As filed with the Securities and Exchange Commission on September 23, 1997
Registration No. 333 - 7008
811 - 8227
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 6
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 6
DEUTSCHE FUNDS, INC.
(Exact name of Registrant as specified in charter)
2nd Federated Square, Pittsburgh, PA 15222
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (800) 245-5000
BRIAN LEE Copy to: JOHN T. BOSTELMAN, ESQ.
Deutsche Fund Management, Inc. Sullivan & Cromwell
31 West 52nd Street 125 Broad Street
New York, New York 10019 New York, New York 10004
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this registration statement. It is proposed that this filing
will become effective (check appropriate box):
[ ] immediately upon filing pursuant to pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant elects, pursuant to Rule 24f-2 of the Investment Company
Act General Rules and Regulations, to register an indefinite number of shares of
its capital stock.
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The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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EXPLANATORY NOTE
This Pre-Effective Amendment No. 6 (the "Amendment") to the Registrant's
Registration Statement on Form N-1A (the "Registration Statement") is being
filed with respect to Deutsche European Mid-Cap Fund, Deutsche German Equity
Fund, Deutsche Japanese Equity Fund, Deutsche Global Bond Fund, Deutsche
European Bond Fund, Deutsche Top 50 World, Deutsche Top 50 Europe, Deutsche Top
50 Asia, Deutsche Top 50 US, Deutsche US Money Market Fund and Deutsche
Institutional US Money Market Fund, each a series of the Registrant (the
"Funds").
The prospectuses for the Funds are incorporated herein as filed in
Pre-Effective Amendment No. 4 to the Registration Statement filed on September
18, 1997 and Pre-Effective Amendment No. 5 filed on September 19, 1997. The
Amendment contains two statements of additional information for the Funds and is
being filed to supply audited statements of assets and liabilities and exhibits.
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STATEMENT OF ADDITIONAL INFORMATION
DEUTSCHE TOP 50 WORLD
DEUTSCHE TOP 50 EUROPE
DEUTSCHE TOP 50 ASIA
DEUTSCHE TOP 50 US
DEUTSCHE EUROPEAN MID-CAP FUND
DEUTSCHE GERMAN EQUITY FUND
DEUTSCHE JAPANESE EQUITY FUND
DEUTSCHE GLOBAL BOND FUND
DEUTSCHE EUROPEAN BOND FUND
Federated Investors Tower, Pittsburgh, PA 15222-3779
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The Deutsche Top 50 World (the "Top 50 World"), Deutsche Top 50 Europe (the "Top
50 Europe"), Deutsche Top 50 Asia (the "Top 50 Asia"), Deutsche Top 50 US (the
"Top 50 US"), Deutsche European Mid-Cap Fund (the "European Mid-Cap Fund"),
Deutsche German Equity Fund (the "German Equity Fund"), Deutsche Japanese Equity
Fund (the "Japanese Equity Fund"), Deutsche Global Bond Fund (the "Global Bond
Fund") and Deutsche European Bond Fund (the "European Bond Fund") (each, a
"Fund" and collectively, the "Funds") are each a series of the Deutsche Family
of Funds, Inc. (the "Corporation"), a management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). Each Fund
has its own investment objective.
The Corporation seeks to achieve the investment objective of each Fund
by investing all of the Fund's investable assets in a corresponding
non-diversified, open-end management investment company (each, a "Portfolio" and
collectively the "Portfolios") listed in Appendix A.
Each Portfolio is a series of the Deutsche Portfolios (the "Portfolio
Trust"), an open-end investment company organized as a trust under the laws of
the State of New York. Each Portfolio has the same investment objective as its
corresponding Fund. There can be no assurance that any Fund or any Portfolio
will achieve its investment objective.
Shares of each Fund are offered in two classes known as Class A Shares
and Class B Shares (individually and collectively referred to as "Shares" as the
context may require). This Statement of Additional Information relates to both
classes of the above-mentioned Shares.
Deutsche Fund Management, Inc. ("DFM"), a registered investment adviser
and an indirect subsidiary of Deutsche Bank AG, a major global financial
institution, is the investment manager (the "Manager") of each Portfolio. DWS
International Portfolio Management GmbH is the investment adviser (the "DWS
Adviser") of each Portfolio except Top 50 US Portfolio. Deutsche Asset Morgan
Grenfell Investment Management North America Inc. is the investment adviser of
the Top 50 US Portfolio (the "DAMNA "DMGIM Adviser"; and together with the DWS
Adviser or severally as the context may require, the "Adviser"). This Statement
of Additional Information is not a prospectus and should be read in conjunction
with the relevant Fund's Prospectus dated [DATE] 1997, a copy of which may be
obtained from the Corporation at the address noted, above.
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The date of this Statement of Additional Information is
[DATE,] 1997.
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Table of Contents
Cross-Reference to
Page Page in Prospectus
Investment Objective and Policies
Investment Restrictions
Directors, Trustees and Officers
Manager
Adviser
Administrator
Operations Agent
Administrative Agent
Distributor
Transfer Agent, Custodian and Fund Accountant
Independent Accountants
Purchase of Shares
Redemption of Shares
Net Asset Value; Redemption in Kind
Computation of Performance
Portfolio Transactions
Federal Taxes
Description of Shares
Additional Information
Financial Statements
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INVESTMENT OBJECTIVE AND POLICIES
The following supplements the information contained in each Fund's
Prospectus concerning the investment objectives, policies and techniques of the
Portfolios. The descriptions are general and may not be applicable in certain
countries in which the Portfolios invest.
Equity Investments
As discussed in each Fund's Prospectus, each Portfolio may invest in
the equity securities of domestic and foreign issuers to the extent consistent
with its investment objectives and policies. Equity investments may or may not
pay dividends and may or may not carry voting rights. Common stock occupies the
most junior position in a company's capital structure. Preferred stock generally
carries preferential rights to dividends and amounts payable upon liquidation of
the issuer, but may have no voting rights. Convertible securities entitle the
holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time and to receive interest or dividends until the holder elects to convert.
The provisions of any convertible security determine its ranking in a company's
capital structure. In the case of subordinated convertible securities, the
holder's claims on assets and earnings are subordinated to the claims of other
creditors, and are senior to the claims of common shareholders.
Investment Companies
Up to 5% of the total assets of each Portfolio except the Top 50 US
Portfolio may be invested in shares of investment companies, provided these
shares are offered to the public without limitation on the number of shares, the
shareholders have the right to redeem their shares, and have investment policies
consistent with those of the Portfolio. The Top 50 US Portfolio may invest up to
5% of its total assets in the securities of any one investment company and
invest in the aggregate up to 10% of its total assets in the securities of
investment companies as a group. However, the Top 50 US Portfolio intends that
less than 5% of the Portfolio's total assets will be invested in investment
company securities during its first year of operations. Each Portfolio may not
own more than 3% of the total outstanding voting stock of any other investment
company. As a shareholder of another investment company, a Portfolio would bear,
along with other shareholders, its pro rata portion of the other investment
company's expenses, including advisory fees.
Subject to the foregoing limitations, shares of another securities
investment fund managed by the Manager or the Adviser or by another investment
adviser affiliated with the Manager or the Adviser through a substantial direct
or indirect interest may be purchased, subject to certain limitations, if the
other investment fund according to its investment policies is specialized in a
specific geographic area or economic sector. A Portfolio would not, however, pay
a sales charge when investing in an investment company managed by the Manager,
the Adviser or their affiliates. In addition, no management or advisory fees
DEUT001S
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would be paid by a Portfolio with respect to its assets which are invested in
investment companies managed by the Manager, the Adviser or their affiliates.
Participation Certificates
Certain companies have issued participation certificates, which entitle
the holder to participate only in dividend distributions, generally at rates
above those declared on the issuers' common stock, but not to vote, nor usually
to any claim for assets in liquidation. Participation certificates trade like
common stock on their respective stock exchanges. Such securities may have
higher yields; however, they may be less liquid than common stock. The Adviser
believes that certain participation certificates have potential for long-term
appreciation, depending on their price relative to that of the issuer's equity
securities, if publicly traded, and other criteria.
Short-Term Instruments
Although it is intended that the assets of each Portfolio stay invested
in the securities described above and in each Fund's Prospectus to the extent
practical in light of each Portfolio's investment objective and long-term
investment perspective, assets of each Portfolio may be invested in bank
deposits and money market instruments maturing in less than 12 months to meet
anticipated expenses or for day-to-day operating purposes and when, in the
Adviser's opinion, it is advisable to adopt a temporary defensive position
because of unusual and adverse conditions affecting the equity or fixed income
markets. In addition, when a Portfolio experiences large cash inflows through
additional investments by its investors or the sale of portfolio securities, and
desirable securities that are consistent with its investment objective are
unavailable in sufficient quantities, assets may be held in short-term
investments for a limited time pending availability of such securities. Bank
deposits and money market instruments include credit balances and bank
certificates of deposit, discounted treasury notes and bills issued by the
Federal Republic of Germany ("FRG"), the states of the FRG, the European Union,
other member states of the OECD or quasi-government entities of any of the
foregoing.
Zero Coupon Obligations
Each Portfolio may also invest in zero coupon obligations, such as zero
coupon bonds. Zero coupon obligations pay no current interest, and as a result
their prices tend to be more volatile than those of securities that offer
regular payments of interest. In order to pay cash distributions representing
income on zero coupon obligations, a Portfolio may have to sell other securities
on unfavorable terms, and these sales may generate taxable gains for investors
in the corresponding Fund.
Options
Each Portfolio may write call and put options and purchase call and put
options on securities. A Portfolio will write options on securities for the
DEUT001S
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purpose of increasing its return on such securities and/or to protect the values
of its portfolio.
The buyer of a typical put option can expect to realize a gain if the
price of the underlying instrument falls substantially. However, if the price of
the instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs). A call buyer
typically attempts to participate in potential price increases of the instrument
underlying the option with risk limited to the cost of the option if security
prices fall. At the same time, the buyer can expect to suffer a loss if security
prices do not rise sufficiently to offset the cost of the option (limited to the
amount of the premium paid, plus related transaction costs). A Portfolio may
seek to terminate its position in a put option it writes before exercise by
purchasing an offsetting option in the market at its current price. If the
market is not liquid for a put option the Portfolio has written, however, the
Portfolio must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to post margin as
discussed below.
If the price of the underlying instrument rises, a put writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received. If security prices remain the same over time, it is
likely that the writer will also profit, because it should be able to close out
the option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from purchasing
and holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline. The
characteristics of writing call options are similar to those of writing put
options, except that writing calls generally is a profitable strategy if prices
remain the same or fall. Through receipt of the option premium a call writer
offsets part of the effect of a price decline. At the same time, because a call
writer must be prepared to deliver the underlying instrument in return for the
strike price, even if its current value is greater, a call writer gives up some
ability to participate in security price increases.
Transaction in options, futures contracts, options on futures contracts
and forward contracts entered into for non-hedging purposes involve greater risk
and could result in losses which are not offset by gains on other portfolio
assets.
All options purchased or sold by a Portfolio will be traded on a
securities exchange or, in the case of Top 50 US Portfolio (US Dollar), will be
purchased or sold by securities dealers (in the case of over-the-counter, or
"OTC," options) that meet creditworthiness standards approved by the Portfolio
Trust's Board of Trustees. In the case of OTC options, the Top 50 US Portfolio
relies on the dealer from which it purchased the option to perform if the option
is exercised. Thus, when the Portfolio purchases an OTC option, it relies on the
dealer from which it purchased the option to make or take delivery of the
underlying securities. Failure by the dealer to do so would result in the loss
of the premium paid by the Portfolio as well as loss of the expected benefit of
the transaction.
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The staff of the SEC Securities and Exchange Commission ("SEC") has
taken the position that, in general, purchased OTC options and the underlying
securities used to cover written OTC options are illiquid securities. However,
the Top 50 US Portfolio may treat as liquid the underlying securities used to
cover written OTC options, provided it has arrangements with certain qualified
dealers who agree that such Portfolio may repurchase any option it writes for a
maximum price to be calculated by a predetermined formula. In these cases, the
OTC option itself would only be considered illiquid to the extent that the
maximum repurchase price under the formula exceeds the intrinsic value of the
option.
Foreign Currency Exchange Transactions
Each Portfolio (except the Top 50 US Portfolio(US Dollar))) may enter
into foreign currency exchange transactions in an attempt to protect against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or anticipated securities
transactions. The Japanese Equity Portfolio may enter into foreign exchange
transactions in order to hedge the U.S. dollar value of all or any part of the
assets denominated in foreign currencies then held or expected to be acquired by
the Portfolio. The Global Bond Portfolio and the European Bond Portfolio may
enter into foreign exchange transactions to hedge the value of its assets
against currencies other than the U.S. Dollar. Each other Portfolio may also
enter into forward contracts foreign currency transactions to hedge against a
change in foreign currency exchange rates that would affect the U.S. Dollar
value of existing investments denominated or principally traded in a foreign
currency. In the case of Each Portfolio other than the Provesta Portfolio and
the Investa Portfolio, such hedging activity will be limited to those may also,
in circumstances in which where the Adviser believes that one or more currencies
in which such Portfolio's assets are denominated may suffer a substantial
decline considers it appropriate, enter into foreign currency exchange
transactions for the purpose of hedging the value of such Portfolios against
currencies other than the U.S. dollar. To conduct the hedging discussed above,
the a Portfolio would generally enter into a forward contract to sell the
foreign currency in which the investment is denominated in exchange for the U.S.
dollars or other currency in which the Adviser desires to protect the value of
the Portfolio.
At such time as the Adviser believes that one or more currencies in which a
Portfolio's securities are denominated might suffer a substantial decline
against the U.S. dollar, a Portfolio may, in order to hedge the value of the
Portfolio, enter into forward contracts to sell fixed amounts of such currencies
for fixed amounts of U.S. dollars. The Provesta Portfolio, Top 50 Europe
Portfolio and Japan Portfolio may also, in circumstances where the Adviser
considers it appropriate, enter into foreign currency exchange transactions for
the purpose of hedging the value in Deutsche Marks ("DMs") of such Portfolios'
non-DM assets.
Although these transactions are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
limit any potential gain that might be realized should the value of the hedged
currency
DEUT001S
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increase. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of such securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is difficult, and the successful execution of a hedging strategy is
highly uncertain.
