Dividends from net investment income -- -- -- -- (0.11)
Total distributions -- -- -- -- (0.11)
Net asset value at end of period $ 12.55 $ 12.63 $ 12.11 -- $12.82
Total Return (based on net asset
value)(c)* 0.40% 1.04% (3.12)% -- 3.44%
Ratios and Supplemental Data:
Net assets, end of period (000's) $ 4,287 $ 278 $ 283 -- $ 85
Ratios to average net assets:
Expenses(b)** 2.35% 2.35% 2.35% -- 2.05%
Net investment income (loss)(b)** (0.70)% (0.19)% (1.25)% -- 2.38%
(a)Inception date: 3/30/98 3/16/98 8/10/98 -- 6/25/98
</TABLE>
(b) Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment income (loss) to average net assets would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Expenses to average net assets** 19.61% 74.36% 454.99% -- 454.97%
Net investment loss to average net assets** (17.96)% (72.20)% (453.89)% -- (450.54)%
</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
inception date, reinvestment of distributions at net asset value 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.
August 31, 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 seeks to achieve its respective investment objective by
investing substantially all of its assets in the corresponding portfolio of
Deutsche Portfolios (the "Portfolio Trust"), a New York business trust,
registered under the 1940 Act, having substantially the same investment
objective of each of the respective Funds. The Portfolio Trust is an open-end
management investment company and comprises ten portfolios (each a "Portfolio").
The financial statements of five of the corresponding Portfolios, including
their portfolio of investments, are included elsewhere within this report and
should be read in conjunction 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 Portfolios of the Portfolio Trust. Each
Portfolio is managed by Deutsche Fund Management, Inc. ("DFM" or the "Manager"),
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 costs. 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. As of August 31, 1998, Class B Shares of the Global Bond Fund have not
been sold to the public. The Funds commenced operations during October 1997.
Note 2 -- Significant Accounting Policies
The Company prepares its financial statements in accordance with generally
accepted accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make certain estimates and assumptions that affect the reported amounts and
disclosures. Actual results could differ from those estimates. The following is
a summary of significant accounting policies followed by the Funds:
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 August
31, 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 56.88% Provesta Portfolio (US Dollar)
German Equity Fund 17.98% Investa Portfolio (US Dollar)
Japanese Equity Fund 17.21% Japanese Equity Portfolio (US Dollar)
Global Bond Fund 1.88% Global Bond Portfolio (US Dollar)
European Bond Fund 1.46% European Bond Portfolio (US Dollar)
</TABLE>
Investment Income, Expenses, Realized and Unrealized Gains and Losses
The Funds record their proportionate share of the investment income, expenses,
realized and unrealized gains and losses recorded by the Portfolios on a daily
basis. The investment income, expenses, realized and unrealized gains and losses
are allocated daily to the 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), and realized and unrealized gains and losses allocated
from the Portfolio are further allocated to each Class of shares based on their
relative net asset values.
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. Accordingly, no
provision for federal income and excise tax is required.
At August 31, 1998, the Japanese Equity Fund had a capital loss carryforward of
$78, which will expire in 2006 if not utilized. To the extent that this loss
carryforward is used to offset future capital gains, such capital gains so
offset will not be distributed to shareholders.
Capital losses incurred after October 31 are deemed to arise on the first
business day of the following fiscal year for tax purposes. The following Funds
have incurred and elected to defer their capital losses incurred after October
31, 1997:
<TABLE>
<CAPTION>
Foreign Currency Capital Loss
Fund Loss Deferred Deferred
<S> <C> <C>
European Mid-Cap Fund $5,105 $ --
German Equity Fund $ 912 $ --
Japanese Equity Fund $3,681 $ 2,820
Global Bond Fund $ 528 $ --
European Bond Fund $ -- $ --
</TABLE>
Distributions to Shareholders
Dividends from net investment income of the 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.
Income and capital gain distributions are determined in accordance with federal
income tax regulations which may differ from generally accepted accounting
principles. 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. During the period ended
August 31, 1998, the following Funds reclassified permanent book and tax
differences to increase (decrease) the following accounts:
<TABLE>
<CAPTION>
Undistributed Net
Realized Gains on
Investments and
Undistributed Net Foreign Currency Paid-in
Fund Investment Income Transactions Capital
<S> <C> <C> <C>
European Mid-Cap Fund $(681) $(31,434) $32,115
German Equity Fund $(636) $ (640) $ 1,276
Japanese Equity Fund $ 253 $ 638 $ (891)
Global Bond Fund $(478) $ 557 $ (79)
European Bond Fund $ 168 $ (588) $ 420
Deferred Organization Costs
</TABLE>
Organization costs 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 costs 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 costs of the Fund.
Note 3 -- Significant Agreements and Transactions with Affiliates
The Company has retained the services of Federated Services Company
("Federated") as Administrator. Under the Administration Agreement, Federated
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 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 $200 million and
0.0525% of such assets in excess of $200 million for the Fund's then current
fiscal year. Federated in its capacity as Operations Agent for the Portfolio
Trust and Administrator of the Funds, receives a minimum aggregate fee from each
Fund, its corresponding Portfolio and any other funds investing in the Portfolio
Trust, taken together, 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
serves 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 and Federated Shareholder Services
Company are both affiliated with Edgewood. IBT Fund Services (Canada) Inc.
provides 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%, 2.35%, 1.30%
and 2.05% of the average daily net assets of Class A Shares and of Class B
Shares of the Equity Funds and the Bond Funds, respectively.
For the period ended August 31, 1998, DFM voluntarily reimbursed the following
expenses pursuant to this undertaking:
<TABLE>
<CAPTION>
Portfolio Fund Total
<S> <C> <C> <C>
European Mid-Cap Fund $87,790 $120,560 $208,350
German Equity Fund $11,309 $109,801 $121,110
Japanese Equity Fund $ 2,562 $107,660 $110,222
Global Bond Fund $ 2,513 $107,781 $110,294
European Bond Fund $ 934 $107,708 $108,642
Note 4--Concentration of Ownership
</TABLE>
From time to time the Funds may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the Fund and the Portfolio.
Note 5--Subsequent Event
On September 1, 1998, the European Mid-Cap Fund, German Equity Fund and European
Bond Fund commenced an offering of Class C Shares to the public.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Deutsche Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Deutsche European Mid-Cap Fund, Deutsche German Equity Fund, Deutsche
Japanese Equity Fund, Deutsche Global Bond Fund and Deutsche European Bond Fund
(five of the eleven funds constituting Deutsche Funds, Inc., hereafter referred
to as the "Funds") at August 31, 1998, and the results of each of their
operations, the changes in each of their net assets and the financial highlights
for each of the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
1177 Avenue of the Americas
New York, New York 10036
October 16, 1998
1998 Federal Tax Notice (Unaudited)
For the year ended August 31, 1998, the European Mid-Cap Fund has elected,
pursuant to Section 853 of the Internal Revenue Code, to pass through foreign
taxes of $4,328 to its shareholders. The European Mid-Cap Fund generated net
foreign source income of $58,993 with respect to this election.
PORTFOLIO OF INVESTMENTS
Provesta Portfolio (US Dollar)
August 31, 1998
<TABLE>
<CAPTION>
Market
Shares Description Value
<C> <S> <C>
Common Stocks--74.2%
France--4.2%
291 Banque Nationale de Paris $ 19,220
5,225 Business Objects SA--ADR* 46,372
1,000 Cap Gemini SA 157,294
242 Compagnie Financiere de Paribas* 20,363
115 Dassault Systems SA 5,932
90 Rhone-Poulenc SA 4,544
650 Sanofi SA 72,888
2,800 Schneider SA 166,698
Total 493,311
Germany--54.7%
500 1&1 Aktiengesellschaft & Co. KGaA* 50,190
200 A. Friedrich Flender AG* 33,460
1,000 Adidas AG 117,961
1,600 ADOLF AHLERS AG 33,573
1,500 Aixtron AG 242,443
3,475 Altana AG 220,723
310 AVA Allgemeine Handels der Verbraucher* 109,879
50 Axa Colonia Konzern AG 5,671
90 Barmag AG 27,817
150 BDAG Balcke-Duerr AG* 25,861
1,050 Beiersdorf AG 55,975
2,350 BERLINER ELEKTRO Holding AG 34,651
1,800 BERU AG 40,628
2,900 BHF-Bank AG 105,257
100 CeWe Color Holding AG 19,622
8,000 Continental AG 214,144
160 DBV-Winterthur Holding AG 60,795
2,600 Degussa AG 129,019
1,950 Deutsche Babcock AG* 106,718
1,768 Deutsche Pfandbrief-und Hypothekenbank AG 133,355
1,900 Duerr AG 62,496
700 Escada AG 93,291
10,500 FAG Kugelfischer Georg Schaefer AG 139,936
400 Felten & Guilleaume Energietechnik AG 66,920
275 Fresenius AG 38,989
2,000 Fresenius Medical Care AG 98,679
1,500 Fried.Krupp AG Hoesch-Krupp 216,923
15 Fuchs Petrolub AG Oel & Chemie* 1,616
4,925 Gehe AG 302,488
2,000 Gerresheimer Glas AG 32,099
155 Gesco Industrie Holding AG 3,499
120 Gold-Zack AG* 31,985
1,475 Heidelberger Druckmaschinen AG 102,053
1,125 Henkel KGaA 77,518
520 Hornbach Baumarkt AG 20,053
2,050 Hucke AG 30,227
4,750 IWKA AG 91,859
525 Kali und Salz Beteiligungs AG* 61,929
1,800 Kiekert AG 72,988
1,700 Kloeckner-Werke AG* 101,713
1,825 KM Europa Metal AG 98,945
150 Krones AG* 5,529
425 Leonische Drahtwerke AG 136,179
200 MAN AG 58,924
2,000 Mannesmann AG 180,344
280 Mannheimer Versicherung AG 155,617
8,750 Metallgesellschaft AG 145,147
700 MobilCom AG 184,597
5,900 Norddeutsche Affinerie AG* 71,604
44 Nuernberger Beteiligungs AG B 50,655
18 Nuernberger Beteiligungs AG 22,254
4,225 Phoenix AG 98,239
225 Plettac AG 24,244
2,000 Praktiker Bau-und Heimwerkermaerkte AG 24,953
400 Rhoen-Klinikum AG 37,430
700 SAP AG 363,239
2,825 Schering AG 272,359
1,000 Schlott AG 21,267
1,850 SGL Carbon AG 163,670
5,500 SKW Trostberg AG 162,196
255 Springer (Axel) Verlag AG 157,631
500 Tarkett AG 10,775
3,250 Teldafax AG* 137,867
210 Varta AG 34,597
500 Verseidag AG 63,801
220 Wella AG 169,058
1,100 WMF-Wuerttembergische Metallwarenfabrik AG 19,651
8,000 Wuensche AG* 67,147
Total 6,352,922
Ireland--0.1%
160 CBT Group plc--ADR* 7,520
Italy--3.7%
164,500 Banca di Roma* 318,262
500 Banca Popolare di Bergamo Credito Varesino SpA 10,607
1,275 Banca Popolare di Brescia 29,108
3,900 Banca Popolare di Milano 28,536
5,000 Banca Popolare di Novara 37,604
Total 424,117
Netherlands--8.5%
1,750 ASM Lithography Holding NV* 34,739
3,144 Benckiser NV B (Deutschemark) 180,977
556 Benckiser NV B (Netherlands Guilder) 31,714
400 Equant NV* 16,643
6,400 Getronics NV 326,457
2,357 Nutreco Holding NV 84,100
2,875 Qiagen NV* 142,177
2,500 Unilever NV 172,626
Total 989,433
Portugal--0.7%
6,350 Banco Mello SA 75,754
Spain--1.4%
3,750 Argentaria SA 71,877
1,275 Banco Popular Espanol SA 85,917
Total 157,794
Switzerland--0.9%
73 Baloise Holdings Ltd. 55,731
2 Lindt & Spruengli AG 48,406
Total 104,137
Total Common Stocks (Cost--$9,522,527) 8,604,988
Preferred Stocks--19.0%
Germany--19.0%
675 Axa Colonia Konzern AG 56,655
365 BERLINER ELEKTRO Holding AG 4,864
1,350 Draegerwerk AG 23,740
250 Dyckerhoff AG 85,068
40 EDDING AG 11,229
300 Fielmann AG 10,957
1,500 Fresenius AG 222,452
325 Fuchs Petrolub AG Oel & Chemie 32,808
370 JADO Design Armatur & Beschlag AG* 1,574
650 Jungheinrich AG 110,588
350 Krones AG 12,902
125 MAN AG 26,300
200 Marschollek, Lautenschlaeger und Partner AG 100,947
4,350 Metro AG 170,221
129 Porsche AG 278,001
4,900 Prosieben Media AG 255,657
625 Rhoen-Klinikum AG 57,066
425 SAP AG 241,025
1,700 Sixt AG* 321,046
125 Sto AG 41,471
125 Wella AG 113,424
2,000 WMF-Wuerttembergische Metallwarenfabrik AG 29,944
Total Preferred Stocks (Cost--$2,266,166) 2,207,939
Warrants--0.1%
Germany--0.1%
100 Continental AG (Exp. Date: 7/6/00)* 15,482
Total Warrants (Cost--$19,114) 15,482
Total Investments--93.3% (Cost--$11,807,807) 10,828,409
Other assets in excess of other liabilities--6.7% 777,654
Total Net Assets--100.0% $11,606,063
</TABLE>
Notes to the Portfolio of Investments:
* Non-income producing security.
ADR -- American Depository Receipt
The accompanying notes are an integral part of the financial statements.
Industry sector diversification of the Provesta Portfolio's investments as a
percentage of net assets as of August 31, 1998 was as follows:
<TABLE>
<CAPTION>
Percentage of
Industry Sector Net Assets
<S> <C>
Industrial--Diversified 9.2%
Banking 7.9%
Automotive 7.4%
Computer Software & Processing 7.2%
Heavy Machinery 7.1%
Pharmaceuticals 4.9%
Chemicals 4.5%
Health Care Providers 3.9%
Media--Broadcasting & Publishing 3.6%
Insurance 3.5%
Textiles, Clothing & Fabrics 3.5%
Commercial Services 2.9%
Household Products 2.9%
Cosmetics & Personal Care 2.9%
Retailers 2.9%
Computers & Information 2.8%
Telephone Systems 2.8%
Beverages, Food & Tobacco 2.6%
Wholesalers 2.6%
Metals 1.5%
Financial Services 1.3%
Medical & Bio-Technology 1.2%
Electrical Equipment 1.2%
Building Materials 1.2%
Advertising 0.4%
Electronics 0.3%
Oil & Gas 0.3%
Containers & Packaging 0.3%
Medical Supplies 0.2%
Consumer Services 0.2%
Entertainment & Leisure 0.1%
Total 93.3%
</TABLE>
The accompanying notes are an integral part of the financial statements.
