N-30D 1 iefabc.txt INTERNATIONAL EQUITY CLASS A,B,C [LOGO OMITTED] DEUTSCHE ASSET MANAGEMENT [GRAPHIC OMITTED] Mutual Fund Semi-Annual Report April 30, 2002 Class A, B and C Shares International Equity Fund [LOGO OMITTED] A MEMBER OF THE DEUTSCHE BANK GROUP International Equity Fund -------------------------------------------------------------------------------- TABLE OF CONTENTS LETTER TO SHAREHOLDERS .................................. 3 PERFORMANCE COMPARISON .................................. 9 ADDITIONAL PERFORMANCE .................................. 10 INTERNATIONAL EQUITY FUND Statement of Assets and Liabilities .................. 11 Statement of Operations .............................. 12 Statements of Changes in Net Assets .................. 13 Financial Highlights ................................. 14 Notes to Financial Statements ........................ 17 INTERNATIONAL EQUITY PORTFOLIO Schedule of Portfolio Investments .................... 20 Statement of Assets and Liabilities .................. 23 Statement of Operations .............................. 24 Statements of Changes in Net Assets .................. 25 Financial Highlights ................................. 26 Notes to Financial Statements ........................ 27 ---------------------------- The Fund is not insured by the FDIC and is not a deposit, obligation of or guaranteed by Deutsche Bank AG. The Fund is subject to investment risks, including possible loss of principal amount invested. ---------------------------- -------------------------------------------------------------------------------- 2 International Equity Fund -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS We are pleased to present you with this semi-annual report for the period ended April 30, 2002 for the International Equity Fund (the 'Fund'). It provides a review of the markets, the Portfolio (the Fund invests all of its assets in a master portfolio with the same goal as the Fund), and our outlook as well as a complete financial summary of the Fund's operations and a listing of the Portfolio's holdings. MARKET ACTIVITY FOR THE SEMI-ANNUAL PERIOD, THE MORGAN STANLEY CAPITAL INTERNATIONAL ('MSCI') EAFE INDEX OUTPERFORMED THE US STANDARD & POOR'S ('S&P') 500 INDEX, RETURNING 5.53% VERSUS 2.29%, RESPECTIVELY. THIS RELATIVELY STRONG MSCI EAFE INDEX RETURN HIDES PERIODS OF EXTREME VOLATILITY AND AGGRESSIVE ROTATION AMONG SECTORS, AS MARKET SENTIMENT SWUNG FROM BUOYANT OPTIMISM TO FEARS OF A 'PROFITLESS RECOVERY.' o As expectations of an imminent global economic recovery gained ground, most of the world equity markets rallied toward the end of 2001. These expectations were dashed, however, early in 2002 when, despite a pick-up in economic activity, corporate profitability continued to falter amidst slack investment demand and overcapacity. The ensuing sell-off was harsh and caused a loss of investor confidence. Toward the end of the semi-annual period, there was evidence that the recovery was further entrenched and broadening out. This led to some earnings upgrades and more positive investor sentiment. o As the US economy began to emerge from recession, it pulled Europe and even certain sectors of the Japanese economy along with it. The emerging markets also performed well, significantly outperforming the developed markets of the MSCI EAFE Index, in large part because lower interest rates worldwide resulted in an increased willingness on the part of investors to assume risk. There appears to be potential for a synchronized, although slow, global economic recovery. o The manufacturing sector has shown good signs of a recovery, as production costs remained low and demand increased, driven by inventory re-stocking. Investors were focused on whether true demand can take over from the inventory re-stocking going forward. TEN LARGEST STOCK HOLDINGS As of April 30, 2002 (percentages are based on total net assets of total investments in the Portfolio) BP Amoco Plc ................................ 3.33% GlaxoSmithKline Plc ......................... 2.97 TotalFinaElf SA ............................. 2.62 Shell Transport & Trading Co. Plc ........... 2.58 Aventis SA .................................. 2.17 Vodafone Group Plc .......................... 2.05 Novartis AG ................................. 1.94 Royal Bank of Scotland Group Plc ............ 1.90 Nestle SA--Class B .......................... 1.88 BNP Paribas SA .............................. 1.83 o Global inflation remained tame, allowing interest rates to remain low. o Still, uncertainty remained as to the strength of the current economic recovery and of corporate profitability. While share prices recovered late in the semi-annual period, investors remained worried whether too much good news had been factored into share prices. EUROPE EUROPE OVERALL RETURNED 5.75% IN US DOLLAR TERMS FOR THE SIX MONTHS ENDED APRIL 30, 2002, AS MEASURED BY THE MSCI EUROPE INDEX. IN US DOLLAR TERMS, THE MORE DEFENSIVE UK MARKET WITHIN THE MSCI EUROPE INDEX UNDERPERFORMED CONTINENTAL EUROPE, RETURNING 4.66% FOR THE SAME PERIOD. o While European Gross Domestic Product ('GDP') suffered toward the end of 2001 as the US economic recovery gained a firmer footing, the recovery in Europe still seemed more assured. The improving production outlook suggests that capacity utilization rates could rise and business spending on investment should start to increase in the second half of the year. o The European Central Bank, in tandem with other global central banks, cut interest rates during the six-month period. As the impact of higher oil, food and services prices began to abate, the outlook for inflation improved. o Following a year of weakness, the euro gained momentum during the latter months of the semi-annual period, as a strong US current account deficit and an expensive US equity market caused investor concern. -------------------------------------------------------------------------------- 3 International Equity Fund -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS o Another area of concern was poor domestic demand in Europe, reflecting weakness in consumer spending and relatively tight monetary policy offsetting the positive benefits of tax cuts. o In all, continental Europe remained one of the more attractive equity markets, in our view, as valuations remained reasonable and a global economic recovery was not yet factored into equity prices. ATTRACTIVE VALUATIONS COMBINED WITH INCREASINGLY POSITIVE SENTIMENT FROM BOTH CONSUMERS AND BUSINESSES OVER AN ECONOMIC RECOVERY IN 2002 CONTRIBUTED TO THE RALLY IN EUROPEAN EQUITIES DURING THE SEMI-ANNUAL PERIOD. o When the European equity markets fell to historically low levels in September 2001, the UK and Switzerland fared better than other European markets, primarily due to their defensive quality and stable earnings generated from companies domiciled in those markets. However, in the subsequent rally, these markets lagged. o The Technology, Media and Telecommunications ('TMT') sectors performed well late in 2001. The TMT sectors then came under renewed pressure, as profits fell in the wake of the companies' large debt burdens and weak demand for new technologies. Tech-heavy markets, such as Finland and Sweden, underperformed other European markets, as measured by the MSCI Europe Index. o One of the best performing sectors in the European equity markets was the Financial sector, as many European banks benefited from the lower interest rate environment. JAPAN IN SPITE OF JAPAN'S ONGOING STRUCTURAL REFORM PROBLEMS, ITS EQUITY MARKET RALLIED, POSTING A GAIN OF 1.25% IN US DOLLAR TERMS FOR THE SEMI-ANNUAL PERIOD, AS MEASURED BY THE MSCI JAPAN INDEX. o Japan's Nikkei 225 Index1 closed up over the important 11,000 mark on the last trading day of March. It rallied from its February lows in response to positive economic news in the US and its own government's efforts to prop up the market with speculation regarding possible policy improvement measures as the nation's fiscal year-end approached in March. o Structural reform remained a problem in Japan, where Japanese Financial companies continued to carry a hefty debt burden, mired in problems with their ever-increasing non-performing loans. In fact, Prime Minister Koizumi's public appeal has diminished due to his inability to take much needed and critical steps to restructure his economy. o Industries such as automakers, consumer electronics and shipbuilding were able to compete more effectively with a weak yen. EMERGING MARKETS Emerging markets gained 33.67% in US dollar terms during the six months ended April 30, 2002, as measured by the MSCI Emerging Markets Free Index. Much of the sector's outperformance versus the MSCI EAFE Index for the semi-annual period was due to the gains seen in Emerging Asia, where many of the Technology and semiconductor equities rallied over prospects of US economic recovery. -------------------------------------------------------------------------------- 1 Nikkei 225 Index is an unmanaged index measuring the composite price performance of selected Japanese stocks and is currently based on 225 highly capitalized stocks trading on the Tokyo Stock Exchange (TSE) representing a broad cross-section of Japanese industries. -------------------------------------------------------------------------------- 4 International Equity Fund -------------------------------------------------------------------------------- ASIA EX-JAPAN ROSE 18.56% IN US DOLLAR TERMS DURING THE SEMI-ANNUAL PERIOD, AS MEASURED BY THE MSCI PACIFIC EX-JAPAN INDEX, PRIMARILY DUE TO BETTER PROSPECTS FOR AN ECONOMIC RECOVERY IN THE US. o A cyclical downturn initially impacted the export-oriented markets, such as Taiwan and South Korea, reflecting a slump in demand for technology and technology components. o However, a subsequent increase in DRAM (direct random access memory) chip prices and positive economic prospects for a global economic recovery helped boost share prices of many of the depressed equity markets of Southeast Asia. o China's economy continued to grow in spite of the global economic slowdown, as China increased fiscal expenditures and continued to receive foreign direct investment. LATIN AMERICAN EQUITY MARKETS GAINED 25.69% IN US DOLLAR TERMS FOR THE SEMI-ANNUAL PERIOD, AS MEASURED BY THE MSCI LATIN AMERICAN INDEX. HOWEVER, THERE WAS GREAT DIVERGENCE IN RETURNS AMONG THE INDIVIDUAL MARKETS IN THE REGION. o The situation in Argentina remained grim. The country devalued its currency in January 2002. The Argentine peso lost 68% of its value from the time the currency floated to the end of April. Also, a large debt burden, a weak economy and a lack of confidence in the financial system put pressure on the Argentine equity market. o The 1998 currency devaluation in Brazil better cushioned its economy during the latest economic slowdown. Political and economic policy there has been proactive in combating the economic slowdown. As a result, its equity market fared better than in the last fiscal year, decoupling largely from Argentina's troubles. o Mexico was one of the better-performing Latin American markets during the semi-annual period. Oil revenue remained high, important even though Mexico has tried to further diversify its economy. President Vicente Fox has had difficulty in passing many of his policy initiatives, but Mexico was relatively resilient based on strong economic ties with the US and a stable currency. EMERGING EUROPE PERFORMED WELL, AS IT REMAINED RELATIVELY INSULATED FROM THE WORLD ECONOMY. FINANCIALS AND ENERGY COMPANIES IN PARTICULAR WERE STRONG PERFORMERS, BASED ON THE LOW INTEREST RATE ENVIRONMENT AND THE LATTER'S LOW-COST PRODUCER STATUS. FOR THE SEMI-ANNUAL PERIOD, THE REGION PRODUCED A RETURN OF 41.40% IN US DOLLAR TERMS, AS MEASURED BY THE MSCI EMERGING EUROPE INDEX. o Ongoing economic reforms and strong oil prices supported Russia's economy. Many Russian oil and gas firms remained competitive and gained market share during the period. Russia's equity market enjoyed significant appreciation based on this improved backdrop. o Turkey's economy began to turn around following additional International Monetary Fund ('IMF') assistance and enhanced stability in its political system. With skyrocketing inflation under better control, its equity market rebounded somewhat from last fiscal year's poor performance. o Poland's equity market remained a relatively stable player within Emerging Europe, primarily because of its strong economic and political initiatives taken toward becoming a member of the European Union. -------------------------------------------------------------------------------- 5 International Equity Fund -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS INVESTMENT REVIEW THE FUND UNDERPERFORMED ITS BENCHMARK INDEX, THE MORGAN STANLEY CAPITAL INTERNATIONAL ('MSCI') EAFE INDEX, FOR THE SIX MONTHS ENDED APRIL 30, 2002. o The Fund held an underweight position in the TMT sectors. These stocks rallied in November and December despite the falling average revenue per user ('ARPUs'), high debt burdens and low earnings visibility of many companies within those sectors. o The collapse of Enron and falling oil prices toward the end of 2001 impacted both the Energy and Utility sectors, where the Fund was slightly overweighted at that time. o The Fund held an underweight position in Japan, which rallied 6% in April alone. WE MAINTAINED OUR PREFERENCE FOR EUROPEAN EQUITIES, AS STRUCTURAL REFORMS ALREADY IN PLACE ARE CONDUCIVE TO ECONOMIC GROWTH THERE. AS THE SEMI-ANNUAL PERIOD PROGRESSED, EUROPE CONTINUED TO REBOUND FROM THE ECONOMIC SLUMP OF 2001, WITH IMPROVING GDP FIGURES, BENIGN INFLATION, AND, THOUGH STILL WEAK, IMPROVING CORPORATE PROFITABILITY. o European Financials were a strong contributor to Fund performance. We increased the Fund's position in banks and decreased its exposure to insurers. Banks such as Banco Popular, Bank of Ireland and BNP Paribas performed well based on a low interest rate environment and attractive valuations. o We increased the Fund's weighting in Japan, especially in exporters, but maintained an underweighting there versus the MSCI EAFE Index.