Futures Contracts and Options on Futures Contracts
Each Portfolio may purchase or sell futures contracts and purchase put
and call options, including put and call options on futures contracts. In
addition, each Portfolio may purchase put and call options on futures. Futures
contracts obligate the buyer to take and the seller to make delivery at a future
date of a specified quantity of a financial instrument or an amount of cash
based on the value of a securities index.
Futures contracts and options on futures contracts may be entered into
on foreign exchanges. Investors should recognize that transactions involving
foreign securities or foreign currencies, and transactions entered into in
foreign countries may involve considerations and risks not typically associated
with investing in U.S. markets.
Futures Contracts. When a Portfolio purchases a futures contract, it
agrees to purchase a specified quantity of an underlying instrument at a
specified future date and price or to make or receive a cash payment based on
the value of a securities index or a financial instrument. When a Portfolio
sells a futures contract, it agrees to sell a specified quantity of the
underlying instrument at a specified future date and price or to receive or make
a cash payment based on the value of a securities index or a financial
instrument. When a Portfolio purchases or sells a futures contract, the value of
the futures contract tends to increase and decrease in tandem with the value of
its underlying instrument or index. The price at which the purchase and sale
will take place is fixed when a Portfolio enters into the contract. Futures can
be held until their delivery dates or the positions can be (and normally are)
closed out, by entering into an opposing contract, before then.
When a Portfolio purchases or sells a futures contract, it is required
to make an initial margin deposit. Although the amount may vary, initial margin
can be as low as 1% or less of the notional amount of the contract. Additional
margin may be required as the contract fluctuates in value. Since the amount of
margin is relatively small compared to the value of the securities covered by a
futures contract, the potential for gain or loss on a futures contract is much
greater than the amount of the Portfolio's initial margin deposit.
Options on Futures. Put and call options on futures contracts may be
purchased by each Portfolio in order to protect against declines in values of
portfolio securities or against increases in the cost of securities to be
acquired. Unlike a futures contract, which requires parties to buy or sell the
underlying financial instrument or make a cash settlement payment based on
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changes in the price of the financial instrument on an agreed date, an option on
a futures contract entitles its holder to decide on or before a future date
whether to enter into such a contract. If the holder decides not to exercise its
option, the holder may close out the option position by entering into an
offsetting transaction or may decide to let the option expire and forfeit the
premium thereon. The purchaser of an option on a futures contract pays a premium
for the option but makes no initial margin payments or daily payments of cash in
the nature of "variation" margin payments to reflect the change in the value of
the underlying contract as does a purchaser or seller of a futures contract. The
seller of an option on a futures contract receives the premium paid by the
purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by a Portfolio are paid by that Portfolio into a segregated
account as required by the 1940 Act and the SEC's interpretations thereunder.
Purchase of options on futures contracts may present less risk in
hedging a Portfolio than the purchase or sale of the underlying futures
contracts since the potential loss is limited to the amount of the premium plus
related transaction costs.
Combined Positions. Each Portfolio may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, a Portfolio may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
Options on Securities Indices. Each Portfolio is also permitted to
purchase call and put options on any securities index based on securities in
which the Portfolio may invest. Options on securities indices are similar to
options on securities, except that the exercise of securities index options is
settled by cash payment and does not involve the actual purchase or sale of
securities. In addition, these options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. A Portfolio, in purchasing index
options for hedging purposes, is subject to the risk that the value of its
portfolio securities may not change as much as that of an index because the
Portfolio's investments generally will not match the composition of an index.
Warrants. Each Portfolio may purchase warrants which, like options on
futures contracts and options on securities indices, entitle the holder to
purchase or sell a futures contract or to a cash payment reflecting the price
fluctuation in an index of securities. A Portfolio may also purchase warrants
that entitle the holder to a cash payment reflecting the fluctuation in the
value of certain financial futures contracts. Warrants on futures contracts and
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warrants on securities indices differ from the equivalent options in that: (1)
they are securities issued by a financial institution/special purpose issuer
rather than contracts entered into with a futures exchange and (2) they are
traded on a securities exchange rather than on a futures exchange. The use of
warrants will generally entail the same risks that are associated with a
Portfolio's positions in options on futures and options on securities indices.
Other Limitations. The Commodity Exchange Act prohibits U.S. persons,
such as a Portfolio, from buying or selling certain foreign futures contracts or
options on such contracts. Accordingly, each Portfolio will not engage in
foreign futures or options transactions unless the contracts in question may
lawfully be purchased and sold by U.S. persons in accordance with applicable
Commodity Futures Trading Commission ("CFTC") regulations or CFTC staff
advisories, interpretations and no action letters. In addition, in order to
assure that a Portfolio will not be considered a "commodity pool" for purposes
of CFTC rules, the Portfolio will enter into transactions in futures contracts
or options on futures contracts only if (1) such transactions constitute bona
fide hedging transactions, as defined under CFTC rules or (2) no more than 5% of
the Portfolio's net assets are committed as initial margin or premiums to
positions that do not constitute bona fide hedging transactions.
Correlation of Price Changes. Because there are a limited number of types of
exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match a
Portfolio's current or anticipated investments exactly. Each Portfolio may
invest in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures position
will not track the performance of a Portfolio's other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match a
Portfolio's investments well. Options and futures contracts prices are affected
by such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A Portfolio may purchase or sell options
and futures contracts with a greater or lesser value than the securities it
wishes to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in a Portfolio's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
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Liquidity of Options and Futures Contracts. There is no assurance a liquid
market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for a
Portfolio to enter into new positions or close out existing positions. If the
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions, and
could potentially require a Portfolio to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, a
Portfolio's access to other assets held to cover its options or futures
positions could also be impaired. (See "Exchange Traded and Over-the-Counter
Options" above for a discussion of the liquidity of options not traded on an
exchange.)
Position Limits. Futures exchanges can limit the number of futures and options
on futures contracts that can be held or controlled by an entity. If an adequate
exemption cannot be obtained, a Portfolio or its Adviser may be required to
reduce the size of its futures and options positions or may not be able to trade
a certain futures or options contract in order to avoid exceeding such limits.
Asset Coverage for Futures Contracts and Options Positions. Each Portfolio
intends to comply with Section 4.5 of the regulations under the Commodity
Exchange Act, which limits the extent to which a Portfolio can commit assets to
initial margin deposits and option premiums. In addition, each Portfolio will
comply with guidelines established by the SEC with respect to coverage of
options and futures contracts by mutual funds, and if the guidelines so require,
will set aside appropriate liquid assets in a segregated custodial account in
the amount prescribed. Securities held in a segregated account cannot be sold
while the futures contract or option is outstanding, unless they are replaced
with other suitable assets. As a result, there is a possibility that segregation
of a large percentage of a Portfolio's assets could impede portfolio management
or a Portfolio's ability to meet redemption requests or other current
obligations.
Risk Management
Each Portfolio may employ non-hedging risk management techniques.
Examples of such strategies include synthetically altering the duration of a
portfolio or the mix of securities in a portfolio. For example, if the Adviser
wishes to extend maturities in a fixed income portfolio in order to take
advantage of an anticipated decline in interest rates, but does not wish to
purchase the underlying long term securities, it might cause the Portfolio to
purchase futures contracts on long term debt securities. Similarly, if the
Adviser wishes to decrease fixed income securities or purchase equities, it
could cause a Portfolio to sell futures contracts on debt securities and
purchase futures contracts on a stock index. Because these risk management
techniques involve leverage, they include, as do all leveraged transactions, the
possibility of losses as well as gains that are greater than if these techniques
involved the purchase and sale of the securities themselves rather than their
synthetic derivatives.
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THE GERMAN SECURITIES MARKETS
Equity Markets. Equity securities trade on the country's eight regional
stock exchanges (Frankfurt, Dusseldorf, Munich, Hamburg, Berlin, Stuttgart,
Hanover and Bremen), of which Frankfurt accounted for approximately 79.5% of the
total volume in 1996. While trading in listed securities is not legally or
otherwise confined to the exchanges, they are believed to handle the largest
part of trading volume in equity transactions.
<TABLE>
<CAPTION>
Market Capitalization and Trading Volume
of Equity Securities on German Stock Exchanges(1)
(in billions)
<S> <C>
Market Trading Volume for
Capitalization as the year ended
of December 31(2) December 31(2)
1992....................................... $348.14 DM561.89 $876.8 DM1,415.2
1993....................................... 463.48 800.10 1,150.3 1,985.8
1994....................................... 499.25 773.88 1,302.9 2,017.9
1995....................................... 544.89 781.10 1,146.8 1,643.9
1996....................................... 635.95 988.77 1,487.6 2,312.9
<FN>
- ---------------
(1) Excluding stocks of foreign-domiciled companies and investment companies.
(2) US Dollar equivalents calculated at year-end exchange rates.
The figures for 1992 through 1994 include warrants.
Sources: Deutsche Borse AG and the Deutsche Bundesbank.
</FN>
</TABLE>
German stock exchanges offer three different market segments within
which stocks are traded:
(i) The official market (Amtlicher Handel) comprises trading
in shares which have been formally admitted to official listing by the
admissions committee of the stock exchange concerned, based upon
disclosure in the listing application or "prospectus".
(ii) The regulated, unlisted market (Geregelter Market)
comprises trading in shares not admitted to official listing. Companies
admitted to this market segment are exempt from publishing a full
listing prospectus, but are required to submit an offering memorandum.
Admission is granted by a special committee which is also responsible
for the supervision of the establishment of prices.
(iii) The unofficial, unregulated telephone, or over-the-counter, market
(Freiverkehr) comprises trading in securities that have not followed any special
listing procedure. It includes trading in securities
DEUT001S
12
<PAGE>
by telephone or on the stock exchange premises, between banks or
through floor brokers prior to or after official trading hours.
For an official listing, the German stock exchanges and pertinent
legislation require public disclosure of all information about an issuer
considered material to an evaluation of the securities to be listed.
Applications must further provide the latest annual financial statements of the
issuer with explanatory notes, including disclosure of any liabilities not shown
therein. They must also furnish details of the issuer to be listed. Generally,
DM 0.5 million par value (i.e., 10,000 shares of DM 50 par value) is considered
to be the minimum amount suitable for full listing. Applications for admission
to regulated unlisted trading must contain essentially similar information as
that required for full listing, but in a condensed form that may be submitted as
a memorandum. However, the document, in lieu of being published, may be
deposited with paying agents so long as reference is made in one of the official
stock exchange publications.
Markets in listed securities are generally of the auction type, but a
substantial amount of listed securities also changes hands in inter-bank dealer
markets both on and off the stock exchanges. Prices for active stocks, including
those of larger companies, are quoted continuously during stock exchange hours.
Less active listed and stocks admitted to trading in the regulated unlisted
market are quoted only once a day.
Options on both domestic and foreign stocks have been traded since 1970
although trading activity is relatively low. There is also active trading in
share warrants, generally issued in conjunction with bonds.
As set forth below under "Role of Banks in German Capital Markets",
German banks, brokers and selected domestic investment trusts are regular
members of the stock exchanges. Banks may deal on a net basis for their own
account, as well as for accounts of domestic and foreign institutional customers
during or after regular stock exchange hours.
Stock Indices. Two principal stock indices in Germany are the DAX Index
(Deutscher Aktienindex; i.e., German Stock Index) and the CDAX German Composite
Index (Composite Deutscher Aktienindex). The DAX Index is composed of the 30
most actively traded German blue-chip stocks. It represents over 69% of the
total equity capital of German exchange-listed companies. Trading in these
shares accounts for approximately 75% of the stock volume traded on the German
exchanges. The CDAX German Composite Index comprises all German stocks listed in
the official market at the Frankfurt Stock Exchange.
Set forth in the table below is information concerning the total return
of the DAX Index and CDAX Index for each of the periods indicated.
DEUT001S
13
<PAGE>
<TABLE>
<CAPTION>
Annual Total Return(1)
<S> <C> <C> <C> <C> <C> <C>
First
half
1992 1993 1994 1995 1996 1997(2)
DAX.............................. (2.09)% 46.71% (7.06)% 6.99% 28.17% 31.05%
CDAX............................. (6.39)% 44.56% 4.75% 22.14% 29.96%
(5.83)%
Dollar-adjusted DAX.............. (8.33)% 36.85% 4.12% 18.17% 16.83%
15.60%
Dollar-adjusted CDAX............. (12.36)% 34.85% 5.50% 13.17% 15.85%
12.61%
<FN>
- ----------------
(1) Based on U.S. dollar returns.
(2) Return as of June 30, 1997 (not annualized).
</FN>
</TABLE>
Trading volume tends to concentrate on the relatively few companies
having both large market capitalization and a broad distribution of their stock
with few or no large holders. The five companies having the largest annual
trading volume of their stock in 1996 represented 46.8% of total trading volume
on the German stock exchanges: Daimler-Benz AG with DM 261.9 billion, Siemens AG
with DM 256.1 billion, Deutsche Bank AG with DM 216.8 billion, Bayer AG with DM
186.4 billion and Volkswagen AG with DM 162.2 billion.
The actual float available for public trading is significantly smaller
than the aggregate market value cited above because of the large extent of
long-term holdings by non-financial corporations, family groups and banks.
However, the number of publicly traded shares has been increasing in recent
years due to a reduction in such holdings on the part of certain insurance
companies and public authorities. In addition, the continuing public offerings
of equity securities previously controlled by the federal government have
contributed to the growing size of the float.
Domestic institutional ownership of German equities, while large
relative to that by individuals, is less than that in certain other industrial
countries. The German Government is encouraging the expansion of private
participation in the equity markets, and has contributed to this process both
directly, through public sale of government-owned enterprises, as well as
indirectly through fiscal measures.
Set forth in the table below is information concerning the industry
composition of the DAX Index and CDAX Index.
DEUT001S
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<PAGE>
Industry Composition of DAX(1) and CDAX(2) Index -- as of December 31, 1996
DAX CDAX
Banks and Insurance................ 28.0% 28.0%
Chemical Concerns/Pharmaceutical.... 20.9% 20.1%
Auto Industry and Supply.... 13.7% 10.2%
Utilities and Energy........... 22.1% 23.2%
Electronics Industry............ -- --
Mechanical Engineering............ 5.3% 5.7%
Steel and Raw Materials.............. 2.0% 2.7%
Consumer Goods....................... 3.5% 4.1%
Other................................... 4.5% 6.0%
Total.................... 100.0% 100.0%
- -----------------
(1) The DAX Index is comprised of 30 stocks representing approximately 69%
of the market capitalization of the German stock exchange.