PORTFOLIO OF INVESTMENTS
Investa Portfolio (US Dollar)
August 31, 1998
<TABLE>
<CAPTION>
Market
Shares Description Value
<S> <C> <C>
Common Stocks--88.2%
Germany--88.2%
Automotive--16.3%
4 Bayerische Motoren Werke AG--New* $ 2,926
10 Bayerische Motoren Werke AG 7,429
975 Chrysler Corp. 44,119
1,845 Continental AG 49,387
4,100 Daimler-Benz AG 369,705
2,523 Volkswagen AG 181,430
Total 654,996
Banking--15.3%
2,900 Bayerische Hypotheken-und Wechsel-Bank AG 164,793
2,201 Bayerische Vereinsbank AG 167,887
450 BHF-Bank AG 16,333
4,530 Commerzbank AG 131,021
3,000 Dresdner Bank AG 134,917
Total 614,951
Chemicals--13.5%
2,900 BASF AG 115,947
3,450 Bayer AG 129,524
886 Degussa AG 43,966
6,200 Hoechst AG 253,865
Total 543,302
Communications--3.6%
5,530 Deutsche Telekom AG 146,459
Computer Software & Processing--5.8%
450 SAP AG 233,513
Electric Utilities--5.6%
3,190 RWE AG 152,870
1,420 Veba AG 71,576
Total 224,446
Electrical Equipment--4.9%
3,050 Siemens AG 198,052
Heavy Construction--0.5%
509 Hochtief AG 19,485
Household Products--1.3%
770 Henkel KGaA 53,057
Industrial--Diversified--10.5%
70 Linde AG 40,889
2,275 Mannesmann AG 205,141
162 Preussag AG 54,665
300 Thyssen AG 56,315
105 Viag AG 65,800
Total 422,810
Insurance--5.2%
100 Allianz AG 28,696
18 Muenchener Rueckversicherungs-Gesellschaft AG - New* 6,931
451 Muenchener Rueckversicherungs-Gesellschaft AG 174,821
Total 210,448
Oil & Gas--0.4%
195 Royal Dutch Petroleum Co.--(Deutschemark) 8,643
205 Royal Dutch Petroleum Co.--(Netherlands Guilder) 9,126
Total 17,769
Pharmaceuticals--1.8%
772 Schering AG 74,429
Retailers--1.8%
1,291 Metro AG 72,849
Textiles, Clothing & Fabrics--1.7%
577 Adidas Salomon AG 68,063
Total Common Stocks (Cost--$3,518,316) 3,554,629
Preferred Stocks--7.2%
Germany--7.2%
Automotive--0.4%
9 Bayerische Motoren Werke AG - New* 3,981
28 Bayerische Motoren Werke AG 12,703
Total 16,684
Building Materials - 0.7%
79 Dyckerhoff AG 26,881
Computer Software & Processing--3.4%
240 SAP AG 136,108
Household Products--0.2%
120 Henkel KGaA 9,596
Industrial--Diversified--1.3%
252 MAN AG 53,021
Retailers--1.2%
1,200 Metro AG 46,957
Total Preferred Stocks (Cost--$245,102) 289,247
Warrants--4.9%
Germany--4.9%
Automotive--0.4%
92 Continental AG (Exp. Date: 7/6/00; Strike Price DEM 19.90)* 14,244
Banking --1.0%
800 Commerzbank AG (Exp. Date: 6/15/00; Strike Price DEM 55.00)* 7,713
2,000 Dresdner Bank AG (Exp. Date: 4/30/02; Strike Price DEM 55.00)* 34,254
Total 41,967
Chemicals--0.4%
70 BASF Finance Europe (Exp. Date: 4/9/01; Strike Price DEM 30.80)* 15,482
Electric Utilities--0.3%
1,180 Veba AG (Exp. Date: 6/7/99; Strike Price DEM 37.90)* 13,384
Insurance--2.8%
43,500 Allianz AG (Exp. Date: 6/30/99; Strike Price 294.72)* 57,974
420 Allianz AG (Exp. Date: 6/30/99; Strike Price 294.70)* 55,022
18 Muenchener Rueckversicherungs-Gesellschaft AG
(Exp. Date 6/3/02; Strike Price DEM 635.00)* 730
Total 113,726
Total Warrants (Cost--$271,004) 198,803
Total Investments--100.3% (Cost--$4,034,422) 4,042,679
Liabilities in excess of other assets--(0.3)% (14,104)
Total Net Assets--100.0% $4,028,575
</TABLE>
Notes to the Portfolio of Investments:
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
PORTFOLIO OF INVESTMENTS
Japanese Equity Portfolio (US Dollar)
August 31, 1998
<TABLE>
<CAPTION>
Market
Shares Description Value
<S> <C> <C>
Common Stocks--85.6%
Advertising--2.5%
2,000 Asatsu Inc. $ 40,609
Automotive--10.2%
2,000 Bridgestone Corp. 44,082
2,000 Honda Motor Co., Ltd. 68,887
6,000 Suzuki Motor Corp. 55,195
Total 168,164
Banking--1.0%
3,000 Sanwa Bank 17,179
Beverages, Food & Tobacco--4.8%
4,000 Ajinomoto Co., Inc. 29,483
6,000 Kirin Brewery Co., Ltd. 50,177
Total 79,660
Chemicals--0.6%
4,000 Dainippon Ink & Chemicals, Inc. 9,695
Commercial Services--1.7%
2,000 Dai Nippon Printing Co., Ltd. 27,938
Communications--2.0%
1,000 Matsushita Communication Industrial Co., Ltd. 33,664
Computer Software & Processing--10.1%
1,000 Fuji Soft ABC, Inc. 35,932
7,000 Fujitsu Ltd. 70,945
1,000 Hitachi Software Engineering Co., Ltd. 24,309
10 NTT Data Corp. 36,003
Total 167,189
Computers & Information--3.4%
1,000 Diamond Computer Service Co. 13,820
1,000 Softbank Corp. 42,523
Total 56,343
Electrical Equipment--6.0%
4,000 Matsushita Electric Industries 57,548
4,000 Minebea Co., Ltd. 40,595
Total 98,143
Electronics--7.7%
1,000 Sony Corp. 73,069
15,000 Toshiba Corp. 53,898
Total 126,967
Entertainment & Leisure--2.3%
400 Nintendo Corp. Ltd. 37,052
Financial Services--5.9%
2,000 Nomura Securities Co., Ltd. 19,419
800 Orix Corp. 54,146
100 Shohkoh Fund & Co., Ltd. 22,856
Total 96,421
Forest Products & Paper--4.4%
2,000 Uni Charm Corp. 72,714
Home Construction, Furnishings & Appliances--1.9%
4,000 Daiwa House Industry Co., Ltd. 32,034
Medical Supplies--3.2%
2,000 Takeda Chemical Industries 52,303
Office Equipment--2.5%
2,000 Canon, Inc. 40,609
Pharmaceuticals--6.1%
3,000 Terumo Corp. 56,662
2,000 Yamanouchi Pharmaceutical Co., Ltd. 43,373
Total 100,035
Real Estate--2.3%
6,000 Mitsui Fudosan Co., Ltd. 38,696
Retailers--3.8%
2,000 JUSCO Co., Ltd. 32,388
2,000 Kao Corp. 30,829
Total 63,217
Telephone Systems--3.2%
7 Nippon Telegraph & Telephone Corp. 53,083
Total Investments--85.6% (Cost--$1,637,197) 1,411,715
Other assets in excess of liabilities--14.4% 237,360
Total Net Assets --100.0% $1,649,075
The accompanying notes are an integral part of the financial statements.
</TABLE>
PORTFOLIO OF INVESTMENTS
Global Bond Portfolio (US Dollar)
August 31, 1998
<TABLE>
<CAPTION>
Par
Currency Value Description Value
<S> <C> <C> <C>
Corporate Debt--34.6%
Germany--4.1%
Deutsche Pfandbrief-und Hypothekenbank AG
CZK 2,300,000 14.875% Due 05/15/00 $ 70,920
Hypothekenbank in Essen AG
DEM 150,000 4.000% Due 05/15/00 85,408
Total 156,328
Japan--2.0%
Nippon Telegraph & Telephone Corp.
JPY 10,000,000 2.500% Due 07/25/07 74,876
Multinational--5.5%
European Investment Bank
DEM 150,000 5.250% Due 04/15/04 90,257
World Bank
JPY 8,000,000 5.250% Due 03/20/02 65,571
World Bank
PLZ 200,000 18.000% Due 02/27/03 54,839
Total 210,667
Netherlands--4.0%
Baden Wurt L - Finance - (Eurodollar)
USD 50,000 6.000% Due 12/19/02 51,225
Telefonica Europe BV - (Eurodollar)
USD 100,000 6.375% Due 01/08/03 102,550
Total 153,775
United Kingdom--8.2%
British Telecom plc - (Eurodollar)
USD 100,000 7.000% Due 05/23/07 108,300
Glaxo Wellcome plc - (Eurodollar)
USD 100,000 6.125% Due 01/25/06 103,250
Vodafone Group plc
GBP 60,000 7.875% Due 11/06/01 103,456
Total 315,006
United States--10.8%
BMW U.S. Capital Corp.
USD 100,000 6.625% Due 03/15/04 102,900
Ford Motor Credit
USD 100,000 6.550% Due 09/10/02 104,000
Philip Morris Co., Inc. - Global Bond
USD 100,000 7.000% Due 07/15/05 104,500
Procter & Gamble (The) Co. - (Eurodollar)
USD 100,000 6.125% Due 05/08/08 102,750
Total 414,150
Total Corporate Debt (Cost --$1,325,666) 1,324,802
Sovereign Debt Obligations--41.5%
Australia--3.4%
Australia Government Bond
AUD 200,000 10.000% Due 10/15/02 131,719
Canada--6.0%
Government of Canada
CAD 200,000 5.500% Due 02/01/00 126,979
Province of Ontario - (Yankee)
USD 100,000 6.000% Due 02/21/06 101,950
Total 228,929
Denmark--8.0%
Kingdom of Denmark
DKK 750,000 7.000% Due 12/15/04 125,856
DKK 750,000 6.000% Due 11/15/09 121,970
DEM 100,000 4.750% Due 01/07/02 58,413
Total 306,239
Germany--9.0%
Deutschland Republic
DEM 200,000 8.500% Due 08/21/00 123,972
DEM 200,000 7.250% Due 10/21/02 128,112
Treuhandanstalt
DEM 150,000 6.500% Due 04/23/03 94,340
Total 346,424
Greece--1.7%
Hellenic Republic Bond
GRD 20,000,000 9.2000% Due 03/21/02 63,287
Italy--2.7%
Republic of Italy International Bond - (Eurodollar)
USD 100,000 6.000% Due 05/29/08 102,450
Japan--2.1%
Japan-187 (10 Year Issue)
JPY 10,000,000 3.300% Due 06/20/06 82,006
Spain--4.0%
Government of Spain
DEM 250,000 5.750% Due 01/03/07 154,114
United Kingdom--4.6%
United Kingdom Treasury
GBP 30,000 8.500% Due 10/07/05 59,200
GBP 60,000 7.250% Due 12/07/07 114,879
Total 174,079
Total Sovereign Debt Obligations (Cost--$1,563,183) 1,589,247
U.S. Government and Agency Obligations -- 16.1%
United States--16.1%
Federal National Mortgage Association
USD 100,000 6.540% Due 09/10/07 107,281
USD 100,000 6.000% Due 08/15/00 101,922
USD 100,000 5.625% Due 11/30/00 101,359
USD 100,000 5.875% Due 11/30/01 102,437
USD 100,000 6.000% Due 07/31/02 103,328
USD 100,000 5.625% Due 12/31/02 102,359
Total U.S. Government Agency Obligations (Cost --$600,725) 618,686
Total Investments--92.2% (Cost--$3,489,574) 3,532,735
Other assets in excess of liabilities--7.8% 299,381
Total Net Assets--100.0% $3,832,116
</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. entities in the U.S.
Currency abbreviations defined:
AUD--Australian Dollar
CAD--Canadian Dollar
CZK--Czech Koruna
DEM--German Deutschemark
DKK--Denmark Krona
GBP--Great Britain Pound
GRD--Greek Drachma
JPY--Japanese Yen
PLZ--Polish Zloty
USD--United States Dollar
The accompanying notes are an integral part of the financial statements.
PORTFOLIO OF INVESTMENTS
European Bond Portfolio (US Dollar)
August 31, 1998
<TABLE>
<CAPTION>
Par Market
Currency Value Description Value
<S> <C> <C> <C>
Corporate Debt--22.1%
Austria--3.6%
Oesterreichische Postsparkasse AG
DEM 400,000 5.250% Due 11/11/02 $ 236,602
Denmark--0.1%
Nykredit AS
DKK 42,901 6.000% Due 10/01/26 6,318
Multinational--3.7%
World Bank
DEM 400,000 5.875% Due 11/10/03 245,109
Netherlands--3.0%
Commerzbank Overseas Finance
ITL 120,000,000 10.800% Due 04/14/00 75,747
LB Schleswig-Holsteinische Finance
DEM 200,000 5.625% Due 07/30/07 120,399
Total 196,146
Sweden--1.1%
Swedish Export Credit
ITL 120,000,000 10.750% Due 06/09/00 76,333
United Kingdom--9.2%
National Grid Co. plc
GBP 170,000 8.000% Due 03/29/06 316,507
Sudwest LB Capital Markets
DEM 500,000 4.625% Due 02/17/03 291,782
Total 608,289
United States--1.4%
KFW International Finance
GBP 50,000 7.250% Due 07/23/07 92,084
Total Corporate Debt (Cost--$1,397,116) 1,460,881
Mortgage Backed Securities--4.0%
Denmark--4.0%
Nykredit AS
DKK 1,800,000 6.000% Due 10/01/29 260,378
Total Mortgage Backed Securities (Cost--$262,944) 260,378
Sovereign Debt Obligations--65.3%
Austria--4.4%
Republic of Austria International Bond
DEM 500,000 4.300% Due 07/15/03 288,663
Belgium--4.2%
Kingdom of Belgium International Bond
DEM 450,000 6.250% Due 10/06/03 279,448
Denmark--9.6%
Kingdom of Denmark
DKK 1,000,000 7.000% Due 12/15/04 167,808
DKK 2,700,000 7.000% Due 11/15/07 466,269
Total 634,077
Finland--3.5%
Finland International Bond
FRF 1,200,000 7.000% Due 06/15/04 233,505
France--4.3%
French Treasury Bill
ECU 250,000 4.500% Due 07/12/02 285,676
Germany--17.5%
Deutschland Republic
DEM 725,000 6.000% Due 09/15/03 450,016
DEM 825,000 6.000% Due 07/04/07 530,802
DEM 250,000 6.500% Due 07/04/27 173,255
Total 1,154,073
Great Britain--7.1%
United Kingdom Gilts
GBP 245,000 7.750% Due 09/08/06 471,346
Greece--3.7%
Hellenic Republic Bond
GRD 40,000,000 9.800% Due 03/21/00 125,585
ECU 100,000 5.750% Due 03/31/08 116,677
Total 242,262
Ireland--1.8%
Irish Gilt
IEP 75,000 6.250% Due 10/18/04 116,728
Norway--3.8%
Norwegian Government
NOK 2,000,000 5.750% Due 11/30/04 251,202
Spain--4.2%
Spanish Government International Bond
DEM 450,000 5.750% Due 01/03/07 277,406
Sweden--1.2%
Kingdom of Sweden International Bond
ITL 120,000,000 10.000% Due 02/08/01 77,917
Total Sovereign Debt Obligations (Cost--$4,147,361) 4,312,303
U.S. Government Agency Obligations--4.4%
United States--4.4%
Federal National Mortgage Association--Global
DEM 500,000 5.000% Due 02/16/01 291,357
Total U.S. Government Agency Obligations (Cost--$281,985) 291,357
Total Investments--95.8% (Cost--$6,089,406) 6,324,919
Other assets in excess of liabilities--4.2% 274,927
Total Net Assets--100.0% $6,599,846
</TABLE>
Notes to the Portfolio of Investments:
Currency abbreviations defined:
DEM--German Deutschemark
DKK--Denmark Krona
ECU--European Currency Unit
FRF--French Franc
GBP--Great Britain Pound
GRD--Greek Drachma
IEP--Irish Pound
ITL--Italian Lira
NOK--Norwegian Krona
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF ASSETS AND LIABILITIES
Deutsche Portfolios
August 31, 1998
<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>
Assets:
Investments, at value $10,828,409 $4,042,679 $1,411,715 $3,532,735 $6,324,919
Cash 553,625 94,755 303,433 311,617 81,910
Foreign currency 79,648 -- -- -- --
Dividends receivable 610 35 392 -- --
Interest receivable 1,447 529 1,347 88,174 188,938
Receivable for investments sold -- -- 43,831 -- 106,505
Receivable for Investors' Beneficial Interest
for contributions 399,037 4,991 1,988 -- --
Unrealized appreciation on forward foreign
currency contracts -- -- 4 -- 1,825
Deferred organization costs 54,390 54,390 54,426 54,317 54,390
Total assets 11,917,166 4,197,379 1,817,136 3,986,843 6,758,487
Liabilities:
Payable for investments purchased 79,200 -- -- -- --
Unrealized depreciation on forward foreign
currency contracts -- -- 21,900 -- --
Investment management fees payable 31,021 21,527 11,948 20,623 21,836
Organization costs payable 65,414 65,414 65,414 65,414 65,414
Accrued expenses and other liabilities 135,468 81,863 68,799 68,690 71,391
Total liabilities 311,103 168,804 168,061 154,727 158,641
Net assets $11,606,063 $4,028,575 $1,649,075 $3,832,116 $6,599,846
Net Assets:
Applicable to Investors' Beneficial Interests $11,606,063 $4,028,575 $1,649,075 $3,832,116 $6,599,846
Cost of investments $11,807,807 $4,034,422 $1,637,197 $3,489,574 $6,089,406
Cost of foreign currency $ 78,337 -- -- -- --
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF OPERATIONS
Deutsche Portfolios
For the period from Commencement of Operations to August 31, 1998(a)
<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 $ 58,993 $ 70,946 $ 6,650 $ -- $ --
Less: foreign withholding taxes (14,904) (18,540) (998) -- --
Net dividend income 44,089 52,406 5,652 -- --
Interest income (net of interest expense of $125,
$211, $0, $0 and $533, respectively) 7,586 3,167 8,166 153,267 158,269
Total income 51,675 55,573 13,818 153,267 158,269
Expenses:
Investment management fees 31,021 21,527 11,948 20,623 21,836
Operations agent fees 64,498 65,197 65,332 65,603 65,157
Administrative agent fees 34,889 34,889 34,445 35,111 34,889
Custody and accounting fees 170,298 71,441 47,015 46,843 48,412
Legal and audit fees 34,728 34,728 34,730 34,729 34,729
Trustees' fees and expenses 120 120 120 120 120
Other expenses 11,305 11,141 11,183 11,140 11,140
Amortization of organization costs 11,522 11,522 11,486 11,595 11,522
Total expenses 358,381 250,565 216,259 225,764 227,805
Net investment (loss) (306,706) (194,992) (202,441) (72,497) (69,536)
Realized and Unrealized Gain (Loss) of Investments
and Foreign Currency:
Net realized gain (loss) on:
Investments 396,045 198,387 (340,669) (12,347) 63,460
Foreign currency transactions 15,942 13,959 48,834 (3,673) 14,071
Net change in unrealized appreciation/depreciation on:
Investments (979,398) 8,257 (225,482) 43,161 235,513
Foreign currency translations (41) -- (21,578) (1,027) 6,225
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency (567,452) 220,603 (538,895) 26,114 319,269
Net Increase (Decrease) in Net Assets Resulting
from Operations $(874,158) $ 25,611 $(741,336) $ (46,383) $ 249,733
(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 Portfolios
For the period from Commencement of Operations to August 31, 1998(a)
<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>
Increase (Decrease) in Net Assets:
Operations--
Net investment (loss) $ (306,706) $ (194,992) $ (202,441) $ (72,497) $ (69,536)
Net realized gain (loss) on investments and
foreign currency transactions 411,987 212,346 (291,835) (16,020) 77,531
Net change in unrealized appreciation /depreciation
on investments and foreign
currency translations (979,439) 8,257 (247,060) 42,134 241,738
Net increase (decrease) in net assets resulting
from operations (874,158) 25,611 (741,336) (46,383) 249,733
Capital Transactions:
Proceeds from contributions 16,189,162 5,858,332 2,526,572 4,807,453 10,703,739
Withdrawals (3,720,053) (1,866,480) (147,273) (940,066) (4,364,738)
Net increase in net assets from capital transactions 12,469,109 3,991,852 2,379,299 3,867,387 6,339,001
Total increase in net assets 11,594,951 4,017,463 1,637,963 3,821,004 6,588,734
Net Assets:
Beginning of period 11,112 11,112 11,112 11,112 11,112
End of period $11,606,063 $ 4,028,575 $1,649,075 $3,832,116 $ 6,599,846
(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.
