semi-annual
report
dated February 26, 1999
Deutsche Top 50 World
(Class A Shares and Class B Shares)
Deutsche Top 50 Europe
(Class A Shares, Class B Shares and
Class C Shares)
Deutsche Top 50 Asia
(Class A Shares and Class B Shares)
Deutsche Top 50 US
(Class A Shares, Class B Shares and
Class C Shares)
[LOGO OF DEUTSCHE FUNDS]
PRESIDENT'S MESSAGE
Dear Valued Shareholder:
It is my pleasure to provide you with this Semi-Annual Report for your Deutsche
Funds. This report provides you with financial statements, commentaries and
securities holdings for each of the portfolios, for the period of September 1,
1998 through February 26, 1999.
Over the course of the reporting period, a number of events took place in the
world financial markets. None had as large an impact, however, as the
realization of European Monetary Union and the birth of a new currency, the
euro.
On January 1, 1999, the world's largest economic merger in financial history
took place as the currencies of eleven European nations were linked to form the
European Monetary Union (EMU). With the advent of monetary union, and the
introduction of the euro, Europe now stands as one of the world's largest equity
and fixed income markets. Companies throughout the EMU can take advantage of
many business practices and initiatives that were, until now, never before
available.
The dynamic changes that are yet to come as a result of monetary union and the
euro are far reaching and, we believe, extremely positive. These changes present
a variety of opportunities for corporations, governments and individual
investors alike.
As one of the largest and most respected financial institutions in Europe,
Deutsche Bank's Mutual Fund Group, the investment manager to the Deutsche Funds,
has the resources and capabilities to understand the many changes that are
taking place in Europe today. And they are able to find the investment
opportunity in both the equity and fixed-income markets.
While there was much favorable news coming from Europe during the reporting
period, less favorable news came from the emerging markets and from Asia. As you
know, foreign investing involves special risks including currency risk,
increased volatility of foreign securities, and differences in auditing and
other financial standards. In addition, Asian and Pacific Rim countries may have
relatively unstable governments, economies based on only a few commodities or
industries, and securities markets trading infrequently or in low volumes.
Several countries, most notably Brazil and Russia, saw their currencies devalue
dramatically. This touched off much concern throughout the world financial
markets. Fortunately, the Deutsche Fund portfolios were never directly affected
by this because they had not invested in either of these two markets.
In Japan and other areas of Asia, governments began to make fiscal and monetary
policy changes to strengthen their economies, and businesses also began to
implement new restructuring programs to increase productivity, efficiency and
profitability. Although much of Asia still has a long way to go, the markets
were able to rally following the New Year, especially Japan, and the two
Deutsche Funds that participate in these markets have performed quite well.
The U.S. market saw yet another year of historic growth, as the U.S. domestic
bull market continued to charge. As we moved into the first quarter of 1999,
growth slowed somewhat in the U.S., as corporate earnings came under pressure.
We are confident that our investment advisory expertise which has been
demonstrated to you in the past will continue to provide you with satisfactory
performance. We appreciate your including the Deutsche Funds as a component of
your portfolio, and we look forward to continuing to serve you in the future.
Sincerely,
/s/ Brian A. Lee
Brian A. Lee
President
February 26, 1999
INVESTMENT REVIEW
Deutsche Top 50 World
During the reporting period, Deutsche Top 50 World Class A Shares achieved a
total return of 25.96% at net asset value (NAV) (without sales charges), and
19.02% based on offering price (with sales charges).* The MSCI World Index, the
Fund's benchmark, returned 22.55% during this time period.**
From September of 1998 through February of 1999, Deutsche Top 50 World
maintained it's high level of investment, and remained heavily weighted in the
U.S. equity market (53.5%). Allocations to other countries included Germany
(5.6%), France (6.8%), Switzerland (5.9%), United Kingdom (7.2%), Netherlands
(1.8%), Sweden (1.9%) and Singapore (1.3%). Positions in the Japanese market
were added toward year end 1998, as the country's equity market started to show
signs of improvement. At the end of the reporting period, Japanese companies
accounted for 6.0% of portfolio holdings.
During the past six months, the Fund was most heavily weighted in the technology
area (26%) and least heavily weighted in the energy area (12%). Technology
companies such as America Online, Microsoft, Intel and Cisco Systems provided
much of the portfolio's growth. The energy companies, particularly the oil
producers, had weak performance during the same period due to their being faced
with continued pricing pressure. The portfolio's exposure to the financial
services sector was increased as made evident by the purchase of Merrill Lynch
and UBS, and the increase in weightings of Citigroup, American Express, and the
French insurance company, AXA.
In accordance with the Fund's philosophy of investing in companies that are
well-positioned to take advantage of five global mega-trends, the Fund allocated
its holdings as such: 20% in healthcare companies; 20% in population growth
companies; 26% in technology companies; 20% in brand name companies; and 12% in
energy companies.
*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 B Shares for the reporting period, based on NAV
and redemption value was 25.49% and 20.49%, respectively.
** The MSCI World Index is created by selecting companies within the market
capitalization range of US$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.
Deutsche Top 50 Europe
During the reporting period, Deutsche Top 50 Europe Class A Shares achieved a
total return of 0.08% at NAV (without sales charges), and (5.44)% based on
offering price (with sales charges).* The MSCI Europe Index, the Fund's
benchmark, returned 10.37% during this time period.**
In the last four months of 1998, European economies slowed down and forced
economists to make downward revisions to their gross domestic product (GDP)
growth expectations. Business confidence kept on falling, as fears of global
overcapacity and possible recession dominated the headlines.
The depressed macroeconomic environment and the currency turmoil in the world's
emerging markets led to a further correction in European stock prices in
September 1998.
Successive rate cuts in the United States and the Brazilian International
Monetary Fund package helped to relieve the pressures on the markets. Encouraged
by the determined steps of the U.S. Federal Reserve Board (the "Fed"), market
sentiment and world equity markets rebounded from their October 1998 lows. The
coordinated rate cut of the European Central Bank countries in early December
was a further move that fueled the hopes of investors for improvement in growth
prospects.
Since January 1999, however, the consensus estimate for 1999 U.S. GDP growth has
risen from 2.4% to 3.1%, and forecasts for the U.K. have also risen. European
consumer confidence was a stabilizing factor, as were more positive signals from
some Southeast Asian economies. After a calm launch in January, the euro
depreciated by more than 7% against the U.S. dollar. This was, however, more due
to positive growth surprises in the U.S. and related fears of Fed rate hikes,
than a genuine euro weakness. Contributing to the positive environment for
equities were lower interest rates. As a result, the equity markets had a very
sharp bounce off their October 6, 1998 low, rising 30% by the end of the year.
From the beginning of January 1999 until the end of February the broad Europe
STOXX Index was up 3.9%.+ Despite the strong market performance, liquidity
inflows in Europe weakened substantially as market volatility picked up. Average
monthly inflows fell from over $6 billion to just over $2 billion per month.
However, continued low interest rates, with the possibility of further rate cuts
to come, should provide further liquidity for the equity markets.
The Fund's level of investment varied over the reporting period. In October
1998, the cash level reached a maximum of around 10%, but since the end of
November the Fund was invested 93% to 100%. In October and November, we
significantly increased our weighting in the utility area for a more defensive
orientation of the portfolio (Suez Lyonnaise des Eaux and Vivendi). Since the
beginning of 1999, a number of companies have been replaced. Some chemical
companies were sold and the assets were invested into the telecommunication area
(Vodafone, Telecom Italia, Equant and Telefonica), and into the financial
services area (UBS and Generali).
All the companies mentioned above are known for their strong position in their
respective areas, high quality management and decent earnings growth potential.
*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 B Shares for the reporting period, based on NAV
and redemption value was (0.34)% and (5.32)%, respectively. Total return for
Class C Shares for the period from inception date (September 2, 1998) through
February 26, 1999, based on NAV and redemption value was 1.20% and 0.20%,
respectively.
** The MSCI Europe Index is a market value-weighted average of the performance
of over 500 securities listed on the stock exchanges of 15 countries in the
European region. This index is unmanaged and investments cannot be made in an
index.
+The Europe STOXX Index is composed of 665 securities of the Dow Jones Europe
Index listed on the stock exchanges of 16 countries in the European region.
This index is unmanaged and investments cannot be made in an index.
Deutsche Top 50 Asia
During the reporting period, Deutsche Top 50 Asia Class A Shares achieved a
total return of 35.50% at NAV (without sales charges), and 27.99% based on
offering price (with sales charges).* The MSCI Pacific ex-Japan Index, the
Fund's benchmark, returned 34.19% during this time period.**
In the reporting period, the Asian stock markets were dominated by a substantial
strengthening of the Japanese yen, especially since the beginning of October
1998. This movement has taken devaluation pressure away from the other Asian
currencies and has led to falling interest rates across the whole region.
Successive rate cuts in the United States and the Brazilian International
Monetary Fund package helped to further relieve the pressure on the markets.
The stronger yen has led to a reallocation of the Fund's portfolio into Japanese
export-oriented companies. By adding the two domestic telecommunication
companies, NTT and NTT Docomo, we heightened our exposure to the local economy.
Interest rate sensitive stocks such as property companies in Singapore and Hong
Kong, as well as banks in Singapore, have been the strongest performers in the
reporting period. Korean stocks performed well, especially in November and
December 1998. The strong local currency and low raw oil prices positively
influenced the power producer KEPCO, which can be found in the portfolio.
Stronger prices for semiconductors after worldwide capacity shutdowns, led to
increased margins for Samsung Electronics, also currently held by the Fund.
Blue chip stocks in Asia have substantially outperformed, and enabled the Fund
to outperform its benchmark. The Fund maintained a very high level of investment
during the six-month period. Preferred areas have been electronics exporters,
quality banks, and property companies in cities such as Singapore and Hong Kong.
In February 1999, the Fund realized profits in Korean stocks, and increased its
weighting in Japanese stocks due to several positive signs: a decrease in risk
due to the apparent financial crisis recovery and the announcements of corporate
restructurings. Over the reporting period, the Fund remained cautiously invested
in Indonesia, China and Malaysia.
*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 B Shares for the reporting period, based on NAV
and redemption value was 35.07% and 30.07%, respectively.
** 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, Indonesia, Korea, Malaysia, New
Zealand, Philippines, Singapore, Taiwan and Thailand. This index excludes
Japan. This index is unmanaged and investments cannot be made in an index.
Deutsche Top 50 US
During the reporting period, Deutsche Top 50 US Class A Shares achieved a total
return of 33.12% at NAV (without sales charges), and 25.84% based on offering
price (with sales charges).* The Standard & Poor's 500 Index (the "S&P 500"),
the Fund's benchmark, returned 30.27% during this time period.**
The Fund benefited from its overweighting in technology and health care, which
continues into the current year. However, it was penalized by an above-average
commitment in financial services. In 1998, stock market investors continued to
prefer liquid, marketable equities that have strong competitive positions in
growing businesses. These characteristics were well represented in the Fund's
holdings and continue in the current year, as the Dow Jones Industrial Average
(DJIA) races towards the historic 10,000 mark.+ The two largest individual
positions at the end of the year were Home Depot and Microsoft, which both had
outstanding share price performances. It is also true that Fund performance was
boosted by the early recognition of now more accepted institutional names such
as EMC, IMS Health, and Symbol Technologies. At year end, commitments were
increased in Gartner Group and McKesson HBOC, both of which were under
performers in 1998 but have promising future prospects.
The beginning of 1999 has brought increased volatility for the market and the
Fund with uncertainties on the international and interest rate fronts. In
addition, cross currents in technology including Year 2000 (Y2K) spending and
personal computer demand have heightened investor concern. Ten percent
day-to-day swings in the technology-heavy NASDAQ are not uncommon.
During the reporting period, we restructured our technology holdings somewhat,
by initiating a position in IBM, to replace our former PeopleSoft holding. We
also added a position in Sun Microsystems which has begun to challenge the
"Wintel" dominance in the PC industry, and initiated a position in Hughes
Electronics, which is the space and telecommunications division of General
Motors. Hughes is the world's largest pure-play satellite communications company
and a leader in each of its core businesses-- satellite manufacturing, fixed
satellite services, and direct-to-home TV, following its recent acquisition of
Primestar.
Our telecommunications holding in Airtouch benefited from the acquisition
bidding war between Vodafone and Bell Atlantic for the company earlier in the
year. Vodafone won out and we intend to replace Airtouch with another
telecommunications leader (most likely AT&T), since Vodafone now falls outside
of our investable universe of U.S. domestic stocks. During the reporting period,
we also increased our position in MCI Worldcom, which is now one of our largest
holdings in the Fund and a major beneficiary of internet usage.
Financial services have been the best performing major S&P 500 sector in 1999,
and the Fund has benefited from positions in Marsh & McLennan, Citigroup and
Household International.
*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 B Shares for the reporting period, based on NAV
and redemption value was 32.76% and 27.76%, respectively. Total return for
Class C Shares for the period from inception date (September 2, 1998) through
February 26, 1999, based on NAV and redemption value was 26.96% and 25.96%,
respectively.
** The S&P 500 is 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.
+The DJIA is an unmanaged index which represents share prices of selected
blue-chip industrial corporations as well as public utility and transportation
companies. The DJIA indicates daily changes in the average price of stocks in
any of its categories. It also reports total sales for each group of
industries. Because it represents the top corporations of America, the DJIA's
index movements are leading economic indicators for the stock market as a
whole.
STATEMENTS OF ASSETS AND LIABILITIES
Deutsche Funds, Inc.
February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche
Top 50 Top 50 Top 50 Top 50
World Europe Asia US
<S> <C> <C> <C> <C>
Assets:
Investment in corresponding Deutsche Portfolio, at value $ 1,459,567 $ 9,003,948 $11,638,314 $5,004,397
Receivable from Manager for expense reimbursement 34,063 50,339 36,881 41,909
Receivable for capital shares sold -- 31,144 -- --
Receivable from corresponding Deutsche Portfolio for withdrawals -- 47,316 -- 450
Foreign tax reclaim receivable -- 2,344 -- --
Deferred organization costs 9,048 9,048 9,131 9,048
Total assets 1,502,678 9,144,139 11,684,326 5,055,804
Liabilities:
Payable for capital shares redeemed -- 47,316 -- 450
Payable to corresponding Deutsche Portfolio for contributions -- 31,144 -- --
Transfer Agent fees payable 4,222 7,137 4,694 4,429
Custody and portfolio accounting fees payable 1,766 1,863 1,600 1,863
Administrative fees payable 60 462 532 231
Distribution fees payable 633 4,631 1,909 1,855
Other accrued expenses 11,727 3,302 18,175 7,547
Total liabilities 18,408 95,855 26,910 16,375
Net assets $ 1,484,270 $ 9,048,284 $11,657,416 $5,039,429
Net Assets Consist of:
Capital stock, $0.001 par value (authorized 250,000,000 shares for each $ 103 $ 748 $ 1,050 $ 318
Fund)
Paid-in capital 1,462,918 9,605,174 12,827,291 4,324,882
Accumulated net investment loss (3,121) (44,960) (18,782) (14,215)
Undistributed (accumulated) net realized gain (loss) on investments,
futures contracts and
foreign currency transactions 12,154 (364,421) (159,978) (189,369)
Net unrealized appreciation/(depreciation) of investments, futures 12,216 (148,257) (992,165) 917,813
contracts and foreign currency
Net assets $ 1,484,270 $ 9,048,284 $11,657,416 $5,039,429
Computation of Net Asset Value, Redemption Price and Offering Price Per
Share:
Net assets -- Class A $ 704,218 $ 2,679,336 $11,296,449 $3,064,180
Shares outstanding -- Class A 45,825 205,521 1,020,764 182,374
Net asset value and redemption price per share -- Class A $15.37 $13.04 $11.07 $16.80
Offering price per share -- Class A $16.26 $13.80 $11.71 $17.78
Net assets -- Class B $ 780,052 $ 5,546,126 $ 360,967 $1,975,122
Shares outstanding -- Class B 56,873 477,590 28,797 135,769
Net asset value, offering price and redemption price per share -- Class B $13.72 $11.61 $12.53 $14.55
Net assets -- Class C -- $ 822,822 -- $ 127
Shares outstanding -- Class C -- 65,046 -- 8
Net asset value, offering price and redemption price per share -- Class C -- $12.65 -- $15.87
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENT OF OPERATIONS
Deutsche Funds, Inc.
For the six months ended February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche
Top 50 Top 50 Top 50 Top 50
World Europe Asia US
<S> <C> <C> <C> <C>
Investment Income:
Investment Income and Expenses allocated from corresponding Deutsche Portfolio:
Dividend income $ 2,162 $ 11,836 $ 2,722 $ 12,705
Less: Foreign withholding taxes (78) (1,899) (38) --
Net dividend income 2,084 9,937 2,684 12,705
Interest income 759 17,467 4,906 4,966
Expenses (11,353) (73,977) (36,716) (39,558)
Net investment loss allocated from corresponding Deutsche Portfolio (8,510) (46,573) (29,126) (21,887)
Expenses:
Transfer Agent fees 26,000 35,000 26,000 27,500
Professional fees 15,795 15,795 16,815 15,795
Registration fees 13,545 25,307 17,741 18,631
Portfolio accounting fees 10,266 11,363 10,100 11,363
Reports to Shareholders 8,915 8,915 10,544 8,915
Directors' fees and expenses 1,250 1,250 1,250 1,250
Amortization of organization costs 1,235 1,235 1,235 1,235
Insurance fees 819 819 937 819
Administration fees 187 2,130 1,034 1,170
Distribution fees -- Class B 1,041 15,736 852 4,752
Distribution fees -- Class C (a) -- 1,376 -- --
Service fees -- Class A 373 2,490 3,692 2,915
Service fees -- Class B 347 5,245 284 1,584
Service fees -- Class C (a) -- 459 -- --
Other expenses 202 202 202 202
Total expenses 79,975 127,322 90,686 96,131
Less: Expense reimbursement (85,610) (131,465) (100,592) (103,803)
Net reimbursement in excess of total expenses (5,635) (4,143) (9,906) (7,672)
Net investment loss (2,875) (42,430) (19,220) (14,215)
Net Realized and Unrealized Gain (Loss) on Investments, Futures Contracts and
Foreign Currency
allocated from corresponding Deutsche Portfolio:
Net realized gain (loss) on:
Investments 13,927 (311,592) (112,671) (164,204)
Futures contracts -- (39,421) -- --
Foreign currency transactions (1,076) (12,614) (37,942) --
Net change in unrealized appreciation/(depreciation) on:
Investments 51,221 417,798 (1,018,987) 1,086,428
Futures contracts -- 1,957 -- --
Foreign currency translation 578 (935) 41,825 --
Net Realized and Unrealized Gain (Loss) on Investments, Futures Contracts and
Foreign Currency
allocated from corresponding Deutsche Portfolio 64,650 55,193 (1,127,775) 922,224
Net Increase (Decrease) in Net Assets Resulting From Operations $ 61,775 $ 12,763 $(1,146,995) $ 908,009
(a) Inception date: - 9/2/98 - 9/2/98
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Deutsche Funds, Inc.
<TABLE>
<CAPTION>
Deutsche Top 50 World Deutsche Top 50 Europe
For the Six
Months For the
For the Six For the Ended Period
Months Ended Period February 26, Ended (a)
February 26, 1999 Ended (a) 1999 August 31,
(unaudited) August 31, 1998 (unaudited) 1998
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment loss $ (2,875) $ (9) $ (42,430) $ (1,014)
Net realized gain (loss) on investments, futures contracts and foreign
currency
transactions allocated from corresponding Deutsche Portfolio 12,851 8,390 (363,627) 15,157
Net change in unrealized appreciation/depreciation on investments,
futures contracts and
foreign currency translations allocated from corresponding Deutsche 51,799 (39,583) 418,820 (567,077)
Portfolio
Net increase (decrease) in net assets resulting from operations 61,775 (31,202) 12,763 (552,934)
Distributions to Shareholders:
Dividends from net investment income:
Class A (29) -- -- --
Class B (5) -- -- --
Class C -- -- -- --
Distributions from realized gains:
Class A (3,696) -- -- --
Class B (2,250) -- -- --
Class C -- -- -- --
Total distributions (5,980) -- -- --
Capital Share Transactions: Class A
Net proceeds from shares sold 828,229 197,213 2,148,902 1,500,448
Net proceeds from dividends and distributions reinvested 3,508 -- -- --
Net cost of shares redeemed (359,367) (8,458) (709,465) (148,736)
Net increase in net assets resulting from capital share transactions -- 472,370 188,755 1,439,437 1,351,712
Class A
Capital Share Transactions: Class B (b)
Net proceeds from shares sold 683,417 101,772 3,003,352 3,652,990
Net proceeds from dividends and distributions reinvested 2,253 -- -- --
Net cost of shares redeemed (2) -- (559,151) (134,341)
Net increase in net assets resulting from capital share transactions -- 685,668 101,772 2,444,201 3,518,649
Class B
Capital Share Transactions: Class C (c)
Net proceeds from shares sold -- -- 1,028,857 --
Net cost of shares redeemed -- -- (205,512) --
Net increase in net assets resulting from capital share transactions -- -- -- 823,345 --
Class C
Total increase in net assets 1,213,833 259,325 4,719,746 4,317,427
Net Assets:
Beginning of period 270,437 11,112 4,328,538 11,111
End of period (d) $1,484,270 $270,437 $9,048,284 $4,328,538
Capital Shares -- Class A
Shares sold 54,595 14,360 166,505 102,366
Shares reinvested 223 -- -- --
Shares redeemed (23,635) (607) (53,689) (10,550)
Net increase in fund shares 31,183 13,753 112,816 91,816
Capital Shares -- Class B (b)
Shares sold 48,623 8,089 256,208 278,086
Shares reinvested 161 -- -- --
Shares redeemed -- -- (46,463) (10,241)
Net increase in fund shares 48,784 8,089 209,745 267,845
Capital Shares -- Class C (c)
Shares sold -- -- 80,465 --
Shares redeemed -- -- (15,419) --
Net increase in fund shares -- -- 65,046 --
(a) Commencement of operations: 10/2/97 10/2/97
(b) Inception date: 5/4/98 3/30/98
(c) Inception date: -- 9/2/98
(d) Includes accumulated net investment loss of: $(3,121) $ (212) $(44,960) $ (2,530)
The accompanying notes are an integral part of the financial statements.
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
Deutsche Funds, Inc.
<TABLE>
<CAPTION>
Deutsche Top 50 Asia Deutsche Top 50 US
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
Operations --
Net investment loss $ (19,220) $ (102) $ (14,215) $ (7,648)
Net realized loss on investments, futures contracts
and foreign currency
transactions allocated from corresponding Deutsche (150,613) (18,360) (164,204) (27,910)
Portfolio
Net change in unrealized appreciation/depreciation on
investments, futures contracts and
foreign currency translations allocated from (977,162) (15,003) 1,086,428 (168,615)
corresponding Deutsche Portfolio
Net increase (decrease) in net assets resulting from (1,146,995) (33,465) 908,009 (204,173)
operations
Distributions to Shareholders:
Dividends from net investment income:
Class A (217) -- -- --
Class B (102) -- -- --
Class C -- -- -- --
Total distributions (319) -- -- --
Capital Share Transactions: Class A
Net proceeds from shares sold 12,612,069 43,445 1,512,057 2,396,342
Net proceeds from dividends and distributions 216 -- -- --
reinvested
Net cost of shares redeemed (156,657) (3,711) (1,105,449) (218,521)
Net increase in net assets resulting from capital 12,455,628 39,734 406,608 2,177,821
share transactions -- Class A
Capital Share Transactions: Class B (b)
Net proceeds from shares sold 343,577 160,659 1,231,859 601,621
Net proceeds from dividends and distributions 103 -- -- --
reinvested
Net cost of shares redeemed (84,705) (87,912) (2) (93,525)
Net increase in net assets resulting from capital 258,975 72,747 1,231,857 508,096
share transactions -- Class B
Capital Share Transactions: Class C (c)
Net proceeds from shares sold -- -- 100 --
Net cost of shares redeemed -- -- -- --
Net increase in net assets resulting from capital -- -- 100 --
share transactions -- Class C
Total increase in net assets 11,567,289 79,016 2,546,574 2,481,744
Net Assets:
Beginning of period 90,127 11,111 2,492,855 11,111
End of period (d) $11,657,416 $ 90,127 $ 5,039,429 $2,492,855
Capital Shares -- Class A
Shares sold 1,029,838 4,424 93,977 177,430
Shares reinvested 19 -- -- --
Shares redeemed (14,053) (353) (74,545) (15,377)
Net increase in fund shares 1,015,804 4,071 19,432 162,053
Capital Shares -- Class B (b)
Shares sold 30,471 14,351 95,952 47,729
Shares reinvested 8 -- -- --
Shares redeemed (7,019) (9,014) -- (7,912)
Net increase in fund shares 23,460 5,337 95,952 39,817
Capital Shares -- Class C (c)
Shares sold -- -- 8 --
Shares redeemed -- -- -- --
Net increase in fund shares -- -- 8 --
(a) Commencement of operations: 10/14/97 10/2/97
(b) Inception date: 5/5/98 3/18/98
(c) Inception date: -- 9/2/98
(d) Includes undistributed (accumulated) net investment
income (loss) of: $(18,782) $757 $ (14,215) $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
FINANCIAL HIGHLIGHTS
Deutsche Funds, Inc.
Selected data for a Class A share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
Deutsche Top 50 World Deutsche Top 50 Europe
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 12.35 $ 12.50 $ 13.03 $12.50
Investment operations:
Net investment income (loss) (0.02) 0.01 (0.04) 0.02
Net realized and unrealized gain (loss) on
investments, futures contracts
and foreign currency allocated from 3.23 (0.16) 0.05 0.51
corresponding Deutsche Portfolio
Increase (decrease) from investment operations 3.21 (0.15) 0.01 0.53
Distributions to Shareholders:
Dividends from net investment income (0.00)* -- -- --
Distributions from net realized gains (0.19) -- -- --
Total distributions (0.19) -- -- --
Net asset value at end of period $ 15.37 $ 12.35 $ 13.04 $13.03
Total Return (based on net asset value) (b)** 25.96% (1.20)% 0.08% 4.24%
Ratios and Supplemental Data:
Net assets, end of period (000's) $ 704 $ 181 $ 2,679 $1,208
Ratios to average net assets:
Expenses (c)*** 1.60% 1.60% 1.60% 1.60%
Net investment income (loss) (c)*** (0.61)% 0.13% (0.77)% 0.50%
(a) Commencement of operations: 10/2/97 10/2/97
</TABLE>
(b) 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
the beginning of each period, reinvestment of distributions at net asset value
and a redemption 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.
(c) 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>
Expenses to average net assets*** 27.98% 127.49% 5.50% 16.53%
Net investment loss to average net assets*** (26.99)% (125.76)% (4.67)% (14.43)%
</TABLE>
* Amount rounds to less than $0.01.
** Not annualized
*** Annualized
The accompanying notes are an integral part of the financial statements.
FINANCIAL HIGHLIGHTS (CONTINUED)
Deutsche Funds, Inc.
Selected data for a Class A share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
Deutsche Top 50 Asia Deutsche Top 50 US
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 8.18 $ 12.50 $ 12.62 $ 12.50
Investment operations:
Net investment income (loss) (0.09) 0.01 (0.03) (0.03)
Net realized and unrealized gain (loss) on
investments, futures contracts
and foreign currency allocated from 2.99 (4.33) 4.21 0.15
corresponding Deutsche Portfolio
Increase (decrease) from investment operations 2.90 (4.32) 4.18 0.12
Distributions to Shareholders:
Dividends from net investment income (0.01) -- -- --
Total distributions (0.01) -- -- --
Net asset value at end of period $ 11.07 $ 8.18 $ 16.80 $ 12.62
Total Return (based on net asset value) (b)* 35.50% (34.56)% 33.12% 0.96%
Ratios and Supplemental Data:
Net assets, end of period (000's) $11,296 $ 41 $ 3,064 $ 2,056
Ratios to average net assets:
Expenses (c)** 1.60% 1.60% 1.50% 1.50%
Net investment income (loss) (c)** (1.18)% 0.15% (0.50)% (0.44)%
(a) Commencement of operations: 10/14/97 10/2/97
</TABLE>
(b) 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
the beginning of each period, reinvestment of distributions at net asset value
and a redemption 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.
(c) 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>
Expenses to average net assets** 8.07% 247.05% 6.89% 11.58%
Net investment loss to average net assets** (7.65)% (245.30)% (5.89)% (10.52)%
</TABLE>
* Not annualized
** Annualized
The accompanying notes are an integral part of the financial statements.
FINANCIAL HIGHLIGHTS (CONTINUED)
Deutsche Funds, Inc.
Selected data for a Class B share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
Deutsche Top 50 World Deutsche Top 50 Europe
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 11.08 $ 12.50 $ 11.65 $ 12.50
Investment operations:
Net investment loss (0.02) (0.01) (0.06) (0.01)
Net realized and unrealized gain (loss) on
investments, futures contracts
and foreign currency allocated from corresponding 2.85 (1.41) 0.02 (0.84)
Deutsche Portfolio
Increase (decrease) from investment operations 2.83 (1.42) (0.04) (0.85)
Distributions to Shareholders:
Dividends from net investment income (0.00)* -- -- --
Distributions from net realized gains (0.19) -- -- --
Total distributions (0.19) -- -- --
Net asset value at end of period $ 13.72 $ 11.08 $ 11.61 $ 11.65
Total Return (based on net asset value) (b)** 25.49% (11.36)% (0.34)% (6.80)%
Ratios and Supplemental Data:
Net assets, end of period (000's) $ 780 $ 90 $ 5,546 $ 3,120
Ratios to average net assets:
Expenses (c)*** 2.35% 2.35% 2.35% 2.35%
Net investment loss (c)*** (1.39)% (0.84)% (1.52)% (0.46)%
(a) Commencement of operations: 5/4/98 3/30/98
</TABLE>
(b) 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
the beginning of each period, reinvestment of distributions at net asset value
and a redemption 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.
(c) 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*** 34.93% 128.24% 6.19% 17.28%
Net investment loss to average net assets*** (33.97)% (126.73)% (5.36)% (15.39)%
</TABLE>
* Amount rounds to less than $0.01.
** Not annualized
*** Annualized
The accompanying notes are an integral part of the financial statements.
FINANCIAL HIGHLIGHTS (CONTINUED)
Deutsche Funds, Inc.
Selected data for a Class B share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
Deutsche Top 50 Asia Deutsche Top 50 US
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 9.28 $ 12.50 $ 10.96 $ 12.50
Investment operations:
Net investment loss (0.10) (0.02) (0.04) (0.06)
Net realized and unrealized gain (loss) on
investments, futures contracts
and foreign currency allocated from 3.36 (3.20) 3.63 (1.48)
corresponding Deutsche Portfolio
Increase (decrease) from investment 3.26 (3.22) 3.59 (1.54)
operations
Distributions to Shareholders:
Dividends from net investment income (0.01) -- -- --
Total distributions (0.01) -- -- --
Net asset value at end of period $ 12.53 $ 9.28 $ 14.55 $ 10.96
Total Return (based on net asset value) (b)* 35.07% (25.76)% 32.76% (12.32)%
Ratios and Supplemental Data:
Net assets, end of period (000's) $ 361 $ 50 $ 1,975 $ 436
Ratios to average net assets:
Expenses (c)** 2.35% 2.35% 2.25% 2.25%
Net investment loss (c)** (1.28)% (0.51)% (1.31)% (1.35)%
(a) Commencement of operations: 5/5/98 3/18/98
</TABLE>
(b) 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
the beginning of each period, reinvestment of distributions at net asset value
and a redemption 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.
(c) 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** 5.01% 247.80% 8.64% 12.33%
Net investment loss to average net assets** (3.94)% (245.96)% (7.70%) (11.43)%
</TABLE>
* 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 (a) through February 26, 1999 (unaudited)
Selected data for a Class C share of common stock outstanding throughout the
period.
<TABLE>
<CAPTION>
Deutsche Deutsche
Top 50 Top 50
Europe US
<S> <C> <C>
Net asset value at beginning of period $ 12.50 $ 12.50
Investment operations:
Net investment loss (0.04) (0.10)
Net realized and unrealized gain on investments, futures contracts and foreign
currency allocated from corresponding Deutsche Portfolio 0.19 3.47
Increase from investment operations 0.15 3.37
Net asset value at end of period $ 12.65 $ 15.87
Total Return (based on net asset value) (b)** 1.20% 26.96%
Ratios and Supplemental Data:
Net assets, end of period (000's) $ 823 $ 0*
Ratios to average net assets:
Expenses (c)*** 2.35% 2.25%
Net investment loss (c) *** (1.47)% (1.45)%
(a) Inception date: 9/2/98 9/2/98
</TABLE>
(b) 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
the beginning of each period, reinvestment of distributions at net asset value
and a redemption 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.