(2) The CDAX Index is comprised of 374 stocks (subject to adjustments).
Primary Markets. The amount of funds raised in equity financings in
1996 increased by DM 17,862 to DM 24,807 while the number of financings
decreased by 6 to 14. The total value of primary offerings for each of the
previous five years of listed equity issues is shown in the table below.
Primary Offerings of Listed Equity Securities by
Domestic Issuers
(millions of DM)
1992 1993 1994 1995 1996
Value.............................. 804 833 1,246 6,495 24,807
- --------------
Source: Deutsche Borse AG.
Role of Banks in German Capital Markets. As is the case in other
continental European developed countries, German commercial and banking laws
permit commercial banks to act, either directly or indirectly, as investment
bankers/underwriters, managers of mutual and other investment funds and
investment advisers, as well as securities broker/dealers. Many German banks,
including Deutsche Bank AG ("Deutsche Bank"), are members of stock exchanges in
their respective countries. Moreover, they may, directly or indirectly, also
provide other financial services such as life insurance, mortgage lending and
installment financing. Lastly, they may, and frequently do, maintain long-term
DEUT001S
15
<PAGE>
equity participations in industrial, commercial or financial enterprises,
including enterprises whose voting and other equity securities may be publicly
traded and/or listed on national securities exchanges. Recent legislation
requires notification of the newly established Securities Trading Supervisory
Office and publication if certain thresholds of participating in the voting
capital of a stock exchange listed corporation are passed.
Deutsche Bank, the parent of the Manager and the Investment Adviser,
holds significant participation in five listed German companies. The term
"significant" denotes direct ownership of over 25% of the voting equity which,
under German law, provides the holder with veto power in policy decisions, such
as a change of business objectives or major acquisitions. Deutsche Bank owns
equity interests ranging from 25% to 50% in holding companies that own
participations of 25% or more in an additional four listed German companies,
most of which are publicly owned. In addition, Deutsche Bank may maintain
trading positions in the securities of these and other (domestic and foreign)
companies, and may make trading markets in some of them, subject to limitations
imposed by applicable law, including the limitations of the German Stock
Exchange Law (Borsengesetz) of 1896, as amended. Deutsche Bank directors or
officers may, by virtue of such ownership or otherwise, be elected to the
Supervisory Boards of these and other companies. Deutsche Bank and its
affiliates may also have commercial lending relationships with companies whose
securities the Fund may acquire.
In their capacity as underwriters, German banks originate and manage
new issues of domestic and international fixed income and equity securities both
in their respective domestic primary market and in the Euromarket. Deutsche Bank
frequently acts as lead manager for domestic underwritten offerings of both debt
and equity securities. Under an SEC securities in offerings in which Deutsche
Bank or one of its affiliates is the principal underwriter. Directly and through
its various wholly-owned affiliates abroad, Deutsche Bank is a major factor in
the Eurobond market. Although the Fund will not purchase securities from or sell
securities to Deutsche Bank, the trading activities of Deutsche Bank as well as
the investment positions and underwriting activities in such securities could
have either an adverse or beneficial effect on the price of those securities
already held in the Portfolio or contemplated for purchase and, depending on the
size of Deutsche Bank's position, may or may not affect the availability of the
securities for investment of the Portfolio.
JAPANESE EQUITY SECURITIES MARKETS
Listed securities in Japan trade on three Main Japanese Exchanges (the
Nagoya Stock Exchange, the Osaka Securities Exchange and the Tokyo Stock
Exchange (the "TSE")) and five regional stock exchanges (the Fukuoka Stock
Exchange, the Hiroshima Stock Exchange, the Kyoto Stock Exchange, the Niigata
Stock Exchange and the Sapporo Stock Exchange). The TSE is the largest and most
prestigious of the exchanges and is widely regarded as the central marketplace
for all of Japan.
There are two widely followed price indices in Japan for listed
securities. The Nikkei Stock Average ("NSA") is the arithmetic average of 225
selected stocks
DEUT001S
16
<PAGE>
computed by a private corporation. The Tokyo Stock Price Index ("TOPIX"),
published by the TSE, is the composite index of all common stock listed on the
First Section of the TSE. TOPIX reflects the change in the aggregate market
value of the common stocks as compared to the aggregate market value of those
stocks as of the close on January 4, 1968.
The following table sets forth the year-end NSA and TOPIX for 1987
through 1996 and yen and dollar-adjusted total return information for those
years.
<TABLE>
<CAPTION>
NSA TOPIX
-------------------------------------------------- --------------------------------------------
Total Return(1) Total Return(1)
--------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Dollar Dollar
Index (Y) Adjusted Index (Y) Adjusted
-------------- ----------- -------------------- ------------- ------------ --------------
1987 21,564.00 15.31% 50.54% 1,725.83 10.89% 44.77%
1988 30,159.00 39.86% 35.61% 2,357.03 36.57% 32.42%
1989 29.04% 12.21% 2,881.37 22.25% 6.31%
38,915.87
1990 23,848.71 -35.08% 1,733.83 -39.83% -36.26%
-38.72%
1991 22,983.77 -3.63% 4.75% -1.10% 7.49%
1,714.68
1992 16,924.95 -26.36% -26.33% 1,307.66 -23.74% -23.71%
1993 17,417.24 2.91% 15.02% 1,439.31 10.07% 23.03%
1994 13.24% 27.00% 1,559.09 8.32% 21.48%
19,723.06
1995 19,868.15 0.74% -2.85% 1,577.70 1.19% -2.41%
1996 19,361.35 -2.55% -13.06% -6.77% -16.83%
1,470.94
<FN>
(1) Total return is the percent change in the index from the start of
the year to the end.
Sources: Tokyo Stock Exchange, Annual Securities Statistics (1996); Monthly
Statistics Report (Dec. 1987, 1988, 1989, 1990, 1991, 1992, 1993,
1994, 1995).
</FN>
</TABLE>
The Japanese stock and real estate markets of the late 1980s have been
dubbed "bubble" markets because they were characterized by dramatic increases in
the volume of trading and transactions as well as in prices of stock and land.
Such increases were driven by investors' expectations that stock and land prices
would rise even further for the foreseeable future, thereby justifying (in their
DEUT001S
17
<PAGE>
minds) their over-priced investments in Japanese stock and real estate. Many of
such investments were financed with secured loans from Japan's banks and
so-called "non-bank banks" (i.e., companies that are not licensed by the
Minister of Finance to engage in the business of commercial banking but that are
primarily engaged in the business of commercial lending).
The collapse of the "bubble" stock market in 1990 had a material
adverse impact on the financial situation of various participants therein. Such
collapse also led to various problems involving irregular practices in the
securities business, such as compensation to favored customers by securities
companies for trading and other losses. The decline in stock prices has raised
the cost of capital for industry and has reduced the value of stock holdings by
banks and corporations. These effects have, in turn, contributed to the recent
weakness in Japan's economy and could continue to have an adverse impact in the
future.
The following table sets forth the aggregate trading volume and the
value of Japanese stocks on the eight Japanese stock exchanges for the years
1989 through 1996. Trading on the TSE represented over 76% of trading volume in
each year.
Volume Value
Year (millions of shares) ((Y) bils.)
1989 256,296 (Y)386,395
1990 145,837 231,837
1991 107,844 134,160
1992 82,563 80,456
1993 101,172 106,123
1994 105,936 114,622
1995 120,148 115,840
1996 126,496 136,170
Source: Tokyo Stock Exchange, Fact Book 1997.
The Main Japanese Exchanges divide listed companies into First and
Second Sections. Generally, larger, established companies are assigned to the
First Section. Such companies meet more stringent listing criteria relating to
the size and business condition of the issuing company, the liquidity of its
securities and other factors pertinent to investor protection. At the end of
1996, 1,293 Japanese companies were listed on the First Section of the TSE.
Newly listed and smaller companies are assigned to the Second Section. At the
end of 1996, 473 Japanese companies were listed on the Second Section of the
TSE. In an effort to increase the number of companies listed on the Second
Section, the Second Section listing requirements prescribed by each of the Main
Japanese Exchanges were lowered in 1996.
DEUT001S
18
<PAGE>
The 20 leading Japanese companies on the TSE, by market value,
represented 25.6% of the total market value of the TSE at year-end 1996. In
1996, three industrial groups accounted for approximately 40% of the total
market value of the TSE: banks, 19.3%; electric appliances, 12.4%; and
transportation equipment, 9.4%. The following table sets forth the number of
companies listed on the TSE and market value by industrial group for year-end
1996.
DEUT001S
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Market Values
Companies ((Y) bils.)
Fishery, Agriculture & Forestry............................ 7 497
Mining..................................................... 9 670
Construction.............................................. 145 12,981
Foods...................................................... 91 9,837
Textiles & Apparels........................................ 64 5,198
Pulp & Paper............................................... 22 2,272
Chemicals.................................................. 131 15,983
Pharmaceutical............................................. 39 10,516
Oil & Coal Products....................................... 13 3,484
Rubber Products............................................ 15 2,680
Glass & Ceramics Products.................................. 40 4,693
Iron & Steel............................................... 51 9,038
Nonferrous Metals.......................................... 34 4,837
Metal Products............................................. 45 2,906
Machinery.................................................. 149 12,196
Electric Appliances........................................ 181 43,190
Transportation Equipment................................... 85 32,599
Precision Instruments...................................... 26 2,462
Other Products............................................. 48 7,725
Electric Power & Gas....................................... 17 14,282
Land Transportation........................................ 37 12,376
Marine Transportation..................................... 22 1,506
Air Transportation......................................... 5 2,460
Warehousing & Harbor Transportation
Services................................................... 24 1,028
Communication.............................................. 4 8,086
Wholesale Trade............................................ 120 12,565
Retail Trade............................................... 88 15,571
Banks...................................................... 100 67,109
Securities................................................. 25 8,255
Insurance.................................................. 14 4,885
Other Financing Businesses................................. 20 4,043
Real Estate................................................ 26 4,126
Services................................................... 68 7,505
Total...................................................... 1,765 347,578
Manufacturing.............................................. 1,034 169,525
Non-Manufacturing......................................... 732 177,952
Total...................................................... 1,765 347,578
</TABLE>
DEUT001S
20
<PAGE>
Source: Tokyo Stock Exchange, Fact Book 1997.
The amount of funds raised in equity financings by all the companies
listed on the TSE in 1996 increased by 946 billion yen to 1,534 billion yen
while the number of financings increased by 96 to 253. The following table sets
forth the number of equity financings by companies listed on the TSE and the
amount raised for each of 1992 through 1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Rights Offerings Public Offerings Private Placements Exercise of Warrants Total
Amount Amount Amount Amount Amount
No. of Raised No. of Raised No. of Raised No. of Raised Raised
Financings ((Y)bils.) Financings ((Y)bils.) Financings ((Y)bils.) Financings ((Y)bils.) ((Y)bils.)
1992 20 111 3 4 22 102 127 203 419
93 9 48 4 7 14 150 184 617 822
1994 2 10 18 237 8 239 180 451 935
1995 12 96 8 33 19 160 118 299 588
1996 9 337 36 305 20 218 187 673 1,533
Source: Tokyo Stock Exchange, Fact Book 1997.
</TABLE>
INVESTMENT RESTRICTIONS
The investment restrictions of each Fund and its corresponding
Portfolio are identical, unless otherwise specified. Accordingly, references
below to a Fund also include its corresponding Portfolio unless the context
requires otherwise; similarly, references to a Portfolio also include its
corresponding Fund unless the context requires otherwise.
The investment restrictions below have been adopted by the Corporation
with respect to each Fund as indicated and by the Portfolio Trust with respect
to each Portfolio as indicated. Except where otherwise noted, these investment
restrictions are "fundamental" policies which, under the 1940 Act, may not be
changed without the vote of a "majority of the outstanding voting securities"
(as defined in the 1940 Act) of a Fund or a Portfolio, as the case may be. The
percentage limitations contained in the restrictions below apply at the time of
the purchase of securities except as otherwise noted. Whenever a Fund is
requested to vote on a change in the fundamental investment restrictions of its
corresponding Portfolio, the Corporation will hold a meeting of Fund
shareholders and will cast its votes as instructed by such Fund's shareholders.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC
staff interpretations thereof are amended or modified and except that the
Corporation may invest all of each Fund's assets in its corresponding Portfolio,
each of the Funds and its corresponding Portfolio may not:
1. Purchase any security if, as a result, 25% or more of its total assets would
be invested in securities of issuers in any single industry, except that the
European Bond Fund and the Global Bond Fund will each invest more than 25% of
its total assets in the securities issued by foreign governments and their
agencies and instrumentalities. This limitation shall not apply to securities
DEUT001S
21
<PAGE>
issued or guaranteed as to principal or interest by the U.S. Government or
instrumentalities.
2. Issue senior securities. For purposes of this restriction, borrowing money in
accordance with paragraph 3 below, making loans in accordance with paragraph 7
below, the issuance of shares in multiple classes or series, the purchase or
sale of options, futures contracts, forward commitments, swaps and transactions
in repurchase agreements are not deemed to be senior securities.
3. Borrow money, except in amounts not to exceed one third of the Fund's total
assets (including the amount borrowed) (i) from banks for temporary or
short-term purposes or for the clearance of transactions, (ii) in connection
with the redemption of Fund shares or to finance failed settlements of portfolio
trades without immediately liquidating portfolio securities or other assets,
(iii) in order to fulfill commitments or plans to purchase additional securities
pending the anticipated sale of other portfolio securities or assets and (iv)
pursuant to reverse repurchase agreements entered into by the Fund.
4. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Fund may be deemed
to be an underwriter under the Securities Act of 1933, as amended (the "1933
Act").
5. Purchase or sell real estate except that the Fund may (i) acquire or lease
office space for its own use, (ii) invest in securities of issuers that invest
in real estate or interests therein, (iii) invest in securities that are secured
by real estate or interests therein, (iv) purchase and sell mortgage-related
securities and (v) hold and sell real estate acquired by the Fund as a result of
the ownership of securities.
6. Purchase or sell commodities or commodity contracts, except the Fund may
purchase and sell financial futures contracts, options on financial futures
contracts and warrants and may enter into swap and forward commitment
transactions.