CUMULATIVE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS Periods Ended 6 Months 1 Year 3 Years 5 Years Since 1 Year 3 Years 5 Years Since April 30, 2002 Inception 2 Inception 2 --------------------------------------------------------------------------------------------------------------------------- International Equity Fund 1 Class A Shares 4.67% (16.70)% (19.98)% 6.30% 120.24% (16.70)% (7.16)% 1.23% 8.45% Class B Shares 4.21% (17.30)% (21.55)% 2.94% 107.13% (17.30)% (7.77)% 0.58% 7.77% Class C Shares 4.30% (17.27)% (21.51)% 2.97% 107.20% (17.27)% (7.76)% 0.59% 7.77% --------------------------------------------------------------------------------------------------------------------------- MSCI EAFE Index 3 5.53% (13.88)% (17.90)% 6.90% 78.51% (13.88)% (6.36)% 1.34% 6.12% --------------------------------------------------------------------------------------------------------------------------- Lipper International Equity Funds Average 4 7.10% (12.91)% (10.59)% 12.19% 88.58% (12.91)% (3.94)% 2.02% 6.49% --------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE FUND'S AVERAGE ANNUAL TOTAL RETURNS AS OF APRIL 30, 2002, INCLUDING THE MAXIMUM SALES CHARGES APPLICABLE TO EACH CLASS WERE: CLASS A SHARES--ONE-YEAR (21.28%), FIVE-YEAR 0.09%, SINCE INCEPTION 7.82%; CLASS B SHARES--ONE-YEAR (21.44%), FIVE-YEAR 0.19%, SINCE INCEPTION 7.77%; CLASS C SHARES--ONE-YEAR (18.10)%, FIVE-YEAR 0.59%, SINCE INCEPTION 7.77%. THE MAXIMUM SALES CHARGE FOR EACH CLASS IS AS FOLLOWS: CLASS A SHARES: 5.50%; CLASS B SHARES: A CONTINGENT DEFERRED SALES CHARGE ('CDSC') OF 5.00% DECLINING TO 0% AFTER SIX YEARS; AND CLASS C SHARES: A CDSC OF 1% FOR SHARES REDEEMED WITHIN ONE YEAR OF PURCHASE. The performance for the Class A, Class B and Class C Shares represents the historical performance since the inception date of the classes, June 29, 2001. The performance for periods prior to that date reflects the historical performance of the Fund's Investment Class from its inception date, August 4, 1992, through June 29, 2001, which has been adjusted to reflect the applicable maximum sales charges and expenses of the Class A, Class B and Class C Shares. 1 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. MARKET VOLATILITY CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS OF AN INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE FUND'S HISTORICAL PERFORMANCE. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. All performance assumes the reinvestment of dividend and capital gain distributions and excludes the impact of any sales charges. Performance does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance figures for the classes differ because each class maintains a distinct sales charge and expense structure. Performance would have been lower during the specified periods if certain of the Fund's fees and expenses had not been waived. The performance for the Class A, Class B and Class C Shares represents the historical performance since the inception date of the classes, June 29, 2001. The performance for periods prior to that date reflects the historical performance of the Fund's Investment Class from its inception date, August 4, 1992 through June 29, 2001, which has been adjusted to reflect the applicable expenses of the Class A, Class B and Class C Shares. 2 Benchmark returns are for the period beginning July 31, 1992. 3 MSCI EAFE Index is an unmanaged index that tracks international stock performance in the 21 developed markets of Europe, Australasia, and the Far East. Benchmark returns do not reflect expenses that have been deducted from the Fund's returns. 4 Lipper figures represent the average of the total returns reported by all of the mutual funds designated by Lipper Inc. as falling into the category indicated. These figures do not reflect sales charges.
-------------------------------------------------------------------------------- 6 International Equity Fund -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS COUNTRY ALLOCATION As of April 30, 2002 (percentages are based on market value of total investments in the Portfolio) United Kingdom ............................ 19.01% France .................................... 18.11 Japan ..................................... 18.00 Germany ................................... 8.61 Switzerland ............................... 8.41 Netherlands ............................... 7.18 Italy ..................................... 5.94 Spain ..................................... 3.14 Cash & Equivalents ........................ 0.60 Other 1 ................................... 11.00 ------ 100.00% ====== -------------------------------------------------------------------------------- 1 Includes countries with weightings of less than 2%. o We decreased the Fund's exposure to Canada, taking profits in some Canadian insurers. o Due to favorable liquidity conditions and attractive valuations, we increased the Fund's weighting in the emerging markets slightly to approximately 7% of assets during the semi-annual period. Holdings in companies such as Cemex, Samsung, Televisa and Petrabras contributed positively to Fund performance. WE INCREASED THE FUND'S WEIGHTING IN THE CONSUMER DISCRETIONARY SECTOR, ADDING TO BOTH THE AUTO COMPONENTS AND AUTOMOBILE INDUSTRIES. o The automobile industry, particularly in Japan, performed well on the back of increased market share in the highly competitive US market. A cheaper yen and new designs benefited such companies as Honda and Toyota. o Other auto stocks, such as Peugeot, had increased profitability, as sales in its smaller vehicles increased. WE INCREASED THE FUND'S WEIGHTING IN THE INFORMATION TECHNOLOGY SECTOR TO AN OVERWEIGHT POSITION, BUT REMAINED UNDERWEIGHT IN THE TELECOMMUNICATIONS SECTOR. o The Telecommunications sector continued to be plagued by low earnings visibility, decreased ARPUs and unsustainable debt levels. o The troubles plaguing Telecommunications companies spilled over into the Information Technology sector, forcing equipment makers like Nokia and Ericsson to scale back their own earnings forecasts. That pressure was, in turn, aggravated by negative news flow from companies like IBM, SAP, Siebel and PeopleSoft. o Most of the Portfolio's Information Technology exposure was in Asian semiconductor firms, including Samsung Electronics, Taiwan Semiconductor and United Microelectronics Corp. LOW INTEREST RATES, PROSPECTS OF AN ECONOMIC RECOVERY AND ATTRACTIVE VALUATIONS LED US TO INCREASE THE FUND'S POSITION WITHIN THE MEDIA SECTOR, WHERE ADVERTISING REVENUES HAVE BEEN IN A SLUMP OVER THE PAST YEAR. o We took profits in Mexico's Grupo Televisa and established positions in the UK's British Sky Broadcasting and VNU. o The Fund benefited from its zero weight position in Vivendi Universal. Vivendi has been plagued by accounting transparency concerns as well as by a significant decline in profitability following numerous acquisitions. WE DECREASED THE FUND'S WEIGHTING IN ENERGY, BUT STILL MAINTAINED AN OVERWEIGHT POSITION IN THE SECTOR. o A combination of a warm winter and higher inventories initially placed downward pressure on Energy stocks, but the crisis in the Middle East and concern over summer inventories subsequently supported the higher prices of crude oil. o Energy demand is expected to increase as the global economic recovery begins to take shape over the second half of 2002. o We maintained significant positions in TotalFinaElf, ENI and Shell. Efficiencies of cost and scale have benefited these producers. o We took profits in Russian oil stocks Lukoil and Surgutneftegaz. WHILE WE KEPT THE FUND'S EXPOSURE TO SOME OF THE MORE DEFENSIVE CONSUMER STAPLES STOCKS, WE BEGAN TO INCREASE ITS POSITIONS IN ATTRACTIVE COMPANIES IN THE HEALTH CARE SECTOR, PARTICULARLY IN PHARMACEUTICAL COMPANIES. o We increased the Fund's position in UK pharmaceutical giants GlaxoSmithKline and AstraZeneca. o We sold or trimmed Fund positions in Japanese pharmaceutical names such as Chugai and Takeda Chemicals. -------------------------------------------------------------------------------- 7 International Equity Fund -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS MANAGER OUTLOOK International equity markets displayed remarkable volatility during the semi-annual period, but, in the end, stock prices were little changed. We believe that uncertainty could indeed persist in the coming months, although we continue to believe that there will be an economic recovery. Looking ahead, we are cautiously optimistic. We continue to believe that 2002 will be a year in which stocks outperform bonds. Although markets are by no means cheap on headline earnings, we believe this in part reflects the highly depressed nature of earnings and earnings estimates currently. Even with relatively conservative revenue and earnings assumptions for the medium-term, several areas of the international equity universe appear inexpensive, particularly using our cash flow-based valuation metrics. We also believe that equity markets are once again