FINANCIAL HIGHLIGHTS
Deutsche Portfolios
For the period from Commencement of Operations to August 31, 1998(a)
<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>
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 11,606 $ 4,029 $ 1,649 $ 3,832 $ 6,600
Ratio of expenses to average net 9.77% 9.87% 15.44% 8.18% 7.79%
assets(b)
Ratio of net investment loss to average (8.36)% (7.68)% (14.46)% (2.63)% (2.38)%
net assets(b)
Portfolio turnover(c) 82% 93% 95% 43% 177%
(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
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
Deutsche Portfolios
August 31, 1998
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"). The accompanying financial statements and notes relate to five of
these Portfolios: 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 during October 1997.
The Portfolio Trust operates under a "Hub and Spoke(R)" structure where the
beneficial interest holders of each respective Portfolio invest substantially
all of their investable assets in the respective Portfolio ("Hub and Spoke(R)"
is a registered service mark of Signature Financial Group, Inc.). From time to
time, a beneficial interest holder of each respective Portfolio may own a
significant percentage of the Portfolio. Investment activities of the beneficial
interest holders could have a material impact on the Portfolio.
The beneficial interest holders of the Portfolios at August 31, 1998 were as
follows:
<TABLE>
<CAPTION>
Provesta Portfolio:
<S> <C>
Deutsche European Mid-Cap Fund $ 6,601,928
DB European Mid-Cap Fund 5,004,135
$11,606,063
Investa Portfolio:
Deutsche German Equity Fund $ 724,384
DB German Equity Fund 3,304,191
$ 4,028,575
Japanese Equity Portfolio:
Deutsche Japanese Equity Fund $ 283,848
DB Japanese Equity Fund 1,365,227
$ 1,649,075
Global Bond Portfolio:
Deutsche Global Bond Fund $ 72,133
DB Global Bond Fund 3,759,983
$ 3,832,116
European Bond Portfolio:
Deutsche European Bond Fund $ 96,296
DB European Bond Fund 6,503,550
$ 6,599,846
</TABLE>
Note 2-- Significant Accounting Policies
The Portfolio Trust prepares its financial statements in accordance with
accounting principles generally accepted in the United States of America. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain 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:
Investment Valuation
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 the 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 is priced in
good faith in accordance with fair valuation procedures adopted by the Trustees
of the Portfolio Trust.
Forward Foreign Currency Contracts
The Portfolio Trust may enter into forward foreign currency contracts with
various counterparties for purposes of hedging its existing portfolio of
investments and settling foreign investment transactions. Forward foreign
currency 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, including the accretion of discounts and
amortization of premiums, 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 spot
foreign currency exchange rate in effect at the time net assets are valued.
Purchases and sales of investment securities, income and expenses are reported
at the prevailing exchange rate on the respective days of such transactions. The
resultant realized and unrealized 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. These include, 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 the 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
expense allocation will be managed in such a way that a regulated investment
company investing in the Portfolio will satisfy the requirements of Subchapter M
of the Code, assuming that such investment company invests substantially 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 Costs
Organization costs 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 costs 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
costs. 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 costs 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. 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 DWS International Portfolio Management GmbH ("DWS")as investment
adviser to the Portfolios. As compensation for the services rendered by DFM
under the 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%
The advisers are indirect subsidiaries 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 of the Deutsche Funds, Inc. and as Operations 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 agreement with IBT Trust Company
(Cayman) Ltd. ("IBT (Cayman)"). Pursuant to that agreement, IBT (Cayman)
provides sub-administrative services to the Portfolios, for which it receives a
fee from each Portfolio, which is computed daily and paid monthly, at an annual
rate of 0.025% on the first $200 million, 0.02% on the next $800 million and
0.01% on assets in excess of $1 billion, subject to a minimum of $40,000 during
the first year of the Portfolio's operations, $45,000 in the second year of
operations and $50,000 in the third year.
From commencement of operations through August 31, 1998, affiliates of Deutsche
Bank AG received brokerage commissions in the following amounts from each
Portfolio as a result of executing agency transactions in portfolio securities:
<TABLE>
<S> <C>
Provesta Portfolio $40,876
Investa Portfolio $20,824
Japanese Equity Portfolio $ --
Global Bond Portfolio $ --
European Bond Portfolio $ --
</TABLE>
Certain trustees and officers of the Portfolios are affiliated with Deutsche
Bank AG. These persons are not paid by the Portfolios for serving in these
capacities.
Note 4--Investment Portfolio Transactions
Purchases and sales of investments, excluding short-term securities, for each
Portfolio for the period from commencement of operations to August 31, 1998 were
as follows:
<TABLE>
<CAPTION>
Japanese
Provesta Investa Equity
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Purchases $14,897,846 $6,490,443 $ 3,287,846
Sales $ 3,486,084 $2,653,882 $ 1,309,980
Global European
Bond Bond
Portfolio Portfolio
Purchases
U.S. Government $ 946,188 $ 171,304
Non-U.S. Government 3,695,849 10,784,104
Total $4,642,037 $10,955,408
Sales
U.S. Government $ 354,592 $ --
Non-U.S. Government 788,521 4,907,531
Total $1,143,113 $ 4,907,531
</TABLE>
At August 31, 1998, the cost of investments and the unrealized appreciation
(depreciation) of investments for Federal income tax purposes for each Portfolio
were as follows:
<TABLE>
<CAPTION>
Japanese Global European
Provesta Investa Equity Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
Cost of Investments $11,859,850 $4,072,887 $1,637,197 $3,489,574 $6,092,005
Gross Unrealized Appreciation 290,413 246,806 11,353 107,710 256,359
Gross Unrealized Depreciation (1,321,854) (277,014) (236,835) (64,549) (23,445)
Net Unrealized Appreciation (Depreciation) (1,031,441) (30,208) (225,482) 43,161 232,914
</TABLE>
Note 5--Forward and Spot Foreign Currency Contracts
Certain Portfolios had forward and spot foreign currency contracts which
contractually obligate the Portfolio to deliver or receive currencies at
specified future dates. The following contracts were open at August 31, 1998:
<TABLE>
<CAPTION>
Local/ Foreign
Settlement Notional Contract Current Unrealized
Date Amount U.S. $ Value Value Gain (Loss)
<S> <C> <C> <C> <C> <C> <C>
Provesta Portfolio
Sale Deutsche Mark 09/02/98 789 $ 448 $ 448 $ --
Japanese Equity Portfolio
Sale Japanese Yen 09/02/98 4,105,580 $ 29,109 $ 29,105 $ 4
Sale Japanese Yen 11/20/98 100,000,000 $695,265 $717,165 $(21,900)
European Bond Portfolio
Sale Deutsche Mark 09/01/98 190,802 $108,330 $106,505 $ 1,825
</TABLE>
Note 6--Off-Balance Sheet Risk and Concentration of Credit Risk
The Statements of Assets and Liabilities include the market or fair value of
contractual commitments involving forward settlement contracts. These
instruments 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 foreign currency 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 various off-balance sheet categories as well as
the relationship between off-balance sheet items and items recorded on the
Portfolios' Statements of Assets and Liabilities. Credit risk is measured by the
loss the Portfolio would record if its counterparties failed to perform pursuant
to terms of their obligations to the Portfolio. Because the Portfolios enter
into forward foreign currency contracts, credit risk exists with counterparties.
It is the policy of the Portfolios to transact the majority of its securities
activity with broker-dealers, banks and regulated exchanges that the Manager
considers to be well established.
Note 7--Line of Credit Agreement
The Portfolio Trust has established a revolving line of credit with Investors
Bank and Trust Company ("IBT"). Borrowings under the line of credit may not
exceed the lesser of $15,000,000 or 33% of the total assets of the Portfolio
Trust. Interest is payable on outstanding borrowings at the Federal Funds Rate
plus 0.50%. Additionally, the line of credit includes an annual commitment fee
equal to 0.07% per annum on the difference between $15,000,000 and the average
daily amount of outstanding borrowings. During the period ended August 31, 1998,
the Portfolios periodically utilized the line of credit and incurred interest
expense as disclosed in the Statements of Operations. At August 31, 1998, there
were no borrowings outstanding under the line of credit agreement.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Beneficial Interest Holders of Deutsche Portfolios
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Provesta Portfolio (US Dollar),
Investa Portfolio (US Dollar), Japanese Equity Portfolio (US Dollar), Global
Bond Portfolio (US Dollar), and European Bond Portfolio (US Dollar), (five of
the ten portfolios constituting Deutsche Portfolios, hereafter referred to as
the "Portfolio Trust") at August 31, 1998, and the results of each of their
operations, the changes in each of their net assets and the financial highlights
for each of the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Portfolio Trust's management; our responsibility is to express an opinion on
these financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at August 31, 1998 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036
October 16, 1998
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
G02332-03 (10/98)
Annual
report
dated August 31, 1998
Deutsche Top 50 World
(Class A Shares and Class B Shares)
Deutsche Top 50 Europe
(Class A Shares and Class B Shares)
Deutsche Top 50 Asia
(Class A Shares and Class B Shares)
Deutsche Top 50 US
(Class A Shares and Class B Shares)
[logo]
PRESIDENT'S MESSAGE
Fellow Shareholders:
It is a pleasure to present the first Annual Report of the Deutsche Funds. This
report covers the fiscal year period from the Funds' commencement of operations,
through August 31, 1998.
By the end of second quarter 1998, the world's financial markets had risen to
record new levels, particularly the equity markets. Many of the world's leading
stock market indices, such as the Dow Jones Industrial Average (DJIA) in the
U.S., the DAX in Germany, the FTSE 100 in Great Britain and the CAC 40 in
France, achieved unprecedented highs.
This rise in the world's stock markets, which had continued unabated for six
years, saw a sizeable correction, mostly during the last two months of Deutsche
Funds' fiscal year. To put this correction in perspective, the DAX fell 17.63%,
while the CAC 40 fell 13.13%. The FTSE 100 fell 10.00%. U.S. stocks fared even
worse, relative to other world equity markets, falling 15.78% as measured by the
DJIA.
The reasons for this decline are now well known. Japan's economic situation, as
well as most of Asia's, led to a period of great volatility by the Funds' fiscal
year-end. The situation was compounded by the devaluation of Russia's currency,
which had a serious effect on the Russian economy. While the Deutsche Funds had
no exposure whatsoever to Russian paper, the performance of the Funds was not
immune to the impact of these economic situations elsewhere in the world.
Very few mutual fund investments can look good in down-markets. The Deutsche
Bank Mutual Fund Group has staked its reputation for 42 years on being among
those few. We have always felt that conserving capital in difficult markets
should be one of our primary concerns.
During such times, it's worth reiterating why investing internationally
continues to make sense. Foreign investing does involve special risks, including
currency risk, increased volatility of foreign securities and differences in
auditing and other financial standards. Also, 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 that are based on only a few commodities or industries,
and securities markets trading infrequently or in low volumes. Nevertheless,
international investments are where we believe future economic growth will
mainly reside. Furthermore, by diversifying internationally, the investor is
able to absorb occasional economic downturns that may occur in certain regions,
but which might not affect other regions to the same extent.
The following pages provide you with investment reviews from each of the
Deutsche Funds' portfolio managers. They detail the events that took place in
their respective markets, and the relative impact on the Funds' portfolio
performance. These investment reviews include a synopsis of the Funds' major
buy-and-sell decisions. You are also able to see in graphic form the performance
of each Deutsche Fund, relative to its relevant benchmark index.
So far, the Funds have done well compared to their benchmarks. This underscores
the strength of our global expertise, with over 300 investment professionals
around the world.
With so many international funds to choose from, the Deutsche Funds are
gratified you have looked to us for your international equity or fixed income
investments. We will keep you up-to-date on the details of your investment on a
regular basis, combined with the highest level of service possible.
Sincerely,
/s/ Brian A. Lee
Brian A. Lee
President
Deutsche Funds, Inc.
October 30, 1998
The Deutsche Funds are not obligations or deposits of any bank and are not
insured.
INVESTMENT REVIEW
Deutsche Top 50 World
Since its launch on October 1, 1997, Deutsche Top 50 World Class A Shares closed
the fiscal year down 1.20% (before sales charge), ** amid high volatility in the
global financial markets. Over the same period, the fund's benchmark index, the
MSCI World Index* closed down 3.25%. From its twelve month-low on October 27,
1997 of $23.11 per share to the year-high on July 20, 1998 of $30.95 per share,
the fund's Class A Shares returned 33.9% fiscal intra-year high (before sales
charge). During August 1998, ongoing currency turmoil in emerging markets
world-wide, most recently in Russia, the increased risk of a broad based
economic slowdown and weakness in the U.S. dollar, contributed to a major
correction of stock prices in Europe and the U.S.
In spite of the prevailing economic uncertainty, or rather, as a result thereof,
Deutsche Top 50 World's investment strategy has proven to be sound. The fund is
fundamentally focused on highly capitalized global players which participate in
five major global growth trends:
. Population growth in the emerging markets;
. Aging of the population in industrial nations (healthcare);
. Rapidly growing demand for information and communication technology;
. Increasing consumption of brand name products; and
. Rising energy consumption.
While focusing on these trends, the fund selects a maximum of 50 stocks, at any
one time, according to strict criteria, in order to filter out long-term
investment opportunities with strong earnings and price potential. In addition
to good positioning within the respective trends, companies must fulfill
criteria such as superior management quality, strong market position, solid
financials and, above all, clear strategic goals. The company's location is of
secondary importance.
Observing the breadth of the U.S. market over the past year, we saw these large-
cap, well-managed blue-chip companies with a strong domestic base, outperform
the market at the expense of mid- and small-cap stocks. For example, the
Russell-2000 Small Stock Index,*** was down 26.5% during the same time period.
In the first half of 1998, we favored technology and pharmaceuticals while
underweighting energy stocks. During the summer weakness, however, we
selectively reduced our technology exposure while increasing our positions in
energy stocks, for cyclical reasons.
From a geographical asset allocation standpoint, the fund has maintained a small
position in Asia (always under 10% of fund assets, currently 5.1%),
* MSCI World Index is created by selecting companies within the market
capitalization range of USD 200-800 million. The dollar-denominated range is
applied across all 23 developed markets. This index is unmanaged and
investments cannot be made in an index.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Total return for Class A Shares for the fiscal period
ended August 31, 1998, based on offering price was (6.65)%. Total return for
Class B Shares for the fiscal period ended August 31, 1998, based on net
asset value and redemption value was (11.36)%, and (15.79)%, respectively.
*** Russell 2000 Small Stock Index is an unmanaged index consisting of
approximately 2000 small capitalization common stocks and is a
trademark/service mark of Frank Russell Company. Investments cannot be made
in an index.
and overweight positions relative to the benchmark index in Europe and the U.S.
(currently 40.1% and 55.9%, respectively).
