Annual Report to Shareholders Deutsche CROCI Equity Dividend Fund

Transcription

1 November 30, 2017 Annual Report to Shareholders Deutsche CROCI Equity Dividend Fund

2 Contents 3 Letter to Shareholders 4 Portfolio Management Review 9 Performance Summary 12 Portfolio Summary 13 Investment Portfolio 16 Statement of Assets and Liabilities 18 Statement of Operations 19 Statements of Changes in Net Assets 20 Financial Highlights 27 Notes to Financial Statements 38 Report of Independent Registered Public Accounting Firm 39 Information About Your Fund s Expenses 41 Tax Information 42 Advisory Agreement Board Considerations and Fee Evaluation 47 Board Members and Officers 52 Account Management Resources This report must be preceded or accompanied by a prospectus. To obtain a summary prospectus, if available, or prospectus for any of our funds, refer to the Account Management Resources information provided in the back of this booklet. We advise you to consider the fund s objectives, risks, charges and expenses carefully before investing. The summary prospectus and prospectus contain this and other important information about the fund. Please read the prospectus carefully before you invest. The fund will be managed using the CROCI Investment Process which is based on portfolio management s belief that, over time, stocks which display more favorable financial metrics (for example, the CROCI Economic P/E Ratio) as generated by this process may outperform stocks which display less favorable metrics. This premise may not prove to be correct and prospective investors should evaluate this assumption prior to investing in the fund. Investing in derivatives entails special risks relating to liquidity, leverage and credit that may reduce returns and/or increase volatility. Dividends are not guaranteed. If the dividend-paying stocks held by the fund reduce or stop paying dividends, the fund s ability to generate income may be adversely affected. Preferred stocks, a type of dividend-paying stock, present certain additional risks. The fund may lend securities to approved institutions. Stocks may decline in value. See the prospectus for details. Deutsche Asset Management represents the asset management activities conducted by Deutsche Bank AG or any of its subsidiaries. NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY 2 Deutsche CROCI Equity Dividend Fund

3 Letter to Shareholders Dear Shareholder: Synchronous growth is the catchphrase for the current market environment positive momentum in the U.S. as well as for most of the major economies of the globe. Overseas, both developed and emerging markets continue to improve, marked by low inflation rates, growing corporate earnings and attractive valuations. Here in the U.S., activity remains solid with only limited signs of overheating. Given the notable gains of the past year, a short-term pullback would not be a surprise. Nevertheless, strong fundamentals remain supportive of this expansion, making it the second longest run in history this spring. Solid income growth, improvements in net worth, manageable debt, elevated confidence and firm labor markets should continue to support consumer spending. Business investment is also showing signs of picking up, supported by improved confidence, favorable financial conditions and the recent tax reform bill. The full effect of the new tax policy remains to be seen. While markets can respond almost instantly, and seem to have done so, the economy itself takes time to respond. Our economists believe that the net benefit may be fairly modest with the main beneficiaries being consumption and business investment. All told, we believe this environment favors a long-term approach, with a focus on thoughtful asset, geographic and sector allocation, rather than market timing calls. As always, we invite you to visit our website deutschefunds.com where you will find the most current insights from our CIO, economists and investment specialists. Thank you for allowing us to help you address your investment needs. Best regards, Hepsen Uzcan President, Deutsche Funds Assumptions, estimates and opinions contained in this document constitute our judgment as of the date of the document and are subject to change without notice. Any projections are based on a number of assumptions as to market conditions and there can be no guarantee that any projected results will be achieved. Past performance is not a guarantee of future results. Deutsche CROCI Equity Dividend Fund 3

4 Portfolio Management Review (Unaudited) Market Overview and Fund Performance All performance information below is historical and does not guarantee future results. Returns shown are for Class A shares, unadjusted for sales charges. Investment return and principal fluctuate, so your shares may be worth more or less when redeemed. Current performance may differ from performance data shown. Please visit deutschefunds.com for the most recent month-end performance of all share classes. Fund performance includes reinvestment of all distributions. Unadjusted returns do not reflect sales charges and would have been lower if they had. Please refer to pages 9 through 11 for more complete performance information. Deutsche CROCI Equity Dividend Fund returned 21.04% in the 12-month period ended November 30, 2017, underperforming the 22.87% gain of the S&P 500 Index but outpacing the 16.55% average return for the funds in its Morningstar peer group, Large Value. Investment Process Portfolio management selects stocks that it believes offer economic value utilizing the CROCI strategy as the primary factor, among other factors, and will seek above average dividend yield. The CROCI strategy is an investment process based on a proprietary valuation technique that attempts to understand the value of a company by converting financial statement data into a set of economic inputs that are used to calculate a valuation metric called the CROCI Economic Price Earnings Ratio which is comparable across markets, sectors and stocks. The CROCI Economic Price Earnings Ratio seeks to measure the real economic value rather than the accounting value of a company s invested capital, and the economic returns thereof. Portfolio management believes that, over time, companies with more favorable financial metrics, including CROCI Economic Price Earnings Ratios, will outperform other companies. Portfolio Management employs a U.S.-specific strategy seeking to select approximately the forty best value companies under CROCI coverage with additional screening on high dividend yield, dividend sustainability and price volatility. The U.S. stock market performed very well in the past year, with steady gains, low volatility and a remarkable lack of any meaningful sell-offs. When the period began, the market was still in the midst of the rally brought about by the surprising results of the U.S. election and investors expectation for improving economic growth. The momentum carried into the first calendar quarter of 2017, due largely to positive investor sentiment stemming from the prospects for reduced regulation and lower taxes. While ongoing gridlock in Washington caused these hopes to wane 4 Deutsche CROCI Equity Dividend Fund