responding to fundamentals, with valuations reflecting much more accurately companies' true worth. In our view, this is an environment in which our fundamental research driven investment approach should be rewarded. Clearly cyclical conditions remain supportive for virtually all equity markets, and corporate earnings expectations have improved markedly. We expect that quarterly corporate earnings will reveal this improvement. However, some of these positives are already reflected in share prices. Nevertheless, valuations remain relatively attractive, and we believe we are able to find sound and attractively valued investment opportunities. Europe continues to offer value, and we intend to remain committed to this region, although we believe that stock selection remains key there, as sectors remain largely non-homogenous. The major market to watch, of course, is Japan. While the macroeconomic environment remains rather depressed and will likely keep us from increasing the Fund's underweight position there, its equity market appears inexpensive both globally and in a historical context. The prospect of economic recovery, along with relatively low inflation, interest rates and energy costs, have already benefited emerging markets. We believe favorable liquidity conditions and attractive valuations should continue to benefit the emerging markets overall. In addition, many emerging markets have introduced strong fiscal and monetary policies to combat an economic slowdown in line with central banks globally. The fortunes of Asia ex-Japan, of course, remain largely tied to the economic recovery in the US, with the possible exceptions of South Korea, where domestic demand remains healthy, and China, where the government retains the ability to oversee the still rather insulated economy. We continue to invest the Fund's assets in emerging markets on an opportunistic basis, favoring at the end of the semi-annual period Mexico, Brazil, South Korea and Taiwan. We will, of course, continue to monitor economic conditions and political initiatives and their effect on financial markets as we seek long-term capital appreciation. We sincerely value your ongoing support of the International Equity Fund and look forward to continuing to serve your investment needs in the years ahead. /S/ Julie Wang /S/ Alexander Tedder /S/ Clare Brody Julie Wang, Alexander Tedder and Clare Brody Members of the Portfolio Management Team of the INTERNATIONAL EQUITY PORTFOLIO April 30, 2002 -------------------------------------------------------------------------------- 8 International Equity Fund -------------------------------------------------------------------------------- PERFORMANCE COMPARISON 1 [GRAPHIC OMITTED] PLOT POINTS FOLLOW: International Equity Fund--Class A Shares, MSCI EAFE Index and Lipper International Equity Funds Average Growth of a $10,000 Investment (since inception)2 International Equity Fund-- MSCI EAFE Lipper International Class A Shares Index Equity Funds Average 8/4/92 10,000 10,000 10,000 8/31/92 10,150 10,627 10,099 9/30/92 9,810 10,418 9,866 10/31/92 9,390 9,871 9,551 11/30/92 9,570 9,964 9,606 12/31/92 9,750 10,015 9,733 1/31/93 10,040 10,014 9,770 2/28/93 9,980 10,317 10,000 3/31/93 10,579 11,216 10,591 4/30/93 10,899 12,281 11,147 5/31/93 11,299 12,540 11,387 6/30/93 11,249 12,344 11,150 7/31/93 11,339 12,776 11,496 8/31/93 12,080 13,466 12,206 9/30/93 12,122 13,163 12,128 10/31/93 12,563 13,569 12,672 11/30/93 12,402 12,383 12,169 12/31/93 13,393 13,277 13,335 1/31/94 14,419 14,399 14,151 2/28/94 14,063 14,358 13,840 3/31/94 13,921 13,740 13,225 4/30/94 14,226 14,322 13,581 5/31/94 13,900 14,240 13,551 6/30/94 13,464 14,441 13,396 7/31/94 14,125 14,580 13,779 8/31/94 14,561 14,925 14,184 9/30/94 14,186 14,455 13,837 10/31/94 14,581 14,937 14,103 11/30/94 13,880 14,218 13,432 12/31/94 13,942 14,308 13,301 1/31/95 13,588 13,758 12,672 2/28/95 13,963 13,718 12,727 3/31/95 14,255 14,575 13,154 4/30/95 14,840 15,123 13,595 5/31/95 15,153 14,943 13,735 6/30/95 15,185 14,681 13,740 7/31/95 16,185 15,596 14,479 8/31/95 15,883 15,001 14,193 9/30/95 16,148 15,294 14,416 10/31/95 15,647 14,883 14,136 11/30/95 15,824 15,296 14,324 12/31/95 16,186 15,913 14,756 1/31/96 16,622 15,978 15,066 2/29/96 16,894 16,032 15,136 3/31/96 17,112 16,372 15,382 4/30/96 17,754 16,849 15,864 5/31/96 18,015 16,539 15,813 6/30/96 18,147 16,631 15,925 7/31/96 17,352 16,146 15,353 8/31/96 17,777 16,181 15,542 9/30/96 18,315 16,612 15,874 10/31/96 18,206 16,442 15,829 11/30/96 19,156 17,097 16,548 12/31/96 19,639 16,876 16,646 1/31/97 20,251 16,285 16,543 2/28/97 20,553 16,552 16,761 3/31/97 20,407 16,612 16,812 4/30/97 20,719 16,700 16,870 5/31/97 21,811 17,787 17,870 6/30/97 23,528 18,767 18,713 7/31/97 24,342 19,071 19,245 8/31/97 22,915 17,647 17,861 9/30/97 24,680 18,635 19,024 10/31/97 22,873 17,202 17,597 11/30/97 22,862 17,026 17,467 12/31/97 23,047 17,175 17,636 1/31/98 23,794 17,959 18,089 2/28/98 25,357 19,112 19,256 3/31/98 27,528 19,701 20,257 4/30/98 28,298 19,857 20,539 5/31/98 28,539 19,759 20,582 6/30/98 28,482 19,910 20,464 7/31/98 29,217 20,111 20,797 8/31/98 24,907 17,619 17,875 9/30/98 23,759 17,078 17,256 10/31/98 25,275 18,858 18,529 11/30/98 26,711 19,823 19,452 12/31/98 27,846 20,604 20,043 1/31/99 28,018 20,542 20,123 2/28/99 26,659 20,053 19,586 3/31/99 26,590 20,890 20,187 4/30/99 27,523 21,736 21,054 5/31/99 26,359 20,616 20,191 6/30/99 27,696 21,420 21,165 7/31/99 28,283 22,057 21,697 8/31/99 28,006 22,138 21,896 9/30/99 27,880 22,362 21,969 10/31/99 29,170 23,200 22,774 11/30/99 31,842 24,005 24,412 12/31/99 36,816 26,161 27,300 1/31/00 35,171 24,500 25,638 2/29/00 38,463 25,159 27,141 3/31/00 36,943 26,135 27,255 4/30/00 33,766 24,760 25,545 5/31/00 32,834 24,156 24,748 6/30/00 34,171 25,101 25,782 7/31/00 33,135 24,049 24,851 8/31/00 33,828 24,258 25,209 9/30/00 31,304 23,077 23,785 10/31/00 29,416 22,532 22,927 11/30/00 28,105 21,689 22,002 12/31/00 29,397 22,459 22,811 1/31/01 29,271 22,467 22,855 2/28/01 27,240 20,787 21,166 3/31/01 25,464 19,375 19,632 4/30/01 26,439 20,706 20,895 5/31/01 25,857 19,940 20,470 6/30/01 25,056 19,178 19,800 7/31/01 24,422 18,829 19,344 8/31/01 23,606 18,352 18,894 9/31/01 20,523 16,493 16,948 10/31/01 21,044 16,916 17,403 11/30/01 21,429 17,540 18,087 12/31/01 21,911 17,644 18,407 1/31/02 20,866 16,706 17,634 2/28/02 21,093 16,823 17,781 3/31/02 22,001 17,815 18,694 4/30/02 22,024 17,851 18,858
CUMULATIVE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS Periods Ended 6 Months 1 Year 3 Years 5 Years Since 1 Year 3 Years 5 Years Since April 30, 2002 Inception 2 Inception 2 -------------------------------------------------------------------------------------------------------------------------- International Equity Fund Class A Shares 4.67% (16.70)% (19.98)% 6.30% 120.24% (16.70)% (7.16)% 1.23% 8.45% Class B Shares 4.21% (17.30)% (21.55)% 2.94% 107.13% (17.30)% (7.77)% 0.58% 7.77% Class C Shares 4.30% (17.27)% (21.51)% 2.97% 107.20% (17.27)% (7.76)% 0.59% 7.77% -------------------------------------------------------------------------------------------------------------------------- MSCI EAFE Index 3 5.53% (13.88)% (17.90)% 6.90% 78.51% (13.88)% (6.36)% 1.34% 6.12% -------------------------------------------------------------------------------------------------------------------------- Lipper International Equity Funds Average 4 7.10% (12.91)% (10.59)% 12.19% 88.58% (12.91)% (3.94)% 2.02% 6.49% -------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The performance for the Class A, Class B and Class C Shares represents the historical performance since the inception date of the classes, June 29, 2001. The performance for periods prior to that date reflects the historical performance of the Fund's Investment Class from its inception date, August 4, 1992 through June 29, 2001, which has been adjusted to reflect the applicable expenses of the Class A, Class B and Class C Shares. 1 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. MARKET VOLATILITY CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS OF AN INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE FUND'S HISTORICAL PERFORMANCE. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. All performance assumes the reinvestment of dividend and capital gain distributions and excludes the impact of any sales charges. Performance does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance figures for the classes differ because each class maintains a distinct sales charge and expense structure. Performance would have been lower during the specified periods if certain of the Fund's fees and expenses had not been waived. 2 Benchmark returns are for the period beginning July 31, 1992. 3 MSCI EAFE Index is an unmanaged index that tracks international stock performance in the 21 developed markets of Europe, Australasia, and the Far East. 4 Lipper figures represent the average of the total returns reported by all of the mutual funds designated by Lipper Inc. as falling into the category indicated.