Liquidity has varied between 0% and 15%. During the declining market phase at
the fund's launch in the fourth quarter of 1997, the fund was invested slowly,
maintaining a high level of liquidity. In January 1998, the fund was invested
fully until the end of the second quarter of 1998, when we selectively started
taking profits. We used the weakness in August to buy back some of our positions
and closed the year fully invested.
The following stocks were purchased and sold during the year: Bayer for Pfizer,
LVMH for America Online, Hoechst for SmithKline Beecham, Eastman Kodak for
American Express, Canon for Ericsson, Boeing for WorldCom, Mobil for Haliburton,
Toyota for AXA-UAP, Johnson & Johnson for Bristol-Myers, Carrefour for SAP, and
News Corp. for Fujitsu.
Deutsche Top 50 Europe
Since the inception of Deutsche Top 50 Europe in October 1997, prices rose
strongly in the European and international equity markets. Following significant
corrections in the fall of 1997, and amid the uncertainty in the Asian markets,
the markets were able to gain momentum. This momentum was perpetuated by rising
corporate profits, continued low inflation and interest rates, and a strong
decline in oil prices. Additionally, the positive financial and economic effects
resulting from the upcoming introduction of the single European currency, the
Euro, has helped to draw special attention and investment in European equities.
The momentum that was experienced throughout most of 1998, however, lost steam
most recently, due to the ongoing currency turmoil in the world's emerging
markets, especially in Russia, and the fear of a major economic slowdown. As a
result, stock prices in Europe, and the rest of the world, have seen major
corrections.
However, given the current situation, our long-term outlook on European equities
remains positive, especially as interest rates stay low, and corporate
restructuring continues to take place.
With respect to the fund itself, we are targeting companies which are
well-positioned to take advantage of the introduction of the single European
currency. We are focusing on stocks which meet our high standards in terms of
management quality, earnings growth and shareholder-oriented information
policies.
With the approach of the European Monetary Union ("EMU"), and the associated
growing importance of the European equity markets, the fund increased the
weighting of stocks across Europe and reduced its allocation of German stocks.
Deutsche Top 50 Europe has concentrated on companies which stand out through
their restructuring potential in conjunction with their strong value-oriented
management strategies. The fund increased its overall holdings in the financial
sector, due to significant restructuring potential over the next few years, in
the form of mergers, as well as internal strategy changes.
The fund bought large positions in the second largest European insurance
company, AXA-UAP of France, and Austria's largest bank, Bank Austria.
Among German equity positions, the fund maintains its holding in SAP. As
Europe's leading software producer, SAP has recorded strong growth over the past
several years and is likely to gain momentum from new business arising from the
transition of the Euro. The holding of SAP, which was by far the single largest
position in the portfolio, has provided above average returns versus the market.
Our second largest German position, the cellular telecommunications provider,
Mannesmann, benefited from promising telecommunications activity both in Germany
and abroad, made large contributions to the fund's positive results.
In France, the fund expanded its position in Alcatel. After the flotation of GEC
Alsthom in June 1998, and the finalization of the defense deal with Thomson-CSF,
Alcatel emerges as a potentially successful, broadly-based telecoms equipment
company. We also increased weightings in the utility sector and added Suez
Lyonnaise des Eaux to the portfolio.
During the fiscal year, the fund's investment ratio varied. Against a backdrop
of Asian-related market uncertainty, the fund maintained cash at nearly 20% at
the end of 1997. With improvement in the investment outlook, the investment
ratio was raised significantly during the first quarter of 1998. At the end of
March 1998, the fund was again fully invested in equities. From the end of July
and onward, we gradually reduced our investment ratio to just below 90% due to
the problems in the Russian market.
Value-oriented management concepts are increasingly being implemented by German
and other European companies. Taking that into consideration, in addition to the
introduction of the EMU, which will become the second-largest equity market in
the world, leaves us to believe that Deutsche Top 50 Europe offers attractive
investment opportunities.
Deutsche Top 50 Asia
Since inception of Deutsche Top 50 Asia in October, 1997, the Asian markets have
been hit hard by a deepening currency crisis and economic weakness. In countries
such as Indonesia and Malaysia, the crisis has also led to political uncertainty
and, in the case of Indonesia, to the collapse of the Suharto government earlier
in the year.
The Korean government has been able to introduce a series of reforms that has
lately led to a stabilization of the Korean won at levels considerably higher
than those seen at the beginning of the year.
The Japanese market continued to be negatively impacted by the financial
difficulties of the banking system. Malaysia has, on the other hand, tried to
stabilize its currency by introducing capital controls at the end of August and
essentially cut off its markets from the outside world.
In the longer term, a recovery in the region depends to a great degree on
Japanese growth rates picking up again. Though the government has increased
government spending, the expected positive effects have failed to compensate for
the dampening effect of the banking crisis. A possible devaluation of the
Chinese currency would further destabilize the region.
Deutsche Top 50 Asia has been able to minimize the negative developments of the
region's stock markets through a very careful selection of stocks, and by
preemptively reducing positions as the various situations threatened. Positions
in Indonesia and Malaysia make up approximately 4% of the fund, and the
companies in these countries were chosen for their competitiveness in a weak
currency environment.
Japan, Korea and Taiwan make up around 46% of the fund. Companies in these
countries also concentrate on export-oriented names such as Bridgestone and Sony
in Japan, Taiwan Semiconductor in Taiwan, and Samsung Electronics in Korea.
Stable and defensive companies make up another important grouping with such
names as NTT and Takeda Chemical in Japan, and Korea Electric Power in Korea.
Australian securities comprising approximately 10% of the fund, have fared
relatively well despite the Asian environment, although currency and commodity
prices have been negatively affected. The major positions in Australia are in
the financial sector (such as AMP and ANZ Bank), which are benefiting from
ongoing restructuring.
Hong Kong and Singapore securities make up just over 20% of the fund. Companies
in these two countries (such as HSBC and Cathay Pacific in Hong Kong, and DBS
Bank and Singapore Air in Singapore) have been chosen based on their healthy
balance sheets and proven management capabilities.
Deutsche Top 50 US
In mid-July 1998, Deutsche Top 50 US and the Standard & Poor's 500 Index (the
"S&P 500")* had gained more than 20% for the year, yet we had forecast that
earnings for the S&P 500 would improve only about 3%. During the ensuing seven
weeks, the S&P 500 declined 18% and is now up about 1% for the calendar year
through August 31. The earnings forecast is still about the same.
It is apparent that global stock markets, including the U.S., are currently
being buffeted by the spreading economic malaise that started in Asia and is now
reaching other parts of the world. Investors are increasingly worried about the
safety of their capital and are primarily seeking safety in sovereign bonds in
the developed world. There is a huge differential today between the cost of
capital in emerging countries versus Germany or the U.S. equity investors are
also currently reducing their exposure to stocks, preferring bonds or money
market accounts. Even the most competitive U.S. companies' share prices have
felt the impact of this tidal shift. Deutsche Top 50 US which focuses on these
kinds of companies has returned 0.96%** (before sales charge) on Class A Shares
for the period from inception (October 2, 1997) to fiscal year end while earlier
it was up to 23%.
Our belief is that in the future, investors will increasingly want to hold
equity positions in the strongest and most dynamic businesses in a very
competitive world. Right now stockholders' confidence is still sliding and
valuations are not cheap. Fortunately, interest rates are trending down and this
will improve the valuation structure going forward in time.
The first half of the calendar year ended with another strong quarter of
performance on top of the already very impressive first quarter. Deutsche Top 50
US performed well relative to the S&P 500, with most of the performance in the
second quarter coming in the second half of June.
The top performing S&P 500 sectors in the second calendar quarter were
healthcare (8.6%), consumer cyclicals (7.2%), technology (7.1%), consumer
staples (4.4%) and financials (2.7%). Of these sectors, the fund outperformed
the S&P 500, except for financials. The other six S&P 500 sectors all had
negative returns for the quarter, making sector allocation ever more crucial.
The continued narrowing of the market was a sign of things to come in July and
August. The largest 30
* The S&P 500 in an index consisting of common stocks of industrial, utility,
transportation, and financial companies in the U.S. market. This index is
unmanaged, and investments cannot be made in an index.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Total return for Class A Shares for the fiscal period ended
August 31, 1998, based on offering price was (4.59)%. Total return for Class
B Shares for the fiscal period ended August 31, 1998, based on net asset
value and redemption value was (12.32)% and (16.70)%, respectively.
stocks in the S&P 500, which accounted for half of the Index's return at the end
of the second calendar quarter, also were overcome by the increasingly negative
sentiment. Fortunately, our portfolio was overweighted, or at least market
weighted, in the strongest sectors.
Portfolio activity during July and August was low. Currently, the portfolio
continues to be heavily weighted in technology stocks, which is still the most
vibrant sector of the U.S. economy. The most recent addition was the software
solutions provider PeopleSoft, which adds to our already very diversified
technology sector weighting. The top performers for the year in the fund
continue to be technology stocks, including Lucent, Symbol Technologies, EMC and
Cisco. Our exposure to the healthcare sector was also increased by adding
Warner-Lambert to our commitments in Pfizer, Johnson & Johnson, Merck, and
Medtronic. Our modest exposure to the energy sector was completely eliminated
due to continued oil price erosion. On the telecommunication front, we added
WorldCom and Airtouch to the portfolio, after taking profits in AT&T. Consumer
retail stocks have also fared well so far this year, due to continued strong
consumer demand in the U.S., combined with the domestic nature of companies such
as Home Depot, Staples and WalMart, which were virtually isolated from the
negative impact on earnings coming largely from Asia.
Looking forward, we are confident that the Deutsche Top 50 US investment style
is well positioned to weather the very volatile current market conditions. It is
more critical than ever to own those companies which possess leading competitive
edge or "bulldog" characteristics within their respective industries. Investors
understand the highly competitive conditions that prevail in business today.
They believe that the probabilities of long-term investment success are best
when holding shares of companies whose management is dedicated to gaining market
share by product or service innovation and cost efficiency.
Deutsche Top 50 World--Class A
Growth of $10,000 Invested in Deutsche Top 50 World
The graph below illustrates the hypothetical investment of $10,000* in Class A
Shares of the Deutsche Top 50 World (the "Fund") from October 2, 1997
(commencement of operations) to August 31, 1998, compared to the MSCI World
Index.+
[Graphic representation omitted. Please see Appendix 18.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
COMMENCEMENT OF OPERATIONS (10/2/97) (CUMULATIVE)......(6.65)%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 5.5% ($10,000 investment minus $550 sales charge
= $9,450). The Fund's performance assumes the reinvestment of all dividends
and distributions. The MSCI World Index has been adjusted to reflect
reinvestment of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges.
+ The MSCI World Index is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
The index is unmanaged and investments cannot be made in an index.
Deutsche Top 50 World--Class B
Growth of $10,000 Invested in Deutsche Top 50 World
The graph below illustrates the hypothetical investment of $10,000* in Class B
Shares of the Deutsche Top 50 World (the "Fund") from May 4, 1998 (inception
date) to August 31, 1998, compared to the MSCI World Index.+
[Graphic representation omitted. Please see Appendix 19.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
INCEPTION DATE (5/4/98) (CUMULATIVE)................(15.79)%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 5.00% contingent deferred sales charge imposed on any
redemption occurring within one year from the purchase date. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
MSCI World Index has been adjusted to reflect reinvestment of dividends on
securities in the index.
** Total return quoted reflects all applicable sales charges.
+ The MSCI World Index is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
The index is unmanaged, and investments cannot be made in an index.
Deutsche Top 50 Europe--Class A
Growth of $10,000 Invested in Deutsche Top 50 Europe
The graph below illustrates the hypothetical investment of $10,000* in Class A
Shares of the Deutsche Top 50 Europe (the "Fund") from October 2, 1997
(commencement of operations) to August 31, 1998, compared to the MSCI Europe
Index.+
[Graphic representation omitted. Please see Appendix 20.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
Commencement of Operations (10/2/97) (cumulative)..........(1.49)%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 5.5% ($10,000 investment minus $550 sales charge
= $9,450). The Fund's performance assumes the reinvestment of all dividends
and distributions. The MSCI Europe Index has been adjusted to reflect
reinvestment of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges.
+ The MSCI World Index is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
The index is unmanaged, and investments cannot be made in an index.
Deutsche Top 50 Europe--Class B
Growth of $10,000 Invested in Deutsche Top 50 Europe
The graph below illustrates the hypothetical investment of $10,000* in Class B
Shares of the Deutsche Top 50 Europe (the "Fund") from March 30, 1998 (inception
date) to August 31, 1998, compared to the MSCI Europe Index.+
[Graphic representation omitted. Please see Appendix 21.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
INCEPTION DATE (3/30/98) (CUMULATIVE)..............(11.46)%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 5.00% contingent deferred sales charge imposed on any
redemption occurring within one year from the purchase date. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
MSCI Europe Index has been adjusted to reflect reinvestment of dividends on
securities in the index
** Total return quoted reflects all applicable sales charges.
+ The MSCI Europe Index is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
The index is unmanaged, and investments cannot be made in an index.
Deutsche Top 50 Asia--Class A
Growth of $10,000 Invested in Deutsche Top 50 Asia
The graph below illustrates the hypothetical investment of $10,000* in Class A
Shares of the Deutsche Top 50 Asia (the "Fund") from October 14, 1997
(commencement of operations) to August 31, 1998, compared to the MSCI Pacific ex
Japan Index and the MSCI Pacific Index.+
[Graphic representation omitted. Please see Appendix 22.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
COMMENCEMENT OF OPERATIONS (10/14/97) (CUMULATIVE)..........(38.17)%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations or
guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 5.5% ($10,000 investment minus $550 sales charge
= $9,450). The Fund's performance assumes the reinvestment of all dividends
and distributions. The MSCI Pacific ex Japan Index and the MSCI Pacific Index
have been adjusted to reflect reinvestment of dividends on securities in the
indices.
** Total return quoted reflects all applicable sales charges.
+ The MSCI Pacific ex Japan Index and the MSCI Pacific Index are not adjusted
to reflect sales charges, expenses, or other fees that the SEC requires to be
reflected in the Fund's performance. The MSCI Pacific Index is an arithmetic,
market value weighted average of the performance of 508 securities listed on
the stock exchanges of the following countries: Australia, China Free, Hong
Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore,
Taiwan and Thailand. The MSCI Pacific ex Japan Index is an arithmetic, market
value weighted average of the performance of securities listed on the stock
exchanges of the following countries: Australia, China Free, Hong Kong,
Indonesia, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan and
Thailand. This index excludes Japan. The indices are unmanaged, and
investments cannot be made in an index.
Deutsche Top 50 Asia--Class B
Growth of $10,000 Invested in Deutsche Top 50 Asia
The graph below illustrates the hypothetical investment of $10,000* in Class B
Shares of the Deutsche Top 50 Asia (the "Fund") from May 5, 1998 (inception
date) to August 31, 1998, compared to the MSCI Pacific ex Japan Index and the
MSCI Pacific Index.+
[Graphic representation omitted. Please see Appendix 23.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
INCEPTION DATE (5/5/98) (CUMULATIVE)..................(29.47)%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 5.00% contingent deferred sales charge imposed on any
redemption occurring within one year from the purchase date. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
MSCI Pacific ex Japan Index and the MSCI Pacific Index have been adjusted to
reflect reinvestment of dividends on securities in the indices.
** Total return quoted reflects all applicable sales charges.
+ The MSCI Pacific ex Japan Index and the MSCI Pacific Index are not adjusted
to reflect sales charges, expenses, or other fees that the SEC requires to be
reflected in the Fund's performance. The MSCI Pacific Index is an arithmetic,
market value weighted average of the performance of 508 securities listed on
the stock exchanges of the following countries: Australia, China Free, Hong
Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore,
Taiwan and Thailand. The MSCI Pacific ex Japan Index is an arithmetic, market
value weighted average of the performance of securities listed on the stock
exchanges of the following countries: Australia, China Free, Hong Kong,
Indonesia, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan and
Thailand. This index excludes Japan. The indices are unmanaged, and
investments cannot be made in an index.
Deutsche Top 50 US--Class A
Growth of $10,000 Invested in Deutsche Top 50 US
The graph below illustrates the hypothetical investment of $10,000* in Class A
Shares of the Deutsche Top 50 US (the "Fund") from October 2, 1997 (commencement
of operations) to August 31, 1998, compared to the S & P 500 Index.+
[Graphic representation omitted. Please see Appendix 24.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
COMMENCEMENT OF OPERATIONS (10/2/97) (CUMULATIVE).............(4.59)%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 5.5% ($10,000 investment minus $550 sales charge
= $9,450). The Fund's performance assumes the reinvestment of all dividends
and distributions. The S & P 500 Index has been adjusted to reflect
reinvestment of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges.
+ The S & P 500 Index is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
The index is unmanaged, and investments cannot be made in an index.