5 in the spring and summer, stocks nevertheless continued to rally as economic growth picked up steam and corporate earnings came in well above expectations. The annual period closed on a high note, with the revived outlook for tax cuts fueling a fresh upleg in stock prices from September onward. Dividend stocks, as a group, trailed the broader market. Investors hearty appetite for risk fueled strong demand for the stocks of faster-growing and higher-risk companies, which worked to the benefit of the growth style. Conversely, value stocks and more conservative market segments such as dividend payers generally underperformed. The U.S. Federal Reserve s decision to increase interest rates several times also pressured the relative performance of dividend stocks, as investors grew wary about the potential for bond yields to become more competitive over time. Fund Performance Although the underperformance of value-oriented dividend payers would ordinarily be expected to act as a headwind to the fund due to the nature of our approach, we nonetheless posted competitive results versus the S&P 500 Index and the Morningstar peer group. We believe a key reason for this favorable outcome is that even though value as a whole lagged, many of the stocks identified by the CROCI process in fact performed quite well. This trend was most evident in the consumer staples sector, where the fund s investments outpaced the corresponding benchmark holdings by a comfortable margin. Phillip Morris International, Inc.*, which benefited from larger-than-expected cost reductions and an increase in its earnings guidance, was a key contributor in the sector. Wal-Mart Stores, Inc. also performed very well as the retailer was well positioned to weather competition from Amazon.com, Inc. The energy sector was an additional area of strength for the fund. We held a substantial underweight in energy, which was a significant positive given that it was the only sector to post a loss on the year. Further, our single holding in the category Valero Energy Corp.* gained ground due to its consistent operational performance. We sold the stock from the portfolio in July and the fund closed the period with a zero weighting in energy. Deutsche CROCI Equity Dividend Fund 5

6 We added further value in the utilities sector, where we benefited from both an overweight position and favorable stock selection. NextEra Energy, Inc., an electricity producer that capitalized on the rising demand for renewables, made the largest contribution. Outside of these areas, the biopharmaceutical company AbbVie, Inc.* which rallied after reporting positive data for a new dermatitis treatment in Phase IIb clinical trials was the leading contributor to performance. Hasbro Inc.*, which rose on the strength of better-than-expected profits, and McDonalds Corp., which continued to report gains in both earnings and top-line revenues, were also among the fund s top performers in the annual period. We believe that focusing on individual stock picking, rather than trying to assess transitory economic factors or short-term market movements, is the most effective way to add value over the long term. On the negative side, our positioning in the information technology sector was the largest detractor from relative performance. The fund s underweight position in tech stocks acted as a headwind by preventing us from fully participating in the gains for the market s strongest-performing sector. In addition, we lost some ground through stock selection. The primary factor in our shortfall on this front was our zero weightings in the various large-cap growth companies that were the most important drivers of the tech sector s robust gain, such as Facebook, Inc.* and Alphabet, Inc.*, among others. Positions in International Business Machines, Inc. and QUALCOMM Inc.*, which lagged due to weaker-than-expected revenues and legal uncertainties, respectively, were additional detractors. However, we made up for some of the shortfall through our positions in several strong-performing semiconductor stocks, including KLA-Tencor Corp. and Intel Corp. Outside of technology, the retailer Target Corp. which suffered from a combination of slowing sales and rising costs was a notable detractor. Investments in General Electric Co. and the pharmaceutical giant Merck & Co. Inc. also cost the fund some relative performance. 6 Deutsche CROCI Equity Dividend Fund

7 Outlook and Positioning We believe our unique approach, which looks beyond traditional metrics to assess companies true economic valuations, has created an element of pent-up value in the portfolio. According to Factset, the fund had a price-to-earnings (P/E) ratio of approximately 16.9 (based on one-year forward earnings estimates) as of November 30, 2017 versus 18.7 for the benchmark. The portfolio also compared favorably to the index in terms of its fundamentals, as shown by its higher return on equity (24.7% vs. 19.1%). We think these traits can help the fund generate competitive results if stocks continue to post gains, while also providing an element of defensiveness in the event of a market downturn. At the end of November 2017, our bottom-up stock selection process led us to hold the largest overweight positions (vs. the S&P 500 Index) in the industrials, consumer staples and utilities sectors. Conversely, the fund s most significant underweights were in financials, information technology, energy and real estate. The fund s holdings typically vary widely from the broader market, as we strive to generate long-term outperformance through stock selection instead of attempting to match the return of the index. While the market appears unlikely to maintain its pace of the past 12 months in the coming year, we think the backdrop for U.S. equities remains favorable due to continued strength in both economic growth and corporate profits. At the same time, however, geopolitical issues and uncertainty regarding U.S. Federal Reserve policy have the potential to create market disruptions. In this environment, we think our disciplined, systematic approach can add value. We believe that focusing on individual stock picking, rather than trying to assess transitory economic factors or short-term market movements, is the most effective way to generate outperformance over the long term. Additionally, we think the benefit of higher dividend yields may become more apparent in stocks total returns if market returns begin to cool somewhat from the unusually strong gains of the past year. * Not held in the portfolio as of November 30, Deutsche CROCI Equity Dividend Fund 7