7. Make loans, except that the Fund (1) may lend portfolio securities with a
value not exceeding one-third of the Fund's total assets, (2) enter into
repurchase agreements, and (3) purchase all or a portion of an issue of debt
securities (including privately issued debt securities), bank loan participation
interests, bank certificates of deposit, bankers' acceptances, debentures or
other securities, whether or not the purchase is made upon the original issuance
of the securities.
Non-Fundamental Investment Restrictions. The investment restrictions described
below are not fundamental policies of the Funds and their corresponding
Portfolios and may be changed by their respective Directors or Trustees. These
non-fundamental investment policies require that, each Fund and its
corresponding Portfolio may not (except that the Corporation may invest all of
each Fund's assets in its corresponding Portfolio):
DEUT001S
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<PAGE>
(i) Acquire securities of other investment companies, except as permitted by the
1940 Act or any rule, order or interpretation thereunder, or in connection with
a merger, consolidation, reorganization, acquisition of assets or an offer of
exchange, provided that Provesta Portfolio and Investa Portfolio shall each be
limited to 5% in the amount of its total assets that may be invested in the
aggregate in securities of investment companies as a group. Currently the 1940
Act prohibits a Fund from acquiring securities of other investment companies if
as a result (i) more than 5% of the value of a Fund's total assets will be
invested in the securities of any one investment company, (ii) more than 10% of
the value of its total assets will be invested in the aggregate in securities of
investment companies as a group, or (iii) more than 3% of the outstanding voting
stock of any one investment company will be owned by a Fund or Portfolio;
(ii) Acquire any illiquid investments, such as repurchase agreements with more
than seven days to maturity, if as a result thereof, more than 15% of the market
value of the Fund's net assets would be in investments that are illiquid;
(iii) invest more than 10% of its net assets in unlisted securities and Notes
(as defined in the Fund's prospectus);
(iv) Sell any security short, except to the extent permitted by the 1940 Act.
Transactions in futures contracts and options shall not constitute selling
securities short; or
(v) Purchase securities on margin, but the Fund may obtain such short term
credits as may be necessary for the clearance of transactions;.
The DWS Funds are subject to regulation under the German Investment
Companies Act, therefore, in addition to the investment policies discussed
herein and in the Prospectus, each Fund, except Top 50 US and its corresponding
Portfolio, has adopted additional non-fundamental investment policies. These
non-fundamental investment policies require that each such Fund and its
corresponding Portfolio may not (except that the Corporation may invest all of
each Fund's assets in its corresponding Portfolio):
(i) invest more than 10% of its net assets in the securities of any one issuer
or invest more than 40% of its net assets in the aggregate in the securities of
those issuers in which the Portfolio has invested in excess of 5% but not more
than 10% of its net assets. For purposes of this restriction, mortgage bonds and
municipal bonds as well as bonds and Notes issued by the FRG, the states of the
FRG, a member state of the European Union ("EU"), a state party to the
Convention on the European Economic Area ("CEEA"), a member state of the
Organization for Economic Cooperation and Development ("OECD") or the EU shall
be valued at half of their value. Bonds of credit institutions situated in a
member state of the EU or state party to the CEEA shall be valued at half their
value provided that the credit institutions are by law subject to a special
public supervision to protect the holders of such bonds and provided the funds
raised through the issue of such bonds are invested in accordance with the legal
provisions in assets, which provide sufficient coverage for the ensuing
liabilities throughout the entire life of the bonds and which in case of
deficiency of the issuer are earmarked for prior redemption of principal and
payment of interest. Securities
DEUT001S
23
<PAGE>
and Notes issued by companies in the same affiliated group shall be considered
securities of the same issuer (borrower);
(ii) purchase bonds of the same issuer to the extent that their total value
exceeds 10% of the total value of the bonds outstanding of the same issuer. This
restriction does not apply to bonds issued by a national government, a local
authority of a member state of the EU, a state party to the CEEA or by the EU,
or if one of these bodies guarantees the payment of interest or the repayment of
principal. For purchases, the above limit need not be complied with if the total
value of the outstanding bonds of the same issuer cannot be determined;
(iii) purchase non-voting shares of the same issuer to the extent that the total
value exceeds 10% of the total value of non-voting shares of the issuer; and
(iv) borrow money, except in amounts not to exceed 10% of the Fund's total
assets (including the amount borrowed).
The European Bond Fund is subject to an additional non-fundamental
investment restriction: no more than 10% of the value of its total assets will
be invested in equity securities (including warrants).
All Funds. There will be no violation of any investment restriction if
that restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, the Adviser may classify issuers by industry in accordance with
based on classifications used by Datastream, a provider of financial information
databases and related services, or other sources Micropal, a leading company
offering a comprehensive and accurate performance measurement service
specializing in collective investment vehicles. Micropal monitors all the
world's major fund markets and has a range of clients from financial
institutions to individual investors. In the absence of such classification or
if the Adviser determines in good faith based on its own information that the
economic characteristics affecting a particular issuer make it more
appropriately considered to be engaged in a different industry, the Adviser may
classify an issuer accordingly. For instance, personal credit finance companies
and business credit finance companies are deemed to be separate industries and
wholly owned finance companies are considered to be in the industry of their
parents if their activities are primarily related to financing the activities of
their parents.
DIRECTORS, TRUSTEES AND OFFICERS
The Directors of the Corporation, Trustees of the Portfolio Trust and
executive officers of the Corporation, and principal occupations during the past
five years (although their titles may have varied during the period) and
business addresses are:
DEUT001S
24
<PAGE>
DIRECTORS OF THE CORPORATION AND TRUSTEES OF THE PORTFOLIO TRUST
Edward C. Schmults - Member of the Board of Directors of Green Point Financial
Corp. Chairman of the Board of Trustees of The Edna McConnell Clark Foundation.
Director of The Germany Fund, Inc. and The Central European Equity Fund, Inc.
Senior Vice President-External Affairs and General Counsel of GTE Corporation
(prior to 1994). Mr. Schmults' address is Rural Route One, Box 788,
Cuttingsville, Vermont 05738.
Robert H. Wadsworth - President of The Wadsworth Group, First Fund Distributors,
Inc. and Guinness Flight Investment Funds, Inc. Director of The Germany Fund,
Inc., The New Germany Fund, Inc. and The Central European Equity Fund, Inc. Vice
President of Professionally Managed Portfolios and Advisors Series Trust. Mr.
Wadsworth's address is Investment Company Administration Corp., 479 West 22nd
Street, New York, NY 10011.
Werner Walbroel - President and Chief Executive of the German American Chamber
of Commerce, Inc. Member of the United States German Youth Exchange Council.
Director of TUV Rheinland of North America, Inc. President and Director of
German American Partnership Program. Director of The Germany Fund, Inc., DB New
World Fund, Limited and LDC, and The Central European Equity Fund, Inc. Mr.
Walbroel's address is German American Chamber of Commerce, Inc., 40 West 57th
Street, New York, NY 10019.
G. Richard Stamberger* **- Managing Director of Deutsche Morgan Grenfell
Inc. President, Deutsche Morgan Grenfell Investment Management Inc. Director of
The Germany Fund, Inc., the New Germany Fund, Inc. and The Central European
Equity Fund, Inc. Managing Director of C.J. Lawrence, Inc. (prior to 1993). Mr.
Stamberger's address is Deutsche Morgan Grenfell Investment Management Inc, 31
West 52nd Street, New York, NY 10019.
Christian Strenger* ** - Managing Director of DWS Deutsche Gesellschaft fuer
Wertpapiersparen mbH (since 1991). Director of The Germany Fund, Inc., The New
Germany Fund, Inc. and The Central European Equity Fund, Inc. Managing Director
of Deutsche Bank Securities Corp. (prior to 1991). Mr. Strenger's address is DWS
Deutsche Gesellschaft fuer Wertpapiersparen mbH, Gruneburgweg 113-115, 60323
Frankfurt am Main, Germany.
OFFICERS OF THE CORPORATION
Brian A. Lee* **- President. President and Managing Director of DFM (since
January 1997). Director of Deutsche Bank Trust Company (since 1994). President
and Chief Operating Officer of Deutsche Bank Trust Company (1994 - 1997).
Director of Deutsche Bank Securities Corp. (1993-1994). Director of Value Line
Securities, Inc. (1992-1993). National Director and Head of Retail Sales and
Service Division, The Dreyfus Corporation (prior to 1992). Director, Boggy Creek
Hole in the Wall Gang Camp for Children. Trustee, Valley Hospital. Director,
Capital Sources Board, State of New Jersey.
Joseph Cheung* - Treasurer. Vice President (since 1996), Assistant Vice
President (1994-1996) and Associate (1991-1994) of Deutsche Morgan Grenfell Inc.
DEUT001S
25
<PAGE>
Treasurer of the CountryBaskets Index Fund, Inc. (1996-1997). Assistant
Secretary and Assistant Treasurer of The Germany Fund, Inc., The Central
European Equity Fund, Inc. and the New Germany Fund, Inc. (since 1993).
Robert R. Gambee* - Secretary. Director of Deutsche Morgan Grenfell, Inc. (since
1992). First Vice President of Deutsche Morgan Grenfell, Inc. (1987 -1991).
1991).Treasurer and Secretary of The Germany Fund, Inc., The Central European
Equity Fund, Inc. and the New Germany Fund, Inc.
Laura Weber* - Assistant Secretary and Assistant Treasurer. Associate of
Deutsche Morgan Grenfell Inc. (since June, 1997). Manager of Raymond James
Financial (1996-1997). Portfolio Accountant of Oppenheimer Capital (1995-1996).
Supervisor (1994-1995) and Mutual Fund Accountant (1993-1994) of Alliance
Capital Management.
* is an "interested person" of the Corporation or the Portfolio Trust as that
term is defined in the 1940 Act.
** Mr. Lee, Mr. Strenger and Mr. Stamberger own less than 1% of the shares of
Deutsche Bank AG, of which the Manager and Adviser are indirect subsidiaries.
The address of each officer of the Corporation is 31 West 52nd Street,
New York, NY 10019.
The Portfolio Trust does not have officers, but instead acts
exclusively through its Trustees and agent agents of the Portfolio Trust
authorized by the Trustees.
DEUT001S
26
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
DIRECTORS OF THE CORPORATION
PENSION OR ESTIMATED
RETIREMENT TOTAL
<S> <C> <C> <C> <C>
AGGREGATE BENEFITS ESTIMATED COMPENSATION
COMPENSATION ACCRUED AS ANNUAL FROM THE
FROM PART OF FUND BENEFITS UPON CORPORATION
THE CORPORATION EXPENSES RETIREMENT AND FUND
COMPLEX*
Edward C. $7,000 None None $44,750
Schmults,
Director
Robert H. $7,000 None None $62,000
Wadsworth,
Director
Werner $7,000 None None $46,250
Walbroel,
Director
G. Richard None None None None
Stamberger*,
Director
Christian None None None None
Strenger,
Director
</TABLE>
DEUT001S
27
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
TRUSTEES OF THE PORTFOLIO TRUST
<S> <C> <C> <C> <C>
PENSION OR
RETIREMENT ESTIMATED
AGGREGATE BENEFITS ESTIMATED TOTAL
COMPENSATION ACCRUED AS ANNUAL COMPENSATION
FROM THE PART OF FUND BENEFITS UPON FROM THE
PORTFOLIO TRUST EXPENSES RETIREMENT CORPORATION
PORTFOLIO
TRUST AND
FUND COMPLEX*
Edward C. $7,000 None None $44,750
Schmults,
Trustee
Robert H. $7,000 None None $62,000
Wadsworth,
Trustee
Trustee
Werner $7,000 None None $46,250
Walbroel,
Trustee
G. Richard None None None None
Stamberger*,
Trustee
Christian None None None None
Strenger,
Trustee
</TABLE>
* The Fund Complex consists of the Corporation, the Portfolio Trust, The New
Germany Fund, Inc., The Central European Equity Fund, Inc. and The Germany Fund,
Inc.
The non-interested Directors of the Corporation receive a base annual
fee of $5,000 and $500 per meeting attended, plus expenses which is are paid
jointly by all series of the Corporation and allocated among the series based
upon their respective net assets.
The non-interested Trustees of the Portfolio Trust receive a base
annual fee of $5,000 and $500 per meeting attended plus expenses which is paid
jointly by all series of the Portfolio Trust and allocated among the series
based upon their respective net assets.
DEUT001S
28
<PAGE>
Neither the Corporation nor the Portfolio Trust requires employees and
none of the Corporation's officers devote full time to the affairs of the
Corporation or receive any compensation from a Fund or a Portfolio.
Fund Ownership. On the date of this Statement of Additional Information, the
Directors of the Corporation, Trustees of the Portfolio Trust and officers of
the Corporation as a group beneficially owned no outstanding shares of the
Corporation and none of the beneficial interests in any Portfolio of the
Portfolio Trust. As of the same date, no person owned 5% or more of the
outstanding voting stock of a Fund or a any series of the Corporation or any
Portfolio except the Corporation owned 100% of the outstanding beneficial
interests in each Portfolio and Edgewood Services, Inc. owned 100% of the
outstanding voting shares of each Fund.
MANAGER
The investment manager to each Portfolio is DFM, an indirect subsidiary
of Deutsche Bank AG, a major global banking institution headquartered in
Germany. DFM, with principal offices at 31 West 52nd Street, New York, New York
10019, is a Delaware corporation and registered investment adviser under the
Investment Advisers Act of 1940.
Pursuant to an investment management agreement with the Portfolio Trust
with respect to each Portfolio (the "Management Agreement"), DFM acts as
investment manager to each Portfolio and, subject to the supervision of the
Board of Trustees of the Portfolio Trust, is responsible for, but may and has
delegated as described below, under "Adviser," the management of the investment
operations of each Portfolio's investments in accordance with its investment
objective, policies and restrictions. DFM also provides each Portfolio with
overall supervisory services over the other service providers and certain other
services. The investment management services DFM provides to each Portfolio are
not exclusive under the terms of the Management Agreement. DFM is free to render
similar investment management services to others.