Deutsche Top 50 US--Class B
Growth of $10,000 Invested in Deutsche Top 50 US
The graph below illustrates the hypothetical investment of $10,000* in Class B
Shares of the Deutsche Top 50 US (the "Fund") from March 18, 1998 (inception
date) to August 31, 1998, compared to the S & P 500 Index.+
[Graphic representation omitted. Please see Appendix 25.]
TOTAL RETURN** FOR THE PERIOD ENDED AUGUST 31, 1998
INCEPTION DATE (3/18/98) (CUMULATIVE)..................(16.70)%
Past performance is not indicative of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 5.00% contingent deferred sales charge imposed on any
redemption occurring within one year from the purchase date. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
S & P 500 Index has been adjusted to reflect reinvestment of dividends on
securities in the index.
** Total return quoted reflects all applicable sales charges.
+ The S & P 500 Index is not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
The index is unmanaged, and investments cannot be made in an index.
STATEMENTS OF ASSETS AND LIABILITIES
Deutsche Funds, Inc.
August 31, 1998
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche
Top 50 Top 50 Top 50 Top 50
World Europe Asia US
<S> <C> <C> <C> <C>
Assets:
Investment in corresponding Deutsche Portfolio, at value $258,001 $4,318,606 $ 79,271 $2,469,432
Receivable from Manager for expense reimbursement 45,281 43,813 43,308 58,827
Receivable for capital shares sold 24 271,210 -- 243,728
Receivable from corresponding Deutsche Portfolio for withdrawals -- -- 60,417 --
Foreign tax reclaim receivable -- 1,794 -- --
Deferred organization costs 10,283 10,283 10,366 10,283
Total assets 313,589 4,645,706 193,362 2,782,270
Liabilities:
Payable for capital shares redeemed -- 16,072 60,417 93,524
Payable to corresponding Deutsche Portfolio for contributions 24 253,928 -- 150,203
Transfer Agent fees payable 11,916 11,929 11,711 12,226
Distribution fees payable 133 2,485 108 888
Organization costs payable 12,339 12,339 12,339 12,339
Accrued expenses and other liabilities 18,740 20,415 18,660 20,235
Total liabilities 43,152 317,168 103,235 289,415
Net assets $270,437 $4,328,538 $ 90,127 $2,492,855
Net Assets Consist of:
Capital stock, $0.001 par value (authorized 250,000,000
shares for each Fund) 23 361 10 203
Paid-in capital 304,960 4,898,578 113,728 2,686,432
Undistributed (accumulated) net investment income (loss) (212) (2,530) 757 --
Undistributed (accumulated) net realized gain (loss) on
investments and foreign currency transactions 5,249 (794) (9,365) (25,165)
Net unrealized depreciation of investments and foreign currency (39,583) (567,077) (15,003) (168,615)
Net assets $270,437 $4,328,538 $ 90,127 $2,492,855
Computation of Net Asset Value, Redemption Price and
Offering Price Per Share:
Net assets--Class A $180,843 $1,208,144 $ 40,578 $2,056,425
Shares outstanding--Class A 14,642 92,705 4,960 162,942
Net asset value and redemption price per share--Class A $ 12.35 $ 13.03 $ 8.18 $ 12.62
Offering price per share--Class A $ 13.07 $ 13.79 $ 8.66 $ 13.35
Net assets--Class B $ 89,594 $3,120,394 $ 49,549 $ 436,430
Shares outstanding--Class B 8,089 267,845 5,337 39,817
Net asset value, offering price and redemption price per
share--Class B $ 11.08 $ 11.65 $ 9.28 $ 10.96
</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 to August 31, 1998(a)
<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 corresponding
Deutsche Portfolio:
Dividend income $ 1,517 $ 13,001 $ 774 $ 9,717
Less: Foreign withholding taxes (175) (1,195) (117) --
Net dividend income 1,342 11,806 657 9,717
Interest income 196 4,494 151 4,648
Expenses (3,394) (22,613) (999) (42,910)
Net investment loss allocated from corresponding Deutsche Portfolio (1,856) (6,313) (191) (28,545)
Expenses:
Legal and audit fees 13,994 13,994 13,993 13,994
Accounting fees 17,230 17,463 16,556 17,543
Directors' fees and expenses 481 481 481 481
Administration fees 226 700 197 1,064
Reports to Shareholders 15,246 14,896 14,898 14,899
Transfer agent fees 27,398 26,890 26,598 28,133
Registration fees 35,246 36,033 34,783 35,491
Amortization of organization costs 2,305 2,305 2,222 2,305
Service fees--Class A 193 722 48 3,014
Service fees--Class B(b) 33 1,327 64 430
Distribution fees--Class B(b) 98 4,019 192 1,292
Total expenses 112,450 118,830 110,032 118,646
Less: Expense reimbursement (114,297) (124,129) (110,121) (139,543)
Net expense reimbursement in excess of total expenses (1,847) (5,299) (89) (20,897)
Net investment loss (9) (1,014) (102) (7,648)
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency
allocated from corresponding Deutsche Portfolio:
Net realized gain (loss) on:
Investments 8,631 17,665 (20,552) (27,910)
Foreign currency transactions (241) (2,508) 2,192 --
Net change in unrealized appreciation/depreciation on:
Investments (39,634) (567,354) (15,092) (168,615)
Foreign currency translations 51 277 89 --
Net Realized and Unrealized Loss on Investments and Foreign
Currency allocated from corresponding Deutsche Portfolio (31,193) (551,920) (33,363) (196,525)
Net Decrease in Net Assets Resulting from Operations $ (31,202) $(552,934) $ (33,465) $(204,173)
(a) Commencement of operations: 10/2/97 10/2/97 10/14/97 10/2/97
(b) Inception date: 5/4/98 3/30/98 5/5/98 3/18/98
The accompanying notes are an integral part of the financial statements.
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
Deutsche Funds, Inc.
For the period from Commencement of Operations to August 31, 1998(a)
<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 loss $ (9) $ (1,014) $ (102) $ (7,648)
Net realized gain (loss) on investments and foreign currency
transactions allocated from corresponding Deutsche Portfolio 8,390 15,157 (18,360) (27,910)
Net change in unrealized appreciation/depreciation on investments
and foreign currency translations allocated from corresponding
Deutsche Portfolio (39,583) (567,077) (15,003) (168,615)
Net decrease in net assets resulting from operations (31,202) (552,934) (33,465) (204,173)
Capital Share Transactions: Class A
Net proceeds from shares sold 197,213 1,500,448 43,445 2,396,342
Net cost of shares redeemed (8,458) (148,736) (3,711) (218,521)
Net increase in net assets resulting from capital share
transactions--Class A 188,755 1,351,712 39,734 2,177,821
Capital Share Transactions: Class B(b)
Net proceeds from shares sold 101,772 3,652,990 160,659 601,621
Net cost of shares redeemed -- (134,341) (87,912) (93,525)
Net increase in net assets resulting from capital share
transactions--Class B 101,772 3,518,649 72,747 508,096
Total increase in net assets 259,325 4,317,427 79,016 2,481,744
Net Assets:
Beginning of period 11,112 11,111 11,111 11,111
End of period(c) $270,437 $4,328,538 $90,127 $2,492,855
Capital Shares -- Class A
Shares outstanding, beginning of period 889 889 889 889
Shares sold 14,360 102,366 4,424 177,430
Shares redeemed (607) (10,550) (353) (15,377)
Shares outstanding, end of period 14,642 92,705 4,960 162,942
Capital Shares -- Class B(b)
Shares outstanding, beginning of period -- -- -- --
Shares sold 8,089 278,086 14,351 47,729
Shares redeemed -- (10,241) (9,014) (7,912)
Shares outstanding, end of period 8,089 267,845 5,337 39,817
(a) Commencement of operations: 10/2/97 10/2/97 10/14/97 10/2/97
(b) Inception date: 5/4/98 3/30/98 5/5/98 3/18/98
(c) Includes undistributed (accumulated) net investment
income (loss) of: $ (212) $ (2,530) $ 757 $ --
The accompanying notes are an integral part of the financial statements.
</TABLE>
FINANCIAL HIGHLIGHTS
Deutsche Funds, Inc.
For the period from Commencement of Operations to August 31, 1998(a)
<TABLE>
<CAPTION>
Selected data for a Class A share of common stock outstanding throughout the
period.
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) 0.01 0.02 0.01 (0.03)
Net realized and unrealized gain (loss) on investments and
foreign currency allocated from corresponding Deutsche Portfolio (0.16) 0.51 (4.33) 0.15
Increase (decrease) from investment operations (0.15) 0.53 (4.32) 0.12
Net asset value at end of period $12.35 $13.03 $8.18 $12.62
Total Return (based on net asset value)(c)* (1.20)% 4.24% (34.56)% 0.96%
Ratios and Supplemental Data:
Net assets, end of period (000's) $181 $1,208 $41 $2,056
Ratios to average net assets:
Expenses(b)** 1.60% 1.60% 1.60% 1.50%
Net investment income (loss)(b)** 0.13% 0.50% 0.15% (0.44)%
(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
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net investment
income (loss) to average net assets would have been as follows:
Expenses to average net assets** 127.49% 16.53% 247.05% 11.58%
Net investment loss to average net assets** (125.76)% (14.43)% (245.30)% (10.52)%
</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, reinvestment of distributions at net asset value
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.
FINANCIAL HIGHLIGHTS (CONTINUED)
Deutsche Funds, Inc.
For the period from Inception Date to August 31, 1998(a)
<TABLE>
<CAPTION>
Selected data for a Class B share of common stock outstanding throughout the
period.
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 loss (0.01) (0.01) (0.02) (0.06)
Net realized and unrealized loss on investments and
foreign currency allocated from corresponding Deutsche Portfolio (1.41) (0.84) (3.20) (1.48)
Decrease from investment operations (1.42) (0.85) (3.22) (1.54)
Net asset value at end of period $ 11.08 $ 11.65 $ 9.28 $ 10.96
Total Return (based on net asset value)(c)* (11.36)% (6.80)% (25.76)% (12.32)%
Ratios and Supplemental Data:
Net assets, end of period (000's) $ 90 $ 3,120 $ 50 $ 436
Ratios to average net assets:
Expenses(b)** 2.35% 2.35% 2.35% 2.25%
Net investment loss(b)** (0.84)% (0.46)% (0.51)% (1.35)%
(a) Inception date: 5/4/98 3/30/98 5/5/98 3/18/98
</TABLE>
(b) Includes the Fund's allocated portion of the corresponding Deutsche
Portfolio's expenses net of expense reimbursements. Had the Manager not
undertaken to reimburse such expenses, the ratios of expenses and net
investment loss to average net assets would have been as follows:
<TABLE>
<S> <C> <C> <C> <C>
Expenses to average net assets** 128.24% 17.28% 247.80% 12.33%
Net investment loss to average net assets** (126.73)% (15.39)% (245.96)% (11.43)%
</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
inception date, reinvestment of distributions at net asset value 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.
August 31, 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 seeks to achieve its respective investment objective by
investing substantially all of its assets in the corresponding portfolio of
Deutsche Portfolios (the "Portfolio Trust"), a New York business trust,
registered under the 1940 Act, having substantially the same investment
objective of each of the respective Funds. The Portfolio Trust is an open-end
management investment company and comprises ten portfolios (each a "Portfolio").
The financial statements of four of the corresponding Portfolios, including
their portfolios of investments, are included elsewhere within this report and
should be read in conjunction 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 Portfolios of the Portfolio Trust. Each
Portfolio is managed by Deutsche Fund Management, Inc. ("DFM" or the "Manager"),
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 costs. 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 during October 1997.
Note 2 -- Significant Accounting Policies
The Company prepares its financial statements in accordance with generally
accepted accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make certain estimates and assumptions that affect the reported amounts and
disclosures. Actual results could differ from those estimates. The following is
a summary of significant accounting policies followed by the Funds:
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 August
31, 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 World 2.63% Top 50 World Portfolio (US Dollar)
Top 50 Europe 22.99% Top 50 Europe Portfolio (US Dollar)
Top 50 Asia 0.44% Top 50 Asia Portfolio (US Dollar)
Top 50 US 17.24% Top 50 US Portfolio (US Dollar)
</TABLE>
Investment Income, Expenses, Realized and Unrealized Gains and Losses
The Funds record their proportionate share of the investment income, expenses,
realized and unrealized gains and losses recorded by the Portfolios on a daily
basis. The investment income, expenses, realized and unrealized gains and losses
are allocated daily to the 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), and realized and unrealized gains and losses allocated
from the Portfolio are further allocated to each Class of shares based on their
relative net asset value.
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. Accordingly, no
federal income and excise tax provision is required.
At August 31, 1998, the Top 50 US had a capital loss carryforward of $193, which
will expire in 2006 if not utilized. To the extent that this loss carryforward
is used to offset future capital gains, such capital gains so offset will not be
distributed to shareholders.
Capital losses incurred after October 31 are deemed to arise on the first
business day of the following fiscal year for tax purposes. The following Funds
have incurred and elected to defer their capital losses incurred after October
31, 1997:
<TABLE>
<CAPTION>
Foreign Currency Capital Loss
Fund Loss Deferred Deferred
<S> <C> <C>
Top 50 World $ 258 $ --
Top 50 Europe $2,530 $ 694
Top 50 Asia $ -- $ 9,064
Top 50 US $ -- $24,448
Distributions to Shareholders
</TABLE>
Dividends from net investment income of the 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 dividends and distributions to shareholders on ex-dividend
date.
Income and capital distributions are determined in accordance with federal
income tax regulations which may differ from generally accepted accounting
principles. 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. During the period ended
August 31, 1998, the following Funds reclassified permanent book and tax
differences to increase (decrease) the following accounts:
<TABLE>
<CAPTION>
Undistributed Net
Realized Gains
on Investments
and Foreign Currency Paid-in
Fund Investment Income Transactions Capital
<S> <C> <C> <C>
Top 50 World $ (203) $ (3,141) $ 3,344
Top 50 Europe $(1,516) $(15,951) $ 17,467
Top 50 Asia $ 859 $ 8,995 $ (9,854)
Top 50 US $ 7,648 $ 2,745 $(10,393)
</TABLE>
Deferred Organization Costs
Organization costs 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 costs 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 costs of the Fund.
Note 3--Significant Agreements and Transactions with Affiliates
The Company has retained the services of Federated Services Company
("Federated") as Administrator. Under the Administration Agreement, Federated
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
$200 million and 0.0525% of such assets in excess of $200 million for the Fund's
then current fiscal year. Federated in its capacity as Operations Agent for the
Portfolio Trust and Administrator of the Funds, receives a minimum aggregate fee
from each Fund, its corresponding Portfolio and any other funds investing in the
Portfolio Trust, taken together, 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
serves 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 any 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 and Federated Shareholder Services
Company are both affiliated with Edgewood. IBT Fund Services (Canada) Inc.
provides 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 2.35% of
the average daily net assets of Class A Shares and of Class B Shares of the
Equity Funds respectively, with the exception of the Deutsche Top 50 US for
which DFM has voluntarily agreed to maintain its expenses at 1.50% and 2.25% of
average daily net assets for Class A and Class B, respectively.
For the period ended August 31, 1998, DFM voluntarily reimbursed the following
expenses pursuant to this undertaking:
<TABLE>
<CAPTION>
Portfolio Fund Total
<S> <C> <C> <C>
Top 50 World $ 1,847 $112,450 $114,297
Top 50 Europe $ 5,299 $118,830 $124,129
Top 50 Asia $ 89 $110,032 $110,121
Top 50 US $20,897 $118,646 $139,543
</TABLE>
Note 4--Concentration of Ownership
From time to time the Funds may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the Funds and the Portfolios.
At August 31, 1998, affiliates of Deutsche Bank AG owned 25.1% of the Top 50
World Fund.