8 Portfolio Manager Di Kumble, CFA, Managing Director Portfolio Manager of the fund. Began managing the fund in Joined Deutsche Asset Management in 2003 with seven years of industry experience. Prior to joining, she served as a Portfolio Manager at Graham Capital Management. Previously, she worked as a Quantitative Strategist at ITG Inc. and Morgan Stanley. Portfolio Manager: New York. BS, Beijing University; PhD in Chemistry, Princeton University. The views expressed reflect those of the portfolio management team only through the end of the period of the report as stated on the cover. The management team s views are subject to change at any time based on market and other conditions and should not be construed as a recommendation. Past performance is no guarantee of future results. Current and future portfolio holdings are subject to risk. Terms to Know The Standard & Poor s 500 (S&P 500) Index is an unmanaged, capitalizationweighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Index returns do not reflect fees or expenses and it is not possible to invest directly into an index. Morningstar Large Value category portfolios invest primarily in big U.S. companies that are less expensive or growing more slowly than other large-cap stocks. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap. The average category returns for the one-, five- and 10-year periods ended 11/30/17 were 16.55%, 13.33% and 6.59%, respectively. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. It is not possible to invest directly in an index or category. The consumer staples sector represents companies that produce essential items such as food, beverages and household products. Overweight means the fund holds a higher weighting in a given sector or security than the benchmark. Underweight means the fund holds a lower weighting. Price-to-earnings (P/E) ratio compares a company s current share price to its per-share earnings. The CROCI Economic P/E Ratio is a proprietary measure of company valuation calculated by the CROCI process via the adjustments to and normalizations of reported financial statements, conducted by CROCI s team of company analysts. Return on equity is the amount of net income returned as a percentage of shareholders equity. 8 Deutsche CROCI Equity Dividend Fund

9 Performance Summary November 30, 2017 (Unaudited) Class A 1-Year 5-Year 10-Year Average Annual Total Returns as of 11/30/17 Unadjusted for Sales Charge 21.04% 12.87% 4.12% Adjusted for the Maximum Sales Charge (max 5.75% load) 14.08% 11.54% 3.50% S&P 500 Index 22.87% 15.74% 8.30% Class T 1-Year 5-Year 10-Year Average Annual Total Returns as of 11/30/17 Unadjusted for Sales Charge 21.10% 12.93% 4.22% Adjusted for the Maximum Sales Charge (max 2.50% load) 18.07% 12.36% 3.96% S&P 500 Index 22.87% 15.74% 8.30% Class C 1-Year 5-Year 10-Year Average Annual Total Returns as of 11/30/17 Unadjusted for Sales Charge 20.13% 12.02% 3.33% Adjusted for the Maximum Sales Charge (max 1.00% CDSC) 20.13% 12.02% 3.33% S&P 500 Index 22.87% 15.74% 8.30% Class R 1-Year 5-Year 10-Year Average Annual Total Returns as of 11/30/17 No Sales Charges 20.75% 12.59% 3.82% S&P 500 Index 22.87% 15.74% 8.30% Class R6 1-Year Life of Class * Average Annual Total Returns as of 11/30/17 No Sales Charges 21.49% 9.24% S&P 500 Index 22.87% 11.02% Class S 1-Year 5-Year 10-Year Average Annual Total Returns as of 11/30/17 No Sales Charges 21.36% 13.15% 4.34% S&P 500 Index 22.87% 15.74% 8.30% Deutsche CROCI Equity Dividend Fund 9

10 Institutional Class 1-Year 5-Year 10-Year Average Annual Total Returns as of 11/30/17 No Sales Charges 21.38% 13.17% 4.45% S&P 500 Index 22.87% 15.74% 8.30% Performance in the Average Annual Total Returns table(s) above and the Growth of an Assumed $10,000 Investment line graph that follows is historical and does not guarantee future results. Investment return and principal fluctuate, so your shares may be worth more or less when redeemed. Current performance may differ from performance data shown. Please visit deutschefunds.com for the Fund s most recent month-end performance. Fund performance includes reinvestment of all distributions. Unadjusted returns do not reflect sales charges and would have been lower if they had. The gross expense ratios of the Fund, as stated in the fee table of the prospectus dated March 16, 2017 are 1.05%, 1.07%, 1.81%, 1.40%, 0.72%, 0.83% and 0.79% for Class A, Class T, Class C, Class R, Class R6, Class S and Institutional Class shares, respectively, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report. Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index. Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns shown for Class T shares for the period prior to its inception on June 5, 2017 are derived from the historical performance of Institutional Class shares of Deutsche CROCI Equity Dividend Fund during such periods and have been adjusted to reflect the higher total annual operating expenses. Any difference in expenses will affect performance. Prior to April 1, 2014, the Fund had a different investment management team that operated with a different investment strategy. Performance prior to April 1, 2014 would have been different if the Fund s current strategy had been in effect. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes only, and as such, the total return based on the unadjusted net asset value per share may differ from the total return reported in the financial highlights. 10 Deutsche CROCI Equity Dividend Fund