(c) 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>
Expenses to average net assets*** 8.65% 5.72%
Net investment loss to average net assets*** (7.77)% (4.92)%
</TABLE>
* Amount rounds to less than $1.
** Not annualized
*** Annualized
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
Deutsche Funds, Inc.
February 26, 1999 (unaudited)
Note 1--Organization
Deutsche Funds, Inc. (the "Company") was incorporated in Maryland on May 22,
1997 and is registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company. The Company currently
consists of eleven separate investment series (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
("Federated") 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"), an affiliate of Federated, serves
as distributor to the Funds (the "Distributor").
Top 50 World and Top 50 Asia offer two classes of shares to investors, Class A
and Class B. Top 50 Europe and Top 50 US offer three classes to investors, Class
A, Class B and Class C. All three Classes of shares are subject to a Service
Plan, and Class B Shares and Class C 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
February 26, 1999 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 10.38% Top 50 World Portfolio (US Dollar)
Top 50 Europe 31.78% Top 50 Europe Portfolio (US Dollar)
Top 50 Asia 32.15% Top 50 Asia Portfolio (US Dollar)
Top 50 US 19.03% 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 continue to qualify 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.
Distributions to Shareholders
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.
However, to the extent that the net realized gains of a Fund can be reduced by
any capital loss carryforwards of that Fund, such gains will not be distributed.
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.
Deferred Organization Costs
Organization costs incurred in connection with the organization and initial
registration of the Company were paid initially by DFM and are being reimbursed
by the Funds. Such organization costs have been deferred and are being 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 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 and Class C Shares of the Funds are
subject to the Distribution Plan and Class A Shares, Class B Shares and Class C
Shares of the Funds are subject to the Service Plan. Under the Distribution
Plan, Class B Shares and Class C 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 and Class C Shares,
respectively, to finance any activity that is principally intended to result in
the sale of Class B Shares and Class C 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, Class B Shares and Class C 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. IBT (Boston) acts as the sub-
administrator for each Fund and as the custodian of each Fund's assets.
Expense Reimbursements
DFM has voluntarily agreed that it will reimburse each Fund through at least
August 31, 1999, 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% and
2.35% of the average daily net assets of Class A Shares, of Class B Shares and
of Class C Shares of the Funds, respectively, with the exception of the Deutsche
Top 50 US for which DFM has voluntarily agreed to maintain its expenses at
1.50%, 2.25% and 2.25% of average daily net assets for Class A, Class B and
Class C, respectively.
For the six months ended February 26, 1999, DFM voluntarily reimbursed the
following expenses pursuant to this undertaking:
<TABLE>
<CAPTION>
Portfolio Fund Total Portfolio Fund Total
<S> <C> <C> <C> <C> <C> <C> <C>
Top 50 World $5,635 $ 79,975 $ 85,610 Top 50 Asia $9,906 $ 90,68 $ 100,52
Top 50 Europe $4,143 $127,322 $131,465 Top 50 US $7,672 $96,131 $103,803
</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 February 26, 1999, affiliates of Deutsche Bank AG owned 8.1% of the Top 50
World--Class A Shares.
PORTFOLIO OF INVESTMENTS
Top 50 World Portfolio (US Dollar)
February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Market
Shares Description Value
<C> <S> <C>
Common Stocks--90.5%
France--6.8%
2,800 AXA $ 365,372
1,900 Elf-Aquitaine 198,261
470 L'OREAL 289,099
1,000 Total SA - B 104,348
957,080
Germany--4.1%
2,799 Daimler-Chrysler AG 261,787
2,400 Schering AG 308,694
570,481
Hong Kong--2.0%
10,000 HSBC Holdings Plc (Hong Kong Dollars) 281,374
Japan--6.0%
17,000 Fujitsu Ltd. 211,624
430 Nippon Telegraph & Telephone Corp. 353,722
3,700 Sony Corp. 279,468
844,814
Netherlands--1.8%
3,600 Unilever NV 259,794
Singapore--1.3%
24,100 Singapore Airlines Ltd. 177,586
Sweden--1.9%
10,000 Telefonaktiebolaget LM Ericsson 264,626
Switzerland--5.9%
70 Nestle SA 132,098
154 Novartis AG 270,108
240 Roche Holding AG 303,871
420 UBS AG* 130,698
836,775
United Kingdom--7.2%
7,000 British Petroleum Co. Plc 99,208
6,000 Glaxo Wellcome Plc 192,162
32,000 Shell Transport & Trading Co. 175,764
15,500 SmithKline Beecham Plc 218,176
18,000 Vodafone Group Plc 332,365
1,017,675
United States--53.5%
7,000 Abbott Laboratories 325,063
4,200 America Online, Inc.* 373,538
2,600 American Express Co. 282,100
2,700 Bristol-Myers Squibb Co. 340,031
1,300 Chevron Corp. 99,938
2,600 Cisco Systems, Inc.* 254,313
5,200 Citigroup, Inc.$305,500
3,100 Coca-Cola (The) Co. 198,206
3,200 Colgate-Palmolive Co. 271,600
5,300 Enron Corp. 344,500
3,700 Gillette Co. 198,413
7,000 Halliburton Co. 197,750
2,000 Intel Corp. 239,875
1,500 International Business Machines Corp. 255,000
2,900 Lucent Technologies, Inc. 294,531
5,000 McDonald's Corp. 425,000
3,600 MCI Worldcom, Inc.* 297,000
3,000 Medtronic, Inc. 211,875
3,400 Merck & Co., Inc. 277,950
4,000 Merrill Lynch & Co., Inc. 307,000
2,400 Microsoft Corp.* 360,300
2,700 Mobil Corp. 224,606
2,300 Pfizer, Inc. 303,456
9,200 Philip Morris Co., Inc. 359,950
3,100 Procter & Gamble (The) Co. 277,450
4,900 Schlumberger Ltd. 237,956
7,400 Walt Disney (The) Co. 260,388
7,523,289
Total Common Stocks (Cost--$11,058,135) 12,733,494
Preferred Stock--1.5%
Germany--1.5%
544 SAP AG 205,550
Total Preferred Stock (Cost--$248,456) 205,550
Total Investments--92.0% (Cost--$11,306,591) 12,939,044
Other assets in excess of liabilities--8.0% 1,121,932
Total Net Assets--100.0% $14,060,976
</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
Top 50 Europe Portfolio (US Dollar)
February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Market
Shares Description Value
<C> <S> <C>
Common Stocks--91.7%
Austria--3.0%
15,800 Bank Austria AG$850,381
Denmark--0.7%
1,870 Coloplast A/S - B 197,511
France--23.1%
4,000 Alcatel Alsthom 430,573
22,000 Alstom* 601,704
6,750 AXA 880,807
6,300 Compagnie Financiere de Paribas* 543,214
6,400 Compagnie Generale des Eaux 1,669,568
1,000 Elf-Aquitaine 104,348
2,750 Groupe Danone 685,374
6,000 Suez Lyonnaise des Eaux 1,200,112
4,230 Total SA - B 441,392
6,557,092
Germany--23.9%
3,002 Altana AG 191,908
8,582 BASF AG 297,405
3,000 Daimler-Chrysler AG 280,586
4,113 Deutsche Pfandbrief-und Hypothekenbank AG 354,641
2,036 Duerr AG 55,238
4,372 Fresenius Medical Care AG 254,997
8,265 Gehe AG 462,992
20,602 Hoechst AG 971,926
7,540 Mannesmann AG 1,012,881
559 Rhoen-Klinikum AG 61,708
1,274 SAP AG (a) 433,802
10,067 Schering AG 1,294,842
3,208 SGL Carbon AG 151,518
7,793 Siemens AG 492,190
8,462 Veba AG 451,721
6,768,355
Italy--4.4%
10,000 Assicurazioni Generali 389,053
80,000 Telecom Italia SpA 848,316
1,237,369
Netherlands--8.8%
18,420 Elsevier 299,441
7,000 Equant NV* 505,154
18,071 ING Groep NV 1,012,309
14,104 Koninklijke Ahold NV 542,214
1,706 Unilever NV 123,113
2,482,231
Norway--1.0%
8,400 Tomra Systems ASA $ 291,575
Spain--2.4%
15,000 Telefonica SA 685,402
Sweden--6.1%
10,480 AGA AB - A Shares 138,025
25,260 AGA AB - B Shares 331,142
13,830 Getinge Indutrier AB - B Shares 201,541
23,640 Securitas AB - B Shares 390,625
25,200 Telefonaktiebolaget LM Ericsson 666,858
1,728,191
Switzerland--10.6%
2,280 Credit Suisse Group 353,964
400 Novartis AG 701,580
780 Roche Holding AG 987,580
221 Schweizerische Rueckversicherungs-Gesellschaft 494,822
1,500 UBS AG* 466,777
3,004,723
United Kingdom--7.7%
32,000 Lloyds TSB Group Plc 458,370
18,900 Rentokil Initial Plc 139,827
600 Reuters Group Plc 7,975
200,400 Siebe Plc 844,797
40,000 Vodafone Group Plc 738,590
2,189,559
Total Common Stocks (Cost--$25,529,411) 25,992,389
Preferred Stocks--1.6%
Germany--1.6%
825 Fresenius AG 140,458
196 Rhoen-Klinikum AG 20,129
786 SAP AG 296,990
457,577
Total Preferred Stocks (Cost--$478,292) 457,577
Total Investments--93.3% (Cost--$26,007,703) 26,449,966
Other assets in excess of liabilities--6.7% 1,881,743
Total Net Assets--100.0% $28,331,709
</TABLE>
Notes to the Portfolio of Investments:
* Non-income producing security.
(a) This security is segregated with the Portfolio's Custodian as collateral for
open futures contracts.
The accompanying notes are an integral part of the financial statements.
PORTFOLIO OF INVESTMENTS
Top 50 Asia Portfolio (US Dollar)
February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Market
Shares Description Value
<C> <S> <C>
Common Stocks--98.4%
Australia--5.3%
30,000 AMP Ltd. $ 339,234
110,000 Australia & New Zealand Banking Group Ltd. 709,452
78,337 Broken Hill Proprietary Co. Ltd. 587,341
8,000 National Australia Bank Ltd. 133,208
30,000 Woodside Petroleum Ltd. 146,417
1,915,652
Hong Kong--17.7%
950,000 Cathay Pacific Airways Ltd. 1,060,637
110,000 Cheung Kong Holdings Ltd. 748,932
100,000 Cheung Kong Infrastructure Holdings 179,408
700,000 China Telecom (Hong Kong) Limited* 1,242,304
54,800 HSBC Holdings Plc (Hong Kong Dollars) 1,541,929
336,000 Jardine Matheson Holdings Ltd. 880,320
110,000 Sun Hung Kai Properties Ltd. 748,932
6,402,462
India--2.8%
40,000 Dr. Reddy's Laboratories Ltd.-GDR* 550,000
22,000 ITC Ltd.-GDR 459,800
1,009,800
Indonesia--0.4%
400,000 PT Telekomunikasi Indonesia 124,470
Japan--24.7%
40,000 Bridgestone Corp. 893,263
26,000 Canon, Inc. 555,471
100,000 Fujitsu Ltd. 1,244,848
55,000 Minebea Co., Ltd. 545,883
1,000 Nippon Telegraph & Telephone Corp. 822,609
25,000 Nomura Securities Co., Ltd. 205,232
150 NTT Mobile Communications Network, Inc. 608,125
60,000 Shiseido Co., Ltd. 726,722
13,000 Softbank Corp. 918,496
16,000 Sony Corp. 1,208,512
18,000 Takeda Chemical Industries 617,714
23,000 Toyota Motor Co. 599,714
8,946,589
Korea--15.6%
50,000 Korea Electric Power Corp.* 1,181,038
63,408 LG Electronics 640,040
9,000 Pohang Iron & Steel Co., Ltd. 395,014
35,643 Samsung Display Devices Co. 1,442,034
28,438 Samsung Electronics 2,003,562
5,661,688
Malaysia--2.5%
149,000 Malaysian Oxygen Bhd. $ 282,316
620,000 Nylex (Malaysia) Bhd. 248,000
188,200 O.Y.L. Industries Bhd. 378,876
909,192
Philippines--4.2%
940,000 Ayala Corp. 307,702
358,000 Benpres Holdings Corp.-GDR* 955,892
160,000 San Miguel Corp.-Class B 262,901
1,526,495
Singapore--18.2%
210,000 City Developments 877,285
680,000 DBS Land Ltd. 840,383
160,000 Development Bank of Singapore 1,160,429
110,000 Fraser & Neave Ltd. 373,368
370,000 GP Batteries International Ltd. 644,038
330,000 Overseas Union Bank Ltd.-Foreign Shares 1,206,266
200,000 Singapore Airlines Ltd. 1,473,745
6,575,514
Taiwan--4.7%
40,000 Acer, Inc.-GDR* 229,000
78 Asustek Computer Inc.-GDR* 651
70,000 Asustek Computer Inc.-GDR-Reg. S* 584,500
3,600 President Enterprises Corp.-GDR-144A* 26,460
43,500 Taiwan Semiconductor Manufacturing Co., Ltd.-ADR* 845,531
1,686,142
United Kingdom--2.3%
65,000 Standard Chartered Plc 847,274
Total Common Stocks (Cost--$35,375,748) 35,605,278
Convertible Preferred Stock--0.4%
Australia--0.4%
5,000 National Australia Bank Ltd. 151,563
Total Convertible Preferred Stock (Cost--$138,425) 151,563
Total Investments--98.8% (Cost--$35,514,173) 35,756,841
Other assets in excess of liabilities--1.2% 446,937
Total Net Assets--100.0% $36,203,778
</TABLE>
Notes to the Portfolio of Investments:
* Non-income producing security.
ADR--American Depository Receipt
GDR--Global Depository Receipt
144A--Securities restricted for resale to Qualified Institutional Buyers.
PORTFOLIO OF INVESTMENTS
Top 50 US Portfolio (US Dollar)
February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Market
Shares Description Value
<S> <C> <C>
Common Stocks--88.7%
Banking--2.8%
10,800 Bank of New York Co. (The), Inc. $ 377,325
9,210 Household International, Inc. 374,156
751,481
Beverages, Food & Tobacco--3.7%
2,700 Campbell Soup Co. 108,506
2,780 Coca-Cola (The) Co. 177,746
10,550 PepsiCo, Inc. 396,944
7,830 Philip Morris Co., Inc. 306,349
989,545
Building Materials--3.4%
15,080 Home Depot, Inc. 900,088
Chemicals--0.8%
4,500 Monsanto Co. 205,031
Commercial Services--2.2%
31,500 ServiceMaster Co. 588,656
Communications--3.5%
5,040 Lucent Technologies, Inc. 511,87
5,300 Tellabs, Inc.* 424,331
936,206
Computer Software & Processing--8.8%
15,300 Gartner Group, Inc. - Class A* 343,294
14,200 IMS Health, Inc. 504,100
5,300 Microsoft Corp.* 795,663
7,300 Sun Microsystems, Inc.* 710,381
2,353,438
Computers & Information--9.4%
5,625 Cisco Systems, Inc.* 550,195
8,080 EMC Corp.* 827,190
4,000 International Business Machines Corp. 680,000
8,480 Symbol Technologies, Inc. 449,440
2,506,825
Cosmetics & Personal Care--6.1%
15,100 Avon Products, Inc. 628,538
5,230 Estee Lauder Co. - Class A 454,029
5,020 Gillette Co. 269,198
3,000 Procter & Gamble (The) Co. 268,500
1,620,265
Electric Utilities--2.2%
15,750 AES Corp.* 585,703
Electrical Equipment--2.5%
6,620 General Electric Co. 664,069
Electronics--5.3%
11,600 General Motors Corp.-Class H (Hughes Electronics)* $ 547,375
2,930 Intel Corp. 351,417
5,800 Texas Instruments Inc. 517,288
1,416,080
Financial Services--3.8%
113 Berkshire Hathaway Inc.-Class B 268,530
7,500 Citigroup Inc. 440,625
4,140 Federal National Mortgage Association 289,800
998,955
Industrial--Diversified--3.2%
11,300 Tyco International Ltd. 841,144
Insurance--5.9%
4,455 American International Group, Inc. 507,592
3,650 Chubb Corp. 218,088
5,400 Marsh & McLennan Co., Inc. 382,388
10,650 UNUM Corp. 476,588
1,584,656
Medical Supplies--4.8%
9,000 Boston Scientific Corp.* 238,500
7,200 Guidant Corp. 410,400
3,370 Johnson & Johnson 287,714
5,010 Medtronic, Inc. 353,831
1,290,445
Office Equipment--1.7%
8,420 Xerox Corp. 464,679
Pharmaceuticals--8.7%
5,660 Abbott Laboratories 262,836
9,189 McKesson HBOC, Inc. 624,852
5,680 Merck & Co., Inc. 464,340
4,600 Pfizer, Inc. 606,913
5,400 Warner-Lambert Co. 372,938
2,331,879
Retailers--4.0%
18,270 Staples, Inc.* 537,253
6,120 Wal-Mart Stores, Inc. 528,615
1,065,868
Telephone Systems--5.9%
4,000 Airtouch Communications, Inc.* 364,250
Telephone Systems--continued
14,600 MCI Worldcom, Inc.* $ 1,204,495
1,568,745
Total Investments--88.7% (Cost--$18,709,266) 23,663,758
Other assets in excess of liabilities--11.3% 3,027,547
Total Net Assets--100.0% $26,691,305
</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 Tables
The following are the industry sector diversifications of the Top 50 World
Portfolio, Top 50 Europe Portfolio and Top 50 Asia Portfolio as a percentage of
net assets as of February 26, 1999:
Top 50 World Portfolio (US Dollar)
<TABLE>
<CAPTION>
Percentage of
Industry Sector Net Assets
<S> <C>
Pharmaceuticals 18.1%
Oil & Gas 10.5
Computer Software & Processing 8.2
Cosmetics & Personal Care 7.4
Telephone Systems 7.0
Financial Services 6.9
Beverages, Food & Tobacco 6.8
Banking 4.9
Communications 4.0
Electronics 3.7
Computers & Information 3.6
Restaurants 3.0
Automotive 1.9
Entertainment & Leisure 1.8
Medical Supplies 1.5
Commercial Services 1.4
Airlines 1.3
Other assets in excess of liabilities 8.0
Total 100.0%
</TABLE>
Top 50 Europe Portfolio (US Dollar)
<TABLE>
<CAPTION>
Percentage of
Industry Sector Net Assets
<S> <C>
Pharmaceuticals 11.2%
Industrial--Diversified 8.8
Banking 8.8
Commercial Services 7.8
Insurance 6.7
Chemicals 6.7
Telephone Systems 6.5
Communications 5.3
Financial Services 5.1
Electrical Equipment 4.7
Computer Software & Processing 4.4
Beverages, Food & Tobacco 2.8
Heavy Machinery 2.3
Oil & Gas 1.9
Food Retailers 1.9
Health Care Providers 1.7
Wholesalers 1.6
Electric Utilities 1.6
Medical Supplies 1.4
Media--Broadcasting & Publishing 1.1
Automotive 1.0
Other assets in excess of liabilities 6.7
Total 100.0%
</TABLE>
Top 50 Asia Portfolio (US Dollar)
<TABLE>
<CAPTION>
Percentage of
Industry Sector Net Assets
<S> <C>
Electronics 17.0%
Banking 15.9
Real Estate 8.9
Airlines 7.0
Industrial--Diversified 6.2
Telephone Systems 6.0
Communications 4.3
Computers & Information 4.2
Automotive 4.1
Computer Software & Processing 4.1
Electric Utilities 3.3
Financial Services 3.0
Cosmetics & Personal Care 2.0
Beverages, Food & Tobacco 1.8
Medical Supplies 1.7
Office Equipment 1.5
Pharmaceuticals 1.5
Electrical Equipment 1.5
Metals 1.1
Building Materials 1.0
Insurance 0.9
Chemicals 0.8
Heavy Construction 0.5
Oil & Gas 0.4
Food Retailers 0.1
Other assets in excess of liabilities 1.2
Total 100.0%
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF ASSETS AND LIABILITIES
Deutsche Portfolios
February 26, 1999 (unaudited)
<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 $12,939,044 $26,449,966 $35,756,841 $23,663,758
Cash 1,111,928 1,636,549 519,272 2,732,424
Foreign currency -- 1,171,204 8,043 --
Dividends receivable 8,320 21,481 2,720 10,612
Interest receivable 2,813 8,394 4,723 7,187
Receivable for investments sold -- 1,886,207 -- 504,582
Receivable for Investors' Beneficial Interest for 95,831 56,877 -- 110,287
contributions
Variation margin receivable on open futures contracts -- 33,079 -- --
Deferred organization costs 47,382 47,382 47,816 47,382
Total assets 14,205,318 31,311,139 36,339,415 27,076,232
Liabilities:
Payable for investments purchased -- 2,768,893 -- 232,371
Unrealized depreciation on forward foreign currency -- 1,971 -- --
contracts
Payable to Investors' Beneficial Interest for withdrawals -- 47,316 -- 450
Investment management fees payable 72,856 90,604 63,869 83,740
Custody and portfolio accounting fees payable 3,195 3,343 3,848 650
Administrative fees payable 8,643 8,106 7,610 8,289
Organization costs payable 48,394 48,394 48,827 48,394
Other accrued expenses 11,254 10,803 11,483 11,033
Total liabilities 144,342 2,979,430 135,637 384,927
Net assets $14,060,976 $28,331,709 $36,203,778 $26,691,305
Net Assets:
Applicable to Investors' Beneficial Interests $14,060,976 $28,331,709 $36,203,778 $26,691,305
Cost of investments $11,306,591 $26,007,703 $35,514,173 $18,709,266
Cost of foreign currency $ -- $ 1,181,193 $ 8,048 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF OPERATIONS
Deutsche Portfolios
For the six months ended February 26, 1999 (unaudited)
<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 $ 45,021 $ 38,995 $ 106,559 $ 67,559
Less: foreign withholding taxes (2,012) (8,693) (15,248) --
Net dividend income 43,009 30,302 91,311 67,559
Interest income (net of interest expense of $0, $235, $983 and $50, 14,027 60,096 36,014 26,401
respectively)
Total income 57,036 90,398 127,325 93,960
Expenses:
Investment management fees 57,767 112,360 125,470 80,808
Operations agent fees 59,744 57,184 57,534 58,208
Custody and portfolio accounting fees 33,414 34,414 36,924 21,944
Administrative agent fees 19,820 19,820 19,820 19,820
Professional fees 11,789 11,789 12,377 11,791
Trustees' fees and expenses 1,259 1,259 1,259 1,259
Insurance fees 609 609 609 609
Other expenses 7,900 7,900 8,274 7,899
Amortization of organization costs 6,465 6,465 6,465 6,465
Total expenses 198,767 251,800 268,732 208,803
Net investment loss (141,731) (161,402) (141,407) (114,843)
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts and
Foreign Currency:
Net realized gain (loss) on:
Investments 119,582 (1,115,652) (814,360) (862,899)
Futures contracts -- (127,445) -- --
Foreign currency transactions (11,590) (44,345) (342,391) --
Net change in unrealized appreciation/(depreciation) on:
Investments 2,344,232 1,444,621 5,655,745 5,929,739
Futures contracts -- 9,851 -- --
Foreign currency translation (210) (2,921) 67,414 --
Net Realized and Unrealized Gain on Investments, Futures Contracts and 2,452,014 164,109 4,566,408 5,066,840
Foreign Currency
Net Increase in Net Assets Resulting from Operations $2,310,283 $ 2,707 $4,425,001 $4,951,997
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
Deutsche Portfolios
<TABLE>
<CAPTION>
Top 50 World Portfolio (US Dollar) Top 50 Europe Portfolio (US Dollar)
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
<S> <C> <C> <C> <C>
Increase (Decrease) In Net Assets:
Operations--
Net investment loss $ (141,731) $ (135,494) $ (161,402) $ (130,925)
Net realized gain (loss) on investments,
futures contracts
and foreign currency transactions 107,992 471,456 (1,287,442) 160,234
Net change in unrealized
appreciation/(depreciation) on investments,
futures contracts and foreign currency 2,344,022 (711,580) 1,451,551 (1,001,967)
translations
Net increase (decrease) in net assets 2,310,283 (375,618) 2,707 (972,658)
resulting from operations
Capital Transactions--
Proceeds from contributions 3,348,100 12,443,494 13,450,096 25,907,115
Withdrawals (1,398,658) (2,277,739) (3,902,970) (6,163,693)
Net increase in net assets from capital 1,949,442 10,165,755 9,547,126 19,743,422
transactions
Total increase in net assets 4,259,725 9,790,137 9,549,833 18,770,764
Net Assets--
Beginning of period 9,801,251 11,114 18,781,876 11,112
End of period $14,060,976 $ 9,801,251 $28,331,709 $18,781,876
(a) Commencement of operations: 10/2/97 10/2/97
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
Deutsche Portfolios
<TABLE>
<CAPTION>
Top 50 Asia Portfolio (US Dollar) Top 50 US Portfolio (US Dollar)
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
<S> <C> <C> <C> <C>
Increase (Decrease) In Net Assets:
Operations--
Net investment loss $ (141,407) $ (28,925) $ (114,843) $ (181,990)
Net realized loss on investments, (1,156,751) (4,161,991) (862,899) (166,914)
futures contracts and foreign
currency transactions
Net change in unrealized
appreciation/(depreciation) on
investments,
futures contracts and foreign 5,723,159 (5,480,524) 5,929,739 (975,247)
currency translations
Net increase (decrease) in net 4,425,001 (9,671,440) 4,951,997 (1,324,151)
assets resulting from operations
Capital Transactions--
Proceeds from contributions 16,723,880 40,430,598 11,032,414 23,011,759
Withdrawals (2,893,083) (12,822,290) (3,613,476) (7,378,350)
Net increase in net assets from 13,830,797 27,608,308 7,418,938 15,633,409
capital transactions
Total increase in net assets 18,255,798 17,936,868 12,370,935 14,309,258
Net Assets--
Beginning of period 17,947,980 11,112 14,320,370 11,112
End of period $36,203,778 $ 17,947,980 $26,691,305 $14,320,370
(a) Commencement of operations: 10/14/97 10/2/97
</TABLE>
The accompanying notes are an integral part of the financial statements.
FINANCIAL HIGHLIGHTS
Deutsche Portfolios
<TABLE>
<CAPTION>
Top 50 World Portfolio (US Dollar) Top 50 Europe Portfolio (US Dollar)
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
<S> <C> <C> <C> <C>
Ratios/Supplemental Data:
Net assets, end of period (000's) $14,061 $ 9,801 $28,332 $18,782
Ratio of expenses to average net assets 3.43% 3.75% 2.24% 3.49%
(b)
Ratio of net investment loss to average (2.45)% (1.75)% (1.43)% (1.49)%
net assets (b)
Portfolio turnover (c) 57% 125% 23% 27%
(a) Commencement of operations: 10/2/97 10/2/97
</TABLE>
<TABLE>
<CAPTION>
Top 50 Asia Portfolio (US Dollar) Top 50 US Portfolio (US Dollar)
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
<S> <C> <C> <C> <C>
Ratios/Supplemental Data:
Net assets, end of period (000's) $36,204 $17,948 $26,691 $ 14,320
Ratio of expenses to average net assets 2.13% 2.19% 2.19% 3.24%
(b)
Ratio of net investment loss to average (1.12)% (0.15)% (1.20)% (2.18)%
net assets (b)
Portfolio turnover (c) 22% 54% 13% 24%
(a) Commencement of operations: 10/14/97 10/2/97
(b) Annualized
</TABLE>
(c) Not annualized
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
Deutsche Portfolios
February 26, 1999 (unaudited)
Note 1--Organization
Deutsche Portfolios ("Portfolio Trust") was organized on June 20, 1997, as a
business trust under the laws of the State of New York and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Portfolio Trust currently consists of ten
separate investment series (each a "Portfolio" and collectively the
"Portfolios"), each of which is, in effect, a separate mutual fund. The
accompanying financial statements and notes relate to four of these Portfolios:
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 February 26, 1999 were as
follows:
<TABLE>
<CAPTION>
Top 50 World Portfolio:
<S> <C>
Deutsche Top 50 World Fund $ 1,459,567
DB Top 50 World Fund 12,601,409
$14,060,976
Top 50 Europe Portfolio: 19,327,761
Deutsche Top 50 Europe Fund $ 9,003,948
DB Top 50 Europe Fund
$28,331,709
Top 50 Asia Portfolio:
Deutsche Top 50 Asia Fund $11,638,314
DB Top 50 Asia Fund 24,565,464
$36,203,778
Top 50 US Portfolio:
Deutsche Top 50 US Fund $ 5,004,397
DB Top 50 US Fund 21,686,908
$26,691,305
</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 the 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.
Securities for which market quotations are not readily available are valued in
good faith in accordance with fair valuation procedures adopted by the Trustees
of the Portfolio Trust.
Foreign currency exchange rates are generally determined prior to the close of
the New York Stock Exchange ("NYSE"). Occasionally, events affecting the value
of foreign investments and such exchange rates occur between the time at which
they are determined and the close of the NYSE, which will not be reflected in
the computation of the Portfolios' net asset values. If events materially
affecting the value of such securities or currency exchange rates occur during
such time period, the securities will be valued at their fair value as
determined in good faith by or under the direction of the Trustees of the
Portfolio Trust.
Investment Transactions
Investment transactions are recorded on trade date. Cost of securities sold is
calculated using the 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.
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 currency in which the buyer
agrees to buy and the seller agrees to deliver a specified 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 payments to) the close-out of the
contract and the original contract price.
Futures Contracts
The Portfolios may enter into futures contracts to hedge against market
fluctuations or to speculate on future market conditions. A futures contract is
an agreement between a buyer and a seller and an established futures exchange or
its clearinghouse in which the buyer or seller agrees to take or make a delivery
of a specified amount of an item at a specified price on a specific date
(settlement date), or to make or receive a cash payment based on the value of a
securities index. Upon entering into a futures contract, the Portfolio is
required to deposit with a financial intermediary an amount equal to a certain
percentage of the face value indicated in the futures contract ("initial
margin"). Subsequent payments ("variation margin") are made or received by the
Portfolio each day, dependent on the daily fluctuations in the value of the
underlying index or security. When entering into a closing transaction, the
Portfolio will realize a gain or loss equal to the difference between the value
of the futures contract to sell and the futures contract to buy.
Foreign Currency Translation
The books and records of the Portfolios are maintained in U.S. 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, it is expected that each Portfolio will not be
subject to any U.S. federal income tax on its income and net realized gains (if
any). However, each investor in the Portfolio may be taxed on its allocable
share of the partnership's income and capital gains for purposes of determining
its federal tax liability. 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 are being
reimbursed by the Portfolios. Such organization costs have been deferred and are
being 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:
<TABLE>
<S> <C>
Top 50 World Portfolio 1.00%
Top 50 Europe Portfolio 1.00%
Top 50 Asia Portfolio 1.00%
Top 50 US Portfolio 0.85%
</TABLE>
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.
For the six months ended February 26, 1999, affiliates of Deutsche Bank AG
received $469, $5,840, $0, and $42 in brokerage commissions from the Top 50
World Portfolio, Top 50 Europe Portfolio, Top 50 Asia Portfolio and Top 50 US
Portfolio, respectively, as a result of executing agency transactions in
portfolio securities.