Note 5--Subsequent Event
On September 1, 1998, the Top 50 Europe and the Top 50 US commenced an offering
of Class C Shares to the public.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Deutsche Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Deutsche Top 50 World, Deutsche Top 50 Europe, Deutsche Top 50 Asia, and
Deutsche Top 50 US (four of the eleven funds constituting Deutsche Funds, Inc.,
hereafter referred to as the "Funds") at August 31, 1998, and the results of
each of their operations, the changes in each of their net assets and the
financial highlights for each of the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036
October 16, 1998
PORTFOLIO OF INVESTMENTS
Top 50 World Portfolio (US Dollar)
August 31, 1998
<TABLE>
<CAPTION>
Market
Shares Description Value
<S> <C> <C>
Common Stocks--98.1%
France--9.6%
3,800 Axa $456,321
1,900 Elf-Aquitaine 194,097
230 L'OREAL 128,761
1,600 Total SA - B 160,474
Total 939,653
Germany--1.6%
14 SAP AG 7,265
1,600 Schering AG 154,256
Total 161,521
Italy--0.9%
17,000 ENI SpA 88,901
Japan--3.4%
17,000 Fujitsu Ltd. 172,289
2,200 Sony Corp. 160,751
Total 333,040
</TABLE>
<TABLE>
<C> <S> <C>
Netherlands--7.1%
16,900 Elsevier NV 208,081
3,500 Royal Dutch Petroleum Co. 155,137
4,800 Unilever NV 331,442
Total 694,660
Singapore--1.7%
39,100 Singapore Airlines Ltd. 167,273
Sweden--2.4%
10,000 Telefonaktiebolaget LM Ericsson 233,079
Switzerland--5.6%
155 Nestle SA 287,470
124 Novartis AG 192,847
70 Roche Holding AG 72,440
Total 552,757
United Kingdom--9.9%
16,500 British Petroleum Co. plc 212,099
6,000 Glaxo Wellcome plc 181,148
10,000 HSBC Holdings plc (Hong Kong Dollars) 212,280
17,073 Reuters Group plc 142,896
19,000 SmithKline Beecham plc 225,312
Total 973,735
United States--55.9%
4,800 Abbott Laboratories 184,800
1,800 America Online, Inc.* 147,488
2,300 American Express Co. 179,400
2,600 Bristol-Myers Squibb Co. 254,475
2,000 Chevron Corp. 148,125
5,400 Chrysler Corp. 240,975
825 Cisco Systems, Inc.* $ 67,547
1,900 Citicorp 205,435
2,800 Coca-Cola (The) Co. 182,350
2,800 Colgate-Palmolive Co. 201,950
3,000 Exxon Corp. 196,313
4,400 Gillette Co. 180,950
6,800 Halliburton Co. 180,625
3,800 Intel Corp. 270,513
1,500 International Business Machines Corp. 168,938
3,700 Lucent Technologies, Inc. 262,238
3,200 McDonald's Corp. 179,400
5,800 Medtronic, Inc. 297,975
1,700 Merck & Co., Inc. 197,094
2,000 Microsoft Corp.* 191,875
2,400 Monsanto Co. 131,250
2,900 Pfizer, Inc. 269,700
5,100 Philip Morris Co., Inc. 211,969
3,600 Procter & Gamble (The) Co. 275,400
</TABLE>
<TABLE>
<S> <C> <C>
4,100 Schlumberger Ltd. 179,631
1,900 Texaco, Inc. 105,569
5,700 Walt Disney (The) Co. 156,394
5,000 MCI WorldCom, Inc.* 204,688
Total 5,473,067
Total Common Stocks (Cost--$10,418,988) 9,617,686
Preferred Stocks--3.0%
Germany--3.0%
510 SAP AG 289,230
Total Preferred Stocks (Cost--$199,707) 289,230
Total Investments--101.1% (Cost--$10,618,695) 9,906,916
Liabilities in excess of other assets--(1.1%) (105,665)
Total Net Assets--100.0% $9,801,251
</TABLE>
Notes to the Portfolio of Investments:
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
Industry sector diversification of the Top 50 World Portfolio's investments as a
percentage of net assets as of August 31, 1998 was as follows:
Percentage of
Industry Sector Net Assets
Pharmaceuticals 17.7%
Oil & Gas 13.1%
Beverages, Food & Tobacco 10.4%
Computer Software & Processing 8.2%
Cosmetics & Personal Care 8.0%
Financial Services 6.1%
Banking 6.1%
Communications 5.1%
Electronics 4.4%
Medical Supplies 3.1%
Automotive 2.5%
Computers & Information 2.4%
Media -- Broadcasting & Publishing 2.1%
Telephone Systems 2.1%
Commercial Services 1.8%
Restaurants 1.8%
Airlines 1.7%
Electric Utilities 1.6%
Entertainment & Leisure 1.6%
Chemicals 1.3%
Total 101.1%
The accompanying notes are an integral part of the financial statements.
PORTFOLIO OF INVESTMENTS
Top 50 Europe Portfolio (US Dollar)
August 31, 1998
<TABLE>
<CAPTION>
Market
Shares Description Value
<C> <S> <C>
COMMON STOCKS--86.9%
Austria--1.1%
3,800 Bank Austria AG $ 208,328
Denmark--0.9%
1,870 Coloplast A/S - B Shares 165,672
France--25.7%
5,500 Alcatel Alsthom 888,372
22,000 Alstom* 513,488
5,750 Axa 690,486
3,000 Elf-Aquitaine 306,469
1,750 Groupe Danone 475,645
1,602 L'Air Liquide 221,909
4,300 Paribas 373,818
4,500 Suez Lyonnaise des Eaux 745,877
1,230 Total SA - B Shares 123,364
2,400 Vivendi 491,163
Total 4,830,591
Germany--27.9%
3,002 Altana AG 190,679
8,582 BASF AG 343,124
9,461 Bayer AG 355,197
70 Buderus AG 31,759
2,113 Deutsche Pfandbrief-und Hypothekenbank AG 159,377
2,036 Duerr AG 66,970
4,372 Fresenius Medical Care AG 215,711
6,265 Gehe AG 384,790
14,602 Hoechst AG 597,893
7,040 Mannesmann AG 634,810
559 Rhoen-Klinikum AG 52,308
1,274 SAP AG 661,096
3,967 Schering AG 382,459
3,208 SGL Carbon AG 283,813
7,793 Siemens AG 506,039
7,462 Veba AG 376,126
Total 5,242,151
Italy--1.0%
34,900 ENI SpA 182,509
Netherlands--6.4%
</TABLE>
<TABLE>
<S> <C> <C>
13,420 Elsevier NV 165,234
10,071 ING Groep NV 593,171
8,024 Koninklijke Ahold NV 235,899
2,706 Unilever NV 186,850
148 Wolters Kluwer NV 24,440
Total 1,205,594
Norway--1.8%
12,400 Tomra Systems ASA 334,698
Sweden--7.3%
10,480 AGA AB-A 145,782
25,260 AGA AB-B 345,133
10,830 Getinge Indutrier AB-B 184,799
4,245 Hoganas AB-B 74,534
5,160 Securitas AB-B 264,144
15,200 Telefonaktiebolaget LM Ericsson 354,279
Total 1,368,671
Switzerland--7.8%
2,280 Credit Suisse Group 399,682
325 Novartis AG 505,446
280 Roche Holding AG 289,759
121 Schweizerische Rueckversicherungs-Gesellschaft 267,838
Total 1,462,725
United Kingdom--7.0%
35,000 General Electric Co. plc 241,867
32,000 Lloyds TSB Group plc 393,975
38,900 Rentokil Initial plc 234,889
23,600 Reuters Group plc 197,526
70,400 Siebe plc 251,940
Total 1,320,197
Total Common Stocks (Cost--$17,431,201) 16,321,136
Preferred Stocks--3.1%
Germany--3.1%
825 Fresenius AG 122,349
196 Rhoen-Klinikum AG 17,896
786 SAP AG 445,755
Total 586,000
Total Preferred Stocks (Cost--$478,293) 586,000
Total Investments--90.0% (Cost--$17,909,494) 16,907,136
Other assets in excess of liabilities--10.0% 1,874,740
Total Net Assets--100.0% $18,781,876
Notes to the Portfolio of Investments:
</TABLE>
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
Industry sector diversification of the Top 50 Europe Portfolio's investments as
a percentage of net assets as of August 31, 1998 was as follows:
Percentage of
Industry Sector Net Assets
Chemicals 12.2%
Industrial--Diversified 9.3%
Pharmaceuticals 7.3%
Financial Services 6.7%
Banking 6.2%
Computer Software & Processing 5.9%
Electrical Equipment 5.3%
Commercial Services 5.3%
Telephone Systems 4.7%
Insurance 4.6%
Beverages, Food & Tobacco 3.5%
Heavy Machinery 3.1%
Electric Utilities 2.7%
Oil & Gas 2.6%
Health Care Providers 2.2%
Wholesalers 2.0%
Communications 1.9%
Medical Supplies 1.9%
Food Retailers 1.2%
Media--Broadcasting & Publishing 1.0%
Metals 0.4%
Total 90.0%
The accompanying notes are an integral part of the financial statements.
PORTFOLIO OF INVESTMENTS
Top 50 Asia Portfolio (US Dollar)
August 31, 1998
<TABLE>
<CAPTION>
Market
Shares Description Value
<S> <C> <C>
COMMON STOCKS--89.6%
Australia--8.4%
50,000 AMP Ltd.* $ 611,166
106,000 Australia & New Zealand Banking Group Ltd. 534,987
18,337 Broken Hill Proprietary Co. Ltd. 126,373
8,000 National Australia Bank Ltd. 98,852
30,000 Woodside Petroleum Ltd. 135,434
Total 1,506,812
</TABLE>
<TABLE>
<CAPTION>
Hong Kong--9.3%
<C> <S> <C>
600,000 Cathay Pacific Airways Ltd. 437,465
100,000 Cheung Kong Holdings Ltd. 387,137
300,000 Cheung Kong Infrastructure Holdings 522,635
440,000 Founder Hong Kong, Ltd. 75,517
50,000 Sun Hung Kai Properties Ltd. 153,564
30,000 Swire Pacific Ltd.-A 86,525
Total 1,662,843
India--3.4%
30,000 Dr. Reddy's Laboratories Ltd.-GDR* 420,000
12,000 ITC Ltd.-GDR 195,960
Total 615,960
Indonesia--0.9%
100,000 PT Gudang Garam Tbk 75,893
400,000 PT Telekomunikasi Indonesia 83,929
Total 159,822
Japan--29.0%
29,000 Bridgestone Corp. 639,192
8,000 Canon, Inc. 162,438
60,000 Fujitsu Ltd. 608,079
55,000 Minebea Co., Ltd. 558,186
80 Nippon Telegraph & Telephone Corp. 606,662
40,000 Nomura Securities Co., Ltd. 388,377
40,000 Shiseido Co., Ltd. 382,424
8,000 Sony Corp. 584,550
20,000 Takeda Chemical Industries 523,033
33,000 Terumo Corp. 623,281
6,000 Toyota Motor Co. 127,992
Total 5,204,214
Korea--10.1%
40,000 Korea Electric Power Corp. 520,958
45,830 LG Electronics 370,482
9,000 Pohang Iron & Steel Co., Ltd. 299,775
10,894 Samsung Display Devices Co. 285,397
10,000 Samsung Electronics 336,078
Total 1,812,690
Malaysia--2.8%
149,000 Malaysian Oxygen Bhd. 174,949
620,000 Nylex (Malaysia) Bhd. 104,314
188,200 O.Y.L. Industries Bhd. 220,078
Total 499,341
Philippines--4.1%
640,000 Ayala Corp. 90,490
183,000 Benpres Holdings Corp.-GDR* 503,250
160,000 San Miguel Corp.-Class B 140,479
Total 734,219
</TABLE>
<TABLE>
<CAPTION>
Singapore--11.1%
<S> <C> <C>
150,000 City Developments 263,439
380,000 DBS Land Ltd. 216,043
150,200 Development Bank of Singapore 519,972
10,000 Fraser & Neave Ltd. 15,930
270,000 GP Batteries International Ltd. 294,849
160,000 Singapore Airlines Ltd. 684,492
Total 1,994,725
Taiwan--5.9%
62,500 Acer Inc.-GDR* 278,125
40,000 Asustek Computer Inc.-GDR* 278,000
2,200 China Steel Corp.-GDR-144A 25,575
3,600 President Enterprises Corp.-GDR-144A* 24,120
43,500 Taiwan Semiconductor Manufacturing Co., Ltd.-ADR* 462,188
Total 1,068,008
United Kingdom--4.6%
20,000 HSBC Holdings plc (Hong Kong Dollar) 424,560
50,000 Standard Chartered plc 402,552
Total 827,112
Total Common Stocks (Cost--$21,504,770) 16,085,746
Convertible Preferred Stocks--0.8%
Australia--0.8%
5,000 National Australia Bank Ltd. 133,125
Total Convertible Preferred Stocks (Cost--$138,425) 133,125
Rights--0.1%
Korea--0.1%
963 Samsung Electronics (Exp Date: 9/23/98)* 11,247
Total Rights (Cost--$0) 11,247
Total Investments--90.4% (Cost--$21,643,195) 16,230,118
Other assets in excess of liabilities--9.6% 1,717,862
Total Net Assets--100.0% $17,947,980
Notes to the Portfolio of Investments:
</TABLE>
* Non-income producing security.
ADR--American Depository Receipt
GDR--Global Depository Receipt
144A--Securities restricted for resale to Qualified Institutional Buyers.
The accompanying notes are an integral part of the financial statements.
Industry sector diversification of the Top 50 Asia Portfolio's investments as a
percentage of net assets as of August 31, 1998 was as follows:
Percentage of
Industry Sector Net Assets
Banking 11.8%
Electronics 11.4%
Airlines 6.3%
Pharmaceuticals 5.8%
Real Estate 5.7%
Computer Software & Processing 5.4%
Industrial--Diversified 5.0%
Automotive 4.3%
Telephone Systems 3.8%
Insurance 3.4%
Electrical Equipment 3.1%
Medical Supplies 2.9%
Heavy Construction 2.9%
Electric Utilities 2.9%
Communications 2.8%
Financial Services 2.2%
Cosmetics & Personal Care 2.1%
Metals 1.8%
Computers & Information 1.5%
Beverages, Food & Tobacco 1.3%
Building Materials 1.2%
Chemicals 1.0%
Office Equipment 0.9%
Oil & Gas 0.8%
Food Retailers 0.1%
Total 90.4%
The accompanying notes are an integral part of the financial statements.
PORTFOLIO OF INVESTMENTS
Top 50 US Portfolio (US Dollar)
August 31, 1998
<TABLE>
<CAPTION>
Market
Shares Description Value
<S> <C> <C>
Common Stocks--92.5%
Banking--6.0%
10,800 Bank of New York Co. (The), Inc. $261,221
2,360 Citicorp 255,175
9,210 Household International, Inc. 340,194
Total 856,590
Beverages, Food & Tobacco--5.8%
2,700 Campbell Soup Co. 136,013
2,780 Coca-Cola (The) Co. 181,048
10,550 PepsiCo, Inc. 292,103
5,230 Philip Morris Co., Inc. 217,372
Total 826,536
Building Materials--4.1%
</TABLE>
<TABLE>
<C> <S> <C>
15,080 Home Depot, Inc. 580,580
Chemicals--1.7%
4,500 Monsanto Co. 246,094
Commercial Services--3.1%
8,900 Cendant Corp.* 102,906
10,140 Service Corp. International 343,493
Total 446,399
Communications--2.5%
5,040 Lucent Technologies, Inc. 357,210
Computer Software & Processing--10.1%
4,050 First Data Corp. 83,784
9,740 HBO & Co. 206,975
7,100 IMS Health, Inc. 390,500
5,300 Microsoft Corp.* 508,469
9,000 PeopleSoft, Inc.* 253,125
Total 1,442,853
Computers & Information--9.3%
3,750 Cisco Systems, Inc.* 307,031
5,000 Diebold, Inc. 109,375
8,080 EMC Corp.* 365,115
4,020 Hewlett-Packard Co. 195,221
8,480 Symbol Technologies, Inc. 347,680
Total 1,324,422
Cosmetics & Personal Care--4.7%
3,930 Estee Lauder Co. Class A 231,379
5,020 Gillette Co. 206,448
3,000 Procter & Gamble (The) Co. 229,500
Total 667,327
Electric Utilities--1.7%
9,150 AES Corp.* 249,338
Electrical Equipment--2.5%
4,520 General Electric Co. 361,600
Electronics--1.1%
2,130 Intel Corp. 151,629
Entertainment & Leisure--1.4%
7,350 Walt Disney (The) Co. 201,666
Financial Services--1.6%
4,140 Federal National Mortgage Association 235,204
Health Care Providers--0.6%
4,580 HEALTHSOUTH Corp.* 86,734
Heavy Machinery--0.4%
3,250 U.S. Filter Corp.* 58,500
Insurance--9.5%
4,455 American International Group, Inc. 344,427
3,650 Chubb Corp. 228,125
</TABLE>
<TABLE>
<S> <C> <C>
1,075 General Re Corp. 223,063
5,400 Marsh & McLennan Co., Inc. 261,900
6,950 UNUM Corp. 305,800
Total 1,363,315
Medical Supplies--4.8%
3,370 Johnson & Johnson 232,530
5,010 Medtronic, Inc. 257,389
3,470 Perkin-Elmer (The) Corp. 200,826
Total 690,745
Office Equipment--2.6%
4,210 Xerox Corp. 369,691
Pharmaceuticals--8.0%
5,660 Abbott Laboratories 217,910
2,840 Merck & Co., Inc. 329,263
4,600 Pfizer, Inc. 427,800
2,700 Warner-Lambert Co. 176,175
Total 1,151,148
Retailers--6.2%
7,700 AutoZone, Inc.* 199,719
12,180 Staples, Inc.* 330,383
6,120 Wal-Mart Stores, Inc. 359,550
Total 889,652
Telephone Systems--4.8%
5,700 Airtouch Communications, Inc.* 320,625
9,100 WorldCom, Inc.* 372,531
Total 693,156
Total Investments--92.5% (Cost--$14,225,636) 13,250,389
Other assets in excess of liabilities--7.5% 1,069,981
Total Net Assets--100.0% $14,320,370
Notes to the Portfolio of Investments:
</TABLE>
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF ASSETS AND LIABILITIES
Deutsche Portfolios
August 31, 1998
<TABLE>
<CAPTION>
Top 50 Top 50 Top 50 Top 50
World Europe Asia US
Portfolio Portfolio Portfolio Portfolio
(US Dollar) (US Dollar) (US Dollar) (US Dollar)
<S> <C> <C> <C> <C>
Assets:
Investments, at value $9,906,916 $16,907,136 $16,230,118 $13,250,389
Cash 167,647 1,701,611 1,506,758 1,362,766
Foreign currency -- -- 305,063 --
Dividends receivable 16,083 18,044 26,578 3,975
Interest receivable 1,574 7,960 7,172 4,435
Receivable for investments sold 84,425 -- 614,277 --
Receivable for Investors' Beneficial Interest for contributions 24 308,624 -- 39,113
Unrealized appreciation on forward foreign currency contracts -- -- 13,801 --
Deferred organization costs 53,848 53,848 54,281 53,848
Total assets 10,230,517 18,997,223 18,758,048 14,714,526
Liabilities:
Payable for investments purchased 192,267 -- 296,807 202,014
Unrealized depreciation on forward foreign currency contracts -- -- 76,792 --
Payable to Investors' Beneficial Interest for withdrawals -- -- 116,501 --
Investment management fees payable 76,939 87,638 189,797 70,740
Organization costs payable 65,414 65,414 65,414 65,414
Accrued expenses and other liabilities 94,646 62,295 64,757 55,988
Total liabilities 429,266 215,347 810,068 394,156
Net assets $ 9,801,251 $18,781,876 $17,947,980 $14,320,370
Net Assets:
Applicable to Investors' Beneficial Interests $ 9,801,251 $18,781,876 $17,947,980 $14,320,370
Cost of investments $10,618,695 $17,909,494 $21,643,195 $14,225,636
Cost of foreign currency $ 33,218 $ -- $ 302,498 $ --
The accompanying notes are an integral part of the financial statements.