11 Growth of an Assumed $10,000 Investment (Adjusted for Maximum Sales Charge) Deutsche CROCI Equity Dividend Fund Class A S&P 500 Index $25,000 $20,000 $22,199 $15,000 $14,110 $10,000 $5,000 $0 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Yearly periods ended November 30 The Fund s growth of an assumed $10,000 investment is adjusted for the maximum sales charge of 5.75%. This results in a net initial investment of $9,425. The growth of $10,000 is cumulative. Performance of other share classes will vary based on the sales charges and the fee structure of those classes. * Class R6 shares commenced operations on March 2, The Standard & Poor s 500 (S&P 500) Index is an unmanaged, capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Institutional Class A Class T Class C Class R Class R6 Class S Class Net Asset Value 11/30/17 $57.53 $57.52 $57.31 $57.39 $57.60 $57.55 $ /5/17 (commencement of operations of Class T) $ $53.26 $ $ $ $ $ 11/30/16 $48.38 $ $48.20 $48.26 $48.40 $48.39 $48.40 Distribution Information as of 11/30/17 Income Dividends, Twelve Months $.93 $.48 $.53 $.80 $ 1.08 $ 1.06 $ 1.06 Deutsche CROCI Equity Dividend Fund 11

12 Portfolio Summary (Unaudited) Asset Allocation (As a % of Investment Portfolio) 11/30/17 11/30/16 Common Stocks 100% 99% Cash Equivalents 0% 1% 100% 100% Sector Diversification (As a % of Investment Portfolio excluding Cash Equivalents) 11/30/17 11/30/16 Consumer Staples 21% 14% Industrials 17% 26% Utilities 15% 14% Health Care 14% 12% Consumer Discretionary 13% 8% Information Technology 12% 15% Financials 5% 3% Materials 3% Telecommunication Services 5% Energy 3% 100% 100% Ten Largest Equity Holdings at November 30, 2017 (26.4% of Net Assets) Percent 1 The JM Smucker Co. 2.7% Manufactures and markets food products worldwide 2 Wal-Mart Stores, Inc. 2.7% Operator of discount stores and super centers 3 Garmin Ltd. 2.7% Provides navigation, communications and information devices 4 Intel Corp. 2.7% Designer, manufacturer and seller of computer components and related products 5 Apple, Inc. 2.6% Designs, manufactures and markets personal computers and related computing and mobile communication devices 6 Cisco Systems, Inc. 2.6% Developer of computer network products 7 Walgreens Boots Alliance, Inc. 2.6% Operates retail drugstores 8 Home Depot, Inc. 2.6% Home improvement products retailer 9 Illinois Tool Works, Inc. 2.6% Designs and manufactures fasteners and components, equipment and consumable systems 10 Kimberly-Clark Corp. 2.6% Global health and hygiene company, a manufacturer and provider of consumer products Portfolio holdings and characteristics are subject to change. For more complete details about the fund s investment portfolio, see page 13. A quarterly Fact Sheet is available on deutschefunds.com or upon request. Please see the Account Management Resources section on page 52 for contact information. 12 Deutsche CROCI Equity Dividend Fund

13 Investment Portfolio as of November 30, 2017 Common Stocks 99.6% Consumer Discretionary 12.7% Shares Value ($) Distributors 2.6% Genuine Parts Co. 309,806 28,802,664 Hotels, Restaurants & Leisure 2.5% McDonald s Corp. 167,269 28,765,250 Household Durables 2.7% Garmin Ltd. 485,928 30,166,410 Multiline Retail 2.3% Target Corp. 442,796 26,523,480 Specialty Retail 2.6% Home Depot, Inc. 164,783 29,631,279 Consumer Staples 20.6% Beverages 7.5% Coca-Cola Co. 594,205 27,196,763 Dr. Pepper Snapple Group, Inc. 322,579 29,093,400 PepsiCo, Inc. 249,949 29,124,057 85,414,220 Food & Staples Retailing 5.3% Wal-Mart Stores, Inc. 311,584 30,295,312 Walgreens Boots Alliance, Inc. 407,543 29,652,829 59,948,141 Food Products 2.7% The JM Smucker Co. 266,280 31,066,888 Household Products 5.1% Kimberly-Clark Corp. 243,439 29,154,255 Procter & Gamble Co. 315,696 28,409,483 57,563,738 Financials 5.0% Banks JPMorgan Chase & Co. 271,453 28,372,267 Wells Fargo & Co. 495,153 27,961,290 56,333,557 Health Care 14.1% Biotechnology 4.7% Amgen, Inc. 154,693 27,173,372 Gilead Sciences, Inc. 346,934 25,943,725 53,117,097 The accompanying notes are an integral part of the financial statements. Deutsche CROCI Equity Dividend Fund 13