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
Cost of purchases and proceeds from sales of investments, excluding short-term
securities, for each Portfolio for the six months ended February 26, 1999 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 $6,962,650 $13,988,231 $20,048,182 $7,619,118
Sales $6,393,863 $ 4,768,727 $ 5,459,694 $2,346,502
</TABLE>
At February 26, 1999, the cost of investments and the unrealized appreciation
(depreciation) of investments for U.S. 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 $11,306,591 $26,007,703 $35,514,173 $18,709,266
Gross Unrealized 2,017,364 2,005,000 2,505,492 5,468,275
Appreciation
Gross Unrealized (384,911) (1,562,737) (2,262,824) (513,783)
Depreciation
Net Unrealized 1,632,453 442,263 242,668 4,954,492
Appreciation
</TABLE>
Note 5--Forward Foreign Currency Contracts
Certain Portfolios had forward foreign currency contracts which contractually
obligate the Portfolio to deliver or receive currencies at specified future
dates. The Top 50 Europe Portfolio had the following open contracts at February
26, 1999:
<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> <C>
Purchase European Monetary Unit 3/3/99 291,427 $322,376 $320,188 $(2,188)
Sale European Monetary Unit 3/3/99 4,821 5,307 5,296 11
Sale Great Britain Pound 3/3/99 513,072 821,735 821,529 206
</TABLE>
Note 6--Futures Contracts
At February 26, 1999, the Top 50 Europe Portfolio had entered into the following
futures contracts:
<TABLE>
<CAPTION>
Number Face Underlying Expiration Notional Notional Unrealized
of Contracts Value Index Date Cost Value Appreciation
<S> <C> <C> <C> <C> <C> <C>
Long Position
5 125 DAX Index 3/18/99 $670,707 $673,948 $3,241
</TABLE>
Note 7--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 and futures 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 and futures
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 8--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 six months ended February 26,
1999, the Portfolios periodically utilized the line of credit and incurred
interest expense as disclosed in the Statements of Operations. At February 26,
1999, there were no borrowings outstanding under the line of credit agreement.
Not FDIC Insured. No Bank Guarantee. May Lose Value.
This report must be preceded or accompanied by the Funds' prospectus.
Directors of the Corporation and
Trustees of the Portfolio Trust
The Honorable Richard R. Burt*
Edward C. Schmults*
Robert H. Wadsworth*
Werner Walbroel*
G. Richard Stamberger
Christian Strenger
Officers of the Corporation and
the Portfolio Trust
Brian A. Lee, President
Joseph Parascondola, Treasurer
Robert R. Gambee, Secretary
* Member of Audit Committee
Edgewood Services, Inc., Distributor
G02216-07 (4/99)
semi-annual
report
dated February 26, 1999
Deutsche European Mid-Cap Fund
(Class A Shares, Class B Shares and Class C Shares)
Deutsche German Equity Fund
(Class A Shares, Class B Shares and Class C Shares)
Deutsche Japanese Equity Fund
(Class A Shares and Class B Shares)
Deutsche Global Bond Fund
(Class A Shares and Class B Shares)
Deutsche European Bond Fund
(Class A Shares, Class B Shares and Class C Shares)
Deutsche Funds [Graphic]
PRESIDENT'S MESSAGE
Dear Valued Shareholder:
It is my pleasure to provide you with this Semi-Annual Report for your Deutsche
Funds. This report provides you with financial statements, commentaries and
securities holdings for each of the portfolios, for the period of September 1,
1998 through February 26, 1999.
Over the course of the reporting period, a number of events took place in the
world financial markets. None had as large an impact, however, as the
realization of European Monetary Union and the birth of a new currency, the
euro.
On January 1, 1999, the world's largest economic merger in financial history
took place as the currencies of eleven European nations were linked to form the
European Monetary Union (EMU). With the advent of monetary union, and the
introduction of the euro, Europe now stands as one of the world's largest equity
and fixed income markets. Companies throughout the EMU can take advantage of
many business practices and initiatives that were, until now, never before
available.
The dynamic changes that are yet to come as a result of monetary union and the
euro are far reaching and, we believe, extremely positive. These changes present
a variety of opportunities for corporations, governments and individual
investors alike.
As one of the largest and most respected financial institutions in Europe,
Deutsche Bank's Mutual Fund Group, the investment manager to the Deutsche Funds,
has the resources and capabilities to understand the many changes that are
taking place in Europe today. And they are able to find the investment
opportunity in both the equity and fixed-income markets.
While there was much favorable news coming from Europe during the reporting
period, less favorable news came from the emerging markets and from Asia. As you
know, foreign investing involves special risks including currency risk,
increased volatility of foreign securities, and differences in auditing and
other financial standards. In addition, Asian and Pacific Rim countries may have
relatively unstable governments, economies based on only a few commodities or
industries, and securities markets trading infrequently or in low volumes.
Several countries, most notably Brazil and Russia, saw their currencies devalue
dramatically. This touched off much concern throughout the world financial
markets. Fortunately, the Deutsche Fund portfolios were never directly affected
by this because they had not invested in either of these two markets.
In Japan and other areas of Asia, governments began to make fiscal and monetary
policy changes to strengthen their economies, and businesses also began to
implement new restructuring programs to increase productivity, efficiency and
profitability. Although much of Asia still has a long way to go, the markets
were able to rally following the New Year, especially Japan, and the two
Deutsche Funds that participate in these markets have performed quite well.
The U.S. market saw yet another year of historic growth, as the U.S. domestic
bull market continued to charge. As we moved into the first quarter of 1999,
growth slowed somewhat in the U.S., as corporate earnings came under pressure.
We are confident that our investment advisory expertise which has been
demonstrated to you in the past will continue to provide you with satisfactory
performance. We appreciate your including the Deutsche Funds as a component of
your portfolio, and we look forward to continuing to serve you in the future.
Sincerely,
/s/ Brian A. Lee
Brian A. Lee
President
February 26, 1999
INVESTMENT REVIEW
Deutsche European Mid-Cap Fund
During the reporting period, Deutsche European Mid-Cap Fund Class A Shares
achieved a total return of 2.81% at net asset value (NAV) (without sales
charges), and (2.86)% based on offering price (with sales charges).* The MDAX
index, the Fund's benchmark, returned (4.98)% during this time period.**
In general, European mid-cap companies had a difficult time outperforming the
broader market, especially the blue-chip companies, during the past six months.
Many mid-cap companies hit their yearly lows in October 1998, but were able to
recover toward the beginning of 1999.
Although individual share prices remained relatively low, fundamentals remained
in line, and presented an opportunity to purchase more shares of the companies
that we believe will outperform the market over the long-term.
The portfolio's top sector changed from banking to automotive during the
reporting period. Sparked by the finalization of the DaimlerChrysler deal and
talks of other mergers and acquisitions, the sector rallied. Strong returns came
from automotive manufacturers and suppliers such as Porsche, Continental and
Fresenius, which represented 2.95%, 1.97% and 3.30% of the portfolio,
respectively.
The Fund's largest holding remained SAP, the world's leading Enterprise Resource
Planning (ERP) software company, with an allocation of 3.70%. Although the
company had a difficult year-end as a result of the slow down in orders, we
believe that the company will fully recover over the mid-to-longer term.
The past six months also saw the Fund consolidate its holdings from 102
companies to 87. Companies were sold that either no longer offered the growth
potential we look for, or their fundamentals deteriorated substantially. German
companies still dominated the portfolio at 74%, and new companies were added
from Sweden and Luxembourg. Additionally, larger allocations to Italian and
Portuguese companies were made.
Now that European Monetary Union (EMU) and the euro are a reality, fund managers
and analysts are more concerned with the sector and market cap size of a
company, as opposed to the country it is located in. For this reason, we are
encouraged that mid-cap companies will be more heavily followed in the market,
and will in turn draw investors to them. The long-term outlook for this aspect
of the European equity market is, in our opinion, very favorable.
* 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 B Shares for the reporting period,
based on NAV and redemption value was 2.54% and (2.46)%, respectively. Total
return for Class C Shares for the period from inception date (September 2,
1998) through February 26, 1999, based on NAV and redemption value was 4.47%
and 3.47%, respectively.
** The MDAX (Midcap Index) is a capitalization-weighted index composed of 70
German blue-chip stocks which are in the DAX 100 but not in the DAX (German
Stock Index), and are traded in the Frankfurt Stock Exchange. This index is
unmanaged and investments cannot be made in an index. The Fund's adviser has
elected to change the benchmark index from the MSCI Europe Index to the MDAX,
because the MDAX is more representative of the securities in which the Fund
invests. The return listed above does not include the reinvestment of
dividends.
Deutsche German Equity Fund
During the reporting period, Deutsche German Equity Fund Class A Shares achieved
a total return of 4.80% at NAV (without sales charges), and (0.95)% based on
offering price (with sales charges).* The MSCI Germany Index, the Fund's
benchmark, returned 3.36% during this time period.**
From the beginning of August 1998 to the end of February 1999, prices of German
blue-chip companies increased by about 6.7%. During the same period, Germany's
DAX index fluctuated strongly, reaching a yearly low at 3,884 in October 1998.+
Since then, the DAX has recovered. The Fund stayed invested during this time
frame and, in fact, became close to fully invested.
Over the past six months, automotive stocks were highly weighted in the
portfolio, led by DaimlerChrysler and Volkswagen. The strong weighting of
DaimlerChrysler among Fund holdings made a large contribution to the performance
of the Fund. Mannesmann, as the leading cellular telecommunications provider,
benefited again from reacceleration of subscriber growth. The position in
Deutsche Telekom was increased, as was the stake in Siemens. Banking and
insurance positions were slightly reduced.
The German equity market performed strongly at the beginning of 1999, especially
due to monetary union and the birth of the euro. After the first few weeks
passed, however, the country's performance began to suffer versus other European
markets. Much of the country's lack of performance stemmed from its political
situation and the recently held national elections.
As we move into the second half of the Fund's fiscal year, the German market has
the chance to reach its historic highs but will continue to be influenced by the
political situation, liquidity, cross border allocation-induced investments,
profit adjustments and the willingness of investors to look into the year 2000
earnings developments.
* 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 B Shares for the reporting period,
based on NAV and redemption value was 4.51% and (0.49)%, respectively. Total
return for Class C Shares for the period from inception date (September 2,
1998) through February 26, 1999, based on NAV and redemption value was 4.80%
and 3.80%, respectively.
** The MSCI Germany Index is a market value-weighted average of the performance
of over 60 securities listed on the Frankfurt Stock Exchange. This index is
unmanaged and investments cannot be made in an index.
+ The DAX (German Stock Index) is composed of the 30 most actively traded
German blue-chip stocks. This index is unmanaged and investments cannot be
made in an index.
Deutsche Japanese Equity Fund
During the reporting period, Deutsche Japanese Equity Fund Class A Shares
achieved a total return of 17.26% at NAV (without sales charges), and 10.84%
based on offering price (with sales charges).* The MSCI Japan Index, the Fund's
benchmark, returned 21.54% during this time period.**
In the Japanese financial and equity markets, the six months from September 1998
to February 1999 were mainly characterized by the unexpected strengthening of
the Japanese currency against the U.S. dollar (since October 1998). The Japanese
yen appreciated against the U.S. dollar from a level of 140 yen/dollar at the
beginning of September 1998, to a high of approximately 108 yen/dollar at mid-
January 1999. The exchange rate stabilized around 120 yen/dollar at the end of
February. Due to this development, export-oriented companies showed relatively
poor performance for the first time in almost three years, whereas the best
performing sectors were real estate, banks and wholesale. The Nikkei Stock
Average traded sideways in a range of 13,000 to 15,000.+
During the reporting period, the Fund maintained a high degree of investment.
Since the Fund's management expected a renewed weakening of the yen due to the
unchanged fundamental discrepancy between Japan and the U.S., and the
deteriorating macroeconomic situation in Japan, it stuck to its policy of
investing in export-oriented, high-quality companies and defensive sectors. Main
sectors were electrical machineries, pharmaceuticals and services, and the
largest companies held were Sony, Bridgestone, Takeda Chemicals and Softbank.
During that period, the Fund underperformed the Nikkei Stock Average and the
Tokyo Stock Price Index (the "Topix") because it had very little exposure to
real estate and bank stocks for quality reasons.++
In January 1999, the Fund's management heightened the weighting of domestic
economy-oriented and cyclical stocks due to several positive developments in
Japan: 1) a decreased risk of financial failures, 2) first signs of corporate
restructuring, and 3) a slight improvement of macroeconomic data due to the
fiscal packages of the Japanese government. The weighting of the communication
sector was increased by adding to the positions in the telecommunication
companies NTT Data and NTT Mobile, and the weighting of the chemical sector was
increased by adding Shiseido, the cosmetics and toiletries maker. The relatively
high weighting of the electrical machinery and service sector was maintained.
Since the beginning of 1999, the Fund has performed quite well, due to this
strategy as well as the favorable conditions of the Japanese stock market.
* 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 B Shares for the reporting period,
based on NAV and redemption value was 17.01% and 12.01%, respectively.
** The MSCI Japan Index is a market value-weighted average of the performance of
over 300 securities listed on the Tokyo Stock Exchange (TSE). This index is
unmanaged and investments cannot be made in an index.
+ The Nikkei Stock Average is composed of 225 actively traded issues of the
First Section of the TSE.
++ The TOPIX, published by the TSE, is the composite index of all common stock
listed on the First Section of the TSE. This index is unmanaged and
investments cannot be made in an index.
Deutsche Global Bond Fund
During the reporting period, Deutsche Global Bond Fund Class A Shares achieved a
total return of 1.97% at NAV (without sales charges), and (2.60)% based on
offering price (with sales charges).* The J.P. Morgan Global Government Bond
Index, the Fund's benchmark, returned 3.88% during this time period.**
The Deutsche Global Bond Fund pursues its investment objective by investing
primarily in fixed income securities of issuers worldwide. The broadly
diversified portfolio will invest at least 65% of its total assets in bonds, and
the Fund will always be invested in securities of at least three different
countries.
Between September 1, 1998 and February 26, 1999, the emerging market crisis
which generated a flight to high-quality issues, and the introduction of the
euro, which had a weak start, were the most important factors influencing the
financial markets. The global economic situation during the reporting period
remained to be one of moderate growth with expectations of increased inflation.
In the past six months, growth was surprisingly strong in the United States, and
was weaker in the emerging markets and Japan.
Under this economic situation, the Fund was heavily overweighted in the dollar
currencies, 55% of the portfolio (49% in the U.S., and an additional 3% each in
Canada and Australia) at the beginning of the reporting period. The weighting
was then reduced to 40% (36% in the U.S., 3% in Canada and 1% in New Zealand)
due to the introduction of the euro, giving Europe a more competitive and highly
liquid financial market.
In Europe, the main focus has been on investments in Germany (approximately 9%
of the portfolio), the United Kingdom (10%), and Denmark (5%). After the
introduction of the euro, the Fund had a total of 25% invested in the new
currency. To profit from the ongoing convergence in Europe due to European
Monetary Union, we have made additional investments in the Czech Republic (2%),
Hungary (2%), Greece (1%) and Poland (0.3%).
We heavily underweighted Japan (between 6% and 8% of the Fund's net asset value
against 17% in the benchmark), because of weak economic growth and very low
interest rates.
* 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 B Shares for the period from inception
date (October 9, 1998) through February 26, 1999, based on NAV and redemption
value was (5.12)% and (9.72)%, respectively.
** The J.P. Morgan Global Government Index is a standard foreign securities
index representing major government bond markets. This index is unmanaged and
investments cannot be made in an index. The return listed above does not
include the reinvestment of dividends
Deutsche European Bond Fund
During the reporting period, Deutsche European Bond Fund Class A Shares achieved
a total return of 2.77% at NAV (without sales charges) and (1.86)% based on
offering price (with sales charges).* The J.P. Morgan European Government Bond
Index, the Fund's benchmark, returned 2.66% during this time period.**
The Deutsche European Bond Fund invests primarily in the fixed income securities
of European issuers (at least 65% of the portfolio's total assets) and fixed
income securities denominated in European currencies. The objective is to
achieve steady, high income.
Since the end of August 1998, the Fund decreased its allocation in the
currencies of countries that are participating in the euro by 11.5%. Instead, we
extended our allocation in Danish kroner (+0.9%), and British pounds (+2.5%). We
also decided to enter into two Central Eastern European currencies, the
Hungarian forint and the Czech koruna, with allocations of 2.1% and 3.1%,
respectively. We also established a position in Swedish krona of 3.5%, where the
weakened currency and attractive yield pick-up against German issues of shorter
maturity provided a buying opportunity.
The currency markets were rather volatile during this time period. The British
pound traded in a large range between 1.60 and 1.71, and Swedish krona between
7.60 and 8.23. Since the beginning of September 1998 until the end of the year,
the Deutsche mark strengthened against the U.S. dollar in anticipation of the
euro. Since the euro's launch, a significantly stronger U.S. dollar followed, as
the European economies started to look increasingly fragile in comparison to the
booming growth in the U.S. The euro depreciated from 1.17 levels all the way to
1.10 toward the end of February 1999, not being helped by the political battle
1.11 for lower interest rates in Europe.
The European fixed income markets continued to stay positive until the end of
January. In February, bond markets worldwide experienced heavy selling pressure,
starting in Japan and spreading to Europe, as many investors became worried
about the possible liquidation of U.S. and European bonds by Japanese investors.
Europe was, nevertheless, being hit much less than the U.S. bond market. We have
maintained our weighted average maturity position of around 7 years and decided
to stay rather conservative with respect to credit exposure, buying only liquid
issues with good credit ratings. As the European corporate bond market grows and
new opportunities arise, we will diversify more into that segment and reduce
some of our large government bond holdings.
* 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 B Shares for the reporting period,
based on NAV and redemption value was 2.29% and (2.71)%, respectively. Total
return for Class C Shares for the period from inception date (September 2,
1998) through February 26, 1999, based on NAV and redemption value was 2.16%
and 1.16%, respectively.
** The J.P. Morgan European Government Index is a standard foreign securities
index representing European government bond markets. This index is unmanaged
and investments cannot be made in an index. The return listed above does not
include the reinvestment of dividends.
[This Page Intentionally Left Blank]
STATEMENTS OF ASSETS AND LIABILITIES
Deutsche Funds, Inc.
February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche Deutsche
European German Japanese Global European
Mid-Cap Equity Equity Bond Bond
Fund Fund Fund Fund Fund
------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Assets:
Investment in corresponding Deutsche Portfolio, at value............. $ 20,206,162 $ 1,726,355 $ 851,967 $ 117,143 $ 670,436
Receivable from Manager for expense reimbursement.................... 74,554 39,480 31,694 20,194 29,675
Receivable for capital shares sold................................... 31,933 14,724 -- -- 4,995
Receivable from corresponding Deutsche Portfolio for withdrawals..... 8,138 -- -- -- --
Foreign tax reclaim receivable....................................... 3,552 462 -- -- --
Deferred organization costs.......................................... 9,152 9,152 9,159 9,138 9,152
------------ ----------- ---------- ---------- ----------
Total assets....................................................... 20,333,491 1,790,173 892,820 146,475 714,258
------------ ----------- ---------- ---------- ----------
Liabilities:
Payable for capital shares redeemed.................................. 8,138 -- -- -- --
Payable to corresponding Deutsche Portfolio for contributions........ 31,933 14,724 -- -- 4,995
Dividends payable.................................................... -- -- -- 567 2,193
Transfer Agent fees payable.......................................... 5,690 7,971 4,059 3,105 4,662
Distribution fees payable............................................ 6,944 621 471 64 203
Custody and portfolio accounting fees payable........................ 1,856 1,855 1,711 2,553 1,856
Administrative fees payable.......................................... 998 84 33 5 33
Other accrued expenses............................................... 6,483 3,632 15,518 14,714 2,600
------------ ----------- ---------- ---------- ----------
Total liabilities.................................................. 62,042 28,887 21,792 21,008 16,542
------------ ----------- ---------- ---------- ----------
Net assets......................................................... $ 20,271,449 $ 1,761,286 $ 871,028 $ 125,467 $ 697,716
============ =========== ========== ========== ==========
Net Assets Consist of:
Capital stock, $0.001 par value (authorized 250,000,000 shares for
each Fund).......................................................... $ 1,475 $ 124 $ 63 $ 10 $ 53
Paid-in capital...................................................... 21,246,828 1,855,275 790,466 128,867 730,905
Accumulated net investment loss...................................... (86,022) (7,240) (3,858) (819) (3,104)
Undistributed (accumulated) net realized gain (loss) on investments,
futures contracts and foreign currency transactions................. 303,757 47,282 (55,181) 1,320 12,414
Net unrealized appreciation/(depreciation) of investments,
futures contracts and foreign currency.............................. (1,194,589) (134,155) 139,538 (3,911) (42,552)
------------ ----------- ---------- ---------- ----------
Net assets......................................................... $ 20,271,449 $ 1,761,286 $ 871,028 $ 125,467 $ 697,716
============ =========== ========== ========== ==========
Computation of Net Asset Value, Redemption Price and Offering
Price Per Share:
Net assets -- Class A................................................ $ 12,802,741 $ 1,154,402 $ 79,860 $ 114,911 $ 589,842
============ =========== ========== ========== ==========
Shares outstanding -- Class A........................................ 887,190 76,928 6,912 9,088 44,627
============ =========== ========== ========== ==========
Net asset value and redemption price per share -- Class A............ $ 14.43 $ 15.01 $ 11.55 $ 12.64 $ 13.22
============ =========== ========== ========== ==========
Offering price per share -- Class A.................................. $ 15.27 $ 15.88 $ 12.22 $ 13.24 $ 13.84
============ =========== ========== ========== ==========
Net assets -- Class B................................................ $ 6,318,222 $ 564,500 $ 791,168 $ 10,556 $ 97,667
============ =========== ========== ========== ==========
Shares outstanding -- Class B........................................ 498,389 43,183 55,840 919 7,588
============ =========== ========== ========== ==========
Net asset value, offering price and redemption price per share --
Class B............................................................. $ 12.68 $ 13.07 $ 14.17 $ 11.49 $ 12.87
============ =========== ========== ========== ==========
Net assets -- Class C................................................ $ 1,150,486 $ 42,384 -- -- $ 10,207
============ =========== ========== ========== ==========
Shares outstanding -- Class C........................................ 89,419 3,269 -- -- 817
============ =========== ========== ========== ==========
Net asset value, offering price and redemption price per share --
Class C............................................................. $ 12.87 $ 12.97 -- -- $ 12.50
============ =========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF OPERATIONS
Deutsche Funds, Inc.
For the six months ended February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche Deutsche
European German Japanese Global European
Mid-Cap Equity Equity Bond Bond
Fund Fund Fund Fund Fund
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Investment Income:
Investment Income and Expenses allocated from corresponding
Deutsche Portfolio:
Dividend income........................................................ $ 25,671 $ 3,710 $ 1,092 $ -- $ --
Less: Foreign withholding taxes........................................ (3,260) (478) (164) -- --
----------- ---------- ---------- ---------- ----------
Net dividend income.................................................. 22,411 3,232 928 -- --
Interest income........................................................ 4,411 1,780 1,263 3,396 10,801
Expenses............................................................... (157,127) (43,281) (41,085) (4,429) (14,455)
----------- ---------- ---------- ---------- ----------
Net investment loss allocated from corresponding Deutsche
Portfolio........................................................... (130,305) (38,269) (38,894) (1,033) (3,654)
----------- ---------- ---------- ---------- ----------
Expenses:
Transfer Agent fees.................................................... 36,000 34,919 24,999 24,000 25,750
Registration fees...................................................... 22,485 18,285 13,353 13,187 17,900
Professional fees...................................................... 17,105 17,069 17,154 16,897 17,069
Portfolio accounting fees.............................................. 11,355 11,355 10,210 10,252 11,355
Reports to Shareholders................................................ 10,951 10,951 11,087 10,680 10,951
Administration fees.................................................... 3,521 397 170 35 150
Directors' fees and expenses........................................... 1,250 1,250 1,250 1,250 1,250
Amortization of organization costs..................................... 1,235 1,235 1,235 1,235 1,235
Insurance fees......................................................... 966 966 975 946 966
Distribution fees -- Class B........................................... 18,702 1,363 1,799 23 345
Distribution fees -- Class C (a)....................................... 1,697 102 -- -- 5
Service fees -- Class A................................................ 6,741 1,040 55 128 459
Service fees -- Class B................................................ 6,234 454 600 8 115
Service fees -- Class C (a)............................................ 566 34 -- -- 2
Other expenses......................................................... 203 203 204 205 203
----------- ---------- ---------- ---------- ----------
Total expenses....................................................... 139,011 99,623 83,091 78,846 87,755
Less: Expense reimbursement............................................ (188,399) (131,606) (118,154) (82,543) (98,842)
----------- ---------- ---------- ---------- ----------
Net expense reimbursement in excess of total expenses................ (49,388) (31,983) (35,063) (3,697) (11,087)
----------- ---------- ---------- ---------- ----------
Net investment income (loss)....................................... (80,917) (6,286) (3,831) 2,664 7,433
----------- ---------- ---------- ---------- ----------
Net Realized and Unrealized Gain (Loss) on Investments, Futures
Contracts and Foreign Currency allocated from corresponding
Deutsche Portfolio:
Net realized gain (loss) on:
Investments........................................................... 343,533 2,067 (9,113) 1,961 14,429
Futures contracts..................................................... -- 49,308 -- (328) --
Foreign currency transactions......................................... (29,840) (731) (43,170) (56) (686)
Net change in unrealized appreciation/(depreciation) on:
Investments........................................................... (342,198) (22,083) 137,200 (4,164) (44,531)
Futures contracts..................................................... -- (5) -- (195) --
Foreign currency translation.......................................... 623 (23) 10,187 (18) (27)
----------- ---------- ---------- ---------- ----------
Net Realized and Unrealized Gain (Loss) on Investments, Futures
Contracts and Foreign Currency allocated from corresponding
Deutsche Portfolio.................................................... (27,882) 28,533 95,104 (2,800) (30,815)
----------- ---------- ---------- ---------- ----------
Net Increase (Decrease) in Net Assets Resulting From Operations........ $ (108,799) $ 22,247 $ 91,273 $ (136) $ (23,382)
=========== ========== ========== ========== ==========
(a) Inception date: 9/2/98 9/2/98 -- -- 9/2/98
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
Deutsche Funds, Inc.
<TABLE>
<CAPTION>
Deutsche European Mid-Cap Fund Deutsche German Equity Fund
--------------------------------- ---------------------------------
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26,
1999 Ended
(a) February
26, 1999
Ended (a)
(unaudited)
August 31,
1998
(unaudited)
August 31,
1998
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income (loss).................................... $ (80,917) $ (4,424) $ (6,286) $ 676
Net realized gain (loss) on investments, futures contracts and
foreign currency transactions allocated from corresponding
Deutsche Portfolio.............................................. 313,693 158,552 50,644 10,544
Net change in unrealized appreciation/(depreciation) on
investments, futures contracts and foreign currency
translations allocated from corresponding Deutsche Portfolio.... (341,575) (853,014) (22,111) (112,044)
----------- ---------- ---------- ---------
Net increase (decrease) in net assets resulting from
operations...................................................... (108,799) (698,886) 22,247 (100,824)
----------- ---------- ---------- ---------
Distributions to Shareholders:
Dividends from net investment income:
Class A.......................................................... -- -- (994) --
Class B.......................................................... -- -- -- --
Class C.......................................................... -- -- -- --
Distributions from realized gains:
Class A.......................................................... (51,423) -- (9,095) --
Class B.......................................................... (76,047) -- (3,764) --
Class C.......................................................... (9,584) -- (407) --
----------- ---------- ---------- ---------
Total distributions............................................ (137,054) -- (14,260) --
----------- ---------- ---------- ---------
Capital Share Transactions: Class A
Net proceeds from shares sold.................................... 11,370,454 2,861,890 823,928 638,075
Net proceeds from dividends and distributions reinvested......... 46,741 -- 9,508 --
Net cost of shares redeemed...................................... (738,795) (281,385) (152,122) (128,511)
----------- ---------- ---------- ---------
Net increase in net assets resulting from capital share
transactions -- Class A......................................... 10,678,400 2,580,505 681,314 509,564
----------- ---------- ---------- ---------
Capital Share Transactions: Class B (b)
Net proceeds from shares sold.................................... 2,389,700 4,950,740 362,779 320,200
Net proceeds from dividends and distributions reinvested......... 67,185 -- 3,431 --
Net cost of shares redeemed...................................... (459,999) (154,723) (77,163) (1)
----------- ---------- ---------- ---------
Net increase in net assets resulting from capital share
transactions -- Class B......................................... 1,996,886 4,796,017 289,047 320,199
----------- ---------- ---------- ---------
Capital Share Transactions: Class C (c)
Net proceeds from shares sold.................................... 1,164,068 -- 42,679 --
Net proceeds from dividends and distributions reinvested......... 8,743 -- 210 --
Net cost of shares redeemed...................................... (19,542) -- (1) --
----------- ---------- ---------- ---------
Net increase in net assets resulting from capital share
transactions -- Class C......................................... 1,153,269 -- 42,888 --
----------- ---------- ---------- ---------
Total increase in net assets................................... 13,582,702 6,677,636 1,021,236 728,939
Net Assets:
Beginning of period.............................................. 6,688,747 11,111 740,050 11,111
----------- ---------- ---------- ---------
End of period (d)................................................ $20,271,449 $6,688,747 $1,761,286 $ 740,050
=========== ========== ========== =========
Capital Shares -- Class A
Shares sold...................................................... 766,937 185,654 54,292 39,304
Shares reinvested................................................ 3,201 -- 590 --
Shares redeemed.................................................. (51,836) (17,655) (9,891) (8,256)
----------- ---------- ---------- ---------
Net increase in fund shares.................................... 718,302 167,999 44,991 31,048
=========== ========== ========== =========
Capital Shares -- Class B (b)
Shares sold...................................................... 187,797 353,382 26,641 22,029
Shares reinvested................................................ 5,233 -- 244 --
Shares redeemed.................................................. (36,217) (11,806) (5,731) --
----------- ---------- ---------- ---------
Net increase in fund shares.................................... 156,813 341,576 21,154 22,029
=========== ========== ========== =========
Capital Shares -- Class C (c)
Shares sold...................................................... 90,289 -- 3,254 --
Shares reinvested................................................ 671 -- 15 --
Shares redeemed.................................................. (1,541) -- -- --
----------- ---------- ---------- ---------
Net increase in fund shares.................................... 89,419 -- 3,269 --
=========== ========== ========== =========
(a) Commencement of operations:.................................. 10/17/97 10/17/97
(b) Inception date:.............................................. 3/30/98 3/16/98
(c) Inception date:.............................................. 9/2/98 9/2/98
(d) Includes undistributed (accumulated) net investment
income (loss) of:............................................ $ (86,022) $ (5,105) $ (7,240) $ 40
----------- ---------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
Deutsche Japanese Equity Fund Deutsche Global Bond Fund Deutsche European Bond Fund
-------------------------------------- -------------------------------------- --------------------------------------
For the Six For the Six For the Six
Months Ended For the Period Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998 (unaudited) August 31, 1998
----------------- --------------- ----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
$ (3,831) $ (280) $ 2,664 $ 1,646 $ 7,433 $ 610
(52,283) (3,536) 1,577 (499) 13,743 636
147,387 (7,849) (4,377) 466 (44,558) 2,006
-------- -------- -------- --------- --------- --------
91,273 (11,665) (136) 1,613 (23,382) 3,252
-------- -------- -------- --------- --------- --------
-- -- (3,207) (1,204) (9,096) (203)
-- -- (240) -- (1,577) (400)
-- -- -- -- (39) --
-- -- (293) -- (1,162) --
-- -- (22) -- (215) --
-- -- -- -- -- --
-------- -------- -------- --------- --------- --------
-- -- (3,762) (1,204) (12,089) (603)
-------- -------- -------- --------- --------- --------
57,186 7,050 33,294 172,958 779,760 25,533
-- -- 2,978 1,203 7,992 202
(147) (1,079) (2,443) (101,450) (191,667) (9,296)
-------- -------- -------- --------- --------- --------
57,039 5,971 33,829 72,711 596,085 16,439
-------- -------- -------- --------- --------- --------
425,812 291,662 11,266 -- 12,544 83,269
-- -- 212 -- 1,526 401
(40) (135) (173) -- (1,398) --
-------- -------- -------- --------- --------- --------
425,772 291,527 11,305 -- 12,672 83,670
-------- -------- -------- --------- --------- --------
-- -- -- -- 10,550 --
-- -- -- -- 11 --
-- -- -- -- -- --
-------- -------- -------- --------- --------- --------
-- -- -- -- 10,561 --
-------- -------- -------- --------- --------- --------
574,084 285,833 41,236 73,120 583,847 102,758
296,944 11,111 84,231 11,111 113,869 11,111
-------- -------- -------- --------- --------- --------
$871,028 $296,944 $125,467 $ 84,231 $ 697,716 $113,869
======== ======== ======== ========= ========= ========
5,477 667 2,460 13,535 55,828 1,985
-- -- 222 95 571 16
(16) (105) (181) (7,932) (13,933) (729)
-------- -------- -------- --------- --------- --------
5,461 562 2,501 5,698 42,466 1,272
======== ======== ======== ========= ========= ========
32,511 23,343 916 -- 919 6,631
-- -- 17 -- 112 32
(3) (11) (14) -- (106) --
-------- -------- -------- --------- --------- --------
32,508 23,332 919 -- 925 6,663
======== ======== ======== ========= ========= ========
-- -- -- -- 816 --
-- -- -- -- 1 --
-- -- -- -- -- --
-------- -------- -------- --------- --------- --------
-- -- -- -- 817 --
======== ======== ======== ========= ========= ========
10/20/97 10/15/97 10/17/97
8/10/98 10/9/98 6/25/98
-- -- 9/2/98
$ (3,858) $ (27) $ (819) $ 36 $ (3,104) $ 175
-------- -------- -------- --------- --------- --------
</TABLE>
FINANCIAL HIGHLIGHTS
Deutsche Funds, Inc.