</TABLE>
STATEMENTS OF OPERATIONS
Deutsche Portfolios
For the period from Commencement of Operations to August 31, 1998(a)
<TABLE>
<CAPTION>
Top 50 Top 50 Top 50 Top 50
World Europe Asia US
Portfolio Portfolio Portfolio Portfolio
(US Dollar) (US Dollar) (US Dollar) (US Dollar)
<S> <C> <C> <C> <C>
Investment Income:
Dividend income $ 144,860 $ 164,915 $ 347,997 $ 59,683
Less: foreign withholding taxes (14,338) (38,245) (41,835) --
Net dividend income 130,522 126,670 306,162 59,683
Interest income (net of interest expense of $91,
$0, $985 and $5, respectively) 23,521 49,847 82,024 29,188
Total income 154,043 176,517 388,186 88,871
Expenses:
Investment management fees 76,939 87,638 189,797 70,740
Operations agent fees 67,036 66,445 61,738 66,335
Administrative agent fees 36,556 36,556 35,112 36,556
Custody and accounting fees 60,906 68,797 81,399 49,174
Legal and audit fees 24,728 24,728 24,728 24,728
Trustees' fees and expenses 120 120 120 120
Other expenses 11,188 11,094 12,586 11,144
Amortization of organization costs 12,064 12,064 11,631 12,064
Total expenses 289,537 307,442 417,111 270,861
Net investment loss (135,494) (130,925) (28,925) (181,990)
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency:
Net realized gain (loss) on:
Investments 489,727 148,061 (4,388,274) (166,914)
Foreign currency transactions (18,271) 12,173 226,283 --
Net change in unrealized appreciation/depreciation on:
Investments (711,779) (1,002,358) (5,413,077) (975,247)
Foreign currency translations 199 391 (67,447) --
Net Realized and Unrealized Loss on
Investments and Foreign Currency (240,124) (841,733) (9,642,515) (1,142,161)
Net Decrease in Net Assets
Resulting from Operations $(375,618) $ (972,658) $(9,671,440) $(1,324,151)
(a) Commencement of operations: 10/2/97 10/2/97 10/14/97 10/2/97
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 to August 31, 1998(a)
<TABLE>
<CAPTION>
Top 50 Top 50 Top 50 Top 50
World Europe Asia 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 $ (135,494) $ (130,925) $ (28,925) $ (181,990)
Net realized gain (loss) on investments and foreign
currency transactions 471,456 160,234 (4,161,991) (166,914)
Net change in unrealized appreciation/depreciation on
investments and foreign currency translations (711,580) (1,001,967) (5,480,524) (975,247)
Net decrease in net assets resulting from operations (375,618) (972,658) (9,671,440) (1,324,151)
Capital Transactions:
Proceeds from contributions 12,443,494 25,907,115 40,430,598 23,011,759
Withdrawals (2,277,739) (6,163,693) (12,822,290) (7,378,350)
Net increase in net assets from capital transactions 10,165,755 19,743,422 27,608,308 15,633,409
Total increase in net assets 9,790,137 18,770,764 17,936,868 14,309,258
Net Assets:
Beginning of period 11,114 11,112 11,112 11,112
End of period $ 9,801,251 $18,781,876 $ 17,947,980 $14,320,370
(a) Commencement of operations: 10/2/97 10/2/97 10/14/97 10/2/97
The accompanying notes are an integral part of the financial statements.
</TABLE>
FINANCIAL HIGHLIGHTS
Deutsche Portfolios
For the period from Commencement of Operations to August 31, 1998(a)
<TABLE>
<CAPTION>
Top 50 Top 50 Top 50 Top 50
World Europe Asia 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) $ 9,801 $ 18,782 $ 17,948 $ 14,320
Ratio of expenses to average net assets(b) 3.75% 3.49% 2.19% 3.24%
Ratio of net investment loss to average net assets(b) (1.75)% (1.49)% (0.15)% (2.18)%
Portfolio turnover(c) 125% 27% 54% 24%
(a) Commencement of operations: 10/2/97 10/2/97 10/14/97 10/2/97
(b)Annualized
(c) Not annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENT
Deutsche Portfolios
August 31, 1998
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:
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 during October 1997.
The Portfolio Trust operates under a "Hub and Spoke(R)" structure where the
beneficial interest holders of each respective Portfolio invest substantially
all of their investable assets in the respective Portfolio("Hub and Spoke(R)" is
a registered service mark of Signature Financial Group, Inc.). From time to
time, a beneficial interest holder of each respective Portfolio may own a
significant percentage of the Portfolio. Investment activities of the beneficial
interest holders could have a material impact on the Portfolio.
The beneficial interest holders of the Portfolios at August 31, 1998 were as
follows:
<TABLE>
<CAPTION>
Top 50 World Portfolio:
<S> <C>
Deutsche Top 50 World Fund $ 258,001
DB Top 50 World Fund 9,543,250
$ 9,801,251
Top 50 Europe Portfolio:
Deutsche Top 50 Europe Fund $ 4,318,606
DB Top 50 Europe Fund 14,463,270
$18,781,876
Top 50 Asia Portfolio:
Deutsche Top 50 Asia Fund $ 79,271
DB Top 50 Asia Fund 17,868,709
$17,947,980
Top 50 US Portfolio:
Deutsche Top 50 US Fund $ 2,469,432
DB Top 50 US Fund 11,850,938
$14,320,370
</TABLE>
Note 2--Significant Accounting Policies
The Portfolio Trust prepares its financial statements in accordance with
accounting principles generally accepted in the United States of America. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain 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:
Investment Valuation
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 the 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 is priced in
good faith in accordance with fair valuation procedures adopted by the Trustees
of the Portfolio Trust.
Forward Foreign Currency Contracts
The Portfolio Trust enters into forward foreign currency contracts with various
counterparties for purposes of hedging its existing portfolio of investments and
settling foreign investment transactions. Forward foreign currency 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, including the accretion of discounts and
amortization of premiums, 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 spot
foreign currency exchange rate in effect at the time net assets are valued.
Purchases and sales of investment securities, income and expenses are reported
at the prevailing exchange rate on the respective days of such transactions. The
resultant realized and unrealized 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. These include, 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 the 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
expense allocation will be managed in such a way that a regulated investment
company investing in the Portfolio will satisfy the requirements of Subchapter M
of the Code, assuming that such investment company invests substantially 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 Costs
Organization costs 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 costs 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
costs. 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 costs 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. DFM retains overall responsibility for
supervision of the investment management program for each Portfolio, except the
Top 50 US Portfolio, but has delegated the day-to-day management of the
investment operations of each Portfolio to DWS International Portfolio
Management GmbH ("DWS"). Deutsche Bank Securities Investment Management
("DBSIM") is the investment adviser of the Top 50 US Portfolio. As compensation
for the services rendered by DFM under the 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%
The advisers are indirect subsidiaries of Deutsche Bank AG. As compensation for
their services, DWS and DBSIM each receive 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 of the Deutsche Funds, Inc. and as Operations 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 agreement with IBT Trust Company
(Cayman) Ltd. ("IBT (Cayman)"). Pursuant to that agreement, IBT (Cayman)
provides sub-administrative services to the Portfolios, for which it receives a
fee from each Portfolio, which is computed daily and paid monthly, at an annual
rate of 0.025% on the first $200 million, 0.02% on the next $800 million and
0.01% on assets in excess of $1 billion, subject to a minimum of $40,000 during
the first year of the Portfolio's operations, $45,000 in the second year of
operations and $50,000 in the third year.
From commencement of operations through August 31, 1998, affiliates of Deutsche
Bank AG received brokerage commissions in the following amounts from each
Portfolio as a result of executing agency transactions in portfolio securities:
<TABLE>
<S> <C>
Top 50 World Portfolio $ 9,442
Top 50 Europe Portfolio $15,174
Top 50 Asia Portfolio $ --
Top 50 US Portfolio $24,027
</TABLE>
Certain trustees and officers of the Portfolios are affiliated with Deutsche
Bank AG. These persons are not paid by the Portfolios for serving in these
capacities.
Note 4--Investment Portfolio Transactions
Purchases and sales of investments, excluding short-term securities, for each
Portfolio for the period from commencement of operations to August 31, 1998 were
as follows:
<TABLE>
<CAPTION>
Top 50 Top 50 Top 50 Top 50
World Europe Asia US
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Purchases $20,118,762 $20,698,857 $36,229,764 $16,446,800
Sales $ 9,989,793 $ 2,937,424 $10,198,295 $ 2,054,250
</TABLE>
At August 31, 1998, the cost of investments and the unrealized appreciation
(depreciation) of investments for Federal income tax purposes for each Portfolio
were as follows:
<TABLE>
<CAPTION>
Top 50 Top 50 Top 50 Top 50
World Europe Asia US
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Cost of Investments $10,658,238 $17,931,706 $21,810,371 $14,235,112
Gross Unrealized Appreciation 427,941 910,537 123,492 779,348
Gross Unrealized Depreciation (1,179,263) (1,935,107) (5,703,745) (1,764,071)
Net Unrealized Depreciation (751,322) (1,024,570) (5,580,253) (984,723)
</TABLE>
Note 5--Forward and Spot Foreign Currency Contracts
Certain Portfolios had forward and Spot foreign currency contracts which
contractually obligate the Portfolio to deliver or receive currencies at
specified future dates. The following contracts were open at August 31, 1998:
<TABLE>
<CAPTION>
Local/ Foreign
Settlement Notional Contract Current Unrealized
Top 50 Asia Portfolio Date Amount U.S. $ Value U.S. Value Gain (Loss)
<S> <C> <C> <C> <C> <C> <C>
Purchase Hong Kong Dollar 11/16/98 16,000,000 $2,033,757 $2,022,663 $(11,094)
Sale Hong Kong Dollar 9/01/98 4,760,154 $ 614,142 $ 614,036 $ 106
Sale Hong Kong Dollar 11/16/98 40,000,000 $5,070,351 $5,056,656 $ 13,695
Sale Japanese Yen 11/20/98 300,000,000 $2,085,796 $2,151,494 $(65,698)
</TABLE>
Note 6--Off-Balance Sheet Risk and Concentration of Credit Risk
The Statements of Assets and Liabilities include 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 foreign currency 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 various off-balance sheet categories as well as
the relationship between off-balance sheet items and items recorded on the
Portfolios' Statements of Assets and Liabilities. Credit risk is measured by the
loss the Portfolio would record if its counterparties failed to perform pursuant
to terms of their obligations to the Portfolio. Because the Portfolios enter
into forward foreign currency contracts, credit risk exists with counterparties.
It is the policy of the Portfolios to transact the majority of its securities
activity with broker-dealers, banks and regulated exchanges that the Manager
considers to be well established.
Note 7--Line of Credit Agreement
The Portfolio Trust has established a revolving line of credit with Investors
Bank and Trust Company ("IBT"). Borrowings under the line of credit may not
exceed the lesser of $15,000,000 or 33% of the total assets of the Portfolio
Trust. Interest is payable on outstanding borrowings at the Federal Funds Rate
plus 0.50%. Additionally, the line of credit includes an annual commitment fee
equal to 0.07% per annum on the difference between $15,000,000 and the average
daily amount of outstanding borrowings. During the period ended August 31, 1998,
the Portfolios periodically utilized the line of credit and incurred interest
expense as disclosed in the Statements of Operations. At August 31, 1998, there
were no borrowings outstanding under the line of credit agreement.
Note 8--Subsequent Event
On September 4, 1998, the Malaysian government enacted a ruling whereby foreign
investors cannot repatriate proceeds on sales of Malaysian securities for one
year following the settlement of the sale transaction. Accordingly, the Top 50
Asia Portfolio may be subject to these restrictions regarding its holdings of
Malaysian securities, which represented 2.8% of the Top 50 Asia Portfolio's net
assets at August 31, 1998.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Beneficial Interest Holders of Deutsche Portfolios
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Top 50 World Portfolio (US
Dollar), Top 50 Europe Portfolio (US Dollar), Top 50 Asia Portfolio (US Dollar),
and Top 50 US Portfolio (US Dollar), (four of the ten portfolios constituting
Deutsche Portfolios, hereafter referred to as the "Portfolio Trust") at August
31, 1998, and the results of each of their operations, the changes in each of
their net assets and the financial highlights for each of the periods indicated,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at August
31, 1998 by correspondence with the custodian and brokers, provides a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036
October 16, 1998
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
GO2332-04 (10/98)
DEUTSCHE FUNDS, INC.
APPENDIX
A1. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Deutsche Top 50 Europe (the "Fund") are represented by a solid line.
The MSCI Europe Index (the "MSCI") is represented by a broken line. The line
graph is a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class A Shares of the Fund, and the MSCI. The "x"
axis reflects computation periods from 10/2/97 to 8/31/98. The "y" axis reflects
the cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the Fund's Class A Shares as compared to the MSCI.
The right margin reflects the ending value of the hypothetical investment in the
Fund's Class A Shares as compared to the MSCI. The ending values were $9,851,
and $11,315, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the Fund's Class A Shares total return from the
commencement of operations of the Fund's Class A Shares (10/2/97) to 8/31/98.
The total return was (1.49)%.
A2. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Deutsche Top 50 Europe (the "Fund") are represented by a solid line.
The MSCI Europe Index (the "MSCI") is represented by a broken line. The line
graph is a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class B Shares of the Fund, and the MSCI. The "x"
axis reflects computation periods from 3/30/98 to 8/31/98. The "y" axis reflects
the cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the Fund's Class B Shares as compared to the MSCI.
The right margin reflects the ending value of the hypothetical investment in the
Fund's Class B Shares as compared to the MSCI. The ending values were $8,854,
and $9,385, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the Fund's Class B Shares total return from the inception
date of the Fund's Class B Shares (3/30/98) to 8/31/98. The total return was
(11.48)%.
A3. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of the Deutsche European Mid-Cap Fund (the "Fund") are represented by a
solid line. The MSCI Europe Index (the "MSCI") is represented by a broken line.
The line graph is a visual representation of a comparison of change in value of
a $10,000 hypothetical investment in the Class A Shares of the Fund, and the
MSCI. The "x" axis reflects computation periods from 10/17/97 to 8/31/98. The
"y" axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the Fund's Class A Shares as
compared to the MSCI. The right margin reflects the ending value of the
hypothetical investment in the Fund's Class A Shares as compared to the MSCI.
The ending values were $10,750, and $11,897, respectively. The legend in the
bottom quadrant of the graphic presentation indicates the Fund's Class A Shares
total return from the commencement of operations of the Fund's Class A Shares
(10/17/97) to 8/31/98. The total return was 7.50%.
A4. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of the Deutsche European Mid-Cap Fund (the "Fund") are represented by a
solid line. The MSCI Europe Index (the "MSCI") is represented by a broken line.