The Management Agreement is dated July 28, 1997 and will remain in
effect until July 28, 1999 and from year to year thereafter, but only so long as
the agreement is specifically approved at least annually (i) by a vote of the
holders of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the related Portfolio, or by the Portfolio Trust's Trustees, and
(ii) by a vote of a majority of the Trustees of the Portfolio Trust who are not
parties to such Management Agreement or "interested persons" (as defined in the
1940 Act) of the Portfolio Trust, cast in person at a meeting called for the
purpose of voting on such approval. The Management Agreement was initially
approved at a meeting held on July 28, 1997. The Management Agreement will
terminate automatically if assigned and is terminable at any time without
penalty by a vote of a majority of the Portfolio Trust's Trustees, or by a vote
of the holders of a majority of the related Portfolio's outstanding voting
securities, on 60 days' written notice to the Manager and by the Manager on 90
days' written notice to the Portfolio Trust. The Management Agreement provides
that neither DFM nor its personnel shall be liable for any error of judgment or
mistake of law or for any
DEUT001S
29
<PAGE>
loss or expense in connection with the matters in which the agreement relates,
except a loss resulting from willful wilful misfeasance, bad faith or gross
negligence on its part in the performance of its obligations and duties under
the agreement. See "Additional Information."
As compensation for the services rendered and related expenses borne by
DFM under the Management Agreement with the Portfolio Trust with respect to each
Portfolio, DFM receives a fee from each of Top 50 World, Top 50 Europe and Top
50 Asia Portfolio, each Equity Portfolio (except the foregoing three Top 50
Portfolios) and each Bond Portfolio, which is computed daily and may be paid
monthly, equal to 1.00%, 0.85% and 0.75%, respectively, of the average daily net
assets of such Portfolio on an annualized basis for the Portfolio's then-current
fiscal year.
The Glass-Steagall Act and other applicable laws generally prohibit
banks (including foreign banks having U.S. operations, such as Deutsche Bank AG)
from engaging in the business of underwriting or distributing securities in the
United States, and the Board of Governors of the Federal Reserve System has
issued an interpretation to the effect that under these laws a bank holding
company registered under the Federal Bank Holding Company Act (or a foreign bank
subject to such Act's provisions) or certain subsidiaries thereof may not
sponsor, organize, or control a registered open-end investment company
continuously engaged in the issuance of its shares, such as the Corporation. The
interpretation does not prohibit a holding company (or such a foreign bank) or a
subsidiary thereof from acting as investment manager and custodian to such an
investment company. Deutsche Bank AG believes that DFM may perform the services
for the Portfolio Trust and the Corporation contemplated by the Management
Agreement without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. It is possible that future changes in federal
statutes and regulations concerning the permissible activities of banks or trust
companies, as well as further judicial or administrative decisions and
interpretations of present and future statutes and regulations, might prevent
DFM from continuing to perform such services for each Portfolio.
ADVISER
DFM has entered into an investment advisory agreement (the "Advisory
Agreement") dated July 28, 1997 on behalf of the Portfolio Trust with respect to
each Portfolio except Top 50 US Portfolio with DWS International Portfolio
Management GmbH and with respect to Top 50 US Portfolio with Deutsche Asset
Morgan Grenfell Investment Management North America Inc. ("DAMNA") ("DMGIM"). It
is the Adviser's responsibility, under the overall supervision of DFM, to
conduct the day-to-day investment decisions of its respective Portfolio(s),
arrange for the execution of portfolio transactions and generally manage each
Portfolio's investments in accordance with its investment objective, policies
and restrictions.
The DWS Adviser and DAMNA DMGIM Adviser are each an indirect subsidiary
of Deutsche Bank AG. For these services, the respective Adviser receives from
DFM a fee, which is computed daily and may be paid monthly, equal to 0.75%,
0.60% and 0.50% of the average daily net assets of each of Top 50 World, Top 50
Europe and
DEUT001S
30
<PAGE>
Top 50 Asia Portfolio, each Equity Portfolio (except the foregoing Top 50
Portfolios) and each Bond Portfolio, respectively, on an annualized basis for
the Portfolio's then-current fiscal year.
The Advisory Agreement is dated July 28, 1997 and will remain in effect
until July 28, 1999 and from year to year thereafter, but only so long as the
agreement is specifically approved at least annually (i) by a vote of the
holders of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the related Portfolio, or by the Portfolio Trust's Trustees, and
(ii) by a vote of a majority of the Trustees of the Portfolio Trust who are not
parties to such Advisory Agreement or "interested persons" (as defined in the
1940 Act) of the Portfolio Trust, cast in person at a meeting called for the
purpose of voting on such approval. The Advisory Agreement was initially
approved at a meeting held on July 28, 1997. The Advisory Agreement will
terminate with respect to a Portfolio automatically if assigned or if the
Management Agreement is terminated with respect to that Portfolio and is
terminable at any time without penalty by a vote of a majority of the Portfolio
Trust's Trustees, or by a vote of the holders of a majority of the related
Portfolio's outstanding voting securities, on 60 days' written notice to the
relevant Adviser and by each Adviser on 90 days' written notice to the Manager
and the Portfolio Trust. The Advisory Agreement provides that neither the
Adviser nor its personnel shall be liable for any error of judgment or mistake
of law or for any loss or expense in connection with the matters in which the
agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its obligations and duties
under the agreement. See "Additional Information."
ADMINISTRATOR
Under the master agreement for administration services with the
Corporation ("Administration Agreement"), Federated Services Company serves as
administrator to the Funds ("Administrator"). In connection with its
responsibilities as Administrator of the Funds, Federated Services Company,
among other things (i) prepares, files and maintains the Funds' governing
documents, registration statements and regulatory filings; (ii) prepares and
coordinates the printing of publicly disseminated documents; (iii) monitors
declaration and payment of dividends and distributions; (iv) projects and
reviews the Funds' expenses; (v) performs internal audit examinations; (vi)
prepares and distributes materials to the Directors of the Corporation, (vii)
coordinates the activities of all service providers; (viii) monitors and
supervises collection of tax reclaims; and (ix) prepares shareholder meeting
materials.
The Administration Agreement between the Corporation and Federated
Services Company (dated July 28, 1997) with respect to each Fund has an initial
term of three years. Thereafter, the Administration Agreement will remain in
effect until terminated by either party thereto. The agreement is terminable by
the Corporation at any time after the initial term without penalty by a vote of
a majority of the Directors of the Corporation, or by a vote of the holders of a
"majority of the outstanding voting securities" (as defined in the 1940 Act) of
the Corporation (see "Additional Information"). The Administration Agreement is
terminable by the Directors of the Corporation or shareholders of the Fund on 60
days' written notice to Federated Services Company. The agreement is terminable
DEUT001S
31
<PAGE>
by the Administrator on 90 days' written notice to the Corporation. The
Administration Agreement provides that neither Federated Services Company nor
its personnel shall be liable for any error of judgment or mistake of law or for
any loss arising out of any investment or for any act or omission in its
services, except for wilful misfeasance, bad faith or gross negligence or
reckless disregard of its obligations and duties under the Agreement. See
"Additional Information."
As Administrator of the Funds, Federated Services Company receives a
fee from each Fund, which is computed daily and may be paid monthly, at the
annual rate of 0.065% of the average daily net assets of each Fund up to $200
million and 0.0525% of the average daily net assets of each Fund greater than
$200 million for the Fund's then-current fiscal year. The Administrator of the
Funds will receive a minimum fee of $75,000 per Fund annually.
OPERATIONS AGENT
Under an operations agency agreement with the Portfolio Trust
("Operations Agent Agency Agreement"), Federated Services Company serves as
operations agent to the Portfolios ("Operations Agent"). In connection with its
responsibilities as Operations Agent of the Portfolios, Federated Services
Company, among other things, (i) prepares governing documents, registration
statements and regulatory filings; (ii) prepares performs internal audit
examinations (iii) prepare prepares expense projections; (iv) prepares materials
to for the Trustees of the Portfolio Trust, (v) coordinates the activities of
all service providers; (vi) conducts compliance training for the Adviser; (vii)
prepares investor meeting materials and (viii) monitors and supervises
collection of tax reclaims.
The Operations Agent Agency Agreement between the Portfolio Trust and
Federated Services Company (dated July 28, 1997) with respect to each Portfolio
has a minimum an initial term of three years. Thereafter, the Operations Agent
Agency Agreement will remain in effect until terminated by either party thereto.
The agreement is terminable by the Portfolio Trust at any time after the initial
term without penalty by a vote of a majority of the Trustees of the Portfolio
Trust, or by a vote of the holders of a "majority of the outstanding voting
securities" (as defined in the 1940 Act) of the Portfolio Trust (see "Additional
Information"). The Operations Agent Agency Agreement is terminable by the
Trustees of the Portfolio Trust or investors of the Portfolio on 60 days'
written notice to Federated Services Company. The agreement is terminable by
Federated Services Company on 90 days' written notice to the Portfolio Trust.
The Operations Agent Agreement provides that neither Federated Services Company
nor its personnel shall be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in its
services, except for wilful misfeasance, bad faith or gross negligence or
reckless disregard of its obligations and duties under the Agreement.
As Operations Agent of the Portfolios, Federated Services Company
receives a fee from each Portfolio, which is computed daily and paid monthly, at
the annual rate of 0.035% of the average daily net assets of each Portfolio for
the Portfolio's then-current fiscal year. The Operations Agent of the Portfolios
will receive a minimum fee of $60,000 per Portfolio annually and a minimum
DEUT001S
32
<PAGE>
aggregate fee for each Portfolio, corresponding Fund and any other fund
investing in the Portfolio, taken together, of $75,000 for the first year of the
Portfolio's operation and $125,000 for the second year, in each case payable to
the Operations Agent.
ADMINISTRATIVE AGENT
Under an administration agreement with the Portfolio Trust
("Administrative Agent("Administration Agreement"), IBT Trust Company (Cayman)
Ltd. ("IBT (Cayman)") serves as administrative agent to the Portfolios
("Administrative Agent"). In connection with its responsibilities as
Administrative Agent of the Portfolios, IBT (Cayman) (i) files and maintains
governing documents, registration statements and regulatory filings; (ii)
maintains a telephone line; (iii) approves annual expense budget; (iv)
authorizes expenses; (v) distributes materials to the Trustees of the Portfolio
Trust; (vi) authorizes dividend distributions; (vii) maintains books and
records; (viii) filing files tax returns and (ix) maintains an investor
register.
The Administration Agreement between the Portfolio Trust and IBT
(Cayman) (dated July 28, 1997) with respect to each Portfolio has a minimum an
initial term of three years. Thereafter, the Administration Agreement will
remain in effect until terminated by either party thereto. The agreement is
terminable by the Portfolio Trust at any time after the initial term without
penalty by a vote of a majority of the Trustees of the Portfolio Trust, or by a
vote of the holders of a "majority of the outstanding voting securities" (as
defined in the 1940 Act) of the Portfolio Trust (see "Additional Information").
The Administrative Agent Administration Agreement is terminable by the Trustees
of the Portfolio Trust or investors of the Portfolio on 60 days' written notice
to IBT (Cayman). The agreement is terminable by IBT (Cayman) on 90 days' written
notice to the Portfolio. The Administrative Agent Administration Agreement
provides that neither IBT (Cayman) nor its personnel shall be liable for any
error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in its services, except for wilful
misfeasance, bad faith or gross negligence or reckless disregard of its
obligations and duties under the Agreement.
As Administrative Agent of the Portfolios, IBT (Cayman) receives a fee
from each Portfolio, which is computed daily and may be paid monthly, at the
annual rate of 0.025% of the average daily net assets of each Portfolio up to
$200 million, 0.02% of the average daily net assets of each Portfolio greater
than $200 million and less than $800 million, and 0.01% of the average daily net
assets of each Portfolio greater than $1 billion for the Portfolio's
then-current fiscal year. The Administrative Agent will receive a minimum fee of
$40,000 per Portfolio for the first full year of operation, $45,000 for the
second year of operation, and $50,000 for the third year of operation. $5,000.
DISTRIBUTOR
The distribution agreement (the "Distribution Agreement")(dated July
28, 1997) between the Corporation and Edgewood Services, Inc. (the
"Distributor") remains in effect indefinitely, but only so long as such
agreement is
DEUT001S
33
<PAGE>
specifically approved at least annually (i) by a vote of the holders of a
"majority of the outstanding voting securities" (as defined in the 1940 Act) of
the related Fund, or by the Corporation's Directors, and (ii) by a vote of a
majority of the Directors of the Corporation who are not parties to such
Distribution Agreement or "interested persons" (as defined in the 1940 Act) of
the Corporation, cast in person at a meeting called for the purpose of voting on
such approval. The Distribution Agreement terminates automatically if assigned
by either party thereto and is terminable with respect to each Fund at any time
without penalty by a vote of a majority of the Directors of the Corporation or
by a vote of the holders of a "majority of the outstanding voting securities"
(as defined in the 1940 Act) of the Fund (see "Additional Information"). The
Distribution Agreement is terminable with respect to each Fund by the
Corporation's Directors or shareholders of a Fund on 60 days' written notice to
Edgewood. The Agreement is terminable by the Distributor on 90 days' written
notice to the Corporation.
The Distributor is not obligated to sell any specific number of shares.
Under a plan adopted in accordance with Rule 12b-1 of the 1940 Act on July 28,
1997, Class B Shares are subject to a distribution plan (the "Distribution
Plan") and Class A Shares and Class B Shares are subject to a service plan (the
"Service Plan").
Under the Distribution Plan, Class B Shares of each Fund will pay a fee
to the Distributor in an amount computed at an annual rate of 0.75% of the
average daily net assets of the Fund represented by Class B Shares to finance
any activity which is principally intended to result in the sale of Class B
Shares of the Fund subject to the Distribution Plan. A report of the amounts
expended pursuant to the Distribution Plan, and the purposes for which such
expenditures were incurred, must be made to the Directors of the Corporation for
review at least quarterly.
The Distribution Plan provides that it may not be amended to increase
materially the costs which a Fund may bear pursuant to the Distribution Plan
without shareholder approval and that other material amendments of the
Distribution Plan must be approved by the Directors of the Corporation, and by
the Directors who have no direct or indirect financial interest in the operation
of the Distribution Plan or any related agreement and are not "interested
persons" (as defined in the 1940 Act) of the Corporation ("Qualifying
Directors"), by vote cast in person at a meeting called for the purpose of
considering such amendments. While the Distribution Plan is in effect, the
selection and nomination of the Directors of the Corporation has been committed
to the discretion of the Qualifying Directors. The Distribution Plan has been
approved, and is subject to annual approval, by the Directors of the Corporation
and the Qualifying Directors, by vote cast in person at a meeting called for the
purpose of voting on the Distribution Plan. The Qualifying Directors voted to
approve the Distribution Plan at a meeting held on July 28, 1997. The
Distribution Plan is terminable with respect to the Class B Shares of a Fund at
any time by a vote of a majority of the Qualifying Directors or by vote of the
holders of a majority of the Class B Shares of that Fund.