-------------------------------------------------------------------------------- 9 International Equity Fund -------------------------------------------------------------------------------- ADDITIONAL PERFORMANCE The Shareholder Letter included in this report contains statistics designed to help you evaluate the performance of your Fund's management. To further assist in this evaluation, the Securities and Exchange Commission (SEC) requires that we include the total return of each of the Fund's classes, according to a standardized formula, for various time periods through the end of the most recent fiscal quarter. The SEC standardized total return figures shown below include the impact of the 5.50% maximum initial sales charge for the Fund's Class A Shares and the maximum contingent deferred sales charge applicable to each of the specified time periods for the Class B and Class C Shares. The contingent deferred sales charge for Class B Shares declines over time from a maximum of 5.00% to 0.00% after six years. The contingent deferred sales charge for Class C Shares is 1.00% for shares redeemed within one year of purchase. Returns would be higher for Class A Shares investors who qualified for a lower initial sales charge or for Class B or Class C Shares investors who continued to hold their shares past the end of the specified time period. The SEC total return figures may differ from total return figures in the Shareholder Letter and Performance Comparison sections because the SEC figures include the impact of sales charges while the total return figures in the other sections do not. These figures include the reinvestment of dividend and capital gain distributions. TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS 1 Periods Ended 1 Year 5 Years Since April 30, 2002 Inception 2 -------------------------------------------------------------------------------- International Equity Fund Class A Shares (21.28)% 0.09% 7.82% Class B Shares (21.44)% 0.19% 7.77% Class C Shares (18.10)% 0.59% 7.77% -------------------------------------------------------------------------------- 1 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. MARKET VOLATILITY CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS OF AN INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE FUND'S HISTORICAL PERFORMANCE. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Performance figures for the classes differ because each class maintains a distinct sales charge and expense structure. Performance does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance would have been lower during the specified periods if certain of the Fund's fees and expenses had not been waived. 2 The performance for the Class A, Class B and Class C Shares represents the historical performance since the inception date of the classes, June 29, 2001. The performance for periods prior to that date reflects the historical performance of the Fund's Investment Class from its inception date, August 4, 1992 through June 29, 2001, which has been adjusted to reflect the applicable expenses of the Class A, Class B and Class C Shares. -------------------------------------------------------------------------------- 10 International Equity Fund -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES (Unaudited) APRIL 30, 2002 ASSETS Investment in International Equity Portfolio, at value ... $ 636,249,379 Receivable for capital shares sold ....................... 18,489,752 Prepaid expenses and other ............................... 50,841 ------------- Total assets ................................................ 654,789,972 ------------- LIABILITIES Payable for capital shares redeemed ...................... 6,502,641 Due to administrator ..................................... 411,095 Accrued expenses and other ............................... 120,611 ------------- Total liabilities ........................................... 7,034,347 ------------- NET ASSETS .................................................. $ 647,755,625 ============= COMPOSITION OF NET ASSETS Paid-in capital .......................................... $ 967,518,062 Distributions in excess of net investment income ......... (1,347,126) Accumulated net realized loss from investment and foreign currency transactions ..................... (345,238,564) Net unrealized appreciation on investments and foreign currencies ................................ 26,823,253 ------------- NET ASSETS .................................................. $ 647,755,625 ============= NET ASSET VALUE PER SHARE Class A Shares 1 ......................................... $ 9.70 ============= Class B Shares 2 ......................................... $ 9.71 ============= Class C Shares 3 ......................................... $ 9.53 ============= Investment Class 4 ....................................... $ 18.97 ============= -------------------------------------------------------------------------------- 1 Net asset value and redemption price per share (based on net assets of $10,538,626 and 1,086,408 shares outstanding). Maximum offering price per share was $10.26 ($9.70 / 0.945). Maximum offering price per share reflects the effect of the 5.50% front-end sales charge. 2 Net asset value and offering price per share (based on net assets of $460,261 and 47,382 shares outstanding). Redemption value is $9.22 following a 5.00% maximum contingent deferred sales charge. 3 Net asset value and offering price per share (based on net assets of $173,440 and 18,195 shares outstanding). Redemption value is $9.43 following a 1.00% maximum contingent deferred sales charge. 4 Net asset value per share (based on net assets of $636,583,298 and 33,556,252 shares outstanding). See Notes to Financial Statements. -------------------------------------------------------------------------------- 11 International Equity Fund -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS (Unaudited) FOR THE SIX MONTHS ENDED APRIL 30, 2002 INVESTMENT INCOME Net investment income allocated from International Equity Portfolio: Dividends ............................................... $ 5,368,007 Interest ................................................ 782,501 Expenses 1 .............................................. (3,280,143) ------------ Net investment income allocated from International Equity Portfolio .......................... 2,870,365 ------------ EXPENSES Administration and services fees .......................... 3,113,261 Printing and shareholder reports .......................... 102,280 Registration fees ......................................... 32,123 Professional fees ......................................... 16,706 Distribution fees: Class A Shares .......................................... 11,172 Class B Shares .......................................... 1,660 Class C Shares .......................................... 873 Directors' fees ........................................... 5,353 Miscellaneous ............................................. 6,198 ------------ Total expenses ............................................... 3,289,626 Less: fee waivers and/or expense reimbursements .............. (358,899) ------------ Net expenses ................................................. 2,930,727 ------------ EXPENSES IN EXCESS OF INCOME ................................. (60,362) ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES Net realized gain (loss) from: Investment transactions ................................. (17,576,293) Option transactions ..................................... (12,679,700) Foreign futures transactions ............................ 1,060,555 Foreign currency transactions ........................... (1,070,704) Forward foreign currency transactions ................... 3,320,168 Net change in unrealized appreciation/ depreciation on investments and foreign currencies .................................. 62,395,502 ------------ NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCIES ..................................... 35,449,528 ------------ NET INCREASE IN NET ASSETS FROM OPERATIONS ................... $ 35,389,166 ============ -------------------------------------------------------------------------------- 1 For the six months ended April 30, 2002, the International Equity Portfolio waived fees in the amount of $712,815 of which $430,812 was allocated to the International Equity Fund Investment on a pro-rated basis. See Notes to Financial Statements. -------------------------------------------------------------------------------- 12 International Equity Fund -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED APRIL 30, 2002 1 OCTOBER 31, 2001 INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS Net investment (expenses in excess of) income ...... $ (60,362) $ 3,451,958 Net realized loss from investments and foreign currencies ........................... (26,945,974) (303,522,013) Net change in unrealized appreciation/ depreciation on investments and foreign currencies 62,395,502 (145,210,166) --------------- --------------- Net increase (decrease) in net assets from operations . 35,389,166 (445,280,221) --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS Net investment income: Class A Shares .................................... (12,504) -- Class B Shares .................................... (578) -- Class C Shares .................................... (383) -- Investment Class ................................. (565,008) -- Net realized gains: Investment Class ................................. -- (16,283,724) --------------- --------------- Total distributions ................................... (578,473) (16,283,724) --------------- --------------- CAPITAL SHARES TRANSACTIONS Net proceeds from sales of shares .................. 562,267,595 2,914,530,024 Value of shares issued in connection with mergers 2 -- 12,777,282 Net dividend reinvestments ......................... 478,124 -- Net cost of shares redeemed ........................ (775,325,471) (3,768,134,468) --------------- --------------- Net decrease in net assets from capital share transactions .................... (212,579,752) (840,827,162) --------------- --------------- TOTAL DECREASE IN NET ASSETS .......................... (177,769,059) (1,302,391,107) NET ASSETS Beginning of period ................................ 825,524,684 2,127,915,791 --------------- --------------- End of period (including distributions in excess of net investment income of $(1,347,126) and $(708,291), respectively) .................... $ 647,755,625 $ 825,524,684 =============== =============== -------------------------------------------------------------------------------- 1 Unaudited. 2 See Note 4 in the Notes to Financial Statements.
See Notes to Financial Statements. -------------------------------------------------------------------------------- 13 International Equity Fund -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
CLASS A SHARES FOR THE PERIOD FOR THE SIX JUNE 29, 2001 2 MONTHS ENDED THROUGH APRIL 30, 2002 1 OCTOBER 31, 2001 PER SHARE OPERATING PERFORMANCE: NET ASSET VALUE, BEGINNING OF PERIOD .......................................... $9.28 $11.05 ----- ------ INCOME FROM INVESTMENT OPERATIONS Net investment (expenses in excess of) income .............................. 0.00 3 (0.01) Net realized and unrealized gain (loss) on investments and foreign currencies ................................................... 0.43 (1.76) ----- ------ Total from investment operations .............................................. 0.43 (1.77) ----- ------ DISTRIBUTIONS TO SHAREHOLDERS Net investment income ...................................................... (0.01) -- ----- ------ NET ASSET VALUE, END OF PERIOD ................................................ $9.70 $ 9.28 ===== ====== TOTAL INVESTMENT RETURN 4 ..................................................... 4.67% (16.02)% SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period (000s) ........................................... $10,539 $9,496 Ratios to average net assets: Net investment (expenses in excess of) income ............................ 0.03%5 (0.44)%5 Expenses after waivers and/or reimbursements (including expenses of the International Equity Portfolio ............. 1.50%5 1.50%5 Expenses before waivers and/or reimbursements (including expenses of the International Equity Portfolio ............. 1.71%5 1.73%5 -------------------------------------------------------------------------------- 1 Unaudited. 2 Commencement of operations. 3 Calculated using average shares. 4 Total return excludes the effect of sales charge. 5 Annualized.
See Notes to Financial Statements. -------------------------------------------------------------------------------- 14 International Equity Fund -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
CLASS B SHARES FOR THE PERIOD FOR THE SIX JUNE 29, 2001 2 MONTHS ENDED THROUGH APRIL 30, 2002 1 OCTOBER 31, 2001 PER SHARE OPERATING PERFORMANCE: NET ASSET VALUE, BEGINNING OF PERIOD ........................................... $9.33 $11.13 ----- ------ INCOME FROM INVESTMENT OPERATIONS Expenses in excess of income ................................................ (0.03)3 (0.04) Net realized and unrealized gain (loss) on investments ...................... 0.42 (1.76) ----- ------ Total from investment operations ............................................... 0.39 (1.80) ----- ------ DISTRIBUTIONS TO SHAREHOLDERS Net investment income ....................................................... (0.01) -- ----- ------ NET ASSET VALUE, END OF PERIOD ................................................. $9.71 $ 9.33 ===== ====== TOTAL INVESTMENT RETURN 4 ...................................................... 4.21% (16.17)% SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period (000s) ............................................ $460 $400 Ratios to average net assets: Expenses in excess of income .............................................. (0.71)%5 (1.19)%5 Expenses after waivers and/or reimbursements (including expenses of the International Equity Portfolio) ............. 2.25%5 2.25%5 Expenses before waivers and/or reimbursements (including the expenses of the International Equity Portfolio) ......... 2.48%5 2.48%5 -------------------------------------------------------------------------------- 1 Unaudited. 2 Commencement of operations. 3 Calculated using average shares. 4 Total return excludes the effect of sales charge. 5 Annualized.
See Notes to Financial Statements. -------------------------------------------------------------------------------- 15 International Equity Fund -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
CLASS C SHARES FOR THE PERIOD FOR THE SIX JUNE 29, 2001 2 MONTHS ENDED THROUGH APRIL 30, 2002 1 OCTOBER 31, 2001 PER SHARE OPERATING PERFORMANCE: NET ASSET VALUE, BEGINNING OF PERIOD ............................................ $9.15 $10.92 ----- ------ INCOME FROM INVESTMENT OPERATIONS Expenses in excess of income ................................................. (0.09)3 (0.09) Net realized and unrealized loss on investments .............................. 0.48 (1.68) ----- ------ Total from investment operations ................................................ 0.39 (1.77) ----- ------ DISTRIBUTIONS TO SHAREHOLDERS Net investment income ........................................................ (0.01) -- ----- ------ NET ASSET VALUE, END OF PERIOD .................................................. $9.53 $ 9.15 ===== ====== TOTAL INVESTMENT RETURN 4 ....................................................... 4.30% (16.21)% SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period (000s) ............................................. $173 $333 Ratios to average net assets: Expenses in excess of income ............................................... (0.85)%5 (1.19)%5 Expenses after waivers and/or reimbursements (including expenses of the International Equity Portfolio) .............. 2.25%5 2.25%5 Expenses before waivers and/or reimbursements (including expenses of the International Equity Portfolio) .............. 2.46%5 2.48%5 -------------------------------------------------------------------------------- 1 Unaudited. 2 Commencement of operations. 3 Calculated using average shares. 4 Total return excludes the effect of sales charge. 5 Annualized.