Selected data for a Class A share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
Deutsche European Mid-Cap Fund Deutsche German Equity Fund
----------------------------------- -----------------------------------
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period............... $ 14.22 $12.50 $ 14.46 $12.50
------- ------ ------- ------
Investment operations:
Net investment income (loss)........................ (0.04) 0.01 (0.05) 0.02
Net realized and unrealized gain (loss) on
investments, futures contracts and foreign
currency allocated from corresponding Deutsche
Portfolio.......................................... 0.44 1.71 0.76 1.94
------- ------ ------- ------
Increase (decrease) from investment operations...... 0.40 1.72 0.71 1.96
------- ------ ------- ------
Distributions to Shareholders:
Dividends from net investment income................ -- -- (0.02) --
Distributions from net realized gains............... (0.19) -- (0.14) --
------- ------ ------- ------
Total distributions.................................. (0.19) -- (0.16) --
------- ------ ------- ------
Net asset value at end of period..................... $ 14.43 $14.22 $ 15.01 $14.46
======= ====== ======= ======
Total Return (based on net asset value) (b)*......... 2.81% 13.76% 4.80% 15.68%
Ratios and Supplemental Data:
Net assets, end of period (000's)................... $12,803 $2,402 $ 1,154 $ 462
Ratios to average net assets:
Expenses (c)**...................................... 1.60% 1.60% 1.60% 1.60%
Net investment income (loss) (c)**.................. (1.09)% 0.23% (0.79)% 0.75%
(a) Commencement of operations: 10/17/97 10/17/97
</TABLE>
(b) 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 the beginning of each period, reinvestment of distributions at net asset
value and a redemption 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.
(c) 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>
Expenses to average net assets** 5.66% 18.86% 22.29% 73.61%
Net investment loss to average net assets** (5.15)% (17.03)% (21.48)% (71.26)%
======= ====== ======= ======
</TABLE>
* Not annualized
** Annualized
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
Deutsche Japanese Equity Fund Deutsche Global Bond Fund Deutsche European Bond Fund
--------------------------------------- ----------------------------------- -----------------------------------
For the Six For the Six For the Six
Months Ended For the Period Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998 (unaudited) August 31, 1998
----------------- --------------- ----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 9.85 $ 12.50 $12.79 $12.50 $13.15 $12.50
------ -------- ------ ------ ------ ------
0.02 (0.07) 0.31 0.26 0.12 0.19
1.68 (2.58) (0.05) 0.22 0.26 0.58
------ -------- ------ ------ ------ ------
1.70 (2.65) 0.26 0.48 0.38 0.77
------ -------- ------ ------ ------ ------
-- -- (0.38) (0.19) (0.28) (0.12)
-- -- (0.03) -- (0.03) --
------ -------- ------ ------ ------ ------
-- -- (0.41) (0.19) (0.31) (0.12)
------ -------- ------ ------ ------ ------
$11.55 $ 9.85 $12.64 $12.79 $13.22 $13.15
====== ======== ====== ====== ====== ======
17.26% (21.20)% 1.97% 3.85% 2.77% 6.17%
$80 $ 14 $ 115 $ 84 $ 590 $ 28
1.60% 1.60% 1.30% 1.30% 1.30% 1.30%
(1.02)% (1.00)% 4.92% 3.62% 3.33% 2.67%
10/20/97 10/15/97 10/17/97
51.57% 454.24% 148.73% 243.87% 46.50% 454.22%
(50.99)% (453.64)% (142.51)% (238.95)% (41.87)% (450.25)%
</TABLE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Deutsche Funds, Inc.
Selected data for a Class B share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
Deutsche European Mid-Cap Fund Deutsche German Equity Fund
----------------------------------- -----------------------------------
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period............. $ 12.55 $ 12.50 $ 12.63 $ 12.50
------- ------- ------- -------
Investment operations:
Net investment income (loss)...................... (0.09) (0.02) (0.06) (0.01)
Net realized and unrealized gain (loss) on
investments, futures contacts and foreign
currency allocated from corresponding Deutsche
Portfolio........................................ 0.41 0.07 0.64 0.14
------- ------- ------- -------
Increase (decrease) from investment operations.... 0.32 0.05 0.58 0.13
------- ------- ------- -------
Distributions to Shareholders:
Dividends from net investment income.............. -- -- -- --
Distributions from net realized gains............. (0.19) -- (0.14) --
------- ------- ------- -------
Total distributions............................... (0.19) -- (0.14) --
------- ------- ------- -------
Net asset value at end of period................... $ 12.68 $ 12.55 $ 13.07 $ 12.63
======= ======= ======= =======
Total Return (based on net asset value) (b)*....... 2.54% 0.40% 4.51% 1.04%
Ratios and Supplemental Data:
Net assets, end of period (000's)................. $ 6,318 $ 4,287 $ 565 $ 278
Ratios to average net assets:
Expenses (c)**.................................... 2.35% 2.35% 2.35% 2.35%
Net investment loss (c)**......................... (1.88)% (0.70)% (1.52)% (0.19)%
(a) Inception date: 3/30/98 3/16/98
</TABLE>
(b) 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 the beginning of each period, reinvestment of distributions at net asset
value and a redemption 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.
(c) 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** 5.08% 19.61% 25.34% 74.36%
Net investment loss to average net assets** (4.61)% (17.96)% (24.51)% (72.20)%
</TABLE>
* Not annualized
** Annualized
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
Deutsche Global
Deutsche Japanese Equity Fund Bond Fund Deutsche European Bond Fund
-------------------------------------- ----------------- -----------------------------------
For the Six For the For the Six
Months Ended For the Period Period Ended (a) Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) (unaudited) August 31, 1998
----------------- --------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
$12.11 $ 12.50 $ 12.50 $12.82 $12.50
------ ------- ------- ------ ------
(0.07) (0.01) 0.24 0.18 0.08
2.13 (0.38) (0.87) 0.12 0.35
------ ------- ------- ------ ------
2.06 (0.39) (0.63) 0.30 0.43
------ ------- ------- ------ ------
-- -- (0.35) (0.22) (0.11)
-- -- (0.03) (0.03) --
------ ------- ------- ------ ------
-- -- (0.38) (0.25) (0.11)
------ ------- ------- ------ ------
$14.17 $ 12.11 $ 11.49 $12.87 $12.82
====== ======= ======= ====== ======
17.01% (3.12)% (5.12)% 2.29% 3.44%
$791 $ 283 $ 11 $ 98 $ 85
2.35% 2.35% 2.05% 2.05% 2.05%
(1.49)% (1.25)% 4.36% 2.69% 2.38%
8/10/98 10/9/98 6/25/98
46.76% 454.99% 221.65% 32.02% 454.97%
(45.90)% (453.89)% (215.24)% (27.28)% (450.54)%
</TABLE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Deutsche Funds, Inc.
For the period from Inception Date (a) through February 26, 1999 (unaudited)
Selected data for a Class C share of common stock outstanding throughout the
period.
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche
European German European
Mid-Cap Equity Bond
Fund Fund Fund
-------- -------- --------
<S> <C> <C> <C>
Net asset value at beginning of period..... $ 12.50 $ 12.50 $12.50
------- ------- ------
Investment operations:
Net investment income (loss).............. (0.05) (0.06) 0.23
Net realized and unrealized gain on
investments, futures contracts and
foreign currency allocated from
corresponding Deutsche Portfolio......... 0.61 0.67 0.05
------- ------- ------
Increase from investment operations....... 0.56 0.61 0.28
------- ------- ------
Distributions to Shareholders:
Dividends from net investment income...... -- -- (0.25)
Distributions from net realized gains..... (0.19) (0.14) (0.03)
------- ------- ------
Total distributions....................... (0.19) (0.14) (0.28)
------- ------- ------
Net asset value at end of period........... $ 12.87 $ 12.97 $12.50
======= ======= ======
Total Return (based on net asset
value) (b)*............................... 4.47% 4.80% 2.16%
Ratios and Supplemental Data:
Net assets, end of period (000's)......... $ 1,150 $ 42 $ 10
Ratios to average net assets:
Expenses (c)**............................ 2.35% 2.35% 2.05%
Net investment income (loss) (c)**........ (1.84)% (1.46)% 2.52%
(a) Inception date: 9/2/98 9/2/98 9/2/98
</TABLE>
(b) 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 the beginning of each period, reinvestment of distributions at net asset
value and a redemption 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.
(c) 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>
Expenses to average net assets** 6.47% 25.61% 179.39%
Net investment loss to average
net assets** (5.96)% (24.72)% (174.82)%
</TABLE>
* Not annualized
** Annualized
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
Deutsche Funds, Inc.
February 26, 1999 (unaudited)
Note 1--Organization
Deutsche Funds, Inc. (the "Company") was incorporated in Maryland on May 22,
1997 and is registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company. The Company currently
consists of eleven separate investment series (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
("Federated") 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"), an affiliate of Federated, serves
as distributor to the Funds (the "Distributor").
The Japanese Equity Fund and the Global Bond Fund offer two classes of shares to
investors, Class A and Class B. The European Mid-Cap Fund, German Equity Fund
and European Bond Fund offer three classes to investors, Class A, Class B and
Class C. All three Classes of shares are subject to a Service Plan, and Class B
Shares and Class C 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 February
26, 1999 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 77.46% Provesta Portfolio (US Dollar)
German Equity Fund 30.58% Investa Portfolio (US Dollar)
Japanese Equity Fund 32.31% Japanese Equity Portfolio (US Dollar)
Global Bond Fund 2.12% Global Bond Portfolio (US Dollar)
European Bond Fund 10.23% 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 continue to qualify 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.
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. However, to the extent that the
net realized gains of a Fund can be reduced by any capital loss carryforwards of
that Fund, such gains will not be distributed. 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.
Deferred Organization Costs
Organization costs incurred in connection with the organization and initial
registration of the Company were paid initially by DFM and are being 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 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 and Class C Shares of the Funds are
subject to the Distribution Plan and Class A Shares, Class B Shares and Class C
Shares of the Funds are subject to the Service Plan. Under the Distribution
Plan, Class B Shares and Class C 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 and Class C Shares,
respectively, to finance activity that is principally intended to result in the
sale of Class B Shares and Class C 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, Class B Shares and Class C 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. IBT (Boston) acts as the sub-
administrator for each Fund and as the custodian of each Fund's assets.
Expense Reimbursements
DFM has voluntarily agreed that it will reimburse each Fund through at least
August 31, 1999, 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% and
2.35% of the average daily net assets of Class A Shares, Class B Shares and
Class C Shares of the Equity Funds, respectively, and at not more than 1.30%,
2.05% and 2.05% of the average daily net assets of Class A Shares, Class B
Shares and Class C Shares of the Bond Funds, respectively.
For the six months ended February 26, 1999, DFM voluntarily reimbursed the
following expenses pursuant to this undertaking:
<TABLE>
<CAPTION>
Portfolio Fund Total Portfolio Fund Total
--------- ---- ----- --------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
European Mid-Cap Fund $49,388 $139,011 $188,399 Global Bond Fund $ 3,697 $78,846 $82,543
German Equity Fund $31,983 $ 99,623 $131,606 European Bond Fund $11,087 $87,755 $98,842
Japanese Equity Fund $35,063 $ 83,091 $118,154
</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.
[This Page Intentionally Left Blank]
PORTFOLIO OF INVESTMENTS
Provesta Portfolio (US Dollar)
February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Market
Shares Description Value
- ----------- -------------------------------------------------------------------------------- -------------
<C> <S> <C>
Common Stocks -- 82.0%
France -- 6.0%
500 Banque Nationale de Paris....................................................... $ 39,927
17,500 Business Objects SA -- ADR*..................................................... 634,375
1,400 Cap Gemini SA................................................................... 242,197
1,050 Credit Commercial de France..................................................... 90,536
700 Dassault Systemes SA............................................................ 27,757
8,850 Schneider SA.................................................................... 520,065
-------------
1,554,857
-------------
Germany -- 55.1%
1,300 1&1 Aktiengesellschaft & Co. KGaA*.............................................. 193,483
550 A. Friedrich Flender AG*........................................................ 74,307
4,000 Aixtron AG...................................................................... 935,837
7,000 Altana AG....................................................................... 447,488
800 AVA Allgemeine Handels der Verbraucher*......................................... 303,334
50 AXA Colonia Konzern AG.......................................................... 4,449
2,500 Barmag AG....................................................................... 43,112
375 BDAG Balcke-Duerr AG*........................................................... 53,959
3,100 Beiersdorf AG................................................................... 229,840
8,500 BERLINER ELEKTRO Holding AG..................................................... 95,698
6,000 BERU AG......................................................................... 120,604
8,000 BHF-Bank AG..................................................................... 303,598
19,500 Continental AG.................................................................. 486,207
600 DBV-Winterthur Holding AG....................................................... 224,074
5,200 Deutsche Babcock AG*............................................................ 274,732
4,250 Deutsche Pfandbrief-und Hypothekenbank AG....................................... 366,454
5,200 Duerr AG........................................................................ 141,078
1,750 Escada AG....................................................................... 240,275
29,000 FAG Kugelfischer Georg Schaefer AG.............................................. 243,680
875 Fresenius AG.................................................................... 129,749
5,500 Fresenius Medical Care AG....................................................... 320,788
3,000 Fried. Krupp AG Hoesch-Krupp+................................................... 441,557
15 Fuchs Petrolub AG Oel & Chemie.................................................. 1,087
11,900 Gehe AG......................................................................... 666,619
4,650 Heidelberger Druckmaschinen AG.................................................. 256,910
3,200 Henkel KGaA..................................................................... 240,066
10,000 Hucke AG........................................................................ 104,348
13,650 IWKA AG......................................................................... 266,878
3,200 Kali und Salz Beteiligungs AG*.................................................. 430,573
5,000 Kiekert AG...................................................................... 165,309
2,190 Kinowelt Medien AG*............................................................. 488,316
6,500 Kloeckner-Werke AG*............................................................. 469,072
150 Krones AG*...................................................................... 3,707
150 KSB AG*......................................................................... 24,681
1,400 Leonische Drahtwerke AG......................................................... 445,950
750 Mannheimer Versicherung AG...................................................... 395,424
23,000 Metallgesellschaft AG........................................................... 424,422
1,500 MobilCom AG..................................................................... 517,346
100 Nuernberger Beteiligungs AG - AKT `B'........................................... 83,698
38 Nuernberger Beteiligungs AG..................................................... 33,642
11,750 Phoenix AG...................................................................... 196,174
6,000 Praktiker Bau-und Heimwerkermaerkte AG.......................................... 59,314
1,250 Rhoen-Klinikum AG............................................................... 137,987
1,800 SAP AG.......................................................................... 612,907
5,200 Schering AG..................................................................... 668,838
2,750 Schlott AG...................................................................... 55,126
5,000 SGL Carbon AG................................................................... 236,156
12,500 SKW Trostberg AG................................................................ 282,152
700 Springer (Axel) Verlag AG....................................................... 768,876
770 Wella AG........................................................................ 465,172
3,750 WMF-Wuerttembergische Metallwarenfabrik AG...................................... 65,904
23,000 Wuensche AG*.................................................................... 128,842
-------------
14,369,799
-------------
Ireland -- 0.6%
4,100 CBT Group Plc - ADR*............................................................ 65,344
8,500 Irish Life Plc.................................................................. 85,852
-------------
151,196
-------------
Italy -- 5.4%
475,000 Banca di Roma*.................................................................. 687,653
85,000 Banca Nazionale del Lavoro*..................................................... 251,523
1,400 Banca Popolare di Bergamo Credito Varesino SpA.................................. 36,476
2,900 Banca Popolare di Brescia....................................................... 88,744
22,500 Banca Popolare di Milano........................................................ 189,359
15,750 Banca Popolare di Novara........................................................ 150,750
-------------
1,404,505
-------------
Luxembourg -- 0.2%
450 Societe Europeenne des Satellites - FDR*........................................ 57,584
-------------
Netherlands -- 9.0%
10,000 ASM Lithography Holding NV*..................................................... 411,351
7,500 Benckiser NV - B Shares......................................................... 474,557
925 Equant NV*...................................................................... 66,753
13,300 Getronics NV.................................................................... 580,697
7,000 Nutreco Holding NV.............................................................. 283,717
7,750 Qiagen NV*...................................................................... 544,806
-------------
2,361,881
-------------
Portugal -- 1.5%
34,491 Banco Mello SA.................................................................. 393,245
-------------
Spain -- 0.6%
2,350 Banco Popular Espanol SA........................................................ 157,585
-------------
Sweden -- 2.6%
26,000 Volvo AB - B Shares............................................................. 673,760
-------------
Switzerland -- 1.0%
45 Alusuisse Lonza Group AG*....................................................... 50,021
150 Baloise Holdings Ltd............................................................ 129,890
30 Lindt & Spruengli AG............................................................ 76,640
-------------
256,551
-------------
Total Common Stocks (Cost -- $22,019,816)....................................... 21,380,963
=============
Preferred Stocks -- 18.6%
Germany -- 18.6%
1,900 AXA Colonia Konzern AG.......................................................... 133,565
1,200 BERLINER ELEKTRO Holding AG..................................................... 13,510
3,000 Draegerwerk AG.................................................................. 39,378
750 Dyckerhoff AG................................................................... 193,593
75 EDDING AG....................................................................... 20,595
4,300 Fresenius AG.................................................................... 732,084
925 Fuchs Petrolub AG Oel & Chemie.................................................. 66,143
1,550 Henkel KGaA..................................................................... 124,284
18,500 Jungheinrich AG................................................................. 245,877
1,250 Krones AG....................................................................... 38,032
620 Marschollek, Lautenschlaeger und Partner AG..................................... 333,694
375 Porsche AG...................................................................... 770,253
8,500 Prosieben Media AG.............................................................. 429,474
1,750 Rhoen-Klinikum AG............................................................... 179,726
950 SAP AG.......................................................................... 358,957
14,000 Sixt AG......................................................................... 722,747
375 Sto AG.......................................................................... 78,261
350 Wella AG........................................................................ 259,497
7,500 WMF-Wuerttembergische Metallwarenfabrik AG...................................... 120,275
-------------
Total Preferred Stocks (Cost -- $5,395,814)..................................... 4,859,945
=============
Warrants -- 0.1%
Germany -- 0.1%
200 Continental AG (Exp. Date: 7/6/00; Strike Price EUR 10.17)*..................... 27,680
-------------
Total Warrants (Cost -- $35,704)................................................ 27,680
=============
Total Investments -- 100.7% (Cost -- $27,451,334)............................... 26,268,588
Liabilities in excess of other assets -- (0.7)%................................. (181,583)
=============
Total Net Assets -- 100.0%...................................................... $ 26,087,005
=============
</TABLE>
Notes to the Portfolio of Investments:
* Non-income producing security.
+ Name changed to Thyssen Krupp AG as a result of a merger subsequent to period
end.
ADR -- American Depository Receipt
FDR -- Fiduciary 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 February 26, 1999 was as follows:
<TABLE>
<CAPTION>
Percentage of
Industry Sector Net Assets
- -------------------------------------------- -------------
<S> <C>
Automotive 11.1%
Banking 10.6
Heavy Machinery 9.0
Industrial - Diversified 8.2
Computer Software & Processing 7.7
Health Care Providers 5.8
Media - Broadcasting & Publishing 4.8
Pharmaceuticals 4.3
Insurance 4.2
Household Products 3.9
Cosmetics & Personal Care 3.7
Chemicals 3.6
Commercial Services 3.0
Wholesalers 2.5
Computers & Information 2.2
Medical & Bio-Technology 2.1
Telephone Systems 2.0
Entertainment & Leisure 1.9
Textiles, Clothing & Fabrics 1.8
Electronics 1.6
Retailers 1.4
Beverages, Food & Tobacco 1.4
Financial Services 1.3
Building Materials 1.0
Advertising 0.7
Electrical Equipment 0.4
Oil & Gas 0.3
Medical Supplies 0.2
Liabilities in excess of other assets (0.7)
------
Total 100.0%
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
PORTFOLIO OF INVESTMENTS
Investa Portfolio (US Dollar)
February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Market
Shares Description Value
- ---------------------- --------------------------------------------------------------------------------- -------------
<S> <C> <C>
Common Stocks -- 79.5%
Airlines -- 0.5%
1,250 Deutsche Lufthansa AG.............................................................. $ 27,529
------------
Automotive -- 13.7%
96 Bayerische Motoren Werke AG........................................................ 69,384
4 Bayerische Motoren Werke AG - New*................................................. 2,825
2,500 Continental AG..................................................................... 62,334
4,433 Daimler-Chrysler AG................................................................ 414,860
3,500 Volkswagen AG...................................................................... 226,435
------------
775,838
------------
Banking -- 9.7%
4,375 Bayerische Vereinsbank AG.......................................................... 247,964
1,100 BHF-Bank AG........................................................................ 41,745
4,800 Commerzbank AG..................................................................... 134,971
3,600 Dresdner Bank AG................................................................... 125,349
------------
550,029
------------
Chemicals -- 12.1%
3,850 BASF AG............................................................................ 133,420
5,000 Bayer AG........................................................................... 177,117
7,850 Hoechst AG......................................................................... 370,334
------------
680,871
------------
Communications -- 4.7%
5,800 Deutsche Telekom AG................................................................ 266,296
------------
Computer Software & Processing -- 2.9%
475 SAP AG............................................................................. 161,739
------------
Electric Utilities -- 5.1%
4,150 RWE AG............................................................................. 180,967
2,000 Veba AG............................................................................ 106,764
------------
287,731
------------
Electrical Equipment -- 5.6%
5,000 Siemens AG......................................................................... 315,790
------------
Heavy Construction -- 0.4%
700 Hochtief AG........................................................................ 23,143
------------
Household Products -- 1.0%
770 Henkel KGaA........................................................................ 57,766
------------
Industrial -- Diversified -- 12.7%
1,650 Degussa-Huels AG................................................................... 57,271
150 Fried. Krupp AG Hoesch-Krupp+...................................................... 22,078
80 Linde AG........................................................................... 44,990
3,000 Mannesmann AG...................................................................... 403,003
37 Preussag AG........................................................................ 17,923
270 Thyssen AG+........................................................................ 54,717
215 Viag AG............................................................................ 114,843
------------
714,825
------------
Insurance -- 4.0%
150 Allianz AG......................................................................... 45,490
450 Muenchener Rueckversicherungs-Gesellschaft AG...................................... 90,849
450 Muenchener Rueckversicherungs-Gesellschaft AG - New*............................... 89,811
------------
226,150
------------
Oil & Gas -- 0.6%
400 Royal Dutch Petroleum Co........................................................... 17,462
3,500 Shell Transport & Trading Co....................................................... 19,224
------------
36,686
------------
Pharmaceuticals -- 2.3%
1,000 Schering AG........................................................................ 128,623
------------
Retailers -- 2.8%
20 Karstadt AG........................................................................ 7,546
2,150 Metro AG........................................................................... 152,084
------------
159,630
------------
Textiles, Clothing & Fabrics -- 1.4%
825 Adidas-Salomon AG.................................................................. 79,019
------------
Total Common Stocks (Cost -- $4,376,273)........................................... 4,491,665
============
Preferred Stocks -- 7.8%
Automotive -- 0.4%
43 Bayerische Motoren Werke AG........................................................ 17,476
9 Bayerische Motoren Werke AG - New*................................................. 3,757
------------
21,233
------------
Building Materials -- 0.4%
100 Dyckerhoff AG...................................................................... 25,812
------------
Computer Software & Processing -- 3.0%
450 SAP AG............................................................................. 170,032
------------
Household Products -- 1.1%
750 Henkel KGaA........................................................................ 60,137
------------
Industrial Diversified -- 1.5%
425 MAN AG............................................................................. 82,627
------------
Retailers -- 1.4%
2,100 Metro AG........................................................................... 79,810
------------
Total Preferred Stocks (Cost -- $460,376).......................................... 439,651
============
Warrants -- 4.9%
Automotive -- 1.4%
92 Continental AG (Exp. Date: 7/6/00; Strike Price EUR 10.17)*........................ 12,733
15,000 Daimler-Chrysler AG (Exp. Date: 3/31/99; Strike Price EUR 64.90)*.................. 68,046
------------
80,779
------------
Banking -- 0.6%
800 Commerzbank AG (Exp. Date: 6/15/00; Strike Price EUR 19.02)*....................... 6,872
2,000 Dresdner Bank AG (Exp. Date: 4/30/02; Strike Price EUR 26.23)*..................... 27,350
------------
34,222
------------
Chemicals -- 0.3%
85 BASF Finance Europe (Exp. Date: 4/9/01; Strike Price EUR 15.75)*................... 14,658
------------
Electric Utilities -- 0.3%
1,180 Veba AG (Exp. Date: 6/7/99; Strike Price EUR 35.79)*............................... 15,229
------------
Insurance -- 2.3%
43,500 Allianz AG (Exp. Date: 6/30/99; Strike Price EUR 150.69)*.......................... 61,637
420 Allianz AG (Exp. Date: 6/30/99; Strike Price EUR 150.68)*.......................... 55,936
318 Muenchener Rueckversicherungs-Gesellschaft AG (Exp. Date: 6/3/02; Strike EUR
163.61)*........................................................................... 12,051
------------
129,624
------------
Total Warrants (Cost -- $348,183).................................................. 274,512
============
Total Investments -- 92.2% (Cost -- $5,184,832).................................... 5,205,828
Other assets in excess of liabilities -- 7.8%...................................... 439,263
============
Total Net Assets -- 100.0%......................................................... $ 5,645,091
============
</TABLE>
Notes to the Portfolio of Investments:
* Non-income producing security.
+ Name changed to Thyssen Krupp AG as a result of a merger subsequent to period
end.
EUR -- European Monetary Unit (Euro)
The accompanying notes are an integral part of the financial statements.
PORTFOLIO OF INVESTMENTS
Japanese Equity Portfolio (US Dollar)
February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Market
Shares Description Value
- -------------------- ------------------------------------------------ ---------------
<S> <C> <C>
Common Stocks -- 99.5%
Automotive -- 10.5%
4,000 Bridgestone Corp................................. $ 89,326
2,000 Honda Motor Co., Ltd............................. 76,878
10,000 Suzuki Motor Corp................................ 110,186
---------------
276,390
---------------
Banking -- 2.3%
6,000 Sanwa Bank....................................... 61,317
---------------
Beverages, Food & Tobacco -- 1.7%
4,000 Ajinomoto Co., Inc............................... 43,637
---------------
Chemicals -- 3.0%
20,000 Mitsui Chemicals Inc............................. 78,224
---------------
Commercial Services -- 3.2%
300 Bellsystem 24, Inc............................... 85,794
---------------
Communications -- 7.0%
2,000 Matsushita Communication Industrial Co., Ltd..... 103,289
20 NTT Mobile Communications Network, Inc........... 81,083
---------------
184,372
---------------
Computer Software & Processing -- 9.8%
2,000 Fuji Soft ABC, Inc............................... 113,046
7,000 Fujitsu Ltd...................................... 87,139
10 NTT Data Corp.................................... 57,616
---------------
257,801
---------------
Computers & Information -- 7.4%
3,000 Diamond Computer Service Co...................... 51,224
1,000 Fujitsu Support and Service, Inc................. 74,102
1,000 Softbank Corp.................................... 70,654
---------------
195,980
---------------
Cosmetics & Personal Care -- 6.0%
3,000 Kao Corp......................................... 59,803
8,000 Shiseido Co...................................... 96,896
---------------
156,699
---------------
Electric Utilities -- 4.6%
6,000 Tokyo Electric Power............................. 120,868
---------------
Electrical Equipment -- 9.0%
4,000 Matsushita Electric Industries................... 66,784
7,000 Minebea Co., Ltd................................. 69,476
10,000 NEC Corp......................................... 100,765
---------------
237,025
---------------
Electronics -- 6.4%
1,000 Sony Corp........................................ 75,532
15,000 Toshiba Corp..................................... 92,859
---------------
168,391
---------------
Financial Services -- 5.7%
1,000 Aiful Corp.*..................................... 67,373
200 Shohkoh Fund & Co., Ltd.......................... 83,775
---------------
151,148
---------------
Medical Supplies -- 5.2%
4,000 Takeda Chemical Industries....................... 137,270
---------------
Office Equipment -- 3.2%
4,000 Canon, Inc....................................... 85,457
---------------
Pharmaceuticals -- 2.3%
2,000 Yamanouchi Pharmaceutical Co., Ltd............... 60,897
---------------
Real Estate -- 3.4%
9,000 Mitsubishi Estate Co., Ltd....................... 88,645
---------------
Retailers -- 5.1%
1,000 Ryohin Keikaku Co. Ltd........................... 134,999
---------------
Telephone Systems -- 3.7%
120 Nippon Telegraph & Telephone Corp................ 98,713
---------------
Total Investments -- 99.5% (Cost -- $2,328,124).. 2,623,627
Other assets in excess of liabilities -- 0.5%.... 13,384
===============
Total Net Assets -- 100.0%....................... $ 2,637,011
===============
</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
Global Bond Portfolio (US Dollar)
February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Par Maturity Market
Currency Value Description Rate Date Value
- ----------- ---------- ------------------------------------------------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Corporate Debt -- 22.6%
Germany -- 1.3%
CZK 2,300,000 Deutsche Pfandbrief-und Hypothekenbank AG........ 14.875% 5/15/00 $ 71,541
----------
Japan -- 3.1%
JPY 20,000,000 Nippon Telegraph & Telephone Corp................ 2.500% 7/25/07 174,111
----------
Multinational -- 6.2%
DEM 150,000 European Investment Bank......................... 5.250% 4/15/04 90,348
JPY 8,000,000 World Bank....................................... 5.250% 3/20/02 76,710
PLN 400,000 World Bank....................................... 18.000% 2/27/03 124,213
NZD 100,000 World Bank....................................... 5.375% 11/06/03 50,994
----------
342,265
----------
Netherlands -- 2.7%
USD 50,000 Baden Wurt L -- Finance (Eurodollar)............. 6.000% 12/19/02 50,150
USD 100,000 Telefonica Europe BV -- (Eurodollar)............. 6.375% 1/08/03 100,650
----------
150,800
----------
United Kingdom -- 5.6%
USD 100,000 British Telecom plc -- (Eurodollar).............. 7.000% 5/23/07 105,600
USD 100,000 Glaxo Wellcome plc -- (Eurodollar)............... 6.125% 1/25/06 101,350
GBP 60,000 Vodafone Group plc............................... 7.875% 11/06/01 100,741
----------
307,691
----------
United States -- 3.7%
USD 100,000 BMW U.S. Capital Corp............................ 6.625% 3/15/04 101,450
USD 100,000 Philip Morris Co., Inc. -- Global Bond........... 7.000% 7/15/05 102,700
----------
204,150
----------
Total Corporate Debt (Cost -- $1,248,675)........ 1,250,558
==========
Mortgage Backed Securities -- 5.4%
Denmark -- 3.9%
DKK 1,500,000 Nykredit AS...................................... 6.000% 10/01/29 215,489
----------
Germany -- 1.5%
EUR 76,693 Hypothekenbank in Essen AG....................... 4.000% 5/15/00 84,998
----------
Total Mortgage Backed Securities (Cost --
$312,690)........................................ 300,487
==========
Sovereign Debt Obligations -- 51.0%
Austria -- 0.8%
CZK 1,500,000 Republic of Austria.............................. 11.750% 9/18/00 45,567
----------
Belgium -- 2.9%
EUR 136,341 Kingdom of Belgium -- Series 31.................. 5.500% 3/28/28 158,158
----------
Canada -- 4.8%
CAD 250,000 Government of Canada............................. 5.500% 2/01/00 166,081
USD 100,000 Province of Ontario -- (Yankee).................. 6.000% 2/21/06 100,650
----------
266,731
----------
Denmark -- 1.1%
DEM 100,000 Kingdom of Denmark International Bond............ 4.750% 1/07/02 58,210
----------
France -- 8.5%
EUR 76,224 France O.A.T..................................... 6.750% 10/25/03 95,320
EUR 200,000 France O.A.T..................................... 7.500% 4/25/05 $ 265,153
EUR 100,000 France O.A.T..................................... 4.000% 4/25/09 108,906
----------
469,379
----------
Germany -- 6.2%
EUR 102,258 Deutschland Republic............................. 8.500% 8/21/00 120,857
EUR 102,258 Deutschland Republic............................. 7.250% 10/21/02 126,697
EUR 76,693 Treuhandanstalt.................................. 6.500% 4/23/03 93,927
----------
341,481
----------
Greece -- 1.3%
GRD 20,000,000 Hellenic Republic Bond........................... 9.200% 3/21/02 71,412
----------
Hungary -- 2.4%
HUF 30,000,000 Hungary Government Bond -- Series 00/G........... 16.000% 11/24/00 132,684
----------
Italy -- 3.5%
EUR 67,139 Republic of Italy................................ 11.500% 3/01/03 95,235
USD 100,000 Republic of Italy International Bond --
(Eurodollar)..................................... 6.000% 5/29/08 100,100
----------
195,335
----------
Japan -- 3.4%
JPY 20,000,000 Japan -- 187 (10 Year Issue)..................... 3.300% 6/20/06 186,973
----------
Netherlands -- 4.3%
EUR 200,000 Netherlands Government........................... 5.250% 7/15/08 239,012
----------
Norway -- 1.4%
NOK 600,000 Norwegian Government............................. 5.750% 11/30/04 79,217
----------
Spain -- 6.3%
EUR 90,151 Government of Spain.............................. 6.000% 1/31/08 112,093
EUR 66,111 Government of Spain.............................. 6.000% 1/31/29 82,565
DEM 250,000 Government of Spain.............................. 5.750% 1/03/07 154,932
----------
349,590
----------
United Kingdom -- 4.1%
GBP 30,000 United Kingdom Treasury.......................... 8.500% 12/07/05 58,561
GBP 90,000 United Kingdom Treasury.......................... 7.250% 12/07/07 170,352
----------
228,913
----------
Total Sovereign Debt Obligations (Cost --
$2,871,892)...................................... 2,822,662
==========
U.S. Government and Agency Obligations -- 14.7%
United States -- 14.7%
USD 100,000 Federal National Mortgage Association............ 6.540% 9/10/07 103,609
USD 200,000 US Treasury Note................................. 6.000% 8/15/00 202,344
USD 100,000 US Treasury Note................................. 5.625% 11/30/00 100,734
USD 100,000 US Treasury Note................................. 5.875% 11/30/01 101,656
USD 100,000 US Treasury Note (a)............................. 6.000% 7/31/02 102,250
USD 200,000 US Treasury Note................................. 5.625% 12/31/02 202,156
----------
Total U.S. Government and Agency Obligations
(Cost -- $805,592)............................... 812,749
==========
Total Investments -- 93.7% (Cost -- $5,238,849).. 5,186,456
Other assets in excess of liabilities -- 6.3%.... 348,029
==========
Net Assets -- 100.0%............................. $5,534,485
==========
</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.