14 Shares Value ($) Health Care Equipment & Supplies 2.5% Medtronic PLC 348,700 28,638,731 Pharmaceuticals 6.9% Johnson & Johnson 192,135 26,770,169 Merck & Co., Inc. 437,980 24,207,155 Pfizer, Inc. 759,060 27,523,516 78,500,840 Industrials 16.9% Aerospace & Defense 7.4% Lockheed Martin Corp. 86,981 27,757,377 Raytheon Co. 144,758 27,670,492 United Technologies Corp. 228,949 27,805,856 83,233,725 Electrical Equipment 2.4% Eaton Corp. PLC 347,109 26,998,138 Industrial Conglomerates 4.5% 3M Co. 116,046 28,215,424 General Electric Co. 1,270,895 23,244,670 51,460,094 Machinery 2.6% Illinois Tool Works, Inc. 174,484 29,531,417 Information Technology 12.7% Communications Equipment 2.6% Cisco Systems, Inc. 796,015 29,691,360 IT Services 2.4% International Business Machines Corp. 178,185 27,435,144 Semiconductors & Semiconductor Equipment 5.0% Intel Corp. 672,015 30,133,153 KLA-Tencor Corp. 258,172 26,395,505 56,528,658 Technology Hardware, Storage & Peripherals 2.7% Apple, Inc. 175,187 30,105,886 Materials 2.5% Chemicals LyondellBasell Industries NV A 274,997 28,792,186 Utilities 15.1% Electric Utilities 10.0% American Electric Power Co., Inc. 375,163 29,123,904 Eversource Energy 441,582 28,636,593 NextEra Energy, Inc. 179,351 28,344,632 PPL Corp. 733,447 26,895, ,000,630 The accompanying notes are an integral part of the financial statements. 14 Deutsche CROCI Equity Dividend Fund

15 Shares Value ($) Multi-Utilities 5.1% DTE Energy Co. 248,475 28,716,256 Sempra Energy 239,857 29,020,298 57,736,554 Total Common Stocks (Cost $960,435,264) 1,128,986,087 Cash Equivalents 0.3% Deutsche Central Cash Management Government Fund, 1.12% (a) (Cost $3,633,610) 3,633,610 3,633,610 % of Net Assets Value ($) Total Investments Portfolio (Cost $964,068,874) ,132,619,697 Other Assets and Liabilities, Net 0.1 1,413,562 Net Assets ,134,033,259 (a) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end. Fair Value Measurements Various inputs are used in determining the value of the Fund s investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund s own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. The following is a summary of the inputs used as of November 30, 2017 in valuing the Fund s investments. For information on the Fund s policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements. Assets Level 1 Level 2 Level 3 Total Common Stocks (b) $1,128,986,087 $ $ $1,128,986,087 Short-Term Investments 3,633,610 3,633,610 Total $1,132,619,697 $ $ $1,132,619,697 There have been no transfers between fair value measurement levels during the year ended November 30, (b) See Investment Portfolio for additional detailed categorizations. The accompanying notes are an integral part of the financial statements. Deutsche CROCI Equity Dividend Fund 15

16 Statement of Assets and Liabilities as of November 30, 2017 Assets Investments in non-affiliated securities, at value (cost $960,435,264) $ 1,128,986,087 Investment in Deutsche Central Cash Management Government Fund (cost $3,633,610) 3,633,610 Foreign currency, at value (cost $62) 53 Receivable for Fund shares sold 346,144 Dividends receivable 3,648,495 Interest receivable 5,272 Other assets 53,951 Total assets 1,136,673,612 Liabilities Payable for Fund shares redeemed 777,561 Accrued management fee 563,839 Accrued Directors fees 9,338 Other accrued expenses and payables 1,289,615 Total liabilities 2,640,353 Net assets, at value $ 1,134,033,259 Net Assets Consist of Undistributed net investment income 14,552,280 Net unrealized appreciation (depreciation) on: Investments 168,550,823 Foreign currency (9) Accumulated net realized gain (loss) (51,760) Paid-in capital 950,981,925 Net assets, at value $ 1,134,033,259 The accompanying notes are an integral part of the financial statements. 16 Deutsche CROCI Equity Dividend Fund