TRANSFER AGENT, CUSTODIAN AND FUND ACCOUNTANT
DEUT001S
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<PAGE>
Federated Shareholder Services Company, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779, serves as the transfer agent and dividend
disbursing agent for each Fund. As Transfer Agent and Dividend Disbursing Agent,
Federated Shareholder Services Company is responsible for maintaining account
records detailing the ownership of Fund shares and for crediting income, capital
gains and other changes in share ownership to shareholder accounts. Investors
Bank & Trust Company, 200 Clarendon Street, Boston, MA 02116 acts as the
custodian of each Fund's and each Portfolio's assets. Pursuant to the Custodian
Contract with the Portfolio Trust, IBT is responsible for maintaining the books
and records of portfolio transactions and holding portfolio securities and cash.
In the case of foreign assets held outside the United States, IBT employs
various subcustodians who were approved in accordance with the regulations of
the SEC. The Custodian maintains portfolio transaction records. IBT Fund
Services (Canada) Inc., One First Canadian Place, King Street West, Suite 2800,
P.O. Box 231, Toronto, Ontario M5X1C8, provides fund accounting services to the
Funds and the Portfolios including (i) calculation of the daily net asset value
for the Funds and the Portfolios; (ii) monitoring compliance with investment
portfolio restrictions, including all applicable federal and state securities
and other regulatory requirements; and (iii) monitoring each Fund's and
Portfolio's compliance with the requirements applicable to a regulated
investment company under the Code.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Corporation are Price Waterhouse
LLP, 1177 Avenue of the Americas, New York, NY 10036. The independent
accountants of the Portfolio Trust are Price Waterhouse, First Home
Tower, British- American Center, Dr. Roy's Drive, George Town, Grand Cayman,
BWI. The independent accountants conduct annual audits of financial statements,
assist in the preparation and/or review of federal and state income tax returns
and provide consulting as to matters of accounting and federal and state income
taxation for each Fund or Portfolio, as the case may be.
PURCHASE OF SHARES
Except under certain circumstances described in a Fund's Prospectus,
Shares are sold at their net asset value (plus a sales charge on Class A Shares
only) on days the New York Stock Exchange is open for business. The procedure
for purchasing Shares is explained in each Prospectus under "Purchase of
Shares."
Conversion to Federal Funds. It is each Fund's policy to be as fully invested as
possible so that maximum interest may be earned. To this end, all payments from
shareholders must be in federal funds or be converted into federal funds before
shareholders begin to earn dividends. Federated Shareholder Services Company
acts as the shareholder's agent in depositing checks and converting them to
federal funds.
REDEMPTION OF SHARES
DEUT001S
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<PAGE>
Each Fund redeems Shares at the next computed net asset value, less any
applicable contingent deferred sales charge, after a Fund receives the
redemption request. Redemption procedures are explained in each Fund's
Prospectus under "Redemption of Shares." Although the transfer agent does not
charge for telephone redemptions, it reserves the right to charge a fee for the
cost of wire-transferred redemptions of less than $5,000.
Class B Shares redeemed within six years of purchase and applicable
Class A Shares redeemed within one year of purchase may be subject to a
contingent deferred sales charge. The amount of the contingent deferred sales
charge is based upon the amount of the administrative fee paid at the time of
purchase by the Distributor to the financial institution for services rendered,
and the length of time the investor remains a shareholder in a Fund. Should
Financial Intermediaries elect to receive an amount less than the fee that is
stated in a Fund's Prospectus for servicing a particular shareholder, the
contingent deferred sales charge and/or holding period for that particular
shareholder will be reduced accordingly.
Since portfolio securities of each Portfolio may be traded on foreign
exchanges which trade on Saturdays or on holidays on which a Fund will not make
redemptions, the net asset value of each class of Shares of a Fund may be
significantly affected on days when shareholders do not have an opportunity to
redeem their Shares.
Redemption in Kind. Although the Corporation intends to redeem Shares in cash,
it reserves the right under certain circumstances to pay the redemption price in
whole or in part by a distribution of securities from the respective Fund's
portfolio. In such a case, the portfolio instruments to be distributed as
redemption proceeds would be, valued in the same way as the Portfolio determines
net asset value. The portfolio instruments will be selected in a manner that the
Directors of the Corporation and Trustees of the Portfolio deem fair and
equitable. To the extent available, such securities will be readily marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption
is made in kind, shareholders receiving their securities and selling them before
their maturity could receive less than the redemption value of their securities
and could incur certain transaction costs.
Elimination of the Contingent Deferred Sales Charge. The Systematic Withdrawal
Program permits the shareholder to request withdrawal of a specified dollar
amount (minimum $100) on either a monthly or quarterly basis from accounts with
$10,000 minimum at the time the shareholder elects to participate in the
Systematic Withdrawal Program. The amounts that a shareholder may withdraw under
a Systematic Withdrawal Program that qualify for elimination of the contingent
deferred sales charge may not exceed 12% annually with reference initially to
the value of the Class B Shares upon establishment of the Systematic Withdrawal
Program and then as calculated at the fiscal year end. Amounts that exceed the
12% annual limit for redemption, as described, will be subject to the contingent
deferred sales charge. In determining the applicability of the contingent
deferred sales charge, the 12 month holding requirement for any new Class B
DEUT001S
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<PAGE>
Shares received through an exchange will include the period for which the
exchanged Class B Shares were held. However, for purposes of meeting the $10,000
minimum account value requirement, Class B Share account values will not be
aggregated.
EXCHANGE OF SHARES
An investor may exchange shares from any series of the Deutsche Family
of Funds, Inc. (a "Deutsche Fund") into any other Deutsche Fund, as described
under "Exchange of Shares" in each Fund's Prospectus. For complete information,
the prospectus as it relates to each Fund into which a transfer is being made
should be read prior to the transfer. Requests for exchange are made in the same
manner as requests for redemptions. See "Redemption of Shares." Shares of a Fund
to be acquired are purchased for settlement when the proceeds from redemption
become available. The Corporation reserves the right to discontinue, alter or
limit the exchange privilege at any time.
NET ASSET VALUE
Each Fund computes its net asset value once daily on Monday through
Friday as described under "Net Asset Value" in the Prospectus. The net asset
value will not be computed on the day the following legal holidays are observed:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
On days when U.S. trading markets close early in observance of these holidays,
each Fund and its corresponding Portfolio would expect to close for purchases
and redemptions at the same time. The days on which net asset value is
determined are the Fund's business days.
The net asset value of a Fund is equal to the value of such Fund's
investment in its corresponding Portfolio (which is equal to that Fund's pro
rata share of the total investment of the Fund and of any other investors in the
Portfolio less the Fund's pro rata share of the Portfolio's liabilities) less
the Fund's liabilities.
Fixed Income Securities. The fixed income portion of the Portfolios and
portfolio securities with a maturity of 60 days or more, including securities
that are listed on an exchange or traded over the counter, are valued using
prices supplied daily by an independent pricing service or services that (i) are
based on the last sale price on a national securities exchange or, in the
absence of recorded sales, at the average of readily available closing bid and
asked prices on such exchange or at the average of readily available closing bid
and asked prices in the over-the-counter market, if such exchange or market
constitutes the broadest and most representative market for the security and
(ii) in other cases, take into account various factors affecting market value,
including yields and prices of comparable securities, indication as to value
from dealers and general market conditions. If such prices are not supplied by a
Portfolio's independent pricing service, such securities are priced in
accordance with procedures adopted by the Trustees of the Portfolio Trust. All
portfolio
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securities with a remaining maturity of less than 60 days are valued by the
amortized cost method.
Other Securities. The value of investments listed on a U.S. securities exchange,
other than options on stock indexes, is based on the last sale prices on the New
York Stock Exchange at 4:00 P.M. or, in the absence of recorded sales, at the
average of readily available closing bid and asked prices on such exchange.
Securities listed on a foreign exchange considered by the Adviser to be a
primary market for the securities are valued at the last quoted sale price
available before the time when net assets are valued. Unlisted securities, and
securities for which the Adviser determines the listing exchange is not a
primary market, are valued at the average of the quoted bid and asked prices in
the over-the-counter market. The value of each security for which readily
available market quotations exist is based on a decision as to the broadest and
most representative market for such security. For purposes of calculating net
asset value, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. dollars at the prevailing market rates
available at the time of valuation.
Options on stock indexes traded on U.S. national securities exchanges
are valued at the close of options trading on such exchanges which is currently
4:10 P.M., New York time. Stock index futures and related options, which are
traded on U.S. futures exchanges, are valued at their last sales price as of the
close of such futures exchanges which is currently 4:15 P.M., New York time.
Options, futures contracts and warrants traded on a foreign stock exchange or on
a foreign futures exchange are valued at the last price available before the
time when the net assets are valued. Securities or other assets for which market
quotations are not readily available (including certain restricted and illiquid
securities) are valued at fair value in accordance with procedures established
by and under the general supervision and responsibility of the Trustees of the
Portfolio Trust. Such procedures include the use of independent pricing services
that use prices based upon yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers; and general
market conditions.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the New York Stock Exchange
and may also take place on days on which the New York Stock Exchange is closed.
If events materially affecting the value of securities occur between the time
when the exchange on which they are traded closes and the time when a
Portfolio's net asset value is calculated, such securities will be valued at
fair value in accordance with procedures established by and under the general
supervision of the Trustees.
PERFORMANCE DATA
From time to time, a Fund may quote performance in reports, sales
literature and advertisements published by the Corporation. Current performance
information for a Fund may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See also "Management of
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the Corporation and the Portfolio Trust - Performance Information" in the
Prospectus.
Total Return Quotations. As required by regulations of the SEC, the
annualized total return of a Fund for a period is computed by assuming a
hypothetical initial payment of $1,000. It is then assumed that all of the
dividends and distributions by a Fund over the period are reinvested. It is then
assumed that at the end of the period, the entire amount is redeemed. The
annualized total return is then calculated by determining the annual rate
required for the initial payment to grow to the amount which would have been
received upon redemption.
Average annual total return for each class of Shares of the Funds is
the average compounded rate of return for a given period that would equate a
$1,000 initial investment to the ending redeemable value of that investment. The
ending redeemable value is computed by multiplying the number of Shares owned at
the end of the period by the net asset value per share at the end of the period.
The number of Shares owned at the end of the period is based on the number of
Shares purchased at the beginning of the period with $1,000, less any applicable
sales charge, adjusted over the period by any additional Shares, assuming the
annual reinvestment of all dividends and distributions.
Any applicable contingent deferred sales charge is deducted from the
ending value of the investment based on the lesser of the original purchase
price or the net asset value of Shares redeemed.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
Yield. The yield for each class of Shares of the Funds is determined by
dividing the net investment income per share (as defined by the SEC) earned by
any class of Shares over a 30-day period by the maximum offering price per share
of the respective class on the last day of the period. This value is annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by a Fund because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to the shareholders.
To the extent that Financial Intermediaries and broker-dealers charge
fees in connection with services provided in conjunction with an investment in
any class of Shares, the performance will be reduced for those shareholders
paying those fees.
General. The performance of each of the classes of Shares will vary
from time to time depending upon market conditions, the composition of a
Portfolio, and its operating expenses. Consequently, any given performance
quotation should not be considered representative of a Fund's performance for
any specified period in the future. In addition, because performance will
fluctuate, it may not
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provide a basis for comparing an investment in a Fund with certain bank deposits
or other investments that pay a fixed yield or return for a stated period of
time.
Comparative performance information may be used from time to time in
advertising a Fund's shares, including appropriate market indices or data from
Lipper Analytical Services, Inc., Micropal, Inc., Ibbotson Associates,
Morningstar Inc., the Dow Jones Industrial Average and other industry
publications.
Information and Comparisons Relating to the Funds, Secondary Market
Trading, Net Asset Size, Performance And Tax Treatment. Information regarding
various aspects of each Fund, including the net asset size thereof, as well as
the performance and the tax treatment of Fund shares, may be included from time
to time in advertisements, sales literature and other communications as well as
in reports to current or prospective investors.
Information may be provided to prospective investors to help such
investors assess their specific investment goals and to aid in their
understanding of various financial strategies. Such information may present
current economic and political trends and conditions and may describe general
principles of investing such as asset allocation, diversification and risk
tolerance, as well as specific investment techniques.
Information regarding the net asset size of a Fund may be stated in
communications to prospective or current investors for one or more time periods,
including annual, year-to-date or daily periods. Such information may also be
expressed in terms of the total number of Fund Shares outstanding as of one or
more time periods. Factors integral to the size of a Fund's net assets, such as
the volume and activity of purchases and redemptions of Fund Shares, may also be
discussed, and may be specified from time to time or with respect to various
periods of time. Comparisons of such information during various periods may also
be made and may be expressed by means of percentages.
Information may be provided to investors regarding capital gains
distributions by the Funds, including historical information relating to such
distributions. Comparisons between the Funds and other investment vehicles such
as mutual funds may be made regarding such capital gains distributions,
including the expected effects of differing levels of portfolio adjustments on
such distributions and the potential tax consequences thereof.
Information may also be provided in communications to prospective or
current investors comparing and contrasting the relative advantages of investing
in Fund Shares as compared to other investment vehicles, such as mutual funds,
both on an individual and a group basis (e.g., stock index mutual funds). Such
information may include comparisons of costs, expense ratios, expressed either
in dollars or basis points, stock lending activities, permitted investments and
hedging activities (e.g., engaging in options or futures transactions), price
volatility and portfolio turnover data and analyses. In addition, such
information may quote, reprint or include portions of financial, scholarly or
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business publications or periodicals, including model allocation schedules or
portfolios as the foregoing relate to the comparison of Fund Shares to other
investment vehicles, current economic financial and political conditions,
investment philosophy or techniques or the desirability of owning Fund Shares.
Such information may be provided both before and after deduction of sales
charges.