(a) This security is segregated with the Portfolio's Custodian as collateral for
open futures contracts.
Currency abbreviations defined:
CAD -- Canadian Dollar
CZK -- Czech Koruna
DEM -- German Deutschemark
DKK -- Danish Krone
EUR -- European Monetary Unit (Euro) GBP -- Great Britain Pound GRD -- Greek
Drachma HUF -- Hungarian Forint JPY -- Japanese Yen NOK -- Norwegian Krone NZD
- -- New Zealand Dollar PLN -- 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)
February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Par Maturity Market
Currency Value Description Rate Date Value
- -------- ----------- ------------------------------------------------ ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Corporate Debt -- 27.9%
Austria -- 3.2%
DEM 350,000 Oesterreichische Postsparkasse AG............... 5.250% 11/11/02 $ 207,863
------------
Denmark -- 3.5%
DKK 1,700,000 Realkredit Danmark AS........................... 5.000% 10/01/29 231,589
------------
Multinational -- 3.3%
DEM 350,000 World Bank...................................... 5.875% 11/10/03 214,448
------------
Netherlands -- 3.0%
ITL 120,000,000 Commerzbank Overseas Finance.................... 10.800% 4/14/00 73,485
DEM 200,000 LB Schleswig-Holsteinische Finance.............. 5.625% 7/30/07 122,092
------------
195,577
------------
Sweden -- 3.2%
SEK 1,000,000 Stadshypotek AB -- Series 1553.................. 10.000% 12/20/00 135,289
ITL 120,000,000 Swedish Export Credit........................... 10.750% 6/09/00 74,200
------------
209,489
------------
United Kingdom -- 10.3%
GBP 140,000 Kingfisher plc.................................. 8.125% 2/14/07 258,826
GBP 120,000 National Grid Co. plc........................... 8.000% 3/29/06 217,239
DEM 350,000 Sudwest LB Capital Markets...................... 4.625% 2/17/03 202,556
------------
678,621
------------
United States -- 1.4%
GBP 50,000 KFW International Finance....................... 7.250% 7/23/07 91,197
------------
Total Corporate Debt (Cost -- $1,809,663)....... 1,828,784
============
Mortgage Backed Securities -- 4.3%
Denmark -- 2.9%
DKK 41,926 Nykredit AS..................................... 6.000% 10/01/26 6,143
DKK 1,295,000 Nykredit AS..................................... 6.000% 10/01/29 186,038
------------
192,181
------------
Germany -- 1.4%
EUR 76,693 Hypothekenbank in Essen AG...................... 5.250% 1/22/08 90,136
------------
Total Mortgage Backed Securities (Cost --
$289,034)....................................... 282,317
============
Sovereign Debt Obligations -- 60.7%
Austria -- 3.1%
DEM 350,000 Republic of Austria International Bond.......... 4.300% 7/15/03 202,556
------------
Belgium -- 2.8%
DEM 300,000 Kingdom of Belgium International Bond........... 6.250% 10/06/03 185,919
------------
Czech Republic -- 2.2%
CZK 4,500,000 Czech Republic.................................. 14.750% 5/15/00 140,429
------------
Denmark -- 6.2%
DKK 1,000,000 Kingdom of Denmark.............................. 7.000% 12/15/04 169,880
DKK 1,350,000 Kingdom of Denmark.............................. 7.000% 11/15/07 237,115
------------
406,995
------------
Finland -- 2.7%
FRF 900,000 Finland International Bond...................... 7.000% 6/15/04 173,537
------------
France -- 1.7%
EUR 100,000 French Treasury Bill............................ 4.500% 7/12/02 $ 113,629
------------
Germany -- 15.9%
EUR 562,421 Bundesobligation -- Series 123.................. 4.500% 5/17/02 639,077
EUR 217,299 Deutschland Republic -- Series 93............... 6.000% 9/15/03 263,504
EUR 102,258 Deutschland Republic -- Series 97............... 6.500% 7/04/27 138,154
------------
1,040,735
------------
Greece -- 3.9%
GRD 40,000,000 Hellenic Republic Bond.......................... 9.800% 3/21/00 136,803
EUR 100,000 Hellenic Republic Bond.......................... 5.750% 3/31/08 119,176
------------
255,979
------------
Hungary -- 3.0%
HUF 45,000,000 Hungary Government Bond -- Series 00/G.......... 16.000% 11/24/00 199,025
------------
Ireland -- 1.8%
EUR 95,230 Irish Gilt...................................... 6.250% 10/18/04 117,780
------------
Norway -- 3.0%
NOK 1,500,000 Norwegian Government............................ 5.750% 11/30/04 198,044
------------
Spain -- 7.6%
EUR 372,627 Spanish Government.............................. 5.150% 7/30/09 432,009
DEM 100,000 Spanish Government International Bond........... 5.750% 1/03/07 61,973
------------
493,982
------------
Sweden -- 2.6%
SEK 700,000 Kingdom of Sweden -- Series 1036................ 10.250% 5/05/00 92,013
ITL 120,000,000 Kingdom of Sweden International Bond............ 10.000% 2/08/01 76,208
------------
168,221
------------
United Kingdom -- 4.2%
GBP 145,000 United Kingdom Gilts............................ 7.750% 9/08/06 275,849
------------
Total Sovereign Debt Obligations (Cost --
$3,914,011)..................................... 3,972,680
============
U.S. Government and Agency Obligations -- 3.1%
United States -- 3.1%
DEM 350,000 Federal National Mortgage Association -- Global. 5.000% 2/16/01 202,556
------------
Total U.S. Government and Agency Obligations
(Cost -- $196,164).............................. 202,556
============
Total Investments -- 96.0% (Cost -- $6,208,872). 6,286,337
Other assets in excess of liabilities -- 4.0%... 265,293
============
Total Net Assets -- 100.0%...................... $ 6,551,630
============
</TABLE>
Notes to the Portfolio of Investments:
Currency abbreviations defined:
CZK -- Czech Koruna GRD -- Greek Drachma
DEM -- German Deutschemark HUF -- Hungarian Forint
DKK -- Denmark Krone ITL -- Italian Lira
EUR -- European Monetary Unit (Euro) NOK -- Norwegian Krone
FRF -- French Franc SEK -- Swedish Krona
GBP -- Great Britain Pound
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF ASSETS AND LIABILITIES
Deutsche Portfolios
February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Japanese Global European
Provesta Investa Equity Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
(US Dollar) (US Dollar) (US Dollar) (US Dollar) (US Dollar)
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Assets:
Investments, at value $ 26,268,588 $ 5,205,828 $ 2,623,627 $ 5,186,456 $ 6,286,337
Cash -- 510,521 72,194 288,701 193,067
Foreign currency 9,924 4,178 -- 100,272 --
Dividends receivable 750 -- 772 -- --
Interest receivable 1,229 1,271 532 148,382 170,026
Receivable for Investors' Beneficial Interest for 31,933 14,724 -- 12,310 21,879
contributions
Variation margin receivable on open futures contracts -- -- -- 1,959 --
Unrealized appreciation on forward foreign currency -- -- 28,571 -- --
contracts
Deferred organization costs 47,924 47,924 47,960 47,852 47,924
------------ ----------- ----------- ----------- -----------
Total assets 26,360,348 5,784,446 2,773,656 5,785,932 6,719,233
------------ ----------- ----------- ----------- -----------
Liabilities:
Payable for investments purchased -- -- -- 100,272 --
Payable for loans 175,769 -- -- -- --
Payable to Investors' Beneficial Interest for 19,496 -- -- -- --
withdrawals
Investment management fees payable (3,114) 61,498 59,480 74,149 90,335
Custody and portfolio accounting fees payable 6,403 3,435 2,524 2,724 2,826
Administrative fees payable 7,815 8,750 8,841 8,800 8,764
Organization costs payable 48,936 48,936 48,972 48,863 48,936
Other accrued expenses 18,038 16,736 16,828 16,639 16,742
------------ ----------- ----------- ----------- -----------
Total liabilities 273,343 139,355 136,645 251,447 167,603
------------ ----------- ----------- ----------- -----------
Net assets $ 26,087,005 $ 5,645,091 $ 2,637,011 $ 5,534,485 $ 6,551,630
============ =========== =========== =========== ===========
Net Assets:
Applicable to Investors' Beneficial Interests $ 26,087,005 $ 5,645,091 $ 2,637,011 $ 5,534,485 $ 6,551,630
============ =========== =========== =========== ===========
Cost of investments $ 27,451,334 $ 5,184,832 $ 2,328,124 $ 5,238,849 $ 6,208,872
============ =========== =========== =========== ===========
Cost of foreign currency $ 9,924 $ 4,272 $ -- $ 101,150 $ --
============ =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF OPERATIONS
Deutsche Portfolios
For the six months ended February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Japanese Global European
Provesta Investa Equity Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
(US Dollar) (US Dollar) (US Dollar) (US Dollar) (US Dollar)
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividend income..................................... $ 37,603 $ 14,103 $ 4,587 $ -- $ --
Less: foreign withholding taxes..................... (9,184) (3,613) (688) -- --
------------- ------------ ------------ ------------ ------------
Net dividend income............................... 28,419 10,490 3,899 -- --
Interest income (net of interest expense of
$1,848, $0, $21, $2 and $555, respectively)........ 6,799 6,692 5,171 119,200 138,575
------------- ------------ ------------ ------------ ------------
Total income...................................... 35,218 17,182 9,070 119,200 138,575
------------- ------------ ------------ ------------ ------------
Expenses:
Investment management fees.......................... 69,082 21,167 8,938 17,156 22,714
Operations agent fees............................... 57,120 60,435 60,935 60,711 60,455
Custody and portfolio accounting fees............... 52,415 34,915 29,914 30,915 30,414
Administrative agent fees........................... 19,820 19,820 19,820 19,820 19,820
Professional fees................................... 17,631 17,631 17,679 17,534 17,631
Amortization of organization costs.................. 6,465 6,465 6,465 6,465 6,465
Trustees' fees and expenses......................... 1,259 1,259 1,259 1,259 1,259
Insurance fees...................................... 609 609 609 609 609
Other expenses...................................... 7,899 7,898 7,899 7,898 7,899
------------- ------------ ------------ ------------ ------------
Total expenses.................................... 232,300 170,199 153,518 162,367 167,266
------------- ------------ ------------ ------------ ------------
Net investment loss............................. (197,082) (153,017) (144,448) (43,167) (28,691)
------------- ------------ ------------ ------------ ------------
Realized and Unrealized Gain (Loss) on
Investments, Futures Contracts and
Foreign Currency:
Net realized gain (loss) on:
Investments....................................... 429,455 1,793 (43,574) 59,239 250,398
Futures contracts................................. -- 188,446 -- (12,351) --
Foreign currency transactions..................... (40,154) (2,979) (172,585) (2,784) (5,258)
Net change in unrealized appreciation/ (depreciation) on:
Investments....................................... (203,348) 12,739 520,985 (95,554) (158,048)
Futures contracts................................. -- -- -- (6,280) --
Foreign currency translation...................... (1) (94) 50,134 (5,573) (9,190)
------------- ------------ ------------ ------------ ------------
Net Realized and Unrealized Gain (Loss) on
Investments, Futures Contracts and Foreign
Currency........................................... 185,952 199,905 354,960 (63,303) 77,902
------------- ------------ ------------ ------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations.......................... $ (11,130) $ 46,888 $ 210,512 $ (106,470) $ 49,211
============= ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
Deutsche Portfolios
<TABLE>
<CAPTION>
Provesta Portfolio (US Dollar) Investa Portfolio (US Dollar)
----------------------------------- -----------------------------------
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
------------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
Operations --
Net investment loss..................................... $ (197,082) $ (306,706) $ (153,017) $ (194,992)
Net realized gain (loss) on investments, futures
contracts and foreign currency transactions............ 389,301 411,987 187,260 212,346
Net change in unrealized appreciation/(depreciation)
on investments, futures contracts and foreign
currency translations.................................. (203,349) (979,439) 12,645 8,257
----------- ----------- ---------- -----------
Net increase (decrease) in net assets resulting from
operations............................................. (11,130) (874,158) 46,888 25,611
----------- ----------- ---------- -----------
Capital Transactions--
Proceeds from contributions............................. 16,124,530 16,189,162 2,257,343 5,858,332
Withdrawals............................................. (1,632,458) (3,720,053) (687,715) (1,866,480)
----------- ----------- ---------- -----------
Net increase (decrease) in net assets from capital
transactions........................................... 14,492,072 12,469,109 1,569,628 3,991,852
----------- ----------- ---------- -----------
Total increase (decrease) in net assets................. 14,480,942 11,594,951 1,616,516 4,017,463
Net Assets--
Beginning of period..................................... 11,606,063 11,112 4,028,575 11,112
----------- ----------- ---------- -----------
End of period........................................... $26,087,005 $11,606,063 $5,645,091 $ 4,028,575
=========== =========== ========== ===========
(a) Commencement of operations: 10/17/97 10/17/97
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
Japanese Equity Portfolio (US Dollar) Global Bond Portfolio (US Dollar) European Bond Portfolio (US Dollar)
--------------------------------------- -------------------------------------- --------------------------------------
For the Six Months Ended For the Six
For the Six For the Period Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998 (unaudited) August 31, 1998
------------------ --------------- ----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
$ (144,448) $ (202,441) $ (43,167) $ (72,497) $ (28,691) $ (69,536)
(216,159) (291,835) 44,104 (16,020) 245,140 77,531
571,119 (247,060) (107,407) 42,134 (167,238) 241,738
------------------ --------------- ----------------- --------------- ----------------- ---------------
210,512 (741,336) (106,470) (46,383) 49,211 249,733
------------------ --------------- ----------------- --------------- ----------------- ---------------
1,040,778 2,526,572 2,269,483 4,807,453 2,984,196 10,703,739
(263,354) (147,273) (460,644) (940,066) (3,081,623) (4,364,738)
------------------ --------------- ----------------- --------------- ----------------- ---------------
777,424 2,379,299 1,808,839 3,867,387 (97,427) 6,339,001
------------------ --------------- ----------------- --------------- ----------------- ---------------
987,936 1,637,963 1,702,369 3,821,004 (48,216) 6,588,734
1,649,075 11,112 3,832,116 11,112 6,599,846 11,112
------------------ --------------- ----------------- --------------- ----------------- ---------------
$ 2,637,011 $ 1,649,075 $ 5,534,485 $ 3,832,116 $ 6,551,630 $ 6,599,846
================== =============== ================= =============== ================= ===============
10/20/97 10/15/97 10/17/97
</TABLE>
FINANCIAL HIGHLIGHTS
Deutsche Portfolios
<TABLE>
<CAPTION>
Provesta Portfolio (US Dollar) Investa Portfolio (US Dollar)
--------------------------------------- -----------------------------------
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
-------------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Ratios/Supplemental Data
Net assets, end of period (000's)............. $26,087 $ 11,606 $ 5,645 $ 4,029
Ratio of expenses to average net assets
before interest expense (b).................. 2.84% 9.77% 6.82% 9.87%
Ratio of interest expense to average net
assets (b)................................... 0.02% -- -- --
Ratio of expenses to average net assets
after interest expense (b)................... 2.86% 9.77% 6.82% 9.87%
Ratio of net investment loss to average
net assets (b)............................... (2.41)% (8.36)% (6.13)% (7.68)%
Portfolio turnover (c)........................ 27% 82% 8% 93%
(a) Commencement of operations: 10/17/97 10/17/97
</TABLE>
<TABLE>
<CAPTION>
Japanese Equity Portfolio (US Dollar) Global Bond Portfolio (US Dollar)
---------------------------------------- -----------------------------------
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
------------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Ratios/Supplemental Data:
Net assets, end of period (000's)......... $ 2,637 $ 1,649 $ 5,534 $ 3,832
Ratio of expenses to average net
assets before interest expense (b)....... 14.56% 15.44% 7.08% 8.18%
Ratio of interest expense to average
net assets (b)........................... -- -- -- --
Ratio of expenses to average net
assets after interest expense (b)........ 14.56% 15.44% 7.08% 8.18%
Ratio of net investment loss to
average net assets (b)................... (13.70)% (14.46)% (1.88)% (2.63)%
Portfolio turnover (c).................... 38% 95% 23% 43%
(a) Commencement of operations: 10/20/97 10/15/97
</TABLE>
<TABLE>
<CAPTION>
European Bond Portfolio (US Dollar)
-------------------------------------------------
For the Six
Months Ended For the Period
February 26, 1999 Ended (a)
(unaudited) August 31, 1998
----------------- ---------------
<S> <C> <C>
Ratios/Supplemental Data:
Net assets, end of period (000's).......... $ 6,552 $ 6,600
Ratio of expenses to average net........... 5.52% 7.79%
assets before interest expense (b)
Ratio of interest expense to average....... 0.02% --
net assets (b)
Ratio of expenses to average net........... 5.54% 7.79%
assets after interest expense (b)
Ratio of net investment loss to............ (0.95)% (2.38)%
average net assets (b)
Portfolio turnover (c)..................... 50% 177%
(a) Commencement of operations: 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
February 26, 1999 (unaudited)
Note 1 -- Organization
Deutsche Portfolios ("Portfolio Trust") was organized on June 20, 1997, as a
business trust under the laws of the State of New York and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Portfolio Trust currently consists of ten
separate investment series (each a "Portfolio" and collectively the
"Portfolios"). 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 Provesta Portfolio and the Investa Portfolio is
primarily to achieve high capital appreciation, and as a secondary objective,
reasonable dividend income. The investment objective of the Japanese Equity
Portfolio is to achieve high capital appreciation. 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 February 26, 1999 were as
follows:
<TABLE>
<S> <C> <C> <C>
Provesta Portfolio: Global Bond Portfolio:
Deutsche European Mid-Cap Fund $20,206,162 Deutsche Global Bond Fund $ 117,143
DB European Mid-Cap Fund 5,880,843 DB Global Bond Fund 5,417,342
----------- ----------
$26,087,005 $5,534,485
=========== ==========
Investa Portfolio: European Bond Portfolio:
Deutsche German Equity Fund $ 1,726,355 Deutsche European Bond Fund $ 670,436
DB German Equity Fund 3,918,736 DB European Bond Fund 5,881,194
----------- ----------
$ 5,645,091 $6,551,630
=========== ==========
Japanese Equity Portfolio:
Deutsche Japanese Equity Fund $ 851,967
DB Japanese Equity Fund 1,785,044
----------- ----------
$ 2,637,011
=========== ==========
</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 the 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.
Securities of the Bond Portfolios may be valued by independent pricing services,
approved by the Bond Portfolios' Board of Trustees, which use prices provided by
market-makers or estimates of market value obtained from yield data relating to
instruments or securities with similar characteristics. Securities for which
market quotations are not readily available are valued in good faith in
accordance with fair valuation procedures adopted by the Trustees of the
Portfolio Trust.
Foreign currency exchange rates are generally determined prior to the close of
the New York Stock Exchange ("NYSE"). Occasionally, events affecting the value
of foreign investments and such exchange rates occur between the time at which
they are determined and the close of the NYSE, which will not be reflected in
the computation of the Portfolios' net asset values. If events materially
affecting the value of such securities or currency exchange rates occur during
such time period, the securities will be valued at their fair value as
determined in good faith by or under the direction of the Trustees of the
Portfolio Trust.
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.
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 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 payments to) the close-out of the contract and the original
contract price.
Futures Contracts
The Portfolios may enter into futures contracts to hedge against market
fluctuations or to speculate on future market conditions. A futures contract is
an agreement between a buyer and a seller and an established futures exchange or
its clearinghouse in which the buyer or seller agrees to take or make a delivery
of a specified amount of an item at a specified price on a specific date
(settlement date), or to make or receive a cash payment on the value of a
securities index. Upon entering into a futures contract, the Portfolio is
required to deposit with a financial intermediary an amount equal to a certain
percentage of the face value indicated in the futures contract ("initial
margin"). Subsequent payments ("variation margin") are made or received by the
Portfolio each day, dependent on the daily fluctuations in the value of the
underlying index or security. When entering into a closing transaction, the
Portfolio will realize a gain or loss equal to the difference between the value
of the futures contract to sell and the futures contract to buy.
Foreign Currency Translation
The books and records of the Portfolios are maintained in U.S. 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, it is expected that each Portfolio will not be
subject to any U.S. federal income tax on its income and net realized gains (if
any). However, each investor in the Portfolio may be taxed on its allocable
share of the partnership's income and capital gains for purposes of determining
its federal tax liability. 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 are being
reimbursed by the Portfolios. Such organization costs have been deferred and are
being 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.
For the six months ended February 26, 1999, affiliates of Deutsche Bank AG
received $26,037, $5,374, $0, $28, and $0 in brokerage commissions from the
Provesta Portfolio, Investa Portfolio, Japanese Equity Portfolio, Global Bond
Portfolio and European Bond Portfolio, respectively, as a result of executing
agency transactions in portfolio securities.
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
Cost of purchases and proceeds from sales of investments, excluding short-term
securities, for each Portfolio for the six months ended February 26, 1999 were
as follows:
<TABLE>
<CAPTION>
Japanese Global European
Provesta Investa Equity Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases
U.S. Government...... $ -- $ -- $ -- $ 204,984 $ --
Non-U.S. Government.. 19,835,636 1,472,000 1,509,771 2,516,215 2,950,183
----------------------------------------------------------
Total................ $19,835,636 $1,472,000 $1,509,771 $2,721,199 $2,950,183
==========================================================
Sales
U.S. Government...... $ -- $ -- $ -- $ -- $ --
Non-U.S. Government.. 4,502,741 358,912 775,321 1,017,723 3,060,021
----------------------------------------------------------
Total................ $ 4,502,741 $ 358,912 $ 775,321 $1,017,723 $3,060,021
==========================================================
</TABLE>
At February 26, 1999, the cost of investments and the unrealized appreciation
(depreciation) of investments for U.S. 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......................... $27,451,334 $5,184,832 $2,328,124 $5,238,849 $6,208,872
---------------------------------------------------------------
Gross Unrealized Appreciation............... 1,275,132 508,679 364,951 58,332 168,201
Gross Unrealized Depreciation............... (2,457,878) (487,683) (69,448) (130,926) (121,425)
---------------------------------------------------------------
Net Unrealized Appreciation (Depreciation).. $(1,182,746) $ 20,996 $ 295,503 $ (72,594) $ 46,776
===============================================================
</TABLE>
Note 5 -- Forward Foreign Currency Contracts
Certain Portfolios had forward foreign currency contracts which contractually
obligate the Portfolio to deliver or receive currencies at specified future
dates. The Japanese Equity Portfolio had the following open contracts at
February 26, 1999:
<TABLE>
<CAPTION>
Local/ Foreign
Settlement Notional Contract Current Unrealized
Date Amount U.S. $ Value Value Gain
---------- -------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sale Japanese Yen...................... 4/28/99 80,000,000 $707,339 $678,768 $28,571
</TABLE>
Note 6 -- Futures Contracts
At February 26, 1999, the Global Bond Portfolio had entered into the following
futures contracts:
<TABLE>
<CAPTION>
Number of Underlying Expiration Notional Notional Unrealized
Contracts Face Value Security Date Cost Value Depreciation
- ------------- ---------- ---------- ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Long Position
- -------------
2 100,000 U.S. Treasury Bond 6/30/99 $246,010 $241,938 $(4,072)
1 100,000 U.S. Treasury Bond 6/30/99 123,177 120,969 (2,208)
-------- -------- -------
Total $369,187 $362,907 $(6,280)
======== ======== =======
</TABLE>
Note 7 -- 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 and futures 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 and futures
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 8 -- 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 six months ended February 26,
1999, the Portfolios periodically utilized the line of credit and incurred
interest expense as disclosed in the Statements of Operations. At February 26,
1999, the Provesta Portfolio had $175,769 outstanding under the line of credit
agreement.
Not FDIC Insured. No Bank Guarantee. May Lose Value.
This report must be preceded or accompanied by the Funds' prospectus.
Directors of the Corporation and
Trustees of the Portfolio Trust
The Honorable Richard R. Burt*
Edward C. Schmults*
Robert H. Wadsworth*
Werner Walbroel*
G. Richard Stamberger
Christian Strenger
Officers of the Corporation and
the Portfolio Trust
Brian A. Lee, President
Joseph Parascondola, Treasurer
Robert R. Gambee, Secretary
* Member of Audit Committee
Edgewood Services, Inc., Distributor
G02216-08 (4/99)
semi-annual
report
dated February 26, 1999
Deutsche Top 50 Europe
(Class A Shares, Class B Shares and Class C Shares) Deutsche European Mid-Cap
Fund (Class A Shares, Class B Shares and Class C Shares) Deutsche German Equity
Fund (Class A Shares, Class B Shares and Class C Shares) Deutsche European Bond
Fund (Class A Shares, Class B Shares and Class C Shares)
PRESIDENT'S MESSAGE
Dear Valued Shareholder:
It is my pleasure to provide you with this Semi-Annual Report for your Deutsche
Funds. This report provides you with financial statements, commentaries and
securities holdings for each of the portfolios, for the period of September 1,
1998 through February 26, 1999.
Over the course of the reporting period, a number of events took place in the
world financial markets. None had as large an impact, however, as the
realization of European Monetary Union and the birth of a new currency, the
euro.
On January 1, 1999, the world's largest economic merger in financial history
took place as the currencies of eleven European nations were linked to form the
European Monetary Union (EMU). With the advent of monetary union, and the
introduction of the euro, Europe now stands as one of the world's largest equity
and fixed income markets. Companies throughout the EMU can take advantage of
many business practices and initiatives that were, until now, never before
available.
The dynamic changes that are yet to come as a result of monetary union and the
euro are far reaching and, we believe, extremely positive. These changes present
a variety of opportunities for corporations, governments and individual
investors alike.
As one of the largest and most respected financial institutions in Europe,
Deutsche Bank's Mutual Fund Group, the investment manager to the Deutsche Funds,
has the resources and capabilities to understand the many changes that are
taking place in Europe today. And they are able to find the investment
opportunity in both the equity and fixed-income markets.
While there was much favorable news coming from Europe during the reporting
period, less favorable news came from the emerging markets and from Asia. As you
know, foreign investing involves special risks including currency risk,
increased volatility of foreign securities, and differences in auditing and
other financial standards. Several countries, most notably Brazil and Russia,
saw their currencies devalue dramatically. This touched off much concern
throughout the world financial markets. Fortunately, the Deutsche Fund
portfolios were never directly affected by this because they had not invested in
either of these two markets.
In Japan and other areas of Asia, governments began to make fiscal and monetary
policy changes to strengthen their economies, and businesses also began to
implement new restructuring programs to increase productivity, efficiency and
profitability. Although much of Asia still has a long way to go, the markets
were able to rally following the New Year, especially Japan, and the two
Deutsche Funds that participate in these markets have performed quite well.
The U.S. market saw yet another year of historic growth, as the U.S. domestic
bull market continued to charge. As we moved into the first quarter of 1999,
growth slowed somewhat in the U.S., as corporate earnings came under pressure.
We are confident that our investment advisory expertise which has been
demonstrated to you in the past will continue to provide you with satisfactory
performance. We appreciate your including the Deutsche Funds as a component of
your portfolio, and we look forward to continuing to serve you in the future.
Sincerely,
/s/ Brian A. Lee
President
February 26, 1999
INVESTMENT REVIEW
Deutsche Top 50 Europe
During the reporting period, Deutsche Top 50 Europe Class A Shares achieved a
total return of 0.08% at NAV (without sales charges), and (5.44)% based on
offering price (with sales charges).* The MSCI Europe Index, the Fund's
benchmark, returned 10.37% during this time period.**
In the last four months of 1998, European economies slowed down and forced
economists to make downward revisions to their gross domestic product (GDP)
growth expectations. Business confidence kept on falling, as fears of global
overcapacity and possible recession dominated the headlines.
The depressed macroeconomic environment and the currency turmoil in the world's
emerging markets led to a further correction in European stock prices in
September 1998.
Successive rate cuts in the United States and the Brazilian International
Monetary Fund package helped to relieve the pressures on the markets. Encouraged
by the determined steps of the U.S. Federal Reserve Board (the "Fed"), market
sentiment and world equity markets rebounded from their October 1998 lows. The
coordinated rate cut of the European Central Bank countries in early December
was a further move that fueled the hopes of investors for improvement in growth
prospects.
Since January 1999, however, the consensus estimate for 1999 U.S. GDP growth has
risen from 2.4% to 3.1%, and forecasts for the U.K. have also risen. European
consumer confidence was a stabilizing factor, as were more positive signals from
some Southeast Asian economies. After a calm launch in January, the euro
depreciated by more than 7% against the U.S. dollar. This was, however, more due
to positive growth surprises in the U.S. and related fears of Fed rate hikes,
than a genuine euro weakness. Contributing to the positive environment for
equities were lower interest rates. As a result, the equity markets had a very
sharp bounce off their October 6, 1998 low, rising 30% by the end of the year.
From the beginning of January 1999 until the end of February the broad Europe
STOXX Index was up 3.9%.+ Despite the strong market performance, liquidity
inflows in Europe weakened substantially as market volatility picked up. Average
monthly inflows fell from over $6 billion to just over $2 billion per month.