See Notes to Financial Statements. -------------------------------------------------------------------------------- 16 International Equity Fund -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Unaudited) NOTE 1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES A. ORGANIZATION BT Investment Funds (the 'Company') is registered under the Investment Company Act of 1940 (the 'Act'), as amended, as a diversified, open-end management investment company. The Company is organized as a business trust under the laws of the Commonwealth of Massachusetts. International Equity Fund (the 'Fund') is one of the funds the Company offers to investors. The Fund offers four classes of shares to investors. The Class A Shares have a maximum front-end sales charge of 5.50%. The Class B Shares have a maximum contingent deferred sales charge of 5.00%. The Class C Shares have a maximum contingent deferred sales charge of 1.00%. The Investment Shares have no sales charge. These financial statements reflect the financial highlights of the Class A, B and C Shares. Financial highlights of the Investment Class Shares are presented in another report. All shares have equal rights with respect to voting except that shareholders vote separately on matters affecting their rights as holders of a particular series or class. The investment objective of the Fund is to seek long-term capital appreciation by investing primarily in the stocks and other equity securities of companies in developed countries outside the US. The Fund seeks to achieve its investment objective by investing substantially all of its assets in the International Equity Portfolio (the 'Portfolio'), an open-end management investment company registered under the Act. Details concerning the Fund's investment objective and policies and the risk factors associated with the Fund's investments are described in the Prospectus and Statement of Additional Information. The Portfolio's financial statements accompany this report. B. VALUATION OF SECURITIES The Fund determines the value of its investment in the Portfolio by multiplying its proportionate ownership of the Portfolio by the total value of the Portfolio's net assets. On April 30, 2002, the Fund owned approximately 62% of the Portfolio. The Portfolio's policies for determining the value of its net assets are discussed in the Portfolio's Financial Statements, which accompany this report. C. INVESTMENT INCOME AND OTHER The Fund receives a daily allocation of the Portfolio's net investment income and net realized and unrealized gains and losses in proportion to its investment in the Portfolio. Distribution or service fees specifically attributable to a class are allocated to that class. All other expenses, income, gains and losses are allocated among the classes based upon their relative net assets. D. DISTRIBUTIONS The Fund pays annual dividends from its net investment income and makes annual distributions of any net realized capital gains to the extent they exceed capital loss carryforwards. The Fund records dividends and distributions on its books on the ex-dividend date. E. FEDERAL INCOME TAXES It is the Fund's policy to continue to qualify as a regulated investment company under the Internal Revenue Code and to distribute substantially all of its taxable income to shareholders. Therefore, no federal income taxes have been accrued. F. ESTIMATES In preparing its financial statements in conformity with accounting principles generally accepted in the United States, management makes estimates and assumptions. Actual results may be different. NOTE 2--FEES AND TRANSACTIONS WITH AFFILIATES Investment Company Capital Corp. ('ICCC'), an indirect, wholly owned subsidiary of Deutsche Bank AG, is the Fund's Administrator. The Fund pays the Administrator an annual fee based on its average daily net assets which is calculated daily and paid monthly at the annual rate of 0.85%. -------------------------------------------------------------------------------- 17 International Equity Fund -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Unaudited) The Advisor and Administrator have contractually agreed to waive their fees and/or reimburse expenses of the Fund through February 28, 2003, to the extent necessary, to limit all expenses, including expenses of the Portfolio, to 1.50% of the average daily net assets of the Investment Class and Class A Shares and 2.25% of the average daily net assets of the Class B Shares and Class C Shares. Certain officers and directors of the Fund are also officers or directors of ICCC or affiliated with Deutsche Bank AG. These persons are not paid by the Fund for serving in these capacities. NOTE 3--OTHER FEES ICC Distributors, Inc. is the Fund's Distributor. The Fund pays the Distributor an annual fee, pursuant to Rule 12b-1, based on its average daily net assets, which is calculated daily and paid monthly at the following annual rates: 0.25% of the Class A Shares' average daily net assets and 0.75% of the Class B and Class C Shares' average daily net assets. The Fund also pays the Distributor a shareholder servicing fee based on the average daily net assets of the Class B and Class C Shares which is calculated daily and paid monthly at the annual rate of 0.25%. The Fund does not pay fees on the Investment Shares. NOTE 4--FUND MERGER On July 6, 2001, the net assets of the International Equity Fund, one of the Funds comprising the Flag Investors Services Funds, Inc. (the 'Flag Fund'), a member of the Deutsche Asset Management family of funds, was merged into this Fund pursuant to a plan of reorganization dated June 29, 2001. The Flag Fund consisted of three classes: Class A Shares, Class B Shares and Class C Shares. The transaction was structured to qualify as a tax-free reorganization under the Internal Revenue Code. Prior to the reorganization the Flag Fund--Class A Shares, Class B Shares and Class C Shares had net assets of $11,232,875, $531,768, and $1,012,639, respectively, shares outstanding of 1,042,754, 48,994, and 95,065 respectively, and net asset values of $10.77, $10.85, and $10.65 respectively. On June 29, 2001, the International Equity Fund launched Class A, Class B and Class C Shares. Shares of those classes were issued to Flag Fund--Class A, Class B and Class C shareholders at a conversion factor of one share of each respective International Equity Class for each respective Flag Fund share. The International Equity Fund was deemed to be the accounting survivor. NOTE 5--CAPITAL SHARE TRANSACTIONS There were an unlimited number of capital shares authorized. Transactions in capital shares were as follows: Class A Shares --------------------------------------------------------- For the Six Months Ended For the Period June 29, 2001 2 April 30, 2002 1 through October 31, 2001 ----------------------- ------------------------------ Shares Amount Shares Amount ---------- ------------ --------- ----------- Sold 1,302,499 $ 12,341,771 1,533,517 $22,141,701 Reinvested 1,211 11,608 -- -- Redeemed (1,240,254) (11,701,263) (510,565) (5,420,908) ---------- ------------ --------- ----------- Net increase 63,456 $ 652,116 1,022,952 $16,720,793 ========== ============ ========= =========== Class B Shares --------------------------------------------------------- For the Six Months Ended For the Period June 29, 2001 2 April 30, 2002 1 through October 31, 2001 ----------------------- ------------------------------ Shares Amount Shares Amount ---------- ------------ --------- ----------- Sold 9,416 $ 89,728 49,979 $767,600 Reinvested 59 571 -- -- Redeemed (4,958) (47,510) (7,113) (75,362) ---------- ------------ --------- ----------- Net increase 4,517 $ 42,789 42,866 $692,238 ========== ============ ========= =========== Class B Shares --------------------------------------------------------- For the Six Months Ended For the Period June 29, 2001 2 April 30, 2002 1 through October 31, 2001 ----------------------- ------------------------------ Shares Amount Shares Amount ---------- ------------ --------- ----------- Sold 783 $ 7,295 96,069 $1,329,635 Reinvested 41 383 -- -- Redeemed (19,025) (176,011) (59,673) (561,812) ---------- ------------ --------- ----------- Net increase (decrease) (18,201) $(168,333) 36,396 $ 767,823 ========== ============ ========= =========== -------------------------------------------------------------------------------- 1 Unaudited. 2 Commencement of Operations. -------------------------------------------------------------------------------- 18 International Equity Fund -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Unaudited) Investment Class ---------------------------------------------------------- For the Six Months Ended For the Year Ended April 30, 2002 1 October 31, 2001 ------------------------ ------------------------------ Shares Amount Shares Amount ---------- ------------- --------- ----------- Sold 29,832,482 $ 549,828,801 124,557,944 $2,903,068,370 Reinvested 24,843 465,562 -- -- Redeemed (41,240,366) (763,400,687) (162,908,506) (3,762,076,386) ---------- ------------- ------------ -------------- Net decrease (11,383,041)$(213,106,324) (38,350,562) $ (859,008,016) ========== ============= ============ ============== -------------------------------------------------------------------------------- 1 Unaudited. -------------------------------------------------------------------------------- 19 International Equity Portfolio -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS April 30, 2002 (Unaudited) SHARES SECURITY VALUE INVESTMENTS IN UNAFFILIATED ISSUERS COMMON STOCK--99.34% BELGIUM--0.79% 267,223 Interbrew 2 ................$ 7,953,191 ------------ BRAZIL--0.35% 129,600 Companhia Vale do Rio Doce ADR 1,2 .............. 3,536,784 ------------ CANADA--1.27% 268,400 Canadian National Railway Co.2 ............. 12,842,940 ------------ FINLAND--1.80% 469,768 Nokia Oyj .................. 7,602,366 396,300 Stora Enso Oyj R Shares .... 5,038,602 153,500 UPM-Kymmene Oyj Corp. ...... 5,366,599 ------------ 18,007,567 ------------ FRANCE--17.51% 259,007 Autoroutes du Sud de la France 1 ........... 6,418,052 307,456 Aventis SA 2 ............... 21,844,579 470,637 Axa ........................ 9,987,022 352,660 BNP Paribas SA ............. 18,430,758 220,259 Credit Lyonnais SA ......... 9,290,334 101,800 Groupe Danone .............. 13,484,167 34,475 L'Air Liquide SA ........... 5,336,868 77,060 Pechiney SA--Class A 1 ..... 3,728,742 19,785 Publicis Groupe ............ 605,051 115,189 Renault SA ................. 5,340,174 175,618 Sanofi-Synthelabo SA 2 ..... 11,243,256 266,808 Schneider Electric SA 1 .... 12,881,489 180,061 Societe Generale--A 1,2 .... 12,330,829 347,916 Suez SA 2 .................. 10,361,076 173,784 Total Fina ELF SA 2 ........ 26,338,728 137,931 Vinci SA 2 ................. 8,824,279 ------------ 176,445,404 ------------ GERMANY--8.59% 65,991 Allianz AG ................. 15,519,732 47,471 Altana AG .................. 2,656,311 125,456 BASF AG 2 .................. 5,358,322 237,213 Bayer AG 2 ................. 7,812,407 226,638 Deutsche Lufthansa AG ...... 3,492,629 278,935 E.ON AG 2 .................. 14,439,497 126,800 Henkel KGaA 2 .............. 8,339,531 34,240 Muenchener Rueckversicherungs- Gesellschaft AG ........... 8,484,485 79,268 SAP AG 2 ................... 10,263,930 86,110 Schering AG 2 .............. 5,245,167 81,425 Siemens AG 2 ............... 4,930,444 ------------ 86,542,455 ------------ SHARES SECURITY VALUE HONG KONG--0.52% 590,000 Hutchison Whampoa Ltd. .....$ 5,181,982 ------------ HUNGARY--0.26% 295,912 OTP Bank Rt. ............... 2,627,086 ------------ INDIA--0.00% 50 NIIT Ltd. .................. 284 ------------ IRELAND--0.67% 584,044 Bank Of Ireland ............ 6,788,820 ------------ ITALY--5.94% 816,600 Banca Monte dei Paschi di Siena SPA .............. 2,671,007 1,032,964 ENI SPA 2 .................. 15,869,695 3,293,208 Intesabci SPA .............. 10,653,017 758,146 Riunione Adriatica di Sicurta SPA ............... 9,837,265 1,887,500 Snam Rete Gas SPA .......... 5,357,430 731,522 Telecom Italia SPA 2 ....... 5,820,323 2,082,796 Unicredito Italiano SPA 2 .. 9,665,248 ------------ 59,873,985 ------------ JAPAN--18.00% 756,000 Asahi Glass Co. Ltd. ....... 5,363,830 353,000 Bridgestone Corp. .......... 4,978,838 362,000 Canon, Inc. ................ 13,871,023 364,000 Daiwa Securities Group, Inc. .............. 2,498,115 985,000 Fujitsu Ltd. ............... 7,824,763 695,000 Hitachi Ltd ................ 5,147,545 207,800 Honda Motor Co. ............ 9,321,866 109,000 Ito Yokado Co. Limited ..... 5,373,596 599,000 Matsushita Electric Industrial Co., Ltd. ...... 8,023,984 1,199,000 Mitsubishi Corp. ........... 8,992,496 1,219,000 Mitsui & Co., Ltd. ......... 7,709,055 964,000 Mitsui Fudosan Co., Ltd. ... 7,567,847 37,500 Nintendo Corp. Ltd.2 ....... 5,257,007 1,878,000 Nissan Motor Co. Ltd. ...... 14,450,649 977,000 Nomura Holdings, Inc. ...... 13,620,166 3,316 NTT DoCoMo, Inc.2 .......... 8,434,670 177,000 Sankyo Co., Ltd. ........... 2,694,976 122,500 Sega Corp.1 ................ 2,747,662 964,000 Sharp Corp. ................ 13,371,365 241,800 Sony Corp. ................. 