17 Statement of Assets and Liabilities as of November 30, 2017 (continued) Net Asset Value Class A Net Asset Value and redemption price per share ($909,690,879 15,812,436 shares of capital stock outstanding, $.01 par value, 560,000,000 shares authorized) $ Maximum offering price per share ( of $57.53) $ Class T Net Asset Value offering and redemption price per share ($10, shares of capital stock outstanding, $.01 par value, 50,000,000 shares authorized) $ Maximum offering price per share ( of $57.52) $ Class C Net Asset Value offering and redemption price per share ($123,755,788 2,159,318 shares of capital stock outstanding, $.01 par value, 140,000,000 shares authorized) $ Class R Net Asset Value offering and redemption price per share ($2,056,866 35,842 shares of capital stock outstanding, $.01 par value, 100,000,000 shares authorized) $ Class R6 Net Asset Value offering and redemption price per share ($176,928 3, shares of capital stock outstanding, $.01 par value, 50,000,000 shares authorized) $ Class S Net Asset Value offering and redemption price per share ($60,544,950 1,052,050 shares of capital stock outstanding, $.01 par value, 150,000,000 shares authorized) $ Institutional Class Net Asset Value offering and redemption price per share ($37,796, ,594 shares of capital stock outstanding, $.01 par value, 240,000,000 shares authorized) $ The accompanying notes are an integral part of the financial statements. Deutsche CROCI Equity Dividend Fund 17

18 Statement of Operations for the year ended November 30, 2017 Investment Income Income: Dividends $ 31,007,940 Income distributions Deutsche Central Cash Management Government Fund 51,810 Securities lending income, net of borrower rebates 661 Total income 31,060,411 Expenses: Management fee 6,606,480 Services to shareholders 1,629,891 Distribution and service fees 3,381,977 Custodian fee 10,494 Professional fees 114,298 Reports to shareholders 84,493 Registration fees 105,025 Directors fees and expenses 58,529 Other 64,204 Total expenses before expense reductions 12,055,391 Expense reductions (27,700) Total expenses after expense reductions 12,027,691 Net investment income 19,032,720 Realized and Unrealized Gain (Loss) Net realized gain (loss) from investments 101,488,084 Change in net unrealized appreciation (depreciation) on: Investments 87,263,704 Foreign currency 2 87,263,706 Net gain (loss) 188,751,790 Net increase (decrease) in net assets resulting from operations $ 207,784,510 The accompanying notes are an integral part of the financial statements. 18 Deutsche CROCI Equity Dividend Fund

19 Statements of Changes in Net Assets Years Ended November 30, Increase (Decrease) in Net Assets Operations: Net investment income (loss) $ 19,032,720 $ 19,639,861 Net realized gain (loss) 101,488,084 (14,181,462) Change in net unrealized appreciation (depreciation) 87,263, ,275,102 Net increase (decrease) in net assets resulting from operations 207,784, ,733,501 Distributions to shareholders from: Net investment income: Class A (15,567,026) (16,099,512) Class T* (90) Class B (1,720)** Class C (1,314,701) (1,565,426) Class R (31,600) (42,475) Class R6 (3,491) (232) Class S (1,061,673) (727,401) Institutional Class (671,271) (588,286) Total distributions (18,649,852) (19,025,052) Fund share transactions: Proceeds from shares sold 99,195, ,738,862 Reinvestment of distributions 17,595,853 17,897,555 Payments for shares redeemed (225,598,605) (189,757,023) Net increase (decrease) in net assets from Fund share transactions (108,807,629) (71,120,606) Increase (decrease) in net assets 80,327,029 34,587,843 Net assets at beginning of year 1,053,706,230 1,019,118,387 Net assets at end of year (including undistributed net investment income of $14,552,280 and $14,169,412, respectively) $ 1,134,033,259 $ 1,053,706,230 * For the period from June 5, 2017 (commencement of operations of Class T) to November 30, ** For the period from December 1, 2015 to February 10, 2016 (see Note A). The accompanying notes are an integral part of the financial statements. Deutsche CROCI Equity Dividend Fund 19

20 Financial Highlights Years Ended November 30, Class A Selected Per Share Data Net asset value, beginning of period $48.38 $43.59 $46.79 $42.20 $34.83 Income (loss) from investment operations: Net investment income a Net realized and unrealized gain (loss) (3.02) Total from investment operations (2.23) Less distributions from: Net investment income (.93) (.88) (.97) (.81) (.97) Net asset value, end of period $57.53 $48.38 $43.59 $46.79 $42.20 Total Return (%) b c (4.79) c c c Ratios to Average Net Assets and Supplemental Data Net assets, end of period ($ millions) ,007 1,013 Ratio of expenses before expense reductions (%) Ratio of expenses after expense reductions (%) Ratio of net investment income (%) Portfolio turnover rate (%) a b c Based on average shares outstanding during the period. Total return does not reflect the effect of any sales charges. Total return would have been lower had certain expenses not been reduced. 20 Deutsche CROCI Equity Dividend Fund