However, continued low interest rates, with the possibility of further rate cuts
to come, should provide further liquidity for the equity markets.
The Fund's level of investment varied over the reporting period. In October
1998, the cash level reached a maximum of around 10%, but since the end of
November the Fund was invested 95% to 100%. In October and November, we
significantly increased our weighting in the utility area for a more defensive
orientation of the portfolio (Suez Lyonnaise des Eaux and Vivendi). Since the
beginning of 1999, a number of companies have been replaced. Some chemical
companies were sold and the assets were invested into the telecommunication area
(Vodafone, Telecom Italia, Equant and Telefonica), and into the financial
services area (UBS and Generali).
All the companies mentioned above are known for their strong position in their
respective areas, high quality management and decent earnings growth potential.
* 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 B Shares for the reporting period,
based on NAV and redemption value was (0.34)% and (5.32)%, respectively.
Total return for Class C Shares for the period from inception date (September
2, 1998) through February 26, 1999, based on NAV and redemption value was
1.20% and 0.20%, respectively.
** The MSCI Europe Index is a market value-weighted average of the performance
of over 500 securities listed on the stock exchanges of 15 countries in the
European region. This index is unmanaged and investments cannot be made in an
index.
+ The Europe STOXX Index is composed of 665 securities of the Dow Jones Europe
Index listed on the stock exchanges of 16 countries in the European region.
This index is unmanaged and investments cannot be made in an index.
Deutsche European Mid-Cap Fund
During the reporting period, Deutsche European Mid-Cap Fund Class A Shares
achieved a total return of 2.81% at net asset value (NAV) (without sales
charges), and (2.86)% based on offering price (with sales charges).* The MDAX
index, the Fund's benchmark, returned (4.98)% during this time period.**
In general, European mid-cap companies had a difficult time outperforming the
broader market, especially the blue-chip companies, during the past six months.
Many mid-cap companies hit their yearly lows in October 1998, but were able to
recover toward the beginning of 1999.
Although individual share prices remained relatively low, fundamentals remained
in line, and presented an opportunity to purchase more shares of the companies
that we believe will outperform the market over the long-term.
The portfolio's top sector changed from banking to automotive during the
reporting period. Sparked by the finalization of the DaimlerChrysler deal and
talks of other mergers and acquisitions, the sector rallied. Strong returns came
from automotive manufacturers and suppliers such as Porsche, Continental and
Fresenius, which represented 2.95%, 1.97% and 3.30% of the portfolio,
respectively.
The porfolio's largest holding remained SAP, the world's leading Enterprise
Resource Planning (ERP) software company, with an allocation of 3.70%. Although
the company had a difficult year-end as a result of the slow down in orders, we
believe that the company will fully recover over the mid-to-longer term.
The past six months also saw the Fund consolidate its holdings from 102
companies to 87. Companies were sold that either no longer offered the growth
potential we look for, or their fundamentals deteriorated substantially. German
companies still dominated the portfolio at 74%, and new companies were added
from Sweden and Luxembourg. Additionally, larger allocations to Italian and
Portuguese companies were made.
Now that European Monetary Union (EMU) and the euro are a reality, fund managers
and analysts are more concerned with the sector and market cap size of a
company, as opposed to the country it is located in. For this reason, we are
encouraged that mid-cap companies will be more heavily followed in the market,
and will in turn draw investors to them. The long-term outlook for this aspect
of the European equity market is, in our opinion, very favorable.
* 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 B Shares for the reporting period,
based on NAV and redemption value was 2.54% and (2.46)%, respectively. Total
return for Class C Shares for the period from inception date (September 2,
1998) through February 26, 1999, based on NAV and redemption value was 4.47%
and 3.47%, respectively.
** The MDAX (Midcap Index) is a capitalization-weighted index composed of 70
German blue-chip stocks which are in the DAX 100 but not in the DAX (German
Stock Index), and are traded in the Frankfurt Stock Exchange. This index is
unmanaged and investments cannot be made in an index. The Fund's adviser has
elected to change the benchmark index from the MSCI Europe Index to the MDAX,
because the MDAX is more representative of the securities in which the Fund
invests. The return listed above does not include the reinvestment of
dividends.
Deutsche German Equity Fund
During the reporting period, Deutsche German Equity Fund Class A Shares achieved
a total return of 4.80% at NAV (without sales charges), and (0.95)% based on
offering price (with sales charges).* The MSCI Germany Index, the Fund's
benchmark, returned 3.36% during this time period.**
From the beginning of August 1998 to the end of February 1999, prices of German
blue-chip companies increased by about 6.7%. During the same period, Germany's
DAX index fluctuated strongly, reaching a yearly low at 3,884 in October 1998.+
Since then, the DAX has recovered. The Fund stayed invested during this time
frame and, in fact, became close to fully invested.
Over the past six months, automotive stocks were highly weighted in the
portfolio, led by DaimlerChrysler and Volkswagen. The strong weighting of
DaimlerChrysler among Fund holdings made a large contribution to the performance
of the Fund. Mannesmann, as the leading cellular telecommunications provider,
benefited again from reacceleration of subscriber growth. The position in
Deutsche Telekom was increased, as was the stake in Siemens. Banking and
insurance positions were slightly reduced.
The German equity market performed strongly at the beginning of 1999, especially
due to monetary union and the birth of the euro. After the first few weeks
passed, however, the country's performance began to suffer versus other European
markets. Much of the country's lack of performance stemmed from its political
situation and the recently held national elections.
As we move into the second half of the Fund's fiscal year, the German market has
the chance to reach its historic highs but will continue to be influenced by the
political situation, liquidity, cross border allocation-induced investments,
profit adjustments and the willingness of investors to look into the year 2000
earnings developments.
* 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 B Shares for the reporting period,
based on NAV and redemption value was 4.51% and (0.49)%, respectively. Total
return for Class C Shares for the period from inception date (September 2,
1998) through February 26, 1999, based on NAV and redemption value was 4.80%
and 3.80%, respectively.
** The MSCI Germany Index is a market value-weighted average of the performance
of over 60 securities listed on the Frankfurt Stock Exchange. This index is
unmanaged and investments cannot be made in an index.
+ The DAX (German Stock Index) is composed of the 30 most actively traded
German blue-chip stocks. This index is unmanaged and investments cannot be
made in an index.
Deutsche European Bond Fund
During the reporting period, Deutsche European Bond Fund Class A Shares achieved
a total return of 2.77% at NAV (without sales charges) and (1.86)% based on
offering price (with sales charges).* The J.P. Morgan European Government Bond
Index, the Fund's benchmark, returned 2.66% during this time period.**
The Deutsche European Bond Fund invests primarily in the fixed income securities
of European issuers (at least 65% of the portfolio's total assets) and fixed
income securities denominated in European currencies. The objective is to
achieve steady, high income.
Since the end of August 1998, the Fund decreased its allocation in the
currencies of countries that are participating in the euro by 11.5%. Instead, we
extended our allocation in Danish kroner (+0.9%), and British pounds (+2.5%). We
also decided to enter into two Central Eastern European currencies, the
Hungarian forint and the Czech koruna, with allocations of 2.1% and 3.1%,
respectively. We also established a position in Swedish krona of 3.5%, where the
weakened currency and attractive yield pick-up against German issues of shorter
maturity provided a buying opportunity.
The currency markets were rather volatile during this time period. The British
pound traded in a large range between 1.60 and 1.71, and Swedish krona between
7.60 and 8.23. Since the beginning of September 1998 until the end of the year,
the Deutsche mark strengthened against the U.S. dollar in anticipation of the
euro. Since the euro's launch, a significantly stronger U.S. dollar followed, as
the European economies started to look increasingly fragile in comparison to the
booming growth in the U.S. The euro depreciated from 1.17 levels all the way to
1.10 toward the end of February 1999, not being helped by the political battle
for lower interest rates in Europe.
The European fixed income markets continued to stay positive until the end of
January. In February, bond markets worldwide experienced heavy selling pressure,
starting in Japan and spreading to Europe, as many investors became worried
about the possible liquidation of U.S. and European bonds by Japanese investors.
Europe was, nevertheless, being hit much less than the U.S. bond market. We have
maintained our weighted average maturity position of around 7 years and decided
to stay rather conservative with respect to credit exposure, buying only liquid
issues with good credit ratings. As the European corporate bond market grows and
new opportunities arise, we will diversify more into that segment and reduce
some of our large government bond holdings.
* 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 B Shares for the reporting period,
based on NAV and redemption value was 2.29% and (2.71)%, respectively. Total
return for Class C Shares for the period from inception date (September 2,
1998) through February 26, 1999, based on NAV and redemption value was 2.16%
and 1.16%, respectively.
** The J.P. Morgan European Government Index is a standard foreign securities
index representing European government bond markets. This index is unmanaged
and investments cannot be made in an index. The return listed above does not
include the reinvestment of dividends.
STATEMENTS OF ASSETS AND LIABILITIES
Deutsche Funds, Inc.
February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche
Deutsche European German European
Top 50 Mid-Cap Equity Bond
Europe Fund Fund Fund
---------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Assets:
Investment in corresponding Deutsche Portfolio, at value.............. $9,003,948 $20,206,162 $1,726,355 $670,436
Receivable from Manager for expense reimbursement..................... 50,339 74,554 39,480 29,675
Receivable for capital shares sold.................................... 31,144 31,933 14,724 4,995
Receivable from corresponding Deutsche Portfolio for withdrawals...... 47,316 8,138 -- --
Foreign tax reclaim receivable........................................ 2,344 3,552 462 --
Deferred organization costs........................................... 9,048 9,152 9,152 9,152
---------- ----------- ---------- --------
Total assets........................................................ 9,144,139 20,333,491 1,790,173 714,258
---------- ----------- ---------- --------
Liabilities:
Payable for capital shares redeemed................................... 47,316 8,138 -- --
Payable to corresponding Deutsche Portfolio for contributions......... 31,144 31,933 14,724 4,995
Dividends payable..................................................... -- -- -- 2,193
Transfer Agent fees payable........................................... 7,137 5,690 7,971 4,662
Distribution fees payable............................................. 4,631 6,944 621 203
Custody and portfolio accounting fees payable......................... 1,863 1,856 1,855 1,856
Administrative fees payable........................................... 462 998 84 33
Other accrued expenses................................................ 3,302 6,483 3,632 2,600
---------- ----------- ---------- --------
Total liabilities................................................... 95,855 62,042 28,887 16,542
---------- ----------- ---------- --------
Net assets.......................................................... $9,048,284 $20,271,449 $1,761,286 $697,716
========== =========== ========== ========
Net Assets Consist of:
Capital stock, $0.001 par value (authorized 250,000,000 shares
for each Fund)....................................................... $ 748 $ 1,475 $ 124 $ 53
Paid-in capital....................................................... 9,605,174 21,246,828 1,855,275 730,905
Accumulated net investment loss....................................... (44,960) (86,022) (7,240) (3,104)
Undistributed (accumulated) net realized gain (loss) on
investments, futures contracts and foreign
currency transactions................................................ (364,421) 303,757 47,282 12,414
Net unrealized appreciation/(depreciation) of investments,
futures contracts and foreign currency............................. (148,257) (1,194,589) (134,155) (42,552)
---------- ----------- ---------- --------
Net assets.......................................................... $9,048,284 $20,271,449 $1,761,286 $697,716
========== =========== ========== ========
Computation of Net Asset Value, Redemption Price and Offering
Price Per Share:
Net assets -- Class A................................................. $2,679,336 $12,802,741 $1,154,402 $589,842
========== =========== ========== ========
Shares outstanding -- Class A......................................... 205,521 887,190 76,928 44,627
========== =========== ========== ========
Net asset value and redemption price per share -- Class A............. $ 13.04 $ 14.43 $ 15.01 $ 13.22
========== =========== ========== ========
Offering price per share -- Class A................................... $ 13.80 $ 15.27 $ 15.88 $ 13.84
========== =========== ========== ========
Net assets -- Class B................................................. $5,546,126 $ 6,318,222 $ 564,500 $ 97,667
========== =========== ========== ========
Shares outstanding -- Class B......................................... 477,590 498,389 43,183 7,588
========== =========== ========== ========
Net asset value, offering price and redemption price per share --
Class B.............................................................. $ 11.61 $ 12.68 $ 13.07 $ 12.87
========== =========== ========== ========
Net assets -- Class C................................................. $ 822,822 $ 1,150,486 $ 42,384 $ 10,207
========== =========== ========== ========
Shares outstanding -- Class C......................................... 65,046 89,419 3,269 817
========== =========== ========== ========
Net asset value, offering price and redemption price per share --
Class C.............................................................. $ 12.65 $ 12.87 $ 12.97 $ 12.50
========== =========== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF OPERATIONS
Deutsche Funds, Inc.
For the six months ended February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche
Deutsche European German European
Top 50 Mid-Cap Equity Bond
Europe Fund Fund Fund
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Investment Income:
Investment Income and Expenses allocated from
corresponding Deutsche Portfolio:
Dividend income.................................... $ 11,836 $ 25,671 $ 3,710 $ --
Less: Foreign withholding taxes.................... (1,899) (3,260) (478) --
--------- --------- --------- --------
Net dividend income.............................. 9,937 22,411 3,232 --
Interest income.................................... 17,467 4,411 1,780 10,801
Expenses........................................... (73,977) (157,127) (43,281) (14,455)
--------- --------- --------- --------
Net investment loss allocated from
corresponding Deutsche Portfolio................ (46,573) (130,305) (38,269) (3,654)
--------- --------- --------- --------
Expenses:
Transfer Agent fees................................ 35,000 36,000 34,919 25,750
Registration fees.................................. 25,307 22,485 18,285 17,900
Professional fees.................................. 15,795 17,105 17,069 17,069
Portfolio accounting fees.......................... 11,363 11,355 11,355 11,355
Reports to Shareholders............................ 8,915 10,951 10,951 10,951
Administration fees................................ 2,130 3,521 397 150
Directors' fees and expenses....................... 1,250 1,250 1,250 1,250
Amortization of organization costs................. 1,235 1,235 1,235 1,235
Insurance fees..................................... 819 966 966 966
Distribution fees -- Class B....................... 15,736 18,702 1,363 345
Distribution fees -- Class C (a)................... 1,376 1,697 102 5
Service fees -- Class A............................ 2,490 6,741 1,040 459
Service fees -- Class B............................ 5,245 6,234 454 115
Service fees -- Class C (a)........................ 459 566 34 2
Other expenses..................................... 202 203 203 203
--------- --------- --------- --------
Total expenses................................... 127,322 139,011 99,623 87,755
Less: Expense reimbursement........................ (131,465) (188,399) (131,606) (98,842)
--------- --------- --------- --------
Net reimbursement in excess of total
expenses........................................ (4,143) (49,388) (31,983) (11,087)
--------- --------- --------- --------
Net investment income (loss)................... (42,430) (80,917) (6,286) 7,433
--------- --------- --------- --------
Net Realized and Unrealized Gain (Loss) on Investments, Futures Contracts and
Foreign Currency allocated from corresponding Deutsche Portfolio:
Net realized gain (loss) on:
Investments....................................... (311,592) 343,533 2,067 14,429
Futures contracts................................. (39,421) -- 49,308 --
Foreign currency transactions..................... (12,614) (29,840) (731) (686)
Net change in unrealized appreciation/(depreciation) on:
Investments....................................... 417,798 (342,198) (22,083) (44,531)
Futures contracts................................. 1,957 -- (5) --
Foreign currency translation...................... (935) 623 (23) (27)
--------- --------- --------- --------
Net Realized and Unrealized Gain (Loss) on
Investments, Futures Contracts
and Foreign Currency allocated from
corresponding Deutsche Portfolio.................. 55,193 (27,882) 28,533 (30,815)
--------- --------- --------- --------
Net Increase (Decrease) in Net Assets
Resulting From Operations......................... $ 12,763 $(108,799) $ 22,247 $(23,382)
========= ========= ========= ========
(a) Inception date: 9/2/98 9/2/98 9/2/98 9/2/98
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
Deutsche Funds, Inc.
<TABLE>
<CAPTION>
Deutsche Top 50 Europe Deutsche European Mid-Cap Fund
------------------------------------- -----------------------------------
For the Six For the Six
For the Period Months Ended For the Period Months Ended
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment loss.......................................... $ (42,430) $ (1,014) $ (80,917) $ (4,424)
Net realized gain (loss) on investments,
futures contracts and foreign currency
transactions allocated from corresponding
Deutsche Portfolio.......................................... (363,627) 15,157 313,693 158,552
Net change in unrealized appreciation/
(depreciation) on investments, futures
contracts and foreign currency
translations allocated from corresponding
Deutsche Portfolio.......................................... 418,820 (567,077) (341,575) (853,014)
---------- ---------- ----------- ----------
Net increase (decrease) in net assets
resulting from operations................................... 12,763 (552,934) (108,799) (698,886)
---------- ---------- ----------- ----------
Distributions to Shareholders:
Distributions from realized gains:
Class A...................................................... -- -- (51,423) --
Class B...................................................... -- -- (76,047) --
Class C...................................................... -- -- (9,584) --
---------- ---------- ----------- ----------
Total distributions........................................ -- -- (137,054) --
---------- ---------- ----------- ----------
Capital Share Transactions: Class A
Net proceeds from shares sold................................ 2,148,902 1,500,448 11,370,454 2,861,890
Net proceeds from dividends and
distributions reinvested.................................... -- -- 46,741 --
Net cost of shares redeemed.................................. (709,465) (148,736) (738,795) (281,385)
---------- ---------- ----------- ----------
Net increase in net assets resulting from capital
share transactions -- Class A............................... 1,439,437 1,351,712 10,678,400 2,580,505
---------- ---------- ----------- ----------
Capital Share Transactions: Class B (b)
Net proceeds from shares sold................................ 3,003,352 3,652,990 2,389,700 4,950,740
Net proceeds from dividends and distributions
reinvested.................................................. -- -- 67,185 --
Net cost of shares redeemed.................................. (559,151) (134,341) (459,999) (154,723)
---------- ---------- ----------- ----------
Net increase in net assets resulting from capital
share transactions -- Class B............................... 2,444,201 3,518,649 1,996,886 4,796,017
---------- ---------- ----------- ----------
Capital Share Transactions: Class C (c)
Net proceeds from shares sold................................ 1,028,857 -- 1,164,068 --
Net proceeds from dividends and distributions
reinvested.................................................. -- -- 8,743 --
Net cost of shares redeemed.................................. (205,512) -- (19,542) --
---------- ---------- ----------- ----------
Net increase in net assets resulting from capital
share transactions -- Class C............................... 823,345 -- 1,153,269 --
---------- ---------- ----------- ----------
Total increase in net assets............................... 4,719,746 4,317,427 13,582,702 6,677,636
Net Assets:
Beginning of period.......................................... 4,328,538 11,111 6,688,747 11,111
---------- ---------- ----------- ----------
End of period (d)............................................ $9,048,284 $4,328,538 $20,271,449 $6,688,747
========== ========== =========== ==========
Capital Shares -- Class A
Shares sold.................................................. 166,505 102,366 766,937 185,654
Shares reinvested............................................ -- -- 3,201 --
Shares redeemed.............................................. (53,689) (10,550) (51,836) (17,655)
---------- ---------- ----------- ----------
Net increase in fund shares................................ 112,816 91,816 718,302 167,999
========== ========== =========== ==========
Capital Shares -- Class B (b)
Shares sold.................................................. 256,208 278,086 187,797 353,382
Shares reinvested............................................ -- -- 5,233 --
Shares redeemed.............................................. (46,463) (10,241) (36,217) (11,806)
---------- ---------- ----------- ----------
Net increase in fund shares.................................. 209,745 267,845 156,813 341,576
========== ========== =========== ==========
Capital Shares -- Class C (c)
Shares sold.................................................. 80,465 -- 90,289 --
Shares reinvested............................................ -- -- 671 --
Shares redeemed.............................................. (15,419) -- (1,541) --
---------- ---------- ----------- ----------
Net increase in fund shares................................ 65,046 -- 89,419 --
========== ========== =========== ==========
(a) Commencement of operations: 10/2/97 10/17/97
(b) Inception date: 3/30/98 3/30/98
(c) Inception date: 9/2/98 9/2/98
(d) Includes accumulated net investment loss of: $ (44,960) $ (2,530) $ (86,022) $ (5,105)
---------- ---------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
Deutsche Funds, Inc.
<TABLE>
<CAPTION>
Deutsche German Equity Fund Deutsche European Bond Fund
----------------------------------- -----------------------------------
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income (loss).............................. $ (6,286) $ 676 $ 7,433 $ 610
Net realized gain on investments, futures
contracts and foreign currency transactions
allocated from corresponding Deutsche Portfolio.......... 50,644 10,544 13,743 636
Net change in unrealized appreciation/
(depreciation) on investments, futures contracts
and foreign currency translations allocated from
corresponding Deutsche Portfolio......................... (22,111) (112,044) (44,558) 2,006
---------- --------- --------- --------
Net increase (decrease) in net assets resulting
from operations.......................................... 22,247 (100,824) (23,382) 3,252
---------- --------- --------- --------
Distributions to Shareholders:
Dividends from net investment income:
Class A................................................... (994) -- (9,096) (203)
Class B................................................... -- -- (1,577) (400)
Class C................................................... -- -- (39) --
Distributions from realized gains:
Class A................................................... (9,095) -- (1,162) --
Class B................................................... (3,764) -- (215) --
Class C................................................... (407) -- -- --
---------- --------- --------- --------
Total distributions..................................... (14,260) -- (12,089) (603)
---------- --------- --------- --------
Capital Share Transactions: Class A
Net proceeds from shares sold............................. 823,928 638,075 779,760 25,533
Net proceeds from dividends and distributions
reinvested............................................... 9,508 -- 7,992 202
Net cost of shares redeemed............................... (152,122) (128,511) (191,667) (9,296)
---------- --------- --------- --------
Net increase in net assets resulting from
capital share transactions -- Class A.................... 681,314 509,564 596,085 16,439
---------- --------- --------- --------
Capital Share Transactions: Class B (b)
Net proceeds from shares sold............................. 362,779 320,200 12,544 83,269
Net proceeds from dividends and distributions
reinvested............................................... 3,431 -- 1,526 401
Net cost of shares redeemed............................... (77,163) (1) (1,398) --
---------- --------- --------- --------
Net increase in net assets resulting from
capital share transactions -- Class B.................... 289,047 320,199 12,672 83,670
---------- --------- --------- --------
Capital Share Transactions: Class C (c)
Net proceeds from shares sold............................. 42,679 -- 10,550 --
Net proceeds from dividends and distributions
reinvested............................................... 210 -- 11 --
Net cost of shares redeemed............................... (1) -- -- --
---------- --------- --------- --------
Net increase in net assets resulting from
capital share transactions -- Class C.................... 42,888 -- 10,561 --
---------- --------- --------- --------
Total increase in net assets............................ 1,021,236 728,939 583,847 102,758
Net Assets:
Beginning of period....................................... 740,050 11,111 113,869 11,111
---------- --------- --------- --------
End of period (d)......................................... $1,761,286 $ 740,050 $ 697,716 $113,869
========== ========= ========= ========
Capital Shares -- Class A
Shares sold............................................... 54,292 39,304 55,828 1,985
Shares reinvested......................................... 590 -- 571 16
Shares redeemed........................................... (9,891) (8,256) (13,933) (729)
---------- --------- --------- --------
Net increase in fund shares............................. 44,991 31,048 42,466 1,272
========== ========= ========= ========
Capital Shares -- Class B (b)
Shares sold............................................... 26,641 22,029 919 6,631
Shares reinvested......................................... 244 -- 112 32
Shares redeemed........................................... (5,731) -- (106) --
---------- --------- --------- --------
Net increase in fund shares............................. 21,154 22,029 925 6,663
========== ========= ========= ========
Capital Shares -- Class C (c)
Shares sold............................................... 3,254 -- 816 --
Shares reinvested......................................... 15 -- 1 --
Shares redeemed........................................... -- -- -- --
---------- --------- --------- --------
Net increase in fund shares............................. 3,269 -- 817 --
========== ========= ========= ========
(a) Commencement of operations: 10/17/97 10/17/97
(b) Inception date: 3/16/98 6/25/98
(c) Inception date: 9/2/98 9/2/98
(d) Includes undistributed (accumulated) net
investment income (loss) of: $ (7,240) $ 40 $ (3,104) $ 175
---------- --------- --------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FINANCIAL HIGHLIGHTS
Deutsche Funds, Inc.
Selected data for a Class A share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
Deutsche Top 50 Europe Deutsche European Mid-Cap Fund
------------------------------------ ------------------------------------
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period......... $ 13.03 $12.50 $ 14.22 $12.50
------- ------ ------- ------
Investment operations:
Net investment income (loss).................. (0.04) 0.02 (0.04) 0.01
Net realized and unrealized gain on
investments, futures contracts and
foreign currency allocated from
corresponding Deutsche Portfolio............. 0.05 0.51 0.44 1.71
------- ------ ------- ------
Increase from investment operations........... 0.01 0.53 0.40 1.72
------- ------ ------- ------
Distributions to Shareholders:
Dividends from net investment income.......... -- -- -- --
Distributions from net realized gains......... -- -- (0.19) --
------- ------ ------- ------
Total distributions........................... -- -- (0.19) --
------- ------ ------- ------
Net asset value at end of period............... $ 13.04 $13.03 $ 14.43 $14.22
======= ====== ======= ======
Total Return (based on net asset
value) (b)*................................... 0.08% 4.24% 2.81% 13.76%
Ratios and Supplemental Data:
Net assets, end of period (000's)............. $ 2,679 $1,208 $12,803 $2,402
Ratios to average net assets:
Expenses (c)**................................ 1.60% 1.60% 1.60% 1.60%
Net investment income (loss) (c)**............ (0.77)% 0.50% (1.09)% 0.23%
(a) Commencement of operations: 10/2/97 10/17/97
</TABLE>
(b) 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 the beginning of each period, reinvestment of distributions at net asset
value and a redemption 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.
(c) 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>
Expenses to average net assets** 5.50% 16.53% 5.66% 18.86%
Net investment loss to average net assets** (4.67)% (14.43)% (5.15)% (17.03)%
------- ------ ------- ------
</TABLE>
* Not annualized
** Annualized
The accompanying notes are an integral part of the financial statements.
FINANCIAL HIGHLIGHTS (CONTINUED)
Deutsche Funds, Inc.
Selected data for a Class A share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
Deutsche German Equity Fund Deutsche European Bond Fund
------------------------------------- -----------------------------------
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period............ $ 14.46 $ 12.50 $ 13.15 $12.50
------- --------- --------- ------
Investment operations:
Net investment income (loss)..................... (0.05) 0.02 0.12 0.19
Net realized and unrealized gain on
investments, futures contracts and foreign
currency allocated from corresponding
Deutsche Portfolio.............................. 0.76 1.94 0.26 0.58
------- --------- --------- ------
Increase from investment operations.............. 0.71 1.96 0.38 0.77
------- --------- --------- ------
Distributions to Shareholders:
Dividends from net investment income............. (0.02) -- (0.28) (0.12)
Distributions from net realized gains............ (0.14) -- (0.03) --
------- --------- --------- ------
Total distributions.............................. (0.16) -- (0.31) (0.12)
------- --------- --------- ------
Net asset value at end of period.................. $ 15.01 $ 14.46 $ 13.22 $13.15
======= ========= ========= ======
Total Return (based on net asset value) (b)*...... 4.80% 15.68% 2.77% 6.17%
Ratios and Supplemental Data:
Net assets, end of period (000's)................ $ 1,154 $ 462 $ 590 $ 28
Ratios to average net assets:
Expenses (c)**................................... 1.60% 1.60% 1.30% 1.30%
Net investment income (loss) (c)**............... (0.79)% 0.75% 3.33% 2.67%
(a) Commencement of operations: 10/17/97 10/17/97
</TABLE>
(b) 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 the beginning of each period, reinvestment of distributions at net asset
value and a redemption 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.
(c) 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>
Expenses to average net assets** 22.29% 73.61% 46.50% 454.22%
Net investment loss to average net assets** (21.48)% (71.26)% (41.87)% (450.25)%
</TABLE>
* Not annualized
** Annualized
The accompanying notes are an integral part of the financial statements.
FINANCIAL HIGHLIGHTS (CONTINUED)
Deutsche Funds, Inc.
Selected data for a Class B share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
Deutsche Top 50 Europe Deutsche European Mid-Cap Fund
------------------------------------ ------------------------------------
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period............ $ 11.65 $ 12.50 $ 12.55 $ 12.50
------- ------- ------- -------
Investment operations:
Net investment loss.............................. (0.06) (0.01) (0.09) (0.02)
Net realized and unrealized gain (loss)
on investments, futures contacts and
foreign currency allocated from
corresponding Deutsche Portfolio................ 0.02 (0.84) 0.41 0.07
------- ------- ------- -------
Increase (decrease) from investment
operations...................................... (0.04) (0.85) 0.32 0.05
------- ------- ------- -------
Distributions to Shareholders:
Dividends from net investment income............. -- -- -- --
Distributions from net realized gains............ -- -- (0.19) --
------- ------- ------- -------
Total distributions.............................. -- -- (0.19) --
------- ------- ------- -------
Net asset value at end of period.................. $ 11.61 $ 11.65 $ 12.68 $ 12.55
======= ======= ======= =======
Total Return (based on net asset
value) (b)*...................................... (0.34)% (6.80)% 2.54% 0.40%
Ratios and Supplemental Data:
Net assets, end of period (000's)................ $ 5,546 $ 3,120 $ 6,318 $ 4,287
Ratios to average net assets:
Expenses (c)**................................... 2.35% 2.35% 2.35% 2.35%
Net investment loss (c)**........................ (1.52)% (0.46)% (1.88)% (0.70)%
(a) Inception date: 3/30/98 3/30/98
</TABLE>
(b) 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 the beginning of each period, reinvestment of distributions at net asset
value and a redemption 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.
(c) 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** 6.19% 17.28% 5.08% 19.61%
Net investment loss to average net assets** (5.36)% (15.39)% (4.61)% (17.96)%
------- ------- ------- -------
</TABLE>
* Not annualized
** Annualized
The accompanying notes are an integral part of the financial statements.
FINANCIAL HIGHLIGHTS (CONTINUED)
Deutsche Funds, Inc.
Selected data for a Class B share of common stock outstanding throughout each
period.
<TABLE>
<CAPTION>
Deutsche German Equity Fund Deutsche European Bond Fund
----------------------------------- -----------------------------------
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period.............. $ 12.63 $ 12.50 $12.82 $12.50
------- ------- ------ ------
Investment operations:
Net investment income (loss)....................... (0.06) (0.01) 0.18 0.08
Net realized and unrealized gain on
investments, futures contacts and
foreign currency allocated from
corresponding Deutsche Portfolio.................. 0.64 0.14 0.12 0.35
------- ------- ------ ------
Increase from investment operations................ 0.58 0.13 0.30 0.43
------- ------- ------ ------
Distributions to Shareholders:
Dividends from net investment income............... -- -- (0.22) (0.11)
Distributions from net realized gains.............. (0.14) -- (0.03) --
------- ------- ------ ------
Total distributions................................ (0.14) -- (0.25) (0.11)
------- ------- ------ ------
Net asset value at end of period.................... $ 13.07 $ 12.63 $12.87 $12.82
======= ======= ====== ======
Total Return (based on net asset value) (b)*........ 4.51% 1.04% 2.29% 3.44%
Ratios and Supplemental Data:
Net assets, end of period (000's).................. $ 565 $ 278 $ 98 $ 85
Ratios to average net assets:
Expenses (c)**..................................... 2.35% 2.35% 2.05% 2.05%
Net investment income (loss) (c)**................. (1.52)% (0.19)% 2.69% 2.38%
(a) Inception date: 3/16/98 6/25/98
</TABLE>
(b) 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 the beginning of each period, reinvestment of distributions at net asset
value and a redemption 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.
(c) 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>
Expenses to average net assets** 25.34% 74.36% 32.02% 454.97%
Net investment loss to average net assets** (24.51)% (72.20)% (27.28)% (450.54)%
======= ======= ====== ======
</TABLE>
* 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 (a) through February 26, 1999 (unaudited)
Selected data for a Class C share of common stock outstanding throughout the
period.