12,993,920 180,000 Takeda Chemical Industries . 7,878,502 286,200 Toyota Motor Corp. ......... 7,801,399 196,000 Yamanouchi Pharmaceutical Co. Ltd. .................. 5,403,736 ------------ 181,327,010 ------------ LUXEMBOURG--0.59% 433,699 Arcelor 1 .................. 5,979,142 ------------ See Notes to Financial Statements. -------------------------------------------------------------------------------- 20 International Equity Portfolio -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS April 30, 2002 (Unaudited) SHARES SECURITY VALUE MEXICO--0.99% 116,749 Cemex SA ADR 2 .............$ 3,700,943 6,293,100 Grupo Financiero BBVA Bancomer SA 2 ............. 6,249,281 ------------ 9,950,224 ------------ NETHERLANDS--7.17% 109,800 ASML Holding NV 1 .......... 2,493,227 62,400 DSM NV ..................... 2,776,481 110,454 Gucci Group NV ............. 10,699,141 85,500 Heineken NV ................ 3,852,079 222,524 ING Groep NV ............... 5,874,941 234,702 Koninklijke Ahold NV 2 ..... 5,868,658 1,241,100 Koninklijke KPN NV ......... 5,625,146 1,310,100 Reed Elsevier NV ........... 18,179,594 438,105 TNT Post Group NV .......... 9,499,715 245,625 VNU NV ..................... 7,414,406 ------------ 72,283,388 ------------ POLAND--0.26% 96,428 Bank Pekao SA--GDR 1,2,3 ... 2,627,663 ------------ SOUTH KOREA--3.05% 64,090 Hyundai Motor Co., Ltd. .... 2,377,281 204,176 Kookmin Bank ............... 9,293,278 36,050 POSCO ...................... 3,579,788 52,670 Samsung Electronics ........ 15,548,039 ------------ 30,798,386 ------------ SPAIN--3.14% 265,648 Banco Popular Espanol ...... 10,893,625 376,563 Iberdrola SA 2 ............. 5,164,298 1,452,641 Telefonica SA 1 ............ 15,550,120 ------------ 31,608,043 ------------ SWEDEN--0.36% 378,120 Skandinaviska Enskilda Banken--A 2 ............... 3,624,719 ------------ SWITZERLAND--8.40% 57,260 Adecco SA .................. 3,622,686 237,400 Credit Suisse Group ........ 8,462,296 22,448 Holcim, Ltd. ............... 5,195,944 80,040 Nestle SA--Reg ............. 18,921,752 466,074 Novartis AG ................ 19,548,128 107,800 Swiss Re ................... 10,879,076 107,607 Syngenta AG ................ 6,641,957 236,300 UBS AG--Reg ................ 11,391,220 ------------ 84,663,059 ------------ TAIWAN--0.68% 1,373,000 Taiwan Semiconductor ....... 3,460,582 2,240,000 United Microelectronics Corp.1 ................... 3,419,751 ------------ 6,880,333 ------------ SHARES SECURITY VALUE UNITED KINGDOM--19.00% 152,103 AstraZeneca PLC ............$ 7,126,364 1,202,082 BHP Billiton PLC ........... 6,437,848 3,934,780 BP Amoco PLC ............... 33,573,500 462,835 British Sky Broadcasting PLC ...................... 5,169,965 762,287 Compass Group PLC .......... 4,746,242 1,237,180 Glaxosmithkline PLC ........ 29,928,864 711,627 National Grid Group PLC 1 .. 5,102,309 590,680 Reckitt Benckiser PLC ...... 10,458,702 265,874 Rio Tinto PLC .............. 4,951,719 665,880 Royal Bank of Scotland Group ........... 19,097,228 523,821 Scottish & Southern Energy . 5,152,713 3,646,109 Shell Transport & Trading Co. PLC .......... 25,982,909 228,935 Six Continents PLC 1 ....... 2,528,894 2,771,142 Tesco PLC 1 ................ 10,570,481 12,763,923 Vodafone Group PLC ......... 20,600,472 -------------- 191,428,210 -------------- TOTAL COMMON STOCK (Cost $942,557,571) ................... 1,000,970,675 -------------- TOTAL INVESTMENTS IN UNAFFILIATED ISSUERS (Cost $942,557,571) ................... 1,000,970,675 -------------- INVESTMENTS IN AFFILIATED INVESTMENT COMPANIES--16.41% 165,370,718 Institutional Daily Assets Fund 4 (Cost $165,370,718) (Note 2) .................. 165,370,718 -------------- TOTAL INVESTMENTS IN AFFILIATED INVESTMENT COMPANIES (Cost $165,370,718) ................... 165,370,718 -------------- TOTAL INVESTMENTS (Cost $1,107,928,289) ....... 115.75% $1,166,341,393 OTHER LIABILITIES IN EXCESS OF ASSETS ................... (15.75) (158,679,514) ------ -------------- NET ASSETS ..................... 100.00% $1,007,661,879 ====== ============== -------------------------------------------------------------------------------- 1 Non-income producing security. 2 All or a portion of this security was on loan (see Note 1I). The value of all securities loaned at April 30, 2002 amounted to $157,409,877. 3 144A--Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutions. Represents 0.26% of net assets at period end. 4 Represents security purchased with cash collateral received for securities on loan. Abbreviations: ADR--American Depository Receipt GDR--Global Depository Receipt See Notes to Financial Statements. -------------------------------------------------------------------------------- 21 International Equity Portfolio -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS April 30, 2002 (Unaudited) SECTOR DIVERSIFICATION (Unaudited) As of April 30, 2002 (percentages are based on net assets in the Portfolio) Financials ................................. 22.68% Consumer Discretionary ..................... 14.04 Health Care ................................ 11.28 Energy ..................................... 10.10 Industrials ................................ 8.91 Consumer Staples ........................... 7.89 Materials .................................. 7.49 Information Technology ..................... 6.92 Telecommunications Services ................ 5.56 Utilities .................................. 4.53 Cash Equivalents ........................... 0.60 ------ 100.00% ====== See Notes to Financial Statements. -------------------------------------------------------------------------------- 22 International Equity Portfolio -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
APRIL 30, 2002 ASSETS Investments in unaffiliated issuers, at value (cost $942,557,571) ........................................... $1,000,970,675 Investments in affiliated investment companies, at value (cost $165,370,718) ........................................... 165,370,718 -------------- Total investments, at value ................................................. 1,166,341,393 Cash 1 ................................................................... 10,945,872 Receivable for securities sold ........................................... 24,055,700 Receivable for foreign taxes withheld .................................... 3,331,612 Dividends and interest receivable ........................................ 2,536,879 Unrealized appreciation on forward foreign currency contracts ............ 3,380,837 Receivable for shares of beneficial interest subscribed .................. 122,619 Prepaid expenses and other ............................................... 5,446 -------------- Total assets ................................................................ 1,210,720,358 -------------- LIABILITIES Payable for securities purchased ......................................... 32,865,957 Payable for collateral under securities lending agreements ............... 165,370,718 Unrealized depreciation on forward foreign currency contracts ............ 3,582,518 Payable for shares of beneficial interest redeemed ....................... 606,534 Due to advisor ........................................................... 602,665 Accrued expenses and other ............................................... 30,087 -------------- Total liabilities ........................................................... 203,058,479 -------------- NET ASSETS .................................................................. $1,007,661,879 ============== COMPOSITION OF NET ASSETS Paid-in capital .......................................................... $ 949,555,408 Net unrealized appreciation on investments and foreign currencies ................................................. 58,106,471 -------------- NET ASSETS .................................................................. $1,007,661,879 ============== -------------------------------------------------------------------------------- 1 Includes foreign cash of $11,222,122 with a cost of $11,224,279.
See Notes to Financial Statements. -------------------------------------------------------------------------------- 23 International Equity Portfolio -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS (Unaudited) FOR THE SIX MONTHS ENDED APRIL 30, 2002 INVESTMENT INCOME Dividends from unaffiliated issuers (net of foreign withholding tax of $1,128,139) ................. $ 7,724,392 Securities lending income ................................ 514,243 Dividends from affiliated investment companies ........... 574,060 Interest income .......................................... 206,410 ------------- Total investment income ..................................... 9,019,105 ------------- EXPENSES Advisory fees ............................................ 3,941,348 Administration and services fees ......................... 915,199 Professional fees ........................................ 21,856 Trustees fees ............................................ 5,360 Miscellaneous ............................................ 122,017 ------------- Total expenses .............................................. 5,005,780 Less: Fee waivers and/or expense reimbursements ............. (712,815) ------------- Net expenses ................................................ 4,292,965 ------------- NET INVESTMENT INCOME ....................................... 4,726,140 ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES Net realized gain (loss) from: Investment transactions ................................ (30,254,698) Options transactions ................................... (21,033,609) Foreign futures transactions ........................... 1,827,781 Foreign currency transactions .......................... (1,791,483) Forward foreign currency transactions .................. 5,532,522 Net change in unrealized appreciation/ depreciation on investments and foreign currencies ................................. 105,184,577 ------------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCIES .................................. 59,465,090 ------------- NET INCREASE IN NET ASSETS FROM OPERATIONS .................. $ 64,191,230 ============= See Notes to Financial Statements. -------------------------------------------------------------------------------- 24 International Equity Portfolio -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED APRIL 30, 2002 1 OCTOBER 31, 2001 INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS Net investment income ............................................ $ 4,726,140 $ 23,106,598 Net realized loss from investment and foreign currency transactions .............................. (45,719,487) (463,961,592) Net change in unrealized appreciation/depreciation on investments and foreign currencies ............................. 105,184,577 (209,414,139) --------------- --------------- Net increase (decrease) in net assets from operations ............... 64,191,230 (650,269,133) --------------- --------------- CAPITAL TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Proceeds from capital invested ................................... 910,480,055 3,919,953,801 Value of capital withdrawn ....................................... (1,298,401,189) (4,899,612,532) --------------- --------------- Net decrease in net assets from capital transactions in shares of beneficial interest ................................. (387,921,134) (979,658,731) --------------- --------------- TOTAL DECREASE IN NET ASSETS ........................................ (323,729,904) (1,629,927,864) NET ASSETS Beginning of period .............................................. 1,331,391,783 2,961,319,647 --------------- --------------- End of period .................................................... $ 1,007,661,879 $ 1,331,391,783 =============== =============== -------------------------------------------------------------------------------- 1 Unaudited.
See Notes to Financial Statements. -------------------------------------------------------------------------------- 25 International Equity Portfolio -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
FOR THE FOR THE SIX PERIOD MONTHS ENDED FOR THE YEARS OCT. 1, 1999 FOR THE YEARS APRIL 30, ENDED OCTOBER 31, TO OCT. 31, ENDED SEPTEMBER 30, 2002 1 2001 2000 1999 2 1999 1998 1997 TOTAL INVESTMENT RETURN .......... 5.65% -- -- -- -- -- -- SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period (000s omitted) ..............$1,007,662 $1,331,392 $2,961,320 $3,017,361 $2,897,856 $1,832,252 $572,405 Ratios to average net assets: Net investment (expenses in excess of) income ........ 0.78%3 1.05% 0.74% (0.13)%3 1.00% 1.52% 1.35% Expenses after waivers and/or reimbursements .... 0.70%3 0.70% 0.70% 0.70%3 0.70% 0.66% 0.65% Expenses before waivers and/or reimbursements .... 0.82%3 0.80% 0.80% 0.83%3 0.80% 0.81% 0.82% Portfolio turnover rate ....... 101% 137% 140% 5% 106% 65% 63% -------------------------------------------------------------------------------- 1 Unaudited. 2 On September 8, 1999, the Board of Trustees approved the change of the fiscal year end from September 30 to October 31. 3 Annualized.