21 Class T Period Ended 11/30/17 a Selected Per Share Data Net asset value, beginning of period $ Income (loss) from investment operations: Net investment income b.48 Net realized and unrealized gain (loss) 4.26 Total from investment operations 4.74 Less distributions from: Net investment income (.48) Net asset value, end of period $ Total Return (%) c,d 8.96 ** Ratios to Average Net Assets and Supplemental Data Net assets, end of period ($ thousands) 11 Ratio of expenses before expense reductions (%) 1.15 * Ratio of expenses after expense reductions (%) 1.04 * Ratio of net investment income (%) 1.80 * Portfolio turnover rate (%) 58 e a For the period from June 5, 2017 (commencement of operations) to November 30, b Based on average shares outstanding during the period. c Total return does not reflect the effect of any sales charges. d Total return would have been lower had certain expenses not been reduced. e Represents the Fund s portfolio turnover rate for the year ended November 30, * Annualized ** Not annualized Deutsche CROCI Equity Dividend Fund 21

22 Years Ended November 30, Class C Selected Per Share Data Net asset value, beginning of period $48.20 $43.42 $46.61 $42.03 $34.70 Income (loss) from investment operations: Net investment income a Net realized and unrealized gain (loss) (3.01) Total from investment operations (2.56) Less distributions from: Net investment income (.53) (.54) (.63) (.47) (.69) Net asset value, end of period $57.31 $48.20 $43.42 $46.61 $42.03 Total Return (%) b,c (5.51) Ratios to Average Net Assets and Supplemental Data Net assets, end of period ($ millions) Ratio of expenses before expense reductions (%) Ratio of expenses after expense reductions (%) Ratio of net investment income (%) Portfolio turnover rate (%) a b c Based on average shares outstanding during the period. Total return does not reflect the effect of any sales charges. Total return would have been lower had certain expenses not been reduced. 22 Deutsche CROCI Equity Dividend Fund

23 Years Ended November 30, Class R Selected Per Share Data Net asset value, beginning of period $48.26 $43.48 $46.67 $42.09 $34.73 Income (loss) from investment operations: Net investment income a Net realized and unrealized gain (loss) (3.00) Total from investment operations (2.33) Less distributions from: Net investment income (.80) (.76) (.86) (.70) (.87) Net asset value, end of period $57.39 $48.26 $43.48 $46.67 $42.09 Total Return (%) b (5.03) Ratios to Average Net Assets and Supplemental Data Net assets, end of period ($ millions) Ratio of expenses before expense reductions (%) Ratio of expenses after expense reductions (%) Ratio of net investment income (%) Portfolio turnover rate (%) a b Based on average shares outstanding during the period. Total return would have been lower had certain expenses not been reduced. Deutsche CROCI Equity Dividend Fund 23

24 Years Ended November 30, Period Ended Class R /30/15 a Selected Per Share Data Net asset value, beginning of period $48.40 $43.62 $ Income (loss) from investment operations: Net investment income b Net realized and unrealized gain (loss) (4.31) Total from investment operations (3.58) Less distributions from: Net investment income (1.08) (1.00) (.84) Net asset value, end of period $57.60 $48.40 $ Total Return (%) c (7.48) c** Ratios to Average Net Assets and Supplemental Data Net assets, end of period ($ thousands) Ratio of expenses before expense reductions (%) * Ratio of expenses after expense reductions (%) * Ratio of net investment income (%) * Portfolio turnover rate (%) d a For the period from March 2, 2015 (commencement of operations) to November 30, b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. d Represents the Fund s portfolio turnover rate for the year ended November 30, * Annualized ** Not annualized 24 Deutsche CROCI Equity Dividend Fund

25 Years Ended November 30, Class S Selected Per Share Data Net asset value, beginning of period $48.39 $43.60 $46.80 $42.21 $34.84 Income (loss) from investment operations: Net investment income a Net realized and unrealized gain (loss) (3.00) Total from investment operations (2.12) Less distributions from: Net investment income (1.06) (.99) (1.08) (.91) (1.06) Net asset value, end of period $57.55 $48.39 $43.60 $46.80 $42.21 Total Return (%) b (4.55) Ratios to Average Net Assets and Supplemental Data Net assets, end of period ($ millions) Ratio of expenses before expense reductions (%) Ratio of expenses after expense reductions (%) Ratio of net investment income (%) Portfolio turnover rate (%) a b Based on average shares outstanding during the period. Total return would have been lower had certain expenses not been reduced. Deutsche CROCI Equity Dividend Fund 25

26 Years Ended November 30, Institutional Class Selected Per Share Data Net asset value, beginning of period $48.40 $43.61 $46.81 $42.25 $34.89 Income (loss) from investment operations: Net investment income a Net realized and unrealized gain (loss) (3.06) Total from investment operations (2.12) Less distributions from: Net investment income (1.06) (.99) (1.08) (.95) (1.11) Net asset value, end of period $57.57 $48.40 $43.61 $46.81 $42.25 Total Return (%) b (4.55) b b b Ratios to Average Net Assets and Supplemental Data Net assets, end of period ($ millions) Ratio of expenses before expense reductions (%) Ratio of expenses after expense reductions (%) Ratio of net investment income (%) Portfolio turnover rate (%) a b Based on average shares outstanding during the period. Total return would have been lower had certain expenses not been reduced. 26 Deutsche CROCI Equity Dividend Fund