<TABLE>
<CAPTION>
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) (0.04) (0.05) (0.06) 0.23
Net realized and unrealized gain on investments, futures contracts
and foreign currency allocated from corresponding Deutsche
Portfolio 0.19 0.61 0.67 0.05
Increase from investment operations 0.15 0.56 0.61 0.28
Distributions to Shareholders:
Dividends from net investment income -- -- -- (0.25)
Distributions from net realized gains -- (0.19) (0.14) (0.03)
Total distributions -- (0.19) (0.14) (0.28)
Net asset value at end of period $ 12.65 $ 12.87 $ 12.97 $ 12.50
Total Return (based on net asset value) (b)* 1.20% 4.47% 4.80% 2.16%
Ratios and Supplemental Data:
Net assets, end of period (000's) $ 823 $ 1,150 $ 42 $ 10
Ratios to average net assets:
Expenses (c)** 2.35% 2.35% 2.35% 2.05%
Net investment income (loss) (c)** (1.47)% (1.84)% (1.46)% 2.52%
(a) Inception date: 9/2/98 9/2/98 9/2/98 9/2/98
</TABLE>
(b) 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 the beginning of each period, reinvestment of distributions at net asset
value and a redemption 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.
(c) 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>
Expenses to average net assets** 8.65% 6.47% 25.61% 179.39%
Net investment loss to average net assets** (7.77)% (5.96)% (24.72)% (174.82)%
</TABLE>
* Not annualized
** Annualized
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
Deutsche Funds, Inc.
February 26, 1999 (unaudited)
Note 1 -- Organization
Deutsche Funds, Inc. (the "Company") was incorporated in Maryland on May 22,
1997 and is registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company. The Company currently
consists of eleven separate investment series (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 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
("Federated")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"), an affiliate of Federated, serves
as distributor to the Funds (the "Distributor").
Each Fund offers three classes of shares to investors, Class A, Class B and
Class C Shares. All three Classes of shares are subject to a Service Plan, and
Class B Shares and Class C 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
February 26, 1999 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 31.78% Top 50 Europe Portfolio (US Dollar)
European Mid-Cap Fund 77.46% Provesta Portfolio (US Dollar)
German Equity Fund 30.58% Investa Portfolio (US Dollar)
European Bond Fund 10.23% European Bond Portfolio (US Dollar)
</TABLE>
Investment Income, Expenses and Realized and Unrealized Gains and Losses
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 continue to qualify 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.
Distributions to Shareholders
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. However, to the extent
that the net realized gains of a Fund can be reduced by any capital loss
carryforwards of that Fund, such gains will not be distributed. 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.
Deferred Organization Costs
Organization costs incurred in connection with the organization and initial
registration of the Company were paid initially by DFM and are being reimbursed
by the Funds. Such organization costs have been deferred and are being 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 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 and Class C Shares of the Funds are
subject to the Distribution Plan and Class A Shares, Class B Shares and Class C
Shares of the Funds are subject to the Service Plan. Under the Distribution
Plan, Class B Shares and Class C 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 and Class C Shares,
respectively, to finance any activity that is principally intended to result in
the sale of Class B Shares and Class C 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, Class B Shares and Class C 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. IBT(Boston) acts as the sub-
administrator for each Fund and as the custodian of each Fund's assets.
Expense Reimbursements
DFM has voluntarily agreed that it will reimburse each Fund through at least
August 31, 1999, 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%, and
2.35% of the average daily net assets of Class A Shares, Class B Shares and
Class C Shares of the Equity Funds, and at not more than 1.30%, 2.05% and 2.05%
of the average daily net assets of Class A Shares, Class B Shares and Class C
Shares of the European Bond Fund, respectively.
For the six months ended February 26, 1999, DFM voluntarily reimbursed the
following expenses pursuant to this undertaking:
<TABLE>
<CAPTION>
Portfolio Fund Total Portfolio Fund Total
<S> <C> <C> <C> <C> <C> <C> <C>
Top 50 Europe Fund $ 4,143 $127,322 $131,465 German Equity Fund $31,983 $99,623 $131,606
European Mid-Cap Fund $49,388 $139,011 $188,399 European Bond Fund $11,087 $87,755 $ 98,842
</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.
PORTFOLIO OF INVESTMENTS
Top 50 Europe Portfolio (US Dollar)
February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Market
Shares Description Value
Common Stocks--91.7%
Austria--3.0%
<C> <S> <C>
15,800 Bank Austria AG $ 850,381
Denmark--0.7%
1,870 Coloplast A/S - B 197,511
France--23.1%
4,000 Alcatel Alsthom 430,573
22,000 Alstom* 601,704
6,750 AXA 880,807
6,300 Compagnie Financiere de Paribas* 543,214
6,400 Compagnie Generale des Eaux 1,669,568
1,000 Elf-Aquitaine 104,348
2,750 Groupe Danone 685,374
6,000 Suez Lyonnaise des Eaux 1,200,112
4,230 Total SA - B 441,392
6,557,092
Germany--23.9%
3,002 Altana AG 191,908
8,582 BASF AG 297,405
3,000 Daimler-Chrysler AG 280,586
4,113 Deutsche Pfandbrief-und Hypothekenbank AG 354,641
2,036 Duerr AG 55,238
4,372 Fresenius Medical Care AG 254,997
8,265 Gehe AG 462,992
20,602 Hoechst AG 971,926
7,540 Mannesmann AG 1,012,881
559 Rhoen-Klinikum AG 61,708
1,274 SAP AG (a) 433,802
10,067 Schering AG 1,294,842
3,208 SGL Carbon AG 151,518
7,793 Siemens AG 492,190
8,462 Veba AG 451,721
6,768,355
Italy--4.4%
10,000 Assicurazioni Generali 389,053
80,000 Telecom Italia SpA 848,316
1,237,369
Netherlands--8.8%
18,420 Elsevier 299,441
7,000 Equant NV* 505,154
18,071 ING Groep NV 1,012,309
14,104 Koninklijke Ahold NV 542,214
1,706 Unilever NV 123,113
2,482,231
Norway--1.0%
8,400 Tomra Systems ASA $ 291,575
Spain--2.4%
15,000 Telefonica SA 685,402
Sweden--6.1%
10,480 AGA AB - A Shares 138,025
25,260 AGA AB - B Shares 331,142
13,830 Getinge Indutrier AB - B Shares 201,541
23,640 Securitas AB - B Shares 390,625
25,200 Telefonaktiebolaget LM Ericsson 666,858
1,728,191
Switzerland--10.6%
2,280 Credit Suisse Group 353,964
400 Novartis AG 701,580
780 Roche Holding AG 987,580
221 Schweizerische Rueckversicherungs-Gesellschaft 494,822
1,500 UBS AG* 466,777
3,004,723
United Kingdom--7.7%
32,000 Lloyds TSB Group Plc 458,370
18,900 Rentokil Initial Plc 139,827
600 Reuters Group Plc 7,975
200,400 Siebe Plc 844,797
40,000 Vodafone Group Plc 738,590
2,189,559
Total Common Stocks (Cost--$25,529,411) 25,992,389
Preferred Stocks--1.6%
Germany--1.6%
825 Fresenius AG 140,458
196 Rhoen-Klinikum AG 20,129
786 SAP AG 296,990
457,577
Total Preferred Stocks (Cost--$478,292) 457,577
Total Investments--93.3% (Cost--$26,007,703) 26,449,966
Other assets in excess of liabilities--6.7% 1,881,743
Total Net Assets--100.0% $28,331,709
</TABLE>
Notes to the Portfolio of Investments:
* Non-income producing security.
(a) This security is segregated with the Portfolio's Custodian as collateral for
open futures contracts.
The accompanying notes are an integral part of the financial statements.
PORTFOLIO OF INVESTMENTS
Provesta Portfolio (US Dollar)
February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Market
Shares Description Value
Common Stocks -- 82.0%
France -- 6.0%
<C> <S> <C>
500 Banque Nationale de Paris $ 39,927
17,500 Business Objects SA -- ADR* 634,375
1,400 Cap Gemini SA 242,197
1,050 Credit Commercial de France 90,536
700 Dassault Systemes SA 27,757
8,850 Schneider SA 520,065
1,554,857
Germany -- 55.1%
1,300 1&1 Aktiengesellschaft & Co. KGaA* 193,483
550 A. Friedrich Flender AG* 74,307
4,000 Aixtron AG 935,837
7,000 Altana AG 447,488
800 AVA Allgemeine Handels der Verbraucher* 303,334
50 AXA Colonia Konzern AG 4,449
2,500 Barmag AG 43,112
375 BDAG Balcke-Duerr AG* 53,959
3,100 Beiersdorf AG 229,840
8,500 BERLINER ELEKTRO Holding AG 95,698
6,000 BERU AG 120,604
8,000 BHF-Bank AG 303,598
19,500 Continental AG 486,207
600 DBV-Winterthur Holding AG 224,074
5,200 Deutsche Babcock AG* 274,732
4,250 Deutsche Pfandbrief-und Hypothekenbank AG 366,454
5,200 Duerr AG 141,078
1,750 Escada AG 240,275
29,000 FAG Kugelfischer Georg Schaefer AG 243,680
875 Fresenius AG 129,749
5,500 Fresenius Medical Care AG 320,788
3,000 Fried. Krupp AG Hoesch-Krupp+ 441,557
15 Fuchs Petrolub AG Oel & Chemie 1,087
11,900 Gehe AG 666,619
4,650 Heidelberger Druckmaschinen AG 256,910
3,200 Henkel KGaA 240,066
10,000 Hucke AG 104,348
13,650 IWKA AG 266,878
3,200 Kali und Salz Beteiligungs AG* 430,573
5,000 Kiekert AG 165,309
2,190 Kinowelt Medien AG* 488,316
6,500 Kloeckner-Werke AG* 469,072
150 Krones AG* 3,707
150 KSB AG* 24,681
1,400 Leonische Drahtwerke AG $ 445,950
750 Mannheimer Versicherung AG 395,424
23,000 Metallgesellschaft AG 424,422
1,500 MobilCom AG 517,346
100 Nuernberger Beteiligungs AG - AKT `B' 83,698
38 Nuernberger Beteiligungs AG 33,642
11,750 Phoenix AG 196,174
6,000 Praktiker Bau-und Heimwerkermaerkte AG 59,314
1,250 Rhoen-Klinikum AG 137,987
1,800 SAP AG 612,907
5,200 Schering AG 668,838
2,750 Schlott AG 55,126
5,000 SGL Carbon AG 236,156
12,500 SKW Trostberg AG 282,152
700 Springer (Axel) Verlag AG 768,876
770 Wella AG 465,172
3,750 WMF-Wuerttembergische Metallwarenfabrik AG 65,904
23,000 Wuensche AG* 128,842
14,369,799
Ireland -- 0.6%
4,100 CBT Group Plc - ADR* 65,344
8,500 Irish Life Plc 85,852
151,196
Italy -- 5.4%
475,000 Banca di Roma* 687,653
85,000 Banca Nazionale del Lavoro* 251,523
1,400 Banca Popolare di Bergamo Credito Varesino SpA 36,476
2,900 Banca Popolare di Brescia 88,744
22,500 Banca Popolare di Milano 189,359
15,750 Banca Popolare di Novara 150,750
1,404,505
Luxembourg -- 0.2%
450 Societe Europeenne des Satellites - FDR* 57,584
Netherlands -- 9.0%
10,000 ASM Lithography Holding NV* 411,351
7,500 Benckiser NV - B Shares 474,557
925 Equant NV* 66,753
13,300 Getronics NV 580,697
7,000 Nutreco Holding NV 283,717
7,750 Qiagen NV* 544,806
2,361,881
Portugal -- 1.5%
34,491 Banco Mello SA 393,245
Spain -- 0.6%
2,350 Banco Popular Espanol SA $ 157,585
Sweden -- 2.6%
26,000 Volvo AB - B Shares 673,760
Switzerland -- 1.0%
45 Alusuisse Lonza Group AG* 50,021
150 Baloise Holdings Ltd. 129,890
30 Lindt & Spruengli AG 76,640
256,551
Total Common Stocks (Cost -- $22,019,816) 21,380,963
Preferred Stocks -- 18.6%
Germany -- 18.6%
1,900 AXA Colonia Konzern AG 133,565
1,200 BERLINER ELEKTRO Holding AG 13,510
3,000 Draegerwerk AG 39,378
750 Dyckerhoff AG 193,593
75 EDDING AG 20,595
4,300 Fresenius AG 732,084
925 Fuchs Petrolub AG Oel & Chemie 66,143
1,550 Henkel KGaA 124,284
18,500 Jungheinrich AG 245,877
1,250 Krones AG 38,032
620 Marschollek, Lautenschlaeger und Partner AG 333,694
375 Porsche AG 770,253
8,500 Prosieben Media AG 429,474
1,750 Rhoen-Klinikum AG 179,726
950 SAP AG 358,957
14,000 Sixt AG 722,747
375 Sto AG 78,261
350 Wella AG 259,497
7,500 WMF-Wuerttembergische Metallwarenfabrik AG 120,275
Total Preferred Stocks (Cost -- $5,395,814) 4,859,945
Warrants -- 0.1%
Germany -- 0.1%
200 Continental AG (Exp. Date: 7/6/00; Strike Price EUR 10.17)* 27,680
Total Warrants (Cost -- $35,704) 27,680
Total Investments -- 100.7% (Cost -- $27,451,334) 26,268,588
Liabilities in excess of other assets -- (0.7)% (181,583)
Total Net Assets -- 100.0% $26,087,005
</TABLE>
Notes to the Schedule of Investments:
* Non-income producing security.
+ Name changed to Thyssen Krupp AG as a result of a merger subsequent to period
end.
ADR -- American Depository Receipt
FDR -- Fiduciary Depository Receipt
The accompanying notes are an integral part of the financial statements.
PORTFOLIO OF INVESTMENTS
Investa Portfolio (US Dollar)
February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Market
Shares Description Value
Common Stocks -- 79.5%
Airlines -- 0.5%
<S> <C> <C>
1,250 Deutsche Lufthansa AG $ 27,529
Automotive -- 13.7%
96 Bayerische Motoren Werke AG 69,384
4 Bayerische Motoren Werke AG - New* 2,825
2,500 Continental AG 62,334
4,433 Daimler-Chrysler AG 414,860
3,500 Volkswagen AG 226,435
775,838
Banking -- 9.7%
4,375 Bayerische Vereinsbank AG 247,964
1,100 BHF-Bank AG 41,745
4,800 Commerzbank AG 134,971
3,600 Dresdner Bank AG 125,349
550,029
Chemicals -- 12.1%
3,850 BASF AG 133,420
5,000 Bayer AG 177,117
7,850 Hoechst AG 370,334
680,871
Communications -- 4.7%
5,800 Deutsche Telekom AG 266,296
Computer Software & Processing -- 2.9%
475 SAP AG 161,739
Electric Utilities -- 5.1%
4,150 RWE AG 180,967
2,000 Veba AG 106,764
287,731
Electrical Equipment -- 5.6%
5,000 Siemens AG 315,790
Heavy Construction -- 0.4%
700 Hochtief AG 23,143
Household Products -- 1.0%
770 Henkel KGaA 57,766
Industrial -- Diversified -- 12.7%
1,650 Degussa-Huels AG 57,271
150 Fried. Krupp AG Hoesch-Krupp+ 22,078
80 Linde AG 44,990
3,000 Mannesmann AG 403,003
37 Preussag AG 17,923
270 Thyssen AG+ 54,717
215 Viag AG $ 114,843
714,825
Insurance -- 4.0%
150 Allianz AG 45,490
450 Muenchener Rueckversicherungs-Gesellschaft AG 90,849
450 Muenchener Rueckversicherungs-Gesellschaft AG - New* 89,811
226,150
Oil & Gas -- 0.6%
400 Royal Dutch Petroleum Co. 17,462
3,500 Shell Transport & Trading Co. 19,224
36,686
Pharmaceuticals -- 2.3%
1,000 Schering AG 128,623
Retailers -- 2.8%
20 Karstadt AG 7,546
2,150 Metro AG 152,084
159,630
Textiles, Clothing & Fabrics -- 1.4%
825 Adidas-Salomon AG 79,019
Total Common Stocks (Cost -- $4,376,273) 4,491,665
Preferred Stocks -- 7.8%
Automotive -- 0.4%
43 Bayerische Motoren Werke AG 17,476
9 Bayerische Motoren Werke AG - New* 3,757
21,233
Building Materials -- 0.4%
100 Dyckerhoff AG 25,812
Computer Software & Processing -- 3.0%
450 SAP AG 170,032
Household Products -- 1.1%
750 Henkel KGaA 60,137
Industrial Diversified -- 1.5%
425 MAN AG 82,627
Retailers -- 1.4%
2,100 Metro AG 79,810
Total Preferred Stocks (Cost -- $460,376) 439,651
Warrants -- 4.9%
Automotive -- 1.4%
92 Continental AG (Exp. Date: 7/6/00; Strike Price EUR 10.17)* 12,733
15,000 Daimler-Chrysler AG (Exp. Date: 3/31/99; Strike Price EUR 68,046
64.90)*
80,779
Banking -- 0.6%
800 Commerzbank AG (Exp. Date: 6/15/00; Strike Price EUR 19.02)* 6,872
2,000 Dresdner Bank AG (Exp. Date: 4/30/02; Strike Price EUR $ 27,350
26.23)*
34,222
Chemicals -- 0.3%
85 BASF Finance Europe (Exp. Date: 4/9/01; Strike Price EUR 14,658
15.75)*
Electric Utilities -- 0.3%
1,180 Veba AG (Exp. Date: 6/7/99; Strike Price EUR 35.79)* 15,229
Insurance -- 2.3%
43,500 Allianz AG (Exp. Date: 6/30/99; Strike Price EUR 150.69)* 61,637
420 Allianz AG (Exp. Date: 6/30/99; Strike Price EUR 150.68)* 55,936
318 Muenchener Rueckversicherungs-Gesellschaft AG (Exp. Date: 12,051
6/3/02; Strike EUR 163.61)*
129,624
Total Warrants (Cost -- $348,183) 274,512
Total Investments -- 92.2% (Cost -- $5,184,832) 5,205,828
Other assets in excess of liabilities -- 7.8% 439,263
Total Net Assets -- 100.0% $5,645,091
</TABLE>
Notes to the Portfolio of Investments:
* Non-income producing security.
+ Name changed to Thyssen Krupp AG as a result of a merger subsequent to period
end.
EUR -- European Monetary Unit (Euro)
The accompanying notes are an integral part of the financial statements.
PORTFOLIO OF INVESTMENTS
European Bond Portfolio (US Dollar)
February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Par Maturity Market
Currency Value Description Rate Date Value
<S> <C> <C> <C> <C> <C>
Corporate Debt -- 27.9%
Austria -- 3.2%
DEM 350,000 Oesterreichische Postsparkasse AG 5.250% 11/11/02 $ 207,863
Denmark -- 3.5%
DKK 1,700,000 Realkredit Danmark AS 5.000% 10/01/29 231,589
Multinational -- 3.3%
DEM 350,000 World Bank 5.875% 11/10/03 214,448
Netherlands -- 3.0%
ITL 120,000,000 Commerzbank Overseas Finance 10.800% 4/14/00 73,485
DEM 200,000 LB Schleswig-Holsteinische Finance 5.625% 7/30/07 122,092
195,577
Sweden -- 3.2%
SEK 1,000,000 Stadshypotek AB -- Series 1553 10.000% 12/20/00 135,289
ITL 120,000,000 Swedish Export Credit 10.750% 6/09/00 74,200
209,489
United Kingdom -- 10.3%
GBP 140,000 Kingfisher plc 8.125% 2/14/07 258,826
GBP 120,000 National Grid Co. plc 8.000% 3/29/06 217,239
DEM 350,000 Sudwest LB Capital Markets 4.625% 2/17/03 202,556
678,621
United States -- 1.4%
GBP 50,000 KFW International Finance 7.250% 7/23/07 91,197
Total Corporate Debt (Cost -- $1,809,663) 1,828,784
Mortgage Backed Securities -- 4.3%
Denmark -- 2.9%
DKK 41,926 Nykredit AS 6.000% 10/01/26 6,143
DKK 1,295,000 Nykredit AS 6.000% 10/01/29 186,038
192,181
Germany -- 1.4%
EUR 76,693 Hypothekenbank in Essen AG 5.250% 1/22/08 90,136
Total Mortgage Backed Securities (Cost -- $289,034) 282,317
Sovereign Debt Obligations -- 60.7%
Austria -- 3.1%
DEM 350,000 Republic of Austria International Bond 4.300% 7/15/03 202,556
Belgium -- 2.8%
DEM 300,000 Kingdom of Belgium International Bond 6.250% 10/06/03 185,919
Czech Republic -- 2.2%
CZK 4,500,000 Czech Republic 14.750% 5/15/00 140,429
Denmark -- 6.2%
DKK 1,000,000 Kingdom of Denmark 7.000% 12/15/04 169,880
DKK 1,350,000 Kingdom of Denmark 7.000% 11/15/07 237,115
406,995
Finland -- 2.7%
FRF 900,000 Finland International Bond 7.000% 6/15/04 173,537
France -- 1.7%
EUR 100,000 French Treasury Bill 4.500% 7/12/02 $ 113,629
Germany -- 15.9%
EUR 562,421 Bundesobligation -- Series 123 4.500% 5/17/02 639,077
EUR 217,299 Deutschland Republic -- Series 93 6.000% 9/15/03 263,504
EUR 102,258 Deutschland Republic -- Series 97 6.500% 7/04/27 138,154
1,040,735
Greece -- 3.9%
GRD 40,000,000 Hellenic Republic Bond 9.800% 3/21/00 136,803
EUR 100,000 Hellenic Republic Bond 5.750% 3/31/08 119,176
255,979
Hungary -- 3.0%
HUF 45,000,000 Hungary Government Bond -- Series 00/G 16.000% 11/24/00 199,025
Ireland -- 1.8%
EUR 95,230 Irish Gilt 6.250% 10/18/04 117,780
Norway -- 3.0%
NOK 1,500,000 Norwegian Government 5.750% 11/30/04 198,044
Spain -- 7.6%
EUR 372,627 Spanish Government 5.150% 7/30/09 432,009
DEM 100,000 Spanish Government International Bond 5.750% 1/03/07 61,973
493,982
Sweden -- 2.6%
SEK 700,000 Kingdom of Sweden -- Series 1036 10.250% 5/05/00 92,013
ITL 120,000,000 Kingdom of Sweden International Bond 10.000% 2/08/01 76,208
168,221
United Kingdom -- 4.2%
GBP 145,000 United Kingdom Gilts 7.750% 9/08/06 275,849
Total Sovereign Debt Obligations (Cost -- $3,914,011) 3,972,680
U.S. Government and Agency Obligations -- 3.1%
United States -- 3.1%
DEM 350,000 Federal National Mortgage Association -- Global 5.000% 2/16/01 202,556
Total U.S. Government and Agency Obligations (Cost -- $196,164) 202,556
Total Investments -- 96.0% (Cost -- $6,208,872) 6,286,337
Other assets in excess of liabilities -- 4.0% 265,293
Total Net Assets -- 100.0% $6,551,630
</TABLE>
Notes to the Portfolio of Investments:
Currency abbreviations defined:
CZK -- Czech Koruna GRD -- Greek Drachma
DEM -- German Deutschemark HUF -- Hungarian Forint
DKK -- Denmark Krone ITL -- Italian Lira
EUR -- European Monetary Unit (Euro) NOK -- Norwegian Krone
FRF -- French Franc SEK -- Swedish Krona
GBP -- Great Britain Pound
The accompanying notes are an integral part of the financial statements.
Industry Sector Diversification Tables
The following are the industry sector diversification tables for the Top 50
Europe Portfolio and the Provesta Portfolio as a percentage of net assets as of
February 26, 1999:
<TABLE>
<CAPTION>
Top 50 Europe Portfolio (US Dollar)
Percentage of
Industry Sector Net Assets
<S> <C>
Pharmaceuticals 11.2%
Industrial--Diversified 8.8
Banking 8.8
Commercial Services 7.8
Insurance 6.7
Chemicals 6.7
Telephone Systems 6.5
Communications 5.3
Financial Services 5.1
Electrical Equipment 4.7
Computer Software & Processing 4.4
Beverages, Food & Tobacco 2.8
Heavy Machinery 2.3
Oil & Gas 1.9
Food Retailers 1.9
Health Care Providers 1.7
Wholesalers 1.6
Electric Utilities 1.6
Medical Supplies 1.4
Media--Broadcasting & Publishing 1.1
Automotive 1.0
Other assets in excess of liabilities 6.7
Total 100.0%
<CAPTION>
Provesta Portfolio (US Dollar)
Percentage of
Industry Sector Net Assets
<S> <C>
Automotive 11.1%
Banking 10.6
Heavy Machinery 9.0
Industrial - Diversified 8.2
Computer Software & Processing 7.7
Health Care Providers 5.8
Media - Broadcasting & Publishing 4.8
Pharmaceuticals 4.3
Insurance 4.2
Household Products 3.9
Cosmetics & Personal Care 3.7
Chemicals 3.6
Commercial Services 3.0
Wholesalers 2.5
Computers & Information 2.2
Medical & Bio-Technology 2.1
Telephone Systems 2.0
Entertainment & Leisure 1.9
Textiles, Clothing & Fabrics 1.8
Electronics 1.6
Retailers 1.4
Beverages, Food & Tobacco 1.4
Financial Services 1.3
Building Materials 1.0
Advertising 0.7
Electrical Equipment 0.4
Oil & Gas 0.3
Medical Supplies 0.2
Liabilities in excess of other assets (0.7)
Total 100.0%
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF ASSETS AND LIABILITIES
Deutsche Portfolios
February 26, 1999 (unaudited)
<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 $26,449,966 $26,268,588 $5,205,828 $6,286,337
Cash 1,636,549 -- 510,521 193,067
Foreign currency 1,171,204 9,924 4,178 --
Dividends receivable 21,481 750 -- --
Interest receivable 8,394 1,229 1,271 170,026
Receivable for investments sold 1,886,207 -- -- --
Receivable for Investors' Beneficial 56,877 31,933 14,724 21,879
Interest for contributions
Variation margin receivable on open 33,079 -- -- --
futures contracts
Deferred organization costs 47,382 47,924 47,924 47,924
Total assets 31,311,139 26,360,348 5,784,446 6,719,233
Liabilities:
Payable for investments purchased 2,768,893 -- -- --
Unrealized depreciation on forward foreign 1,971 -- -- --
currency contracts
Payable for loans -- 175,769 -- --
Payable to Investors' Beneficial Interest 47,316 19,496 -- --
for withdrawals
Investment management fees payable 90,604 (3,114) 61,498 90,335
Custody and portfolio accounting fees 3,343 6,403 3,435 2,826
payable
Administrative fees payable 8,106 7,815 8,750 8,764
Organization costs payable 48,394 48,936 48,936 48,936
Other accrued expenses 10,803 18,038 16,736 16,742
Total liabilities 2,979,430 273,343 139,355 167,603
Net assets $28,331,709 $26,087,005 $5,645,091 $6,551,630
Net Assets:
Applicable to Investors' Beneficial $28,331,709 $26,087,005 $5,645,091 $6,551,630
Interests
Cost of investments $26,007,703 $27,451,334 $5,184,832 $6,208,872
Cost of foreign currency $ 1,181,193 $ 9,924 $ 4,272 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF OPERATIONS
Deutsche Portfolios
For the six months ended February 26, 1999 (unaudited)
<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 $ 38,995 $ 37,603 $ 14,103 $ --
Less: foreign withholding taxes (8,693) (9,184) (3,613)
Net dividend income 30,302 28,419 10,490 --
Interest income (net of interest expense of $235, $1,848, $0 and $555, 60,096 6,799 6,692 138,575
respectively)
Total income 90,398 35,218 17,182 138,575
Expenses:
Investment management fees 112,360 69,082 21,167 22,714
Operations agent fees 57,184 57,120 60,435 60,455
Custody and portfolio accounting fees 34,414 52,415 34,915 30,414
Administrative agent fees 19,820 19,820 19,820 19,820
Professional fees 11,789 17,631 17,631 17,631
Amortization of organization costs 6,465 6,465 6,465 6,465
Trustees' fees and expenses 1,259 1,259 1,259 1,259
Insurance fees 609 609 609 609
Other expenses 7,900 7,899 7,898 7,899
Total expenses 251,800 232,300 170,199 167,266
Net investment loss (161,402) (197,082) (153,017) (28,691)
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts
and Foreign Currency:
Net realized gain (loss) on:
Investments (1,115,652) 429,455 1,793 250,398
Futures contracts (127,445) -- 188,446 --
Foreign currency transactions (44,345) (40,154) (2,979) (5,258)
Net change in unrealized appreciation/(depreciation) on:
Investments 1,444,621 (203,348) 12,739 (158,048)
Futures contracts 9,851 -- -- --
Foreign currency translation (2,921) (1) (94) (9,190)
Net Realized and Unrealized Gain on Investments, Futures Contracts
and Foreign Currency 164,109 185,952 199,905 77,902
Net Increase (Decrease) in Net Assets Resulting from Operations $ 2,707 $ (11,130) $ 46,888 $ 49,211
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
Deutsche Portfolios
<TABLE>
<CAPTION>
Top 50 Europe Portfolio (US Dollar) Provesta Portfolio (US Dollar)
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
<S> <C> <C> <C> <C>
Increase (Decrease) in Net
Assets:
Operations --
Net investment loss $ (161,402) $ (130,925) $ (197,082) $ (306,706)
Net realized gain (loss) on
investments, futures
contracts
and foreign currency (1,287,442) 160,234 389,301 411,987
transactions
Net change in unrealized
appreciation/(depreciation)
on investments,
futures contracts and 1,451,551 (1,001,967) (203,349) (979,439)
foreign currency
translations
Net increase (decrease) in 2,707 (972,658) (11,130) (874,158)
net assets resulting from
operations
Capital Transactions--
Proceeds from contributions 13,450,096 25,907,115 16,124,530 16,189,162
Withdrawals (3,902,970) (6,163,693) (1,632,458) (3,720,053)
Net increase in net assets 9,547,126 19,743,422 14,492,072 12,469,10
from capital transactions
Total increase in net assets 9,549,833 18,770,764 14,480,942 11,594,951
Net Assets--
Beginning of period 18,781,876 11,112 11,606,063 11,112
End of period $28,331,709 $18,781,876 $26,087,005 $11,606,063
(a) Commencement of operations: 10/2/97 10/17/97
</TABLE>
<TABLE>
<CAPTION>
Investa Portfolio (US Dollar) European Bond Portfolio (US Dollar)
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
Operations --
Net investment loss $ (153,017) $ (194,992) $ (28,691) $ (69,536)
Net realized gain on investments, futures contracts
and foreign currency transactions 187,260 212,346 245,140 77,531
Net change in unrealized appreciation/(depreciation) on
investments,
futures contracts and foreign currency translations 12,645 8,257 (167,238) 241,738
Net increase in net assets resulting from operations 46,888 25,611 49,211 249,733
Capital Transactions--
Proceeds from contributions 2,257,343 5,858,332 2,984,196 10,703,739
Withdrawals (687,715) (1,866,480) (3,081,623) (4,364,738)
Net increase (decrease) in net assets from capital 1,569,628 3,991,852 (97,427) 6,339,001
transactions
Total increase (decrease) in net assets 1,616,516 4,017,463 (48,216) 6,588,734
Net Assets--
Beginning of period 4,028,575 11,112 6,599,846 11,112
End of period 5,645,091 $ 4,028,575 $ 6,551,630 $ 6,599,846
(a) Commencement of operations: 10/17/97 10/17/97
</TABLE>
The accompanying notes are an integral part of the financial statements.