See Notes to Financial Statements. -------------------------------------------------------------------------------- 26 International Equity Portfolio -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Unaudited) NOTE 1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES A. ORGANIZATION The International Equity Portfolio (the 'Portfolio') is registered under the Investment Company Act of 1940 (the 'Act'), as amended, as a diversified, open-end management investment company. The Portfolio is organized as a business trust under the laws of the state of New York. Details concerning the Portfolio's investment objective and policies and the risk factors associated with the Portfolio's investments are described in the Portfolio's Prospectus and Statement of Additional Information. B. VALUATION OF SECURITIES The Portfolio values its investments at market value. When valuing listed equity securities, the Portfolio uses the last sale price prior to the calculation of the Portfolio's net asset value. When valuing equity securities that are not listed or that are listed but have not traded, the Portfolio uses the bid price in the over-the-counter market. When valuing short-term securities that mature within sixty days, the Portfolio uses amortized cost. When valuing securities for which market quotations are not readily available or for which the market quotations that are available are considered unreliable, the Portfolio determines a fair value in good faith under procedures established by and under the general supervision of the Portfolio's Board of Trustees. The Portfolio may use these procedures to establish the fair value of securities when, for example, a significant event occurs between the time the market closes and the time the Portfolio values its investments. After consideration of various factors, the Portfolio may value the securities at their last reported price or at fair value. On April 30, 2002, there were no fair valued securities. C. SECURITIES TRANSACTION AND INVESTMENT INCOME Securities transactions are recorded on trade date. Realized gains and losses are determined by comparing the proceeds of a sale or the cost of a purchase with a specific offsetting transaction. Dividend income, net of any foreign taxes withheld, is recorded on the ex-dividend date or, in the case of certain foreign securities, upon receipt of ex-dividend notification. Interest income, including amortization of premiums and accretion of discounts, is accrued daily. Estimated expenses are also accrued daily. The Portfolio makes a daily allocation of its net investment income and realized and unrealized gains and losses from securities and foreign currency transactions to its investors in proportion to their investment in the Portfolio. D. FEDERAL INCOME TAXES The Portfolio is considered a Partnership under the Internal Revenue Code. Therefore, no federal income tax provision is necessary. E. FOREIGN CURRENCY TRANSLATION The Portfolio maintains its accounting records in US dollars. The Portfolio determines the US dollar value of foreign currency denominated assets, liabilities and transactions by using prevailing exchange rates. In valuing assets and liabilities, the Portfolio uses the prevailing exchange rate on the valuation date. In valuing securities transactions, the receipt of income and the payment of expenses, the Portfolio uses the prevailing exchange rate on the transaction date. Net realized and unrealized gains and losses on foreign currency translation shown on the Portfolio's financial statements result from the sale of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Portfolio's books and the US dollar equivalent of the amounts actually received or paid. When calculating realized and unrealized gains or losses on investments in equity securities, the Portfolio does not separate the gain or loss attributable to changes in the foreign currency price of the security from the gain or loss attributable to the change in the US dollar value of the foreign currency. -------------------------------------------------------------------------------- 27 International Equity Portfolio -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Unaudited) F. FORWARD FOREIGN CURRENCY CONTRACTS The Portfolio may use forward foreign currency contracts to manage foreign exchange rate risk. The Portfolio may use these contracts to fix the US dollar value of a securities transaction for the period between the date of the transaction and the date the security is received or delivered or to hedge the US dollar value of securities it already owns. The use of forward foreign currency contracts does not eliminate fluctuations in the prices of the underlying securities, but does establish a rate of exchange that can be achieved in the future. The Portfolio determines the net US dollar value of forward foreign currency contracts using prevailing exchange rates. G. OPTIONS CONTRACTS The Portfolio may purchase option contracts that allow it to either buy the underlying security (in the case of a call) or sell the underlying security (in the case of a put) at a specified price on or before a specified expiration date. When the Portfolio buys a call, it increases its exposure to the underlying security. When the Portfolio buys a put, it limits its exposure to the underlying security. The Portfolio treats a purchased option as an investment. When the Portfolio either sells the option or allows it to expire, it records a gain or loss. When the Portfolio purchases a security through the exercise of a call, it adds the premium it paid for the call to the exercise price it paid for the security to determine its cost basis. When the Portfolio sells a security through the exercise of a put, it subtracts the premium it paid for the put from the price it receives for the security to determine its profit or loss. The Portfolio may also write option contracts that obligate it to either buy the underlying security (in the case of a put) or sell the underlying security (in the case of a call). When the Portfolio writes a put, it increases its exposure to the underlying security. When the Portfolio writes a call, it limits its exposure to the underlying security. The Portfolio treats a written option as a liability. When the Portfolio buys an option it has written or when the option expires, the Portfolio records a gain or loss. When the Portfolio purchases a security because a put it has written is exercised, it subtracts the premium it received when it wrote the put from the exercise price it pays for the security to determine its cost basis. When the Portfolio sells a security because a call it has written is exercised, it adds the premium it received when it wrote the call to the price it receives for the security to determine its profit or loss. H. FUTURES CONTRACTS The Portfolio may buy or sell financial futures contracts on established futures exchanges. Under the terms of a financial futures contract, the Portfolio agrees to receive or deliver a specific amount of a financial instrument at a specific price on a specific date. When the Portfolio enters into a futures contract, it is required to make a margin deposit equal to a percentage of the face value of the contract. While the contract is outstanding, the Portfolio may be required to make additional deposits or may have part of its deposit returned as a result of changes in the relationship between the face value of the contract and the value of the underlying security. The Portfolio records these payments as unrealized gains or losses. When entering into a closing transaction, the Portfolio realizes a gain or loss. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. I. SECURITIES LENDING The Portfolio may lend securities to financial institutions. The Portfolio retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the securities and to participate in any changes in their market value. The Portfolio requires the borrowers of the securities to maintain collateral with the Portfolio in the form of cash and/or government securities equal to 102% of the value of domestic securities and 105% of the value of international securities. The Portfolio may invest the cash -------------------------------------------------------------------------------- 28 International Equity Portfolio -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Unaudited) collateral in an affiliated money market fund. The Portfolio receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral. The fees earned for lending securities may be shared with an affiliate regardless of whether or not the cash collateral is invested in an affiliated money market fund. Either the Portfolio or the borrower may terminate the loan. J. ESTIMATES In preparing its financial statements in conformity with accounting principles generally accepted in the United States, management makes estimates and assumptions. Actual results may be different. NOTE 2--FEES AND TRANSACTIONS WITH AFFILIATES Deutsche Asset Management, Inc., an indirect, wholly owned subsidiary of Deutsche Bank AG, is the Portfolio's Advisor. The Portfolio pays the Advisor an annual fee based on its average daily net assets which is calculated daily and paid monthly at the annual rate of 0.65%. The Fund waives a portion of its advisory fee equivalent to the advisory fees charged by affiliated Money Market Funds on assets invested in those Money Market Funds. Investment Company Capital Corp., an indirect, wholly owned subsidiary of Deutsche Bank AG, is the Portfolio's Administrator. The Portfolio pays the Administrator an annual fee based on its average daily net assets which is calculated daily and paid monthly at an annual rate of 0.15%. The Portfolio may invest in Cash Management Fund Institutional, an open-end management investment company managed by DeAM. The Portfolio may invest cash collateral from its securities lending transactions in affiliated money market funds and may pay fees generated from those investments to Deutsche Bank Trust Company Americas, formerly (Bankers Trust) and/or Deutsche Bank AG. Certain officers and directors of the Portfolio are also officers or directors of ICCC or affiliated with Deutsche Bank AG. These persons are not paid by the Portfolio for serving in these capacities. NOTE 3--PURCHASE AND SALE OF INVESTMENT SECURITIES The aggregate cost of purchases and proceeds from sales of investments, other than US Government and short-term obligations, for the six months ended April 30, 2002, were $1,143,943,579 and $1,403,143,712, respectively. For federal income tax purposes, the tax basis of investments held at April 30, 2002 was $1,107,928,289. The aggregate gross unrealized appreciation for all investments at April 30, 2002 was $85,008,052 and the aggregate gross unrealized depreciation for all investments was $26,594,948. NOTE 4--LINE OF CREDIT The Portfolio participates with other affiliated entities in an unsecured revolving credit facility with a syndicate of banks in the amount of $200,000,000, which expires April 25, 2003. A commitment fee is apportioned among the participants based on their relative net assets. The following is a summary of borrowings made during the six months ended April 30, 2002: Weighted Weighted Maximum Average Average Amount Balance Interest Interest Borrowed Outstanding Paid Rate ----------- ----------- -------- -------- $30,246,687 $28,273,358 $3,881 2.51% -------------------------------------------------------------------------------- 29 International Equity Portfolio -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Unaudited) NOTE 5--OPEN FORWARD FOREIGN CURRENCY CONTRACTS The Portfolio had the following open contracts at April 30, 2002:
Unrealized Appreciation/ Contract Depreciation Contracts to Deliver In Exchange For Settlement Date Value (US$) (US$) --------------------------------------------------------------------------------------------------------------------- Sales --------------------------------------------------------------------------------------------------------------------- Australian Dollar 684,708 US Dollar $ 372,522 1-May-02 $ 367,647 $ 4,875 Australian Dollar 3,087,020 US Dollar 1,623,433 5-Jun-02 1,658,224 (34,791) Australian Dollar 1,291,253 US Dollar 687,037 5-Jun-02 693,609 (6,572) Australian Dollar 11,383,185 US Dollar 6,097,972 5-Jun-02 6,114,592 (16,620) Australian Dollar 11,546,037 US Dollar 6,204,494 5-Jun-02 6,202,069 2,425 Australian Dollar 2,508,466 US Dollar 1,345,240 5-Jun-02 1,347,448 (2,208) Canadian Dollar 9,349,485 US Dollar 5,932,226 5-Jun-02 5,959,337 (27,111) Canadian Dollar 21,622,081 US Dollar 13,728,218 5-Jun-02 13,781,858 (53,640) Canadian Dollar 3,920,520 US Dollar 2,498,483 5-Jun-02 2,498,929 (446) Swiss Franc 397,036 US Dollar 244,441 2-May-02 245,067 (626) Swiss Franc 500,654 US Dollar 308,382 3-May-02 309,024 (642) Swiss Franc 3,262,103 US Dollar 1,958,633 5-Jun-02 2,015,635 (57,002) Swiss Franc 37,176,007 US Dollar 22,525,316 5-Jun-02 22,970,840 (445,524) Swiss Franc 3,186,868 US Dollar 1,931,406 5-Jun-02 1,969,147 (37,741) Swiss Franc 881,309 US Dollar 544,011 5-Jun-02 544,556 (545) Danish Krone 866,050 US Dollar 104,593 1-May-02 104,967 (374) Danish Krone 17,026,966 US Dollar 2,066,141 2-May-02 2,063,709 2,432 Danish Krone 38,460,291 US Dollar 4,542,107 6-Jun-02 4,648,859 (106,752) Danish Krone 4,012,135 US Dollar 475,563 6-Jun-02 484,964 (9,401) Danish Krone 116,740,973 US Dollar 13,829,411 6-Jun-02 14,110,979 (281,568) Danish Krone 746,105 US Dollar 90,227 6-Jun-02 90,185 42 Euro 1,589,736 US Dollar 1,432,512 2-May-02 1,432,465 47 Euro 1,040,669 US Dollar 934,209 2-May-02 937,717 (3,508) Euro 5,951,545 US Dollar 5,369,841 3-May-02 5,362,765 7,076 Euro 2,408,297 US Dollar 2,166,415 3-May-02 2,170,047 (3,632) Euro 8,559,048 US Dollar 7,546,513 5-Jun-02 7,695,954 (149,441) Euro 17,125,291 US Dollar 15,216,506 5-Jun-02 15,398,377 (181,871) Euro 6,389,169 US Dollar 5,668,956 5-Jun-02 5,744,885 (75,929) Euro 3,026,818 US Dollar 2,712,513 5-Jun-02 2,721,594 (9,081) British Pound 45,946 US Dollar 66,812 2-May-02 66,957 (145) British Pound 2,079,623 US Dollar 3,033,359 2-May-02 3,030,637 2,722 British Pound 505,246 US Dollar 724,877 5-Jun-02 734,587 (9,710) British Pound 994,436 US Dollar 1,427,184 5-Jun-02 1,445,830 (18,646) British Pound 2,785,343 US Dollar 4,014,515 5-Jun-02 4,049,666 (35,151) British Pound 2,924,044 US Dollar 4,225,711 5-Jun-02 4,251,326 (25,615) British Pound 740,770 US Dollar 1,077,080 5-Jun-02 1,077,020 60 Hungarian Forint 173,671,680 US Dollar 641,921 6-May-02 643,777 (1,856) Hungarian Forint 437,372,546 US Dollar 1,620,739 7-May-02 1,621,279 (540) Japanese Yen 232,335,721 US Dollar 1,770,096 5-Jun-02 1,810,427 (40,331) Japanese Yen 8,972,007,972 US Dollar 69,183,082 5-Jun-02 69,912,477 (729,395) Japanese Yen 3,073,251,960 US Dollar 23,657,688 5-Jun-02 23,947,667 (289,979) Mexican Peso 223,343,804 US Dollar 24,216,617 5-Jun-02 23,659,201 557,416 Mexican Peso 756,272 US Dollar 80,958 5-Jun-02 80,113 845 Norwegian Krone 10,215,601 US Dollar 1,174,369 5-Jun-02 1,209,070 (34,701) Norwegian Krone 32,533,832 US Dollar 3,769,591 5-Jun-02 3,850,550 (80,959) Norwegian Krone 81,783,999 US Dollar 9,509,325 5-Jun-02 9,679,565 (170,240) New Zealand Dollar 7,248,664 US Dollar 3,140,846 5-Jun-02 3,232,469 (91,623) New Zealand Dollar 6,539,420 US Dollar 2,913,181 5-Jun-02 2,916,189 (3,008) Swedish Krona 7,678,347 US Dollar 740,915 5-Jun-02 745,152 (4,237) Swedish Krona 4,870,569 US Dollar 471,703 5-Jun-02 472,669 (966) Swedish Krona 6,080,038 US Dollar 583,245 5-Jun-02 590,043 (6,798) Swedish Krona 2,303,852 US Dollar 223,222 5-Jun-02 223,579 (357) Swedish Krona 3,992,478 US Dollar 387,386 5-Jun-02 387,453 (67) --------------------------------------------------------------------------------------------------------------------- Total Sales $(2,471,409) ---------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 30 International Equity Portfolio -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Unaudited)
Unrealized Appreciation/ Contract Depreciation Contracts to Receive In Exchange For Settlement Date Value (US$) (US$) --------------------------------------------------------------------------------------------------------------------------- Purchases --------------------------------------------------------------------------------------------------------------------------- Australian Dollar 10,581,655 US Dollar $ 5,621,187 5-Jun-02 $ 5,684,042 $ 62,855 Australian Dollar 41,734,598 US Dollar 22,522,493 5-Jun-02 22,418,157 (104,336) Australian Dollar 9,799,690 US Dollar 5,316,430 5-Jun-02 5,264,001 (52,429) Canadian Dollar 11,798,267 US Dollar 7,380,421 5-Jun-02 7,520,184 139,763 Canadian Dollar 16,092,015 US Dollar 10,128,791 5-Jun-02 10,257,008 128,217 Canadian Dollar 9,044,644 US Dollar 5,722,756 5-Jun-02 5,765,032 42,276 Canadian Dollar 2,367,877 US Dollar 1,514,230 5-Jun-02 1,509,279 (4,951) Swiss Franc 1,412,888 US Dollar 871,626 3-May-02 872,094 468 Swiss Franc 3,270,728 US Dollar 2,020,515 6-May-02 2,018,831 (1,684) Swiss Franc 1,445,007 US Dollar 871,720 5-Jun-02 892,861 21,141 Swiss Franc 15,820,722 US Dollar 9,516,338 5-Jun-02 9,775,532 259,194 Swiss Franc 6,553,937 US Dollar 3,972,661 5-Jun-02 4,049,640 76,979 Swiss Franc 7,255,006 US Dollar 4,445,333 5-Jun-02 4,482,826 37,493 Danish Krone 67,848,147 US Dollar 8,100,014 6-Jun-02 8,201,095 101,081 Danish Krone 159,173,979 US Dollar 19,013,794 6-Jun-02 19,240,037 226,243 Danish Krone 22,843,313 US Dollar 2,753,633 6-Jun-02 2,761,169 7,536 Euro 12,938 US Dollar 11,651 6-May-02 11,658 7 Euro 6,542,527 US Dollar 5,891,480 6-May-02 5,895,281 3,801 Euro 1,227,676 US Dollar 1,079,189 5-Jun-02 1,103,877 24,688 Euro 17,225,703 US Dollar 15,180,323 5-Jun-02 15,488,663 308,340 Euro 7,364,316 US Dollar 6,539,807 5-Jun-02 6,621,698 81,891 Euro 4,772,415 US Dollar 4,294,601 5-Jun-02 4,291,165 (3,436) British Pound 19,177 US Dollar 27,962 1-May-02 27,947 (15) British Pound 55,095 US Dollar 80,289 1-May-02 80,291 2 British Pound 2,220,163 US Dollar 3,239,484 2-May-02 3,235,446 (4,038) British Pound 4,849,462 US Dollar 7,076,577 2-May-02 7,067,126 (9,451) British Pound 15,163,590 US Dollar 21,919,576 5-Jun-02 22,046,647 127,071 British Pound 3,761,118 US Dollar 5,451,552 5-Jun-02 5,468,365 16,813 Japanese Yen 615,306,125 US Dollar 4,791,245 1-May-02 4,792,102 857 Japanese Yen 364,203,299 US Dollar 2,836,624 2-May-02 2,836,474 (150) Japanese Yen 33,887,890 US Dollar 263,910 7-May-02 263,924 14 Japanese Yen 399,553,265 US Dollar 3,059,062 5-Jun-02 3,113,434 54,372 Japanese Yen 1,941,308,126 US Dollar 14,841,011 5-Jun-02 15,127,233 286,222 Japanese Yen 2,032,279,121 US Dollar 15,610,821 5-Jun-02 15,836,106 225,285 Japanese Yen 1,666,338,204 US Dollar 13,005,871 5-Jun-02 12,984,588 (21,283) Japanese Yen 275,316,114 US Dollar 2,145,560 5-Jun-02 2,145,343 (217) Mexican Peso 37,131,492 US Dollar 3,996,071 5-Jun-02 3,933,404 (62,667) Mexican Peso 186,968,585 US Dollar 20,060,146 5-Jun-02 19,805,910 (254,236) Norwegian Krone 39,333,727 US Dollar 4,517,639 5-Jun-02 4,655,353 137,714 Norwegian Krone 139,870,995 US Dollar 16,282,055 5-Jun-02 16,554,465 272,410 Norwegian Krone 30,544,984 US Dollar 3,600,729 5-Jun-02 3,615,159 14,430 Norwegian Krone 4,005,347 US Dollar 474,230 5-Jun-02 474,054 (176) New Zealand Dollar 7,260,829 US Dollar 3,234,917 5-Jun-02 3,237,894 2,977 New Zealand Dollar 6,528,601 US Dollar 2,925,466 5-Jun-02 2,911,364 (14,102) Swedish Krona 4,841,764 US Dollar 467,442 5-Jun-02 469,873 2,431 Swedish Krona 228,523,738 US Dollar 22,041,681 5-Jun-02 22,177,297 135,616 Swedish Krona 32,966,685 US Dollar 3,194,570 5-Jun-02 3,199,282 4,712 --------------------------------------------------------------------------------------------------------------------------- Total Purchases $2,269,728 --------------------------------------------------------------------------------------------------------------------------- Total Net Unrealized Depreciation $ (201,681) ---------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 31 International Equity Portfolio -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Unaudited) NOTE 6--CALL AND PUT OPTIONS Call and Put Options written and related premiums received during the period were as follows:
Calls--Actual Puts--Actual --------------------------------------------------------------------------------------------------------------------------- Contracts Premiums Contracts Premiums --------------------------------------------------------------------------------------------------------------------------- Options Outstanding, October 31, 2001 11,147 $ 2,366,073 50,750 $ 225,838 Options Written 261,385 823,557 -- -- Options Closed (46,868) (724,449) -- -- Options Expired (225,664) (2,465,181) (50,750) (225,838) Options Exercised -- -- -- -- --------------------------------------------------------------------------------------------------------------------------- Options Outstanding, April 30, 2002 -- $ -- -- $ -- ---------------------------------------------------------------------------------------------------------------------------
NOTE 7--LENDING OF SECURITIES The Portfolio had the following amounts of securities out on loan at April 30, 2002: Market Value Market Value % of Portfolio of Loaned Securities of Collateral on Loan -------------------- ------------- -------------- $157,409,877 $165,370,718 15.62 NOTE 8--RISKS OF INVESTING IN FOREIGN SECURITIES The Fund invests in securities of foreign issuers in various countries. These investments may involve certain considerations and risks not typically associated with investments in the United States, as a result of, among other factors, the possibility of future political and economic developments and the level of governmental supervision and regulation of securities markets in the respective countries. The Fund invests in emerging markets securities. Emerging markets are substantially smaller, less developed, less liquid, and more volatile than the major securities markets in the United States. -------------------------------------------------------------------------------- 32 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] For information on how to invest, shareholder account information and current price and yield information, please contact your relationship manager or write to: DEUTSCHE ASSET MANAGEMENT SERVICE CENTER PO BOX 219210 KANSAS CITY, MO 64121-9210 or call toll-free: 1-800-730-1313 This report must be preceded or accompanied by a current prospectus for the Fund. Deutsche Asset Management is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Bank Securities Inc., Deutsche Asset Management Inc., Deutsche Asset Management Investment Services Ltd., Deutsche Investment Management Americas Inc. and Scudder Trust Company. International Equity Fund CUSIP #055924864 Class A Shares CUSIP #055922546 Class B Shares CUSIP #055922538 Class C Shares CUSIP #055922520 BDIEFSA (4/02) Printed 6/02 Distributed by: ICC Distributors, Inc.