The line graph is a visual representation of a comparison of change in value of
a $10,000 hypothetical investment in the Class B Shares of the Fund, and the
MSCI. The "x" axis reflects computation periods from 3/30/98 to 8/31/98. The "y"
axis reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in the Fund's Class B Shares as compared to
the MSCI. The right margin reflects the ending value of the hypothetical
investment in the Fund's Class B Shares as compared to the MSCI. The ending
values were $9,540, and $9,385, respectively. The legend in the bottom quadrant
of the graphic presentation indicates the Fund's Class B Shares total return
from the inception date of the Fund's Class B Shares (3/30/98) to 8/31/98. The
total return was (4.60)%.
A5. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of the Deutsche German Equity Fund (the "Fund") are represented by a
solid line. The MSCI Germany Index (the "MSCI") is represented by a broken line.
The line graph is a visual representation of a comparison of change in value of
a $10,000 hypothetical investment in the Class A Shares of the Fund, and the
MSCI. The "x" axis reflects computation periods from 10/17/97 to 8/31/98. The
"y" axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the Fund's Class A Shares as
compared to the MSCI. The right margin reflects the ending value of the
hypothetical investment in the Fund's Class A Shares as compared to the MSCI.
The ending values were $10,924, and $12,619, respectively. The legend in the
bottom quadrant of the graphic presentation indicates the Fund's Class A Shares
total return from the commencement of operations of the Fund's Class A Shares
(10/17/97) to 8/31/98. The total return was 9.30%.
A6. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of the Deutsche German Equity Fund (the "Fund") are represented by a
solid line. The MSCI Germany Index (the "MSCI") is represented by a broken line.
The line graph is a visual representation of a comparison of change in value of
a $10,000 hypothetical investment in the Class B Shares of the Fund, and the
MSCI. The "x" axis reflects computation periods from 3/16/98 to 8/31/98. The "y"
axis reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in the Fund's Class B Shares as compared to
the MSCI. The right margin reflects the ending value of the hypothetical
investment in the Fund's Class B Shares as compared to the MSCI. The ending
values were $9,604, and $10,001, respectively. The legend in the bottom quadrant
of the graphic presentation indicates the Fund's Class B Shares total return
from the inception date of the Fund's Class B Shares (3/16/98) to 8/31/98. The
total return was (3.96)%.
A7. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of the Deutsche European Bond Fund (the "Fund") are represented by a
solid line. The J.P. Morgan European Government Bond Index (the "JPMEG") is
represented by a broken line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the Class
A Shares of the Fund, and the JPMEG. The "x" axis reflects computation periods
from 10/17/97 to 8/31/98. The "y" axis reflects the cost of the investment. The
right margin reflects the ending value of the hypothetical investment in the
Fund's Class A Shares as compared to the JPMEG. The right margin reflects the
ending value of the hypothetical investment in the Fund's Class A Shares as
compared to the JPMEG. The ending values were $10,139, and $11,153,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the Fund's Class A Shares total return from the commencement of
operations of the Fund's Class A Shares (10/17/97) to 8/31/98. The total return
was 1.38%.
A8. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of the Deutsche European Bond Fund (the "Fund") are represented by a
solid line. The J.P. Morgan European Government Bond Index (the "JPMEG") is
represented by a broken line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the Class
B Shares of the Fund, and the JPMEG. The "x" axis reflects computation periods
from 6/25/98 to 8/31/98. The "y" axis reflects the cost of the investment. The
right margin reflects the ending value of the hypothetical investment in the
Fund's Class B Shares as compared to the JPMEG. The right margin reflects the
ending value of the hypothetical investment in the Fund's Class B Shares as
compared to the JPMEG. The ending values were $9,844, and $10,298, respectively.
The legend in the bottom quadrant of the graphic presentation indicates the
Fund's Class B Shares total return from the inception date of the Fund's Class B
Shares (6/25/98) to 8/31/98. The total return was (1.56)%.
A9. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of the Deutsche European Mid-Cap Fund (the "Fund") are represented by a
solid line. The MSCI Europe Index (the "MSCI") is represented by a broken line.
The line graph is a visual representation of a comparison of change in value of
a $10,000 hypothetical investment in the Class A Shares of the Fund, and the
MSCI. The "x" axis reflects computation periods from 10/17/97 to 8/31/98. The
"y" axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the Fund's Class A Shares as
compared to the MSCI. The right margin reflects the ending value of the
hypothetical investment in the Fund's Class A Shares as compared to the MSCI.
The ending values were $10,750, and $11,897, respectively. The legend in the
bottom quadrant of the graphic presentation indicates the Fund's Class A Shares
total return from the commencement of operations of the Fund's Class A Shares
(10/17/97) to 8/31/98. The total return was 7.50%.
A10. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of the Deutsche European Mid-Cap Fund (the "Fund") are represented by a
solid line. The MSCI Europe Index (the "MSCI") is represented by a broken line.
The line graph is a visual representation of a comparison of change in value of
a $10,000 hypothetical investment in the Class B Shares of the Fund, and the
MSCI. The "x" axis reflects computation periods from 3/30/98 to 8/31/98. The "y"
axis reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in the Fund's Class B Shares as compared to
the MSCI. The right margin reflects the ending value of the hypothetical
investment in the Fund's Class B Shares as compared to the MSCI. The ending
values were $9,540, and $9,385, respectively. The legend in the bottom quadrant
of the graphic presentation indicates the Fund's Class B Shares total return
from the inception date of the Fund's Class B Shares (3/30/98) to 8/31/98. The
total return was (4.60)%.
A11. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of the Deutsche German Equity Fund (the "Fund") are represented by a
solid line. The MSCI Germany Index (the "MSCI") is represented by a broken line.
The line graph is a visual representation of a comparison of change in value of
a $10,000 hypothetical investment in the Class A Shares of the Fund, and the
MSCI. The "x" axis reflects computation periods from 10/17/97 to 8/31/98. The
"y" axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the Fund's Class A Shares as
compared to the MSCI. The right margin reflects the ending value of the
hypothetical investment in the Fund's Class A Shares as compared to the MSCI.
The ending values were $10,932, and $12,618, respectively. The legend in the
bottom quadrant of the graphic presentation indicates the Fund's Class A Shares
total return from the commencement of operations of the Fund's Class A Shares
(10/17/97) to 8/31/98. The total return was 9.32%.
A12. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of the Deutsche German Equity Fund (the "Fund") are represented by a
solid line. The MSCI Germany Index (the "MSCI") is represented by a broken line.
The line graph is a visual representation of a comparison of change in value of
a $10,000 hypothetical investment in the Class B Shares of the Fund, and the
MSCI. The "x" axis reflects computation periods from 3/16/98 to 8/31/98. The "y"
axis reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in the Fund's Class B Shares as compared to
the MSCI. The right margin reflects the ending value of the hypothetical
investment in the Fund's Class B Shares as compared to the MSCI. The ending
values were $9,604, and $10,001, respectively. The legend in the bottom quadrant
of the graphic presentation indicates the Fund's Class B Shares total return
from the inception date of the Fund's Class B Shares (3/16/98) to 8/31/98. The
total return was (3.96)%.
A13. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of the Deutsche Japanese Equity Fund (the "Fund") are represented by a
solid line. The MSCI Japan Index (the "MSCI") is represented by a broken line.
The line graph is a visual representation of a comparison of change in value of
a $10,000 hypothetical investment in the Class A Shares of the Fund, and the
MSCI. The "x" axis reflects computation periods from 10/20/97 to 8/31/98. The
"y" axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the Fund's Class A Shares as
compared to the MSCI. The right margin reflects the ending value of the
hypothetical investment in the Fund's Class A Shares as compared to the MSCI.
The ending values were $7,447, and $7,490, respectively. The legend in the
bottom quadrant of the graphic presentation indicates the Fund's Class A Shares
total return from the commencement of operations of the Fund's Class A Shares
(10/20/97) to 8/31/98. The total return was (25.53)%.
A14. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of the Deutsche Japanese Equity Fund (the "Fund") are represented by a
solid line. The MSCI Japan Index (the "MSCI") is represented by a broken line.
The line graph is a visual representation of a comparison of change in value of
a $10,000 hypothetical investment in the Class B Shares of the Fund, and the
MSCI. The "x" axis reflects computation periods from 8/10/98 to 8/31/98. The "y"
axis reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in the Fund's Class B Shares as compared to
the MSCI. The right margin reflects the ending value of the hypothetical
investment in the Fund's Class B Shares as compared to the MSCI. The ending
values were $9,200, and $8,861, respectively. The legend in the bottom quadrant
of the graphic presentation indicates the Fund's Class B Shares total return
from the inception date of the Fund's Class B Shares (8/10/98) to 8/31/98. The
total return was (7.96)%.
A15. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of the Deutsche Global Bond Fund (the "Fund") are represented by a solid
line. The J.P. Morgan Global Government Bond Index (the "JPGGB") is represented
by a broken line. The line graph is a visual representation of a comparison of
change in value of a $10,000 hypothetical investment in the Class A Shares of
the Fund, and the JPGGB. The "x" axis reflects computation periods from 10/15/97
to 8/31/98. The "y" axis reflects the cost of the investment. The right margin
reflects the ending value of the hypothetical investment in the Fund's Class A
Shares as compared to the JPGGB. The right margin reflects the ending value of
the hypothetical investment in the Fund's Class A Shares as compared to the
JPGGB. The ending values were $9,918, and $10,715, respectively. The legend in
the bottom quadrant of the graphic presentation indicates the Fund's Class A
Shares total return from the commencement of operations of the Fund's Class A
Shares (10/15/97) to 8/31/98. The total return was (0.83)%.
A16. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of the Deutsche European Bond Fund (the "Fund") are represented by a
solid line. The J.P. Morgan European Government Bond Index (the "JPMEG") is
represented by a broken line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the Class
A Shares of the Fund, and the JPMEG. The "x" axis reflects computation periods
from 10/17/97 to 8/31/98. The "y" axis reflects the cost of the investment. The
right margin reflects the ending value of the hypothetical investment in the
Fund's Class A Shares as compared to the JPMEG. The right margin reflects the
ending value of the hypothetical investment in the Fund's Class A Shares as
compared to the JPMEG. The ending values were $10,138, and $11,153,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the Fund's Class A Shares total return from the commencement of
operations of the Fund's Class A Shares (10/17/97) to 8/31/98. The total return
was 1.38%.
A17. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of the Deutsche European Bond Fund (the "Fund") are represented by a
solid line. The J.P. Morgan European Government Bond Index (the "JPMEG") is
represented by a broken line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the Class
B Shares of the Fund, and the JPMEG. The "x" axis reflects computation periods
from 6/25/98 to 8/31/98. The "y" axis reflects the cost of the investment. The
right margin reflects the ending value of the hypothetical investment in the
Fund's Class B Shares as compared to the JPMEG. The right margin reflects the
ending value of the hypothetical investment in the Fund's Class B Shares as
compared to the JPMEG. The ending values were $9,844, and $10,298, respectively.
The legend in the bottom quadrant of the graphic presentation indicates the
Fund's Class B Shares total return from the inception date of the Fund's Class B
Shares (6/25/98) to 8/31/98. The total return was (1.56)%.
A18. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Deutsche Top 50 World (the "Fund") are represented by a solid line.
The MSCI World Index (the "MSCI") is represented by a broken line. The line
graph is a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class A Shares of the Fund, and the MSCI. The "x"
axis reflects computation periods from 10/2/97 to 8/31/98. The "y" axis reflects
the cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the Fund's Class A Shares as compared to the MSCI.
The right margin reflects the ending value of the hypothetical investment in the
Fund's Class A Shares as compared to the MSCI. The ending values were $9,336,
and $9,675, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the Fund's Class A Shares total return from the
commencement of operations of the Fund's Class A Shares (10/2/97) to 8/31/98.
The total return was (6.65)%.
A19. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Deutsche Top 50 World (the "Fund") are represented by a solid line.
The MSCI World Index (the "MSCI") is represented by a broken line. The line
graph is a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class B Shares of the Fund, and the MSCI. The "x"
axis reflects computation periods from 5/4/98 to 8/31/98. The "y" axis reflects
the cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the Fund's Class B Shares as compared to the MSCI.
The right margin reflects the ending value of the hypothetical investment in the
Fund's Class B Shares as compared to the MSCI. The ending values were $8,420,
and $8,705, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the Fund's Class B Shares total return from the inception
date of the Fund's Class B Shares (5/4/98) to 8/31/98. The total return was
(15.79)%.
A20. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Deutsche Top 50 Europe (the "Fund") are represented by a solid line.
The MSCI Europe Index (the "MSCI") is represented by a broken line. The line
graph is a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class A Shares of the Fund, and the MSCI. The "x"
axis reflects computation periods from 10/2/97 to 8/31/98. The "y" axis reflects
the cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the Fund's Class A Shares as compared to the MSCI.
The right margin reflects the ending value of the hypothetical investment in the
Fund's Class A Shares as compared to the MSCI. The ending values were $9,851,
and $11,315, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the Fund's Class A Shares total return from the
commencement of operations of the Fund's Class A Shares (10/2/97) to 8/31/98.
The total return was (1.49)%.
A21. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Deutsche Top 50 Europe (the "Fund") are represented by a solid line.
The MSCI Europe Index (the "MSCI") is represented by a broken line. The line
graph is a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class B Shares of the Fund, and the MSCI. The "x"
axis reflects computation periods from 3/30/98 to 8/31/98. The "y" axis reflects
the cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the Fund's Class B Shares as compared to the MSCI.
The right margin reflects the ending value of the hypothetical investment in the
Fund's Class B Shares as compared to the MSCI. The ending values were $8,854,
and $9,385, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the Fund's Class B Shares total return from the inception
date of the Fund's Class B Shares (3/30/98) to 8/31/98. The total return was
(11.46)%.
A22. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Deutsche Top 50 Asia (the "Fund") are represented by a solid line. The
MSCI Pacific ex Japan Index (the "MSCIEX") is represented by a broken line and
the MSCI Pacific Index (the "MSCIP) is represented by a dashed line. The line
graph is a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class A Shares of the Fund, the MSCIEX, and the
MSCIP. The "x" axis reflects computation periods from 10/14/97 to 8/31/98. The
"y" axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the Fund's Class A Shares as
compared to the MSCIEX and the MSCIP. The right margin reflects the ending value
of the hypothetical investment in the Fund's Class A Shares as compared to the
MSCIEX and the MSCIP. The ending values were $6,184, $5,324 and $6,483,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the Fund's Class A Shares total return from the commencement of
operations of the Fund's Class A Shares (10/14/97) to 8/31/98. The total return
was (38.17)%.
A23. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Deutsche Top 50 Asia (the "Fund") are represented by a solid line. The
MSCI Pacific ex Japan Index (the "MSCIEX") is represented by a broken line and
the MSCI Pacific Index (the "MSCIP) is represented by a dashed line. The line
graph is a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class B Shares of the Fund, the MSCIEX, and the
MSCIP. The "x" axis reflects computation periods from 5/5/98 to 8/31/98. The "y"
axis reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in the Fund's Class B Shares as compared to
the MSCIEX and the MSCIP. The right margin reflects the ending value of the
hypothetical investment in the Fund's Class B Shares as compared to the MSCIEX
and the MSCIP. The ending values were $7,053, $6,979 and $8,066, respectively.
The legend in the bottom quadrant of the graphic presentation indicates the
Fund's Class B Shares total return from the inception date of the Fund's Class B
Shares (5/5/98) to 8/31/98. The total return was (29.47)%.
A24. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Deutsche Top 50 US (the "Fund") are represented by a solid line. The
S&P 500 (the "S&P") is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Class A Shares of the Fund, and the S&P. The "x" axis reflects
computation periods from 10/2/97 to 8/31/98. The "y" axis reflects the cost of
the investment. The right margin reflects the ending value of the hypothetical
investment in the Fund's Class A Shares as compared to the S&P. The right margin
reflects the ending value of the hypothetical investment in the Fund's Class A
Shares as compared to the S&P. The ending values were $9,541, and $10,108,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the Fund's Class A Shares total return from the commencement of
operations of the Fund's Class A Shares (10/2/97) to 8/31/98. The total return
was (4.59)%.
A25. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Deutsche Top 50 US (the "Fund") are represented by a solid line. The
S&P 500 Index (the "S&P") is represented by a broken line. The line graph is a
visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class B Shares of the Fund, and the S&P. The "x"
axis reflects computation periods from 3/18/98 to 8/31/98. The "y" axis reflects
the cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the Fund's Class B Shares as compared to the S&P. The
right margin reflects the ending value of the hypothetical investment in the
Fund's Class B Shares as compared to the S&P. The ending values were $8,330, and
$8,689, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the Fund's Class B Shares total return from the inception
date of the Fund's Class B Shares (3/18/98) to 8/31/98. The total return was
(16.70)%.