FINANCIAL HIGHLIGHTS
Deutsche Portfolios
<TABLE>
<CAPTION>
Top 50 Europe Portfolio (US Dollar) Provesta Portfolio (US Dollar)
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
<S> <C> <C> <C> <C>
Ratios/Supplemental Data:
Net assets, end of period (000's) $28,332 $ 18,782 $26,087 $ 11,606
Ratio of expenses to average net assets before interest 2.24% 3.49% 2.84% 9.77%
expense (b)
Ratio of interest expense to average net assets (b) -- -- 0.02% --
Ratio of expenses to average net assets after interest 2.24% 3.49% 2.86% 9.77%
expense (b)
Ratio of net investment loss to average net assets (b) (1.43)% (1.49)% (2.41)% (8.36)%
Portfolio turnover (c) 23% 27% 27% 82%
(a) Commencement of operations: 10/2/97 10/17/97
</TABLE>
<TABLE>
<CAPTION>
Investa Portfolio (US Dollar) European Bond Portfolio (US Dollar)
For the Six For the Six
Months Ended For the Period Months Ended For the Period
February 26, 1999 Ended (a) February 26, 1999 Ended (a)
(unaudited) August 31, 1998 (unaudited) August 31, 1998
<S> <C> <C> <C> <C>
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 5,645 $ 4,029 $ 6,552 $ 6,600
Ratio of expenses to average net assets before
interest expense (b) 6.82% 9.87% 5.52% 7.79%
Ratio of interest expense to average net assets (b) -- -- 0.02% --
Ratio of expenses to average net assets after
interest expense (b) 6.82% 9.87% 5.54% 7.79%
Ratio of net investment loss to average net assets (b) (6.13)% (7.68)% (0.95)% (2.38)%
Portfolio turnover (c) 8% 93% 50% 177%
(a) Commencement of operations: 10/17/97 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
February 26, 1999 (unaudited)
Note 1 -- Organization
Deutsche Portfolios ("Portfolio Trust") was organized on June 20, 1997, as a
business trust under the laws of the State of New York and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Portfolio Trust currently consists of ten
separate investment series (each a "Portfolio" and collectively the
"Portfolios"), each of which is, in effect, a separate mutual fund. The
accompanying financial statements and notes relate to four of these Portfolios:
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 February 26, 1999 were as
follows:
<TABLE>
<CAPTION>
Top 50 Europe Portfolio: Investa Portfolio:
<S> <C> <C> <C>
Deutsche Top 50 Europe Fund $ 9,003,948 Deutsche German Equity Fund $1,726,355
DB Top 50 Europe Fund 19,327,761 DB German Equity Fund 3,918,736
$28,331,709 $5,645,091
Provesta Portfolio: European Bond Portfolio:
Deutsche European Mid-Cap Fund $20,206,162 Deutsche European Bond Fund $ 670,436
DB European Mid-Cap Fund 5,880,843 DB European Bond Fund 5,881,194
$26,087,005 $6,551,630
</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 the 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.
Securities of the European Bond Portfolio may be valued by independent pricing
services, approved by the Portfolio's Board of Trustees, which use prices
provided by market-makers or estimates of market value obtained from yield data
relating to instruments or securities with similar characteristics. Securities
for which market quotations are not readily available, are valued in good faith
in accordance with fair valuation procedures adopted by the Trustees of the
Portfolio Trust.
Investment Transactions
Investment transactions are recorded on trade date. Cost of securities sold is
calculated using the 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.
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 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 payments to) the close-out of the contract and the original
contract price.
Futures Contracts
The Portfolios may enter into futures contracts to hedge against market
fluctuations or to speculate on future market conditions. A futures contract is
an agreement between a buyer and a seller and an established futures exchange or
its clearinghouse in which the buyer or seller agrees to take or make a delivery
of a specific amount of an item at a specified price on a specific date
(settlement date) or to make or receive a cash payment based on the value of a
securities index. Upon entering into a futures contract, the Portfolio is
required to deposit with a financial intermediary an amount equal to a certain
percentage of the face value indicated in the futures contract("initial
margin"). Subsequent payments ("variation margin") are made or received by the
Portfolio each day, dependent on the daily fluctuations in the value of the
underlying security or index. When entering into a closing transaction, the
Portfolio will realize a gain or loss equal to the difference between the value
of the futures contract to sell and the contract to buy.
Foreign Currency Translation
The books and records of the Portfolios are maintained in U.S. 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, it is expected that each Portfolio will not be
subject to any U.S. federal income tax on its income and net realized gains (if
any). However, each investor in the Portfolio may be taxed on its allocable
share of the partnership's income and capital gains for purposes of determining
its federal tax liability. 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 are being
reimbursed by the Portfolios. Such organization costs have been deferred and are
being 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:
Top 50 Europe Portfolio 1.00%
Provesta Portfolio 0.85%
Investa Portfolio 0.85%
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.
For the six months ended February 26, 1999, affiliates of Deutsche Bank AG
received $5,840, $26,037, $5,374 and $0 in brokerage commissions from the Top 50
Europe Portfolio, Provesta Portfolio, Investa Portfolio and European Bond
Portfolio, respectively, as a result of executing agency transactions in
portfolio securities.
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
Cost of purchases and proceeds from sales of investments, excluding short-term
securities, for each Portfolio for the six months ended February 26, 1999 were
as follows:
<TABLE>
<CAPTION>
Top 50 European
Europe Provesta Investa Bond
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Purchases
U.S. Government $ -- $ -- $ -- $ --
Non-U.S. Government 13,988,231 19,835,636 1,472,000 2,950,183
Total $13,988,231 $19,835,636 $1,472,000 $2,950,183
Sales
U.S. Government $ -- $ -- $ -- $ --
Non-U.S. Government 4,768,727 4,502,741 358,912 3,060,021
Total $ 4,768,727 $ 4,502,741 $ 358,912 $3,060,021
</TABLE>
At February 26, 1999, the cost of investments and the unrealized appreciation
(depreciation) of investments for U.S. 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 $26,007,703 $27,451,334 $5,184,832 $6,208,872
Gross Unrealized Appreciation 2,005,000 1,275,132 508,679 168,201
Gross Unrealized Depreciation (1,562,737) (2,457,878) (487,683) (121,425)
Net Unrealized Appreciation (Depreciation) 442,263 (1,182,746) 20,996 46,776
</TABLE>
Note 5 -- Forward Foreign Currency Contracts
Certain Portfolios had forward foreign currency contracts which contractually
obligate the Portfolio to deliver or receive currencies at specified future
dates. The Top 50 Europe Portfolio had the following open contracts at February
26, 1999:
<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> <C>
Purchase European Monetary Unit 3/3/99 291,427 $322,376 $320,188 $(2,188)
Sale European Monetary Unit 3/3/99 4,821 5,307 5,296 11
Sale Great Britain Pound... 3/3/99 513,072 821,735 821,529 206
</TABLE>
Note 6 -- Futures Contracts
At February 26, 1999, the Top 50 Europe Portfolio had entered into the following
futures contracts:
<TABLE>
<CAPTION>
Number Face Underlying Expiration Notional Notional Unrealized
of Contracts Value Index Date Cost Value Appreciation
<S> <C> <C> <C> <C> <C> <C>
Long Position
5 125 DAX Index 3/18/99 $670,707 $673,948 $3,241
</TABLE>
Note 7 -- 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 and futures 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 and futures
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 8 -- 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 six months ended February 26,
1999, the Portfolios periodically utilized the line of credit and incurred
interest expense as disclosed in the Statements of Operations. At February 26,
1999, the Provesta Portfolio had $175,769 outstanding under the line of credit
agreement.
Not FDIC Insured. No Bank Guarantee. May Lose Value.
This report must be preceeded or accompanied by the Funds' prospectus.
Directors of the Corporation and
Trustees of the Portfolio Trust
The Honorable Richard R. Burt*
Edward C. Schmults*
Robert H. Wadsworth*
Werner Walbroel*
G. Richard Stamberger
Christian Strenger
Officers of the Corporation and
the Portfolio Trust
Brian A. Lee, President
Joseph Parascondola, Treasurer
Robert R. Gambee, Secretary
* Member of Audit Committee
Edgewood Services, Inc., Distributor
GO2216-09 (4/99)
semi-annual
report
dated February 26, 1999
Deutsche US Money Market Funds
Class A Shares, Class B Shares, and Class Y Shares
[LOGO OF DEUTSCHE FUNDS]
PRESIDENT'S MESSAGE
Dear Valued Shareholder:
It is my pleasure to provide you with this Semi-Annual Report for your Deutsche
Funds. This report provides you with financial statements, commentaries and
securities holdings for each of the portfolios, for the period of September 1,
1998 through February 26, 1999.
Over the course of the reporting period, a number of events took place in the
world financial markets. None had as large an impact, however, as the
realization of European Monetary Union and the birth of a new currency, the
euro.
On January 1, 1999, the world's largest economic merger in financial history
took place as the currencies of eleven European nations were linked to form the
European Monetary Union (EMU). With the advent of monetary union, and the
introduction of the euro, Europe now stands as one of the world's largest equity
and fixed income markets. Companies throughout the EMU can take advantage of
many business practices and initiatives that were, until now, never before
available.
The dynamic changes that are yet to come as a result of monetary union and the
euro are far reaching and, we believe, extremely positive. These changes present
a variety of opportunities for corporations, governments and individual
investors alike.
As one of the largest and most respected financial institutions in Europe,
Deutsche Bank's Mutual Fund Group, the investment manager to the Deutsche Funds,
has the resources and capabilities to understand the many changes that are
taking place in Europe today. And they are able to find the investment
opportunity in both the equity and fixed-income markets.
While there was much favorable news coming from Europe during the reporting
period, less favorable news came from the emerging markets and from Asia. As you
know, foreign investing involves special risks including currency risk,
increased volatility of foreign securities, and differences in auditing and
other financial standards. Several countries, most notably Brazil and Russia,
saw their currencies devalue dramatically. This touched off much concern
throughout the world financial markets. Fortunately, the Deutsche Fund
portfolios were never directly affected by this because they had not invested in
either of these two markets.
In Japan and other areas of Asia, governments began to make fiscal and monetary
policy changes to strengthen their economies, and businesses also began to
implement new restructuring programs to increase productivity, efficiency and
profitability. Although much of Asia still has a long way to go, the markets
were able to rally following the New Year, especially Japan, and the two
Deutsche Funds that participate in these markets have performed quite well.
The U.S. market saw yet another year of historic growth, as the U.S. domestic
bull market continued to charge. As we moved into the first quarter of 1999,
growth slowed somewhat in the U.S., as corporate earnings came under pressure.
We are confident that our investment advisory expertise which has been
demonstrated to you in the past will continue to provide you with satisfactory
performance. We appreciate your including the Deutsche Funds as a component of
your portfolio, and we look forward to continuing to serve you in the future.
Sincerely,
/s/ Brian A. Lee
Brian A. Lee
President
February 26, 1999
INVESTMENT REVIEW
Deutsche US Money Market Funds
During the reporting period, Class A Shares of Deutsche US Money Market Fund
achieved a total return of 2.36%(not annualized). The 7-day yield for Class A
shareholders of the Fund was 4.50% at the end of February 1999 (4.85% for the
Class Y Shares of Deutsche Institutional US Money Market Fund).*
The reporting period of September 1998 through February 1999 had two
distinctively different parts. The first half was characterized by turmoil in
the world's financial markets. In the second half, these gyrations subsided and
business returned to normal.
The default of Russia on its domestic debt, and the ensuing turmoil in financial
markets around the world, lead to the near-collapse of a hedge fund in the
United States. A group of large banks, summoned by the U.S. Federal Reserve
Board (the "Fed"), came to the rescue and staged a $3 billion bailout. The Fed
itself eased monetary policy three times over a six-week period in the fall, and
thus helped avoid a financial crisis. Gradually, the markets calmed down again.
Altogether, the Federal Funds Target Rate for overnight funds was lowered by 75
basis points (0.75%), from 5.50% in September 1998 to 4.75% in November 1998.
This easing left its mark also on the Deutsche US Money Market Fund, although to
a smaller degree.
The dollar-weighted average maturity of the portfolio was 39 days at the end of
the reporting period. The portfolio currently holds 76% of its assets in
corporate debt and 24% in U.S. government and agency debt. All of the holdings
are rated in the top two rating categories. The portfolio's main sector holdings
are technology (14%), banking/finance (13%), and automotive (11%).
In September 1998, the Funds were awarded the coveted AAAm rating by Standard &
Poor's, the highest possible rating for a money market fund.**
Over the last months, the U.S. economy has displayed renewed signs of solid
strength. This is surprising, considering that we are already in the ninth year
of an economic expansion. It is also in stark contrast to the rest of the world,
where most countries suffer from little or no growth or even declining
economies.
In light of the abated financial crisis, and in response to the strong domestic
economy, interest rates have backed up substantially over the first two months
of 1999. As a matter of fact, the bond market has begun to question whether the
third rate reduction last November was actually necessary and whether it might
be reversed soon. Fed Chairman Greenspan, in his latest statements, gave a
balanced assessment of the economy and of potential interest rate changes. The
low and even declining inflation rate in the U.S. economy might not necessarily
require tighter monetary policy. Overall, the domestic economy seems to be in an
exceptional balance of non-inflationary growth.
The recent backup in U.S. yields has made the purchase of longer-dated
securities more attractive. ("Long" is relative in the case of money market
funds. The longest permitted maturity for a security is 13 months.) While the
low average maturity has helped the Funds maintain a good yield over the last
months, now might be the time to adjust that strategy. Thus, the portfolio
management team is currently looking at extending the portfolio's maturity.
However, all purchases have to be consistent with the Funds' objective of
generating a high level of current income for risk-averse investors, while
providing maximum liquidity for them.
Summing up, while the turmoil in the financial markets has subsided, there still
remains a number of factors that warrant close monitoring. Deutsche Bank, with
its global research staff, will watch all relevant developments very closely. We
are confident that the Deutsche US Money Market Funds will continue to deliver
competitive returns to their investors.
* 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. Total return for Deutsche Institutional
US Money Market Fund Class Y Shares for the period from inception date
(December 10, 1998) through February 26, 1999 was 1.20%. There is no similar
performance information to report for Class B Shares through February 26,
1999, since there were no public sales.
**This rating is obtained after Standard & Poor's evaluates a number of factors,
including credit quality, market price exposure and management. Standard &
Poor's monitors the portfolio weekly for developments that could cause changes
in the ratings. Ratings are subject to change, and do not remove market risks.
An investment in the Funds is neither insured nor guaranteed by the Federated
Deposit Insurance Corporation or any other government agency. Although the Funds
seek to preserve the value of your investment at $1.00 per share, it is possible
to lose money by investing in Funds.
STATEMENTS OF ASSETS AND LIABILITIES
Deutsche Funds, Inc.
February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Deutsche Deutsche
US Institutional US
Money Market Money Market
Fund Fund
-------------- -----------------
<S> <C> <C>
Assets:
Investment in Deutsche US Money Market Portfolio, at value $10,846,683 $19,660,331
Receivable from Manager for expense reimbursement 39,525 35,037
Other accounts receivable -- 100
Deferred organization costs 2,038 6,091
----------- -----------
Total assets 10,888,246 19,701,559
----------- -----------
Liabilities:
Distributions payable from income 31,313 74,388
Distribution fees payable 1,738 --
Transfer agent fee payable 1,836 5,144
Portfolio accounting and custody fees payable 11,780 3,447
Administration fees payable 333 162
Other accrued expenses 127 1,319
----------- -----------
Total liabilities 47,127 84,460
----------- -----------
Net assets $10,841,119 $19,617,099
----------- -----------
Net Assets Consist of:
Capital Stock, $0.001 par value (authorized 5,000,000,000 shares per 10,841 19,617
fund)
Paid-in capital 10,830,278 19,597,482
----------- -----------
Net assets $10,841,119 $19,617,099
----------- -----------
Computation of Net Asset Value, Redemption Price and Offering Price Per
Share:
Shares outstanding 10,841,119 19,617,099
----------- -----------
Net asset value, redemption price and offering price per share $1.00 $1.00
----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF OPERATIONS Deutsche Funds, Inc.
<TABLE>
<CAPTION>
Deutsche Deutsche
US Institutional US
Money Market Money Market
Fund Fund
For the Six For the
Months Ended Period Ended(a)
February 26, 1999 February 26, 1999
(unaudited) (unaudited)
------------------ ------------------
<S> <C> <C>
Investment Income:
Investment Income and Expenses allocated from Deutsche US Money Market
Portfolio:
Interest Income $240,471 $251,117
Expenses (8,931) (8,285)
-------- --------
Net investment income allocated from Deutsche US Money Market Portfolio 231,540 242,832
-------- --------
Expenses:
Reports to Shareholders 27,376 2,236
Professional fees 17,548 13,398
Registration fees 16,431 13,297
Transfer agent fees 16,001 9,250
Service fees -- Class A 11,471 --
Portfolio accounting and custody fees 6,785 2,676
Administration fees 4,589 2,834
Directors' fees and expenses 1,250 1,690
Insurance fees 515 59
Amortization of organization costs 500 203
Other expenses 325 6,326
-------- --------
Total expenses 102,791 51,969
Less: Expense reimbursement (86,729) (50,424)
-------- --------
Net expenses 16,062 1,545
-------- --------
Net investment income 215,478 241,287
-------- --------
Net Increase in Net Assets Resulting From Operations $215,478 $241,287
-------- --------
(a) Commencement of operations: 12/10/98
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
Deutsche Funds, Inc.
<TABLE>
<CAPTION>
Deutsche Institutional US
Deutsche US Money Market Fund Money Market Fund
------------------------------------- ----------------------------
For the Six For the Period
Months Ended For the Period Ended(a)
February 26, 1999 Ended(a) February 26, 1999
(unaudited) August 31, 1998 (unaudited)
------------------ ---------------- ----------------------------
<S> <C> <C> <C>
Increase (Decrease) In Net Assets:
Operations:
Net investment income $ 215,478 $ 13,478 $ 241,287
----------- ----------- -----------
Net increase in net assets resulting from
operations 215,478 13,478 241,287
----------- ----------- -----------
Distributions to shareholders:
Dividends from net investment income:
Class A (215,478) (13,478) --
Class Y -- -- (241,287)
----------- ----------- -----------
Capital Share Transactions: Class A(at $1.00 per
share)
Net proceeds from shares sold 18,060,799 2,773,253 --
Net proceeds from shares reinvested 185,911 10,409 --
Net cost of shares redeemed (8,132,887) (2,056,466) --
----------- ----------- -----------
Net increase in net assets resulting from capital
share transactions--Class A 10,113,823 727,196 --
----------- ----------- -----------
Capital Share Transactions: Class Y (at $1.00 per
share)
Net proceeds from shares sold -- -- 27,500,100
Net proceeds from shares reinvested -- -- 166,900
Net cost of shares redeemed -- -- (8,056,501)
----------- ----------- -----------
Net increase in net assets resulting from capital
share transactions--Class Y -- -- 19,610,499
----------- ----------- -----------
Total increase in net assets 10,113,823 727,196 19,610,499
Net Assets:
Beginning of period 727,296 100 6,600
----------- ----------- -----------
End of period $10,841,119 $ 727,296 $19,617,099
----------- ----------- -----------
(a) Commencement of operations: 3/25/98 12/10/98
</TABLE>
The accompanying notes are an integral part of the financial statements.
FINANCIAL HIGHLIGHTS
Deutsche Funds, Inc.
Selected data for a share of common stock outstanding throughout each period.
<TABLE>
<CAPTION>
Deutsche
Institutional US
Deutsche US Money Market Fund Money Market Fund
(Class A) (Class Y)
--------------------------------------------- -----------------------
For the Six For the Period
Months Ended For the Period Ended(a)
February 26, 1999 Ended(a) February 26, 1999
(unaudited) August 31, 1998 (unaudited)
------------------ ----------------- -------------------
<S> <C> <C> <C>
Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00
Investment operations:
Net investment income 0.02 0.02 0.01
Distributions to shareholders:
Net investment income (0.02) (0.02) (0.01)
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00
Total Return (based on net asset value) 2.36% 2.46% 1.20%
(b)*
Ratios and Supplemental Data:
Net assets, end of period (000's) $10,841 $ 727 $ 19,617
Ratio to average net assets:
Expenses** (c) 0.55% 0.55% 0.20%
Net investment income** (c) 4.70% 5.04% 4.90%
(a) Commencement of operations: 3/25/98 12/10/98
</TABLE>
(b) 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 the beginning of each period, reinvestment of distributions at net asset
value and a redemption 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.
(c) Includes the Fund's allocated portion of the Deutsche US Money Market
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>
Expenses to average net assets** 2.43% 43.80% 1.22%
Net investment income (loss) to average net assets** 2.81% (38.21)% 3.88%
</TABLE>
* Not annualized
** Annualized
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
Deutsche Funds, Inc.
February 26, 1999 (unaudited)
Note 1 -- Organization
Deutsche Funds, Inc. (the "Company") was incorporated in Maryland on May 22,
1997 and is registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company. The Company currently
consists of eleven separate investment series (the "Funds"). The accompanying
financial statements and notes relate to the Deutsche US Money Market Fund (the
"Money Market Fund") and the Deutsche Institutional US Money Market Fund (the
"Institutional Money Market Fund")(collectively, the "Funds").
The Funds seek to achieve their respective investment objective by investing
substantially all of their assets in the US Money Market Portfolio (US Dollar)
(the "Portfolio"), one of the ten portfolios constituting the Deutsche
Portfolios (the "Portfolio Trust") having substantially the same investment
objective of the Funds. 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
Funds seek to invest all of their investable assets in the Portfolio. The
Portfolio is managed by Deutsche Fund Management, Inc. ("DFM"), an indirect
subsidiary of Deutsche Bank AG. Federated Services Company ("Federated") serves
as administrator to the Funds and Federated Shareholder Services Company serves
as the transfer agent and dividend disbursing agent to the Funds. Edgewood
Services, Inc. ("Edgewood"), an affiliate of Federated, serves as the
distributor to the Funds (the "Distributor").
The Money Market Fund offers two classes of shares to investors, Class A and
Class B. Both Class A Shares and Class B Shares are subject to a Service Plan
and Class B Shares are also subject to a Distribution Plan. Each Class will bear
its respective portion of the expenses under the Service and Distribution Plans.
As of February 26, 1999, Class B Shares of the Fund have not been sold to the
public. The Institutional Money Market Fund offers one class of shares to
investors, Class Y, and commenced operations on December 10, 1998.
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 Funds:
Valuation
The value of the Funds' investment in the Portfolio included in the accompanying
Statement of Assets and Liabilities reflects each Fund's proportionate
beneficial interest in the net assets of the Portfolio. As of February 26, 1999,
the Money Market Fund and the Institutional Money Market Fund had a beneficial
interest of 5.2% and 9.5% in the net assets of the Portfolio, respectively.
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 Funds record their 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 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 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
Each Fund is treated as a separate entity for federal income tax purposes. It is
the policy of each Fund to continue to qualify 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.
Distributions to Shareholders
All of the Funds' net income and short-term capital gains and losses, if any,
are declared as dividends 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 are being
reimbursed by the Funds. Such organization costs have been deferred and are
being amortized ratably over a period of sixty months from the commencement of
operations of the Fund. 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 as administrator. Under the
Administration Agreement, Federated assists 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 0.045% 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
each Fund up to $200 million and 0.0525% of such assets in excess of $200
million for each 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 Funds. 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 of the Money Market Fund 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 Funds. Federated and Federated Shareholder Services
Company are both affiliated with Edgewood. IBT Fund Services (Canada) Inc.
("IBT") provides fund accounting services to the Funds. IBT (Boston) acts as the
sub-administrator for each Fund and as the custodian of each Fund's assets.
Expense Reimbursements
DFM has voluntarily agreed to waive their fees and/or reimburse the Funds
through at least one year from each Fund's commencement of operations, to the
extent necessary, to maintain each Fund's total operating expenses (which
includes expenses of each Fund and its pro-rata portion of expenses of the
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 of the Money Market Fund, respectively and not more than 0.20% of
the average net assets of the Institutional Money Market Fund. For the period
ended February 26, 1999, DFM voluntarily reimbursed $86,729 and $50,424 of
expenses of the Money Market Fund and the Institutional Money Market Fund,
respectively.
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 Portfolio.
At February 26, 1999, affiliates of Deutsche Bank AG owned 17.7% of the
Institutional Money Market Fund.
PORTFOLIO OF INVESTMENTS
US Money Market Portfolio (US Dollar)
February 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Par Maturity Market
Value Description Rate Date Value
- ----------- ----------------------------------------------------------------------- ----------- ----------- -------------
Certificates of Deposit--12.5%
<C> <S> <C> <C> <C>
$10,000,000 Barclays Bank Plc--Euro CD 5.650% 3/02/99 $ 9,999,885
8,000,000 Dresdner Bank AG (New York) 4.810% 3/03/99 8,000,000
8,000,000 UBS AG 5.645% 7/26/99 8,020,126
------------
Total Certificates of Deposit (Amortized Cost--$26,020,011) 26,020,011
------------
Commercial Paper--54.0%
8,000,000 Abbey National (North America) 4.800% 4/22/99 7,942,400
6,000,000 AlliedSignal Inc. 4.870% 5/10/99 5,941,560
5,000,000 American Express Credit Corp. 4.850% 4/05/99 4,975,077
6,895,000 Bell Atlantic Network Funding 4.800% 3/04/99 6,890,403
6,000,000 Dow Chemical Co. (The) 4.790% 3/22/99 5,981,639
8,750,000 Eastman Kodak Co. 4.780% 3/24/99 8,720,955
8,000,000 E. I. du Pont de Nemours & Co. 4.790% 3/16/99 7,981,904
8,000,000 Ford Motor Credit Co. 4.810% 4/09/99 7,956,175
8,000,000 General Electric Capital Corp. 4.820% 4/08/99 7,957,156
6,000,000 General Motors Acceptance Corp. 4.800% 3/26/99 5,978,400
10,000,000 IBM Credit Corp. 5.020% 3/08/99 9,987,449
6,000,000 Marsh & McLennan Co., Inc.--144A 4.850% 3/11/99 5,990,300
8,000,000 Morgan Stanley Dean Witter & Co. 4.840% 5/27/99 7,904,275
10,000,000 Motorola, Inc. 5.000% 3/09/99 9,986,111
8,000,000 Petrofina Delaware, Inc. 4.810% 3/11/99 7,987,173
------------
Total Commercial Paper (Amortized Cost--$112,180,977) 112,180,977
------------
Corporate Debt--8.8%
7,975,000 Associates Corporation of North America 6.250% 3/15/99 7,977,648
5,080,000 AT&T Corp. 8.250% 1/11/00 5,208,820
5,000,000 Household Finance Corp. 7.625% 6/15/99 5,036,822
------------
Total Corporate Debt (Amortized Cost--$18,223,290) 18,223,290
------------
U.S. Government Agency Obligations--24.2%
15,300,000 Federal Home Loan Bank 4.760% 3/17/99 5,263,586
8,600,000 Federal Home Loan Bank 4.725% 4/09/99 8,553,722
5,000,000 Federal Home Loan Mortgage Corp. 4.740% 3/09/99 4,993,416
11,700,000 Freddie Mac Discount Note 4.750% 3/10/99 11,683,019
5,000,000 Freddie Mac Discount Note 4.740% 3/10/99 4,992,758
4,900,000 Freddie Mac Discount Note 4.780% 3/18/99 4,887,639
------------
Total U.S. Government Agency Obligations (Amortized Cost--$50,374,140) 50,374,140
------------
Total Investments--99.5% (Amortized Cost--$206,798,418) 206,798,418
Other assets in excess of liabilities--0.5% 1,063,098
------------
Total Net Assets--100% $207,861,516
------------
</TABLE>
Notes to the Portfolio of Investments:
Euro CD -- U.S. Dollar-denominated certificates of deposit issued by
foreign branches of domestic banks.
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 US Money Market Portfolio's investments
as a percentage of net assets as of February 26, 1999 was as follows:
<TABLE>
<CAPTION>
Percentage of
Industry Sector Net Assets
- -------------------------------------- -------------
<S> <C>
U.S. Government 24.2%
Bank Obligations on CD 12.5
Automotive 10.6
Banking 8.6
Chemicals 6.7
Telephone Systems 5.8
Computers & Information 4.8
Communications 4.8
Electronics 4.2
Oil & Gas 3.9
Electrical Equipment 3.8
Financial Services 3.8
Insurance 2.9
Aerospace & Defense 2.9
Other assets in excess liabilities 0.5
-----
Total 100.0%
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENT OF ASSETS AND LIABILITIES
Deutsche US Money Market Portfolio (US Dollar)
February 26, 1999 (unaudited)
<TABLE>
<S> <C>
Assets:
Investments, at value $206,798,418
Cash 57,688
Interest receivable 1,206,534
Deferred organization costs 55,455
------------
Total assets 208,118,095
------------
Liabilities:
Investment management fees payable 126,893
Custodian and Administrative agent fees payable 62,576
Operations agent fees payable 4,457
Other accrued expenses 6,409
Organization costs payable 56,244
------------
Total liabilities 256,579
------------
Net assets applicable to Investors' Beneficial Interests $207,861,516
------------
</TABLE>
STATEMENT OF OPERATIONS
Deutsche US Money Market Portfolio (US Dollar)
For the six months ended February 26, 1999 (unaudited)
<TABLE>
<S> <C>
Investment Income:
Interest income (net of interest expense of $4,417) $6,761,795
Expenses:
Investment management fees 192,136
Operations agent fees 29,180
Portfolio accounting, custody and administrative agent fees 14,878
Professional fees 10,278
Licensing fees 5,449
Amortization of organization costs 5,213
Trustees' fees and expenses 1,259
Other expenses 851
Insurance fees 609
----------
Total expenses 259,853
----------
Net investment income 6,501,942
----------
Net Increase in Net Assets Resulting From Operations $6,501,942
----------
</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)
<TABLE>
<CAPTION>
For the Six
Months Ended For the Period
February 26, 1999 Ended(a)
(unaudited) August 31, 1998
------------------ -----------------
<S> <C> <C>
Increase (Decrease) In Net Assets:
Operations --
Net investment income $ 6,501,942 $ 7,678,158
--------------- --------------
Net increase in net assets resulting from operations 6,501,942 7,678,158
--------------- --------------
Capital Transactions--
Proceeds from contributions 1,362,799,612 1,153,007,875
Withdrawals (1,456,982,892) (865,143,389)
--------------- --------------
Net increase (decrease) in net assets from capital transactions (94,183,280) 287,864,486
--------------- --------------
Total increase (decrease) in net assets (87,681,338) 295,542,644
Net Assets--
Beginning of period 295,542,854 210
--------------- --------------
End of period $ 207,861,516 $ 295,542,854
--------------- --------------
</TABLE>
FINANCIAL HIGHLIGHTS
Deutsche US Money Market Portfolio (US Dollar)
<TABLE>
<CAPTION>
For the Six
Months Ended For the Period
February 26, 1999 Ended(a)
(unaudited) August 31, 1998
------------------ ----------------
<S> <C> <C>
Ratios/Supplemental Data:
Net assets, end of period (000's) $207,862 $295,543
Ratio of expenses to average net assets (b) 0.20% 0.25%
Ratio of net investment income to average net assets (b) 5.07% 5.34%
(a) Commencement of operations: 3/25/98
(b) Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
Deutsche US Money Market Portfolio
February 26, 1999 (unaudited)
Note 1 -- Organization
Deutsche Portfolios ("Portfolio Trust") was organized on June 20, 1997, as a
business trust under the laws of the State of New York and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Portfolio Trust currently consists of ten
separate investment series (the "Portfolios"), each of which is, in effect, a
separate mutual fund. The accompanying financial statements and notes relate to
the US Money Market Portfolio (US Dollar) (the "Portfolio").
Deutsche Fund Management, Inc. ("DFM"), an indirect subsidiary of Deutsche Bank
AG, serves as investment manager (the "Manager") to the Portfolio Trust. 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 February 26, 1999 were as follows:
<TABLE>
<S> <C>
Deutsche US Money Market Fund $ 10,846,683
Deutsche Institutional US Money Market Fund 19,660,331
DB US Money Market Fund 177,354,502
------------
$207,861,516
------------
</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 approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the amount due at maturity and cost. 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 is expected that the Portfolio will not be subject
to any U.S. federal income tax on its income and net realized gains (if any).
However, each investor in the Portfolio may be taxed on its allocable share of
the partnership's income and capital gains for purposes of determining its
federal tax liability. 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 are being
reimbursed by the Portfolio. Such organization costs have been deferred and are
being 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.,
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
Portfolio, 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. IBT (Boston) acts as the custodian of the Portfolio's
assets.
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.
Not FDIC Insured. No Bank Guarantee. May Lose Value.
This report must be preceded or accompanied by the Funds' prospectus.
Directors of the Corporation and
Trustees of the Portfolio Trust
The Honorable Richard R. Burt*
Edward C. Schmults*
Robert H. Wadsworth*
Werner Walbroel*
G. Richard Stamberger
Christian Strenger
Officers of the Corporation and
the Portfolio Trust
Brian A. Lee, President
Joseph Parascondola, Treasurer
Robert R. Gambee, Secretary
* Member of Audit Committee
Edgewood Services, Inc., Distributor
GO2216-10 (4/99)