27 Notes to Financial Statements A. Organization and Significant Accounting Policies Deutsche CROCI Equity Dividend Fund (the Fund ) is a diversified series of Deutsche Value Series, Inc. (the Corporation ), which is registered under the Investment Company Act of 1940, as amended (the 1940 Act ), as an open-end management investment company and is organized as a Maryland corporation. The Fund offers multiple classes of shares which provide investors with different purchase options. Class A shares are subject to an initial sales charge. Class B shares automatically converted to Class A shares on February 10, 2016 and are no longer offered. Class B shares were not subject to an initial sales charge and were subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions. Class C shares are not subject to an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions within one year of purchase. Class R shares and Class R6 shares are not subject to initial or contingent deferred sales charges and are generally available only to certain retirement plans. Class S shares are not subject to initial or contingent deferred sales charges and are only available to a limited group of investors. Institutional Class shares are not subject to initial or contingent deferred sales charges and are generally available only to qualified investors. Class T shares commenced operations on June 5, Class T shares are subject to an initial sales charge and are only available through certain financial intermediaries. Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares, except that each class bears certain expenses unique to that class such as distribution and service fees, services to shareholders and certain other class-specific expenses. Differences in class-level expenses may result in payment of different per share dividends by class. All shares of the Fund have equal rights with respect to voting subject to class-specific arrangements. The Fund s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ( U.S. GAAP ) which require the use of management estimates. Actual results could differ from those estimates. The Fund qualifies as an investment company under Topic 946 of Accounting Standards Codification of U.S. GAAP. The policies described below are followed consistently by the Fund in the preparation of its financial statements. Deutsche CROCI Equity Dividend Fund 27

28 Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading. Various inputs are used in determining the value of the Fund s investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund s own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Equity securities are valued at the most recent sale price or official closing price reported on the exchange (U.S. or foreign) or over-the-counter market on which they trade. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation. Equity securities are generally categorized as Level 1. For certain international equity securities, in order to adjust for events which may occur between the close of the foreign exchanges and the close of the New York Stock Exchange, a fair valuation model may be used. This fair valuation model takes into account comparisons to the valuation of American Depository Receipts (ADRs), exchange-traded funds, futures contracts and certain indices and these securities are categorized as Level 2. Investments in open-end investment companies are valued at their net asset value each business day and are categorized as Level 1. Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Board and are generally categorized as Level 3. In accordance with the Fund s valuation procedures, factors considered in determining value may include, but are not limited to, the type of the security; the size of the holding; the initial cost of the security; the existence of any contractual restrictions on the security s disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities); an analysis of the company s or issuer s financial statements; an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold; and with 28 Deutsche CROCI Equity Dividend Fund

29 respect to debt securities, the maturity, coupon, creditworthiness, currency denomination and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities. Disclosure about the classification of fair value measurements is included in a table following the Fund s Investment Portfolio. Foreign Currency Translations. The books and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the prevailing exchange rates on the respective dates of the transactions. Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the acquisition and disposition of foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments. Securities Lending. Deutsche Bank AG, as lending agent, lends securities of the Fund to certain financial institutions under the terms of its securities lending agreement. During the term of the loans, the Fund continues to receive interest and dividends generated by the securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of either cash or liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agent will use its best effort to obtain additional collateral on the next business day to meet required amounts under the securities lending agreement. During the year ended November 30, 2017, the Fund invested the cash collateral into a joint trading account in affiliated money market funds including Deutsche Government & Agency Securities Portfolio, managed by Deutsche Investment Management Americas Inc. Deutsche Investment Management Americas Inc. receives a management/administration fee (0.13% annualized effective rate as of November 30, 2017) on the cash collateral invested in Deutsche Government & Agency Securities Portfolio. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund or the Deutsche CROCI Equity Dividend Fund 29

30 borrower may terminate the loan at any time, and the borrower after notice, is required to return borrowed securities within a standard time period. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. If the Fund is not able to recover securities lent, the Fund may sell the collateral and purchase a replacement investment in the market, incurring the risk that the value of the replacement security is greater than the value of the collateral. The Fund is also subject to all investment risks associated with the reinvestment of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments. As of November 30, 2017, the Fund had no securities on loan. Federal Income Taxes. The Fund s policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies, and to distribute all of its taxable income to its shareholders. The Fund has reviewed the tax positions for the open tax years as of November 30, 2017 and has determined that no provision for income tax and/or uncertain tax positions is required in the Fund s financial statements. The Fund s federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service. Distribution of Income and Gains. Distributions from net investment income of the Fund are declared and distributed to shareholders quarterly. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually. The Fund may also make additional distributions for tax purposes if necessary. The timing and characterization of certain income and capital gain distributions are determined annually in accordance with federal tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to expired capital loss carryforwards. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. At November 30, 2017, the Fund s components of distributable earnings (accumulated losses) on a tax basis were as follows: Undistributed ordinary income* $ 14,552,280 Net unrealized appreciation (depreciation) on investments $ 168,499, Deutsche CROCI Equity Dividend Fund