Information on the performance of a Fund on the basis of changes in net
asset value per fund share, with or without reinvesting all dividends and/or any
distributions of capital in additional Fund Shares, may be included from time to
time in a Fund's performance reporting. The performance of a Fund may also be
compared to the performance of money managers as reported in market surveys such
as SEI Fund Evaluation Survey (a leading data base of tax-exempt fund) or mutual
funds such as those reported by Lipper Analytical Services, Morningstar,
Micropal, Money Magazine's Fund Watch or Wiesenberger Investment Companies
Service, each of which measures performance following their own specific and
well-defined calculation measures, or of the NYSE Composite Index, the American
Stock Exchange Index (indices of stocks traded on the New York and American
Stock Exchanges, respectively), the Dow Jones Industrial Average (an index of 30
widely traded industrial common stocks), any widely recognized foreign stock and
bond index or similar measurement standards during the same period of time.
Information relating to the relative net asset value performance of
Fund Shares may be compared against a wide variety of investment categories and
asset classes, including common stocks, small capitalization stocks, ADRs, long
and intermediate term corporate and government bonds, Treasury bills, futures
contracts, the rate of inflation in the United States (based on the Consumer
Price Index ("CPI") or other recognized indices) and other capital markets and
combinations thereof. Historical returns of the capital markets relating to a
Fund may be provided by independent statistical studies and sources, such as
those provided to Ibbotson Associates. The performance of these capital markets
is based on the returns of different indices. Information may be presented using
the performance of these and other capital markets to demonstrate general
investment strategies. So, for example, performance of Fund Shares may be
compared to the performance of selected asset classes such as short-term U.S.
Treasury bills, long-term U.S. Treasury bonds, long-term corporate bonds, mid-
capitalization stocks, small capitalization stocks and various classes of
foreign stocks and may also be measured against the rate of inflation as set
forth in well-known indices (such as the CPI). Performance comparisons may also
include the value of a hypothetical investment in any of these capital markets.
Performance of Fund Shares may also be compared to that of other indices or
compilations that may be developed and made available to the investing public in
the future. Of course, such comparisons will only reflect past performance of
Fund Shares and the investment categories, indices or compilations chosen and no
guarantees can be made of future results regarding the performance of either
Fund Shares or the asset classes chosen for such comparisons.
Comparative performance information may be used from time to time in
advertising each Fund's shares. The performance of the
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o European Mid-Cap Fund may be compared to [] the DAX Composite Index ("CDAX"),
Financial Times ("FT")/Standard & Poor's Medium-Small Cap Europe Index,
Deutscher Aktien Index ("DAX"), DAX Mid-Cap, and Morgan Stanley Capital Index
("MSCI")-Europe Index o German Equity Fund may be compared to [] DAX, CDAX,
MSCI-Europe Index, and FT-Europe Index o Japanese Equity Fund may be compared to
[] Tokyo Price Index ("TOPIX"), Nikkei-225 Index, and MSCI Japan Index o Global
Bond Fund may be compared to [] JPM Global Government Bond Index, and Salomom
Brothers World Government Bond Index o European Bond Fund may be compared to []
JPM European Government Bond Index, Salomon Brothers European World Government
Bond Index, and EFFAS Government Bond Index o Top 50 World may be compared to []
MSCI-World Index o Top 50 Europe may be compared to [] MSCI-Europe Index o Top
50 Asia may be compared to [] MSCI Combined Far East Index and MSCI Combined Far
East ex Japan Index o Top 50 US may be compared to [] Standard & Poor's 500
Index
Each index is an unmanaged index of common security prices, converted
into U.S. dollars where appropriate. Any index selected by a Fund for
information purposes may not compute total return in the same manner as the
Funds and may exclude, for example, dividends paid, brokerage and other fees.
Information comparing the portfolio holdings relating to a particular
Fund, with those of relevant stock indices or other investment vehicles, such as
mutual funds or futures contracts, may be advertised or reported by the Fund.
Equity analytic measures, such as price/earnings ratio, price/book value and
price/cash flow and market capitalizations, may be calculated for the portfolio
holdings and may be reported on an historical basis or on the basis of
independent forecasts.
Information may be provided by a Fund on the total return for various
composites of the different Funds. These composite returns might be compared to
other securities or indices utilizing any of the comparative measures that might
be used for the individual Fund, including correlations, standard deviation, and
tracking error analysis.
Past results may not be indicative of future performance. The
investment return and net asset value of shares of each Fund will fluctuate so
that the shares, when redeemed, may be worth more or less than their original
cost.
PORTFOLIO TRANSACTIONS
The Portfolio Trust trades securities for a Portfolio if it believes that a
transaction net of costs (including custodian charges) will help achieve the
Portfolio's investment objective. Changes in a Portfolio's investments are made
without regard to the length of time a security has been held, or whether a sale
would result in the recognition of a profit or loss. Therefore, the rate of
turnover is not a limiting factor when changes are appropriate. Specific
decisions to purchase or sell securities for a Portfolio are made by its
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portfolio manager who is an employee of the Adviser. The portfolio manager may
serve other clients of the Adviser in a similar capacity.
The primary consideration in placing portfolio securities transactions with
broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. The Adviser attempts to achieve this result by selecting
broker-dealers to execute transactions on behalf of the Portfolios and other
clients of the Adviser on the basis of their professional capability, the value
and quality of their brokerage services, and the level of their brokerage
commissions. In the case of securities traded in the over-the-counter market
(where no stated commissions are paid but the prices include a dealer's markup
or markdown), the Adviser normally seeks to deal directly with the primary
market makers, unless in its opinion, best execution is available elsewhere. In
the case of securities purchased from underwriters, the cost of such securities
generally includes a fixed underwriting commission or concession. From time to
time, soliciting dealer fees are available to the Adviser on the tender of a
Portfolio's securities in so-called tender or exchange offers.
In connection with the selection of such brokers or dealers and the placing
of such orders, the Adviser seeks for each Portfolio in its best judgment,
prompt execution in an effective manner at the most favorable price. Subject to
this requirement of seeking the most favorable price, securities may be bought
from or sold to broker-dealers who have furnished statistical, research and
other information or services to the Adviser or the Portfolio, subject to any
applicable laws, rules and regulations.
The investment advisory fee that each Portfolio pays to the Adviser will
not be reduced as a consequence of the Adviser's receipt of brokerage and
research services. While such services are not expected to reduce the expenses
of the Adviser, the Adviser would, through the use of the services, avoid the
additional expenses which would be incurred if it should attempt to develop
comparable information through its own staff or obtain such services
independently.
In certain instances there may be securities that are suitable as an
investment for a Portfolio as well as for one or more of the Adviser's other
clients. Investment decisions for the Portfolios and for the Adviser's other
clients are made with a view to achieving their respective investment
objectives. It may develop that a particular security is bought or sold for only
one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more clients are selling the same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable for
the investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could adversely affect the
price of or the size of the position obtainable in a security for a Portfolio.
When purchases or sales of the same security for a Portfolio and for other
portfolios managed by the Adviser occur contemporaneously, the purchase or sale
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orders may be aggregated in order to obtain any price advantages available to
large volume purchases or sales.
TAXES
The following information supplements and should be read in conjunction
with the sections in the Prospectus entitled "The Fund -- Dividends and
Distributions" and "-- Taxes".
United States Taxation
General. Each Fund intends to qualify and intends to remain qualified
as a regulated investment company (a "RIC") under Subchapter M of the Code. As a
RIC, a Fund must, among other things: (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities or
foreign currency and other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency; (b) derive less than
30% of its gross income from the sale or other disposition of stock, securities,
options, futures or forward contracts (other than options, futures or forward
contracts on foreign currencies) held less than three months; and (c) diversify
its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
value of the Fund's total assets is represented by cash, U.S. Government
securities, investments in other RICs and other securities limited in respect of
any one issuer, to an amount not greater than 5% of the Fund's Fund's total
assets, and 10% of the outstanding voting securities of such issuer and (ii) not
more than 25% of the value of its total assets is invested in the securities of
any one issuer (other than U.S. Government securities or the securities of other
RICs). As a RIC, a Fund (as opposed to its shareholders) will not be subject to
federal income taxes on the net investment income and capital gains that it
distributes to its shareholders, provided that at least 90% of its net
investment income and realized net short-term capital gains in excess of net
long-term capital losses for the taxable year is distributed. Legislation
recently passed by Congress would, if enacted, eliminate the short-short rule
described above in clause (b). There can be no assurance that such legislation
will be enacted or, if enacted, what the effective date of such legislation will
be.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specific percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses) for each calendar year. Each Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable income
and any capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Any dividend declared by a Fund in October, November or December of any
calendar year and payable to shareholders of record on a specified date in such
a month shall be deemed to have been received by each shareholder on December 31
of such calendar year and to have been paid by the Fund not later than such
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December 31 so long as the dividend is actually paid by the Fund during January
of the following calendar year.
If a Portfolio purchases shares in certain foreign investment entities,
referred to as "passive foreign investment companies," the Fund may be subject
to U.S. federal income tax, and an additional charge in the nature of interest,
on a portion of any "excess distribution" from such company or gain from the
disposition of such shares, even if the distribution or gain is paid by the Fund
as a dividend to its shareholders. If the Fund were able and elected to treat a
passive foreign investment company as a "qualified electing fund," in lieu of
the treatment described above, the Fund would be required each year to include
in income, and distribute to shareholders in accordance with the distribution
requirement set forth above, the Fund's pro rata share of the ordinary earnings
and net capital gains of the company, whether or not distributed to the Fund.
Under proposed Regulations, if finalized, or proposed legislation, if enacted,
the Fund could instead elect to mark-to-market the shares annually, in which
case the treatment provided in the first sentence above also would not apply.
Gains or losses attributable to disposition of foreign currency or to
foreign currency contracts, or to fluctuations in exchange rates between the
time a Portfolio accrues income or receivables or expenses or other liabilities
denominated in a foreign currency and the time a Portfolio actually collects
such income or pays such liabilities, are generally treated as ordinary income
or ordinary loss. Similarly, gains or losses, if any, on the disposition of debt
securities held by a Portfolio and denominated in foreign currency are also
treated as ordinary income or loss to the extent such gains or losses are
attributable to fluctuations in exchange rates between the acquisition and
disposition dates. These gains and losses increase or decrease the amount of the
Fund's net investment income available for distribution rather than its net
capital gains.
Forward currency contracts, options and futures contracts entered into
by a Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by a
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities. "Straddles" may also result in the loss of the holding
period of underlying securities for purposes of the 30% gross income test
described above, and therefore, a Portfolio's ability to enter into forward
currency contracts, options and futures contracts may be limited.
Dividends paid from net investment income will generally be taxable to
a shareholder as ordinary income. Regardless of the length of time a shareholder
has held his shares, distributions designated as being from a Fund's net
long-term capital gains (i.e., the excess of net long-term capital gains over
net short-term capital losses) will be taxable as such. Distributions in excess
of a Fund's current and accumulated earnings and profits will be treated as a
tax-free return of capital to the extent of the shareholder's basis in his
shares and as a capital gain thereafter.
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Foreign Taxes. As set forth in the Prospectus under "Taxation," the
Funds are expected to be subject to foreign withholding and other taxes with
respect to income received from sources within certain foreign countries. Each
Fund (except the Top 50 US) that is liable for foreign income taxes, including
such withholding taxes, expects to meet the requirements of the Code for
"passing through" to its shareholders the foreign taxes paid, but there can be
no assurance that it will be able to do so. Under the Code, if more than 50% of
the value of a Portfolio's total assets at the close of any taxable year
consists of stock or securities of foreign corporations, its corresponding Fund
may elect to treat the proportionate share of foreign income taxes paid by the
Fund as paid directly by the Fund's shareholders. If the Fund elects to pass
through foreign taxes to the shareholders, no deduction for such foreign taxes
may be claimed by a shareholder who does not itemize deductions and no deduction
is available in computing an individual shareholder's shareholder's alternative
minimum tax liability. A shareholder who is a nonresident alien individual or a
foreign corporation may be subject to U.S. withholding tax on the income
resulting from the election described in this paragraph, but may not be able to
claim a credit or deduction against such U.S. tax for the foreign taxes treated
as having been paid by such shareholder. A tax-exempt shareholder will not
ordinarily benefit from this election. Shareholders who choose to utilize a
credit (rather than a deduction) for foreign taxes will be subject to the
limitation that the credit may not exceed the shareholder's U.S. tax (determined
without regard to the availability of the credit) attributable to his or her
total foreign source taxable income. For this purpose, the portion of dividends
and distributions paid by a Fund from its foreign source net investment income
will be treated as foreign source income. A Portfolio's gains and losses from
the sale of securities will generally be treated as derived from U.S. sources ,
however, and certain foreign currency gains and losses likewise will be treated
as derived from U.S. sources. The limitation on the foreign tax credit is
applied separately to foreign source "passive income," such as the portion of
dividends received from a Portfolio that qualifies as foreign source income. In
addition, the foreign tax credit is allowed to offset only 90% of the
alternative minimum tax imposed on corporations and individuals. Because of
these limitations, a shareholder may be unable to claim a credit for the full
amount of his proportionate share of the foreign income taxes paid by a
Portfolio.
Additionally, Congress has passed legislation under which the foreign
tax credit for taxes withheld with respect to dividends received by a Portfolio
would be disallowed if the Portfolio has not held the shares of the foreign
corporation for a 16-day period (or 46-day period in the case of preferred
shares) overlapping the dividend payment date and during which the Portfolio is
not protected from risk of loss. If the Fund elects to pass through foreign
taxes to the shareholders, the proposed legislation would also deny such credit
where the shareholder of the Fund does not satisfy the above holding requirement
with respect to its shares in the Fund. There can be no assurances as to whether
such legislation will be enacted into law, and, if so, what its effective date
might be.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
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circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
State and Local Taxes. Each Fund may be subject to state or local taxes
in jurisdictions in which that Fund is deemed to be doing business. In addition,
the treatment of a Fund and its shareholders in those states that have income
tax laws might differ from treatment under the federal income tax laws. For
example, a portion of the dividends received by shareholders may be subject to
state income tax. Shareholders should consult their own tax advisors with
respect to any state or local taxes.
Foreign Shareholders. Distributions of net investment income and
realized net short-term capital gains in excess of net long-term capital losses
to a shareholder who, as to the United States, is a non-resident alien
individual, fiduciary of a foreign trust or estate, foreign corporation or
foreign partnership (a "foreign shareholder") will be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate) unless the dividends
are effectively connected with a U.S. trade or business of the shareholder, in
which case the dividends will be subject to tax on a net income basis at the
graduated rates applicable to U.S. individuals or domestic corporations.
Distributions of net long-term capital gains to foreign shareholders will not be
subject to U.S. tax unless the distributions are effectively connected with the
shareholder's trade or business in the United States or, in the case of a
shareholder who is a non-resident alien individual, the shareholder was present
in the United States for more than 182 days during the taxable year and certain
other conditions are met.
In the case of a foreign shareholder who is a nonresident alien
individual and who is not otherwise subject to withholding as described above, a
Fund may be required to withhold U.S. federal income tax at the rate of 31%
unless IRS Form W-8 is provided. See "Taxation" in the Prospectus. Transfers by
gift of shares of a Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of the Fund held by such a shareholder at his or her death will be includible in
his or her gross estate for U.S. federal estate tax purposes.
Reports to Shareholders. The Fund will make annual reports of the
federal income tax status of distributions to owners of shares. Such reports
will set forth the dollar amounts of dividends from net investment income and
long-term capital gains and, if the Fund elects to pass through foreign taxes,
the shareholder's portion of the foreign income taxes paid to each country and
the portion of the dividends that represents income derived from sources within
each country.
The foregoing discussion is based on U.S. federal tax laws in effect on
the date hereof. These laws are subject to change by legislative or
administrative action, possibly with retroactive effect.
The foregoing discussion is a summary only and is not intended as a
substitute for careful tax planning. Prospective investors in shares of a Fund
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should consult their own tax advisers as to the tax consequences of investing in
such shares, including the consequences under state, local and other tax laws.
DESCRIPTION OF SHARES
The Corporation is an open-end management investment company organized
as a Maryland corporation on May 22, 1997. The Articles of Incorporation
currently permit the Corporation to issue 2,500,000,000 17,500,000,000 shares of
common stock, par value $0.001 per share, of which 10,000,000 shares have been
classified as shares of each Fund. The Corporation currently consists of nine
eleven such series and two classes of shares for each Fund known as Class A
Shares and Class B Shares. In addition, a tenth series has four classes known as
DB Class, Institutional Class, Class A and Class B.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Corporation do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Corporation may elect all of the Directors of the
Corporation if they choose to do so and in such event the other shareholders in
the Corporation would not be able to elect any Director. The Corporation is not
required and has no current intention to hold meetings of shareholders annually,
but the Corporation will hold special meetings of shareholders when in the
judgment of the Corporation's Directors it is necessary or desirable to submit
matters for a shareholder vote. Shareholders have under certain circumstances
(e.g., upon application and submission of certain specified documents to the
Directors by a specified number of shareholders) the right to communicate with
other shareholders in connection with requesting a meeting of shareholders for
the purpose of removing one or more Directors. Shareholders also have the right
to remove one or more Directors without a meeting by a declaration in writing by
a specified number of shareholders. Shares have no preference, pre-emptive,
conversion or similar rights (except the automatic conversion of Class B Shares
into Class A Shares as discussed in the Prospectus under "Purchase of Shares").
Shares, when issued, are fully paid and non-assessable.
Stock certificates are not issued by the Corporation except upon
written request. No certificates will be issued for fractional shares.
The Articles of Incorporation of the Corporation contain a provision
permitted under Maryland Corporation Law which under certain circumstances
eliminates the personal liability of the Corporation's Directors to the
Corporation or its shareholders.
The Articles of Incorporation and the By-Laws of the Corporation
provide that the Corporation indemnify the Directors and officers of the
Corporation to the full extent permitted by the Maryland Corporation Law, which
permits indemnification of such persons against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Corporation. However, nothing in the Articles of
Incorporation or the By-Laws of the Corporation protects or indemnifies a
Director or officer of the Corporation against any liability to the Corporation
or its shareholders to which
DEUT001S
48
<PAGE>
he would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Interests in a Portfolio have no preference, preemptive, conversion or
similar rights and are fully paid and non-assessable. The Portfolio Trust is not
required to hold annual meetings of investors, but will hold special meetings of
investors when, in the judgment of its Trustees, it is necessary or desirable to
submit matters for an investor vote. Each investor is entitled to a vote in
proportion to the share of its investment in a Portfolio.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" (as defined in the 1940
Act) currently means the vote of (i) 67% or more of the outstanding voting
securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities are present in person or represented by proxy; or
(ii) more than 50% of the outstanding voting securities, whichever is less.
Fund shareholders receive semi-annual reports containing unaudited
financial statements and annual reports containing financial statements audited
by independent auditors.
A shareholder's right to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed: (i) during
periods when the New York Stock Exchange or foreign stock exchange is closed for
other than weekends and holidays or when regular trading on such Exchange is
restricted as determined by the Securities and Exchange Commission by rule or
regulation, (ii) during periods in which an emergency exists which causes
disposal of, or evaluation of the net asset value of, portfolio securities to be
unreasonable or impracticable, or (iii) for such other periods as the SEC may
permit.
Telephone calls to any Fund, the Transfer Agent, the Distributor, or
Financial Intermediaries with respect to shareholder servicing may be tape
recorded. With respect to the securities offered hereby, this Statement of
Additional Information and the Prospectus do not contain all the information
included in the Corporation's Registration Statement filed with the SEC under
the 1933 Act and the Corporation's and the Portfolio Trust's Registration
Statement filed under the 1940 Act. Pursuant to the rules and regulations of the
SEC, certain portions have been omitted. The Registration Statements Statement
including the exhibits filed therewith may be examined at the office of the SEC
in Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
DEUT001S
49
<PAGE>
DEUTSCHE FUNDS, INC.
STATEMENT OF ASSETS & LIABILITIES
SEPTEMBER 17, 1997
<TABLE>
<CAPTION>
Deutsche Deutsche Deutsche Deutsche Deutsche
Deutsche Deutsche Deutsche Deutsche European German Japanese Global European
Top 50 Top 50 Top 50 Top 50 Mid-Cap Equity Equity Bond Bond
World Europe Asia US Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in corresponding
Deutsche Portfolio........ $11,112 $11,111 $11,111 $11,111 $11,111 $11,111 $11,111 $11,111 $11,111
Deferred organization
expenses (Note 1)......... 10,043 10,043 10,043 10,043 10,043 10,043 10,043 10,043 10,043
-----------------------------------------------------------------------------------------
Total Assets............. 21,155 21,154 21,154 21,154 21,154 21,154 21,154 21,154 21,154
-----------------------------------------------------------------------------------------
LIABILITIES
Organization expenses
payable................... 10,043 10,043 10,043 10,043 10,043 10,043 10,043 10,043 10,043
-----------------------------------------------------------------------------------------
Total Liabilities........ 10,043 10,043 10,043 10,043 10,043 10,043 10,043 10,043 10,043
-----------------------------------------------------------------------------------------
Net Assets............... $11,112 $11,111 $11,111 $11,111 $11,111 $11,111 $11,111 $11,111 $11,111
=========================================================================================
Shares outstanding
($.001 par value)........... 888.96 888.88 888.88 888.88 888.88 888.88 888.88 888.88 888.88
=========================================================================================
Net Asset Value per share..... $12.50 $12.50 $12.50 $12.50 $12.50 $12.50 $12.50 $12.50 $12.50
=========================================================================================
COMPOSITION OF NET ASSETS
Capital stock............... $ 1 $ 1 $ 1 $ 1 $ 1 $ 1 $ 1 $ 1 $ 1
Paid in capital............. 11,111 11,110 11,110 11,110 11,110 11,110 11,110 11,110 11,110
-----------------------------------------------------------------------------------------
Net Assets,
September 17, 1997..... $11,112 $11,111 $11,111 $11,111 $11,111 $11,111 $11,111 $11,111 $11,111
=========================================================================================
</TABLE>
See Notes to Financial Statement.
<PAGE>
DEUTSCHE FUNDS, INC.
NOTES TO FINANCIAL STATEMENT
SEPTEMBER 17, 1997
Note 1 - General
Deutsche Funds, Inc. (the "Company") was incorporated in Maryland on May 22,
1997 and is registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company. The Company currently
consists of eleven separate investment series (each a "Fund" and collectively
the "Funds"). The accompanying financial statement and notes relate to nine of
these Funds which are: Deutsche Top 50 World; Deutsche Top 50 Europe; Deutsche
Top 50 Asia; Deutsche Top 50 US; Deutsche European Mid-Cap Fund; Deutsche German
Equity Fund and Deutsche Japanese Equity Fund (collectively, the "Equity
Funds"); and Deutsche Global Bond Fund and Deutsche European Bond Fund
(collectively, the "Bond Funds").
Each of the Funds will seek to achieve their respective investment objective by
investing substantially all of their assets in the corresponding portfolio of
Deutsche Portfolios (the "Portfolio Trust") having substantially the same
investment objective of each of the respective Funds. The Portfolio Trust is an
open-end management investment company and comprises ten portfolios (each a
"Portfolio").
The Company has not retained the services of an investment adviser since the
Funds will seek to achieve their investment objective by investing all of their
investable assets in their corresponding Portfolio of the Portfolio Trust. Each
Portfolio is managed by Deutsche Fund Management, Inc. ("DFM"), an indirect
subsidiary of Deutsche Bank AG. Federated Services Company intends to serve as
Administrator to the Funds and Federated Shareholder Services Company intends to
serve as transfer agent and dividend disbursing agent to the Funds. Edgewood
Services, Inc. ("Edgewood") intends to serve as distributor to the Funds (the
"Distributor").
Each Fund will absorb daily a pro-rata portion of its corresponding Portfolio's
income and expenses, including fees paid to DFM and the amortization of
organization expenses. Additionally, each Fund offers two classes of shares to
investors, Class A and Class B. Both Class A Shares and Class B Shares are
subject to a Service Plan and Class B Shares are also subject to a Distribution
Plan. Each Class will bear its respective portion of the expenses under the
Service and Distribution Plan.
The Company has had no operations through September 17, 1997, other than
those relating to organizational matters and the sale of 888.88 Class A shares
for $11,111 by each Fund, except for Deutsche Top 50 World which sold 888.96
Class A Shares for $11,112, to Edgewood. Organization expenses incurred in
connection with the organization and initial registration of the Company will be
paid initially by DFM and reimbursed by the Funds. Such organization expenses
have been deferred and will be amortized ratably over a period of sixty months
from the commencement of operations of the Funds. The amount paid by each Fund
on any redemption by Edgewood (or any subsequent holder) of such Fund's initial
shares will be reduced by the pro-rata portion of any unamortized organization
expenses of the Funds.
Note - 2 Commitments and Related Agreements
The Company intends to retain the services of Federated Services Company as
Administrator. Under the Administration Agreement, Federated Services Company
will assist in the operations of the Funds subject to the direction and control
of the Board of Directors of the Company. For its services, Federated Services
Company will receive a fee from each Fund, which is computed daily and paid
monthly, at an annual rate of 0.065% of the average daily net assets of each
Fund up to $200 million and 0.0525% of such assets in
<PAGE>
excess of $200 million for the Fund's then current fiscal year. The
Administrator will receive a minimum fee of $75,000 per Fund annually after the
second full year of the Company's operations.
The Company intends to enter into a distribution agreement with Edgewood.
Edgewood will serve as principal distributor for shares of each Fund. The
Company intends to adopt a Service and Distribution Plan in accordance with Rule
12b-1 of the 1940 Act whereby Class B Shares are subject to the Distribution
Plan and Class A Shares and Class B Shares are subject to the Service Plan.
Under the Distribution Plan, Class B Shares of each Fund will pay a fee to the
Distributor in an amount computed at an annual rate of 0.75% of the average
daily net assets of the Fund represented by Class B Shares to finance any
activity which is principally intended to result in the sale of Class B Shares
of the Fund. Under the Service Plan, each Fund will pay to DFM, for the
provision of certain services to the holders of Class A Shares and Class B
Shares, a fee computed at an annual rate of 0.25% of the average daily net
assets of each such Class of Shares.
Federated Shareholder Services Company will serve as the transfer agent and
dividend disbursing agent for each Fund. Federated Services Company and
Federated Shareholder Services Company are both affiliated with Edgewood
Services Inc. IBT Fund Services (Canada) Inc. will provide fund accounting
services to the Funds.
DFM has voluntarily agreed that it will reimburse each Fund through at least
August 31, 1998, or until the average daily net assets of such Fund exceed $25
million, whichever occurs first, to the extent necessary to maintain each Fund's
total operating expenses (which includes expenses of the Fund and its pro-rata
portion of expenses of the corresponding Portfolio, but does not cover
extraordinary expenses during the period) at not more than 1.60%, 2.35%, 1.30%
and 2.05% of the average daily net assets of Class A Shares of the Equity Funds,
the Class B Shares of the Equity Funds, the Class A Shares of the Bond Funds and
Class B Shares of the Bond Funds, respectively, with the exception of Deutsche
Top 50 US for which DFM has voluntarily agreed to maintain its expenses at 1.50%
and 2.25% of average daily net assets for Class A and Class B Shares,
respectively.
<PAGE>
Report of Independent Accountants
To the Shareholder and Board
of Directors of Deutsche Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of Deutsche Top 50
World, Deutsche Top 50 Europe, Deutsche Top 50 Asia, Deutsche Top 50 US,
Deutsche European Mid-Cap Fund, Deutsche German Equity Fund, Deutsche Japanese
Equity Fund, Deutsche Global Bond Fund and Deutsche European Bond Fund (nine of
eleven separate funds constituting Deutsche Funds, Inc., hereafter referred to
as the "Funds") at September 17, 1997, in conformity with generally accepted
accounting principles. This financial statement is the responsibility of the
Funds' management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this financial statement
in accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
September 19, 1997
<PAGE>
DEUTSCHE PORTFOLIOS
STATEMENT OF ASSETS & LIABILITIES
SEPTEMBER 17, 1997
<TABLE>
<CAPTION>
Top 50 Top 50 Top 50 Top 50 Japanese Global European
World Europe Asia US Provesta Investa Equity Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
(US (US (US (US (US (US (US (US (US
Dollar) Dollar) Dollar) Dollar) Dollar) Dollar) Dollar) Dollar) Dollar)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash........................ $11,114 $11,112 $11,112 $11,112 $11,112 $11,112 $11,112 $11,112 $11,112
Deferred organization
expenses (Note 1) 52,957 52,957 52,957 52,957 52,957 52,957 52,957 52,957 52,957
------------------------------------------------------------------------------------------
Total Assets............. 64,071 64,069 64,069 64,069 64,069 64,069 64,069 64,069 64,069
------------------------------------------------------------------------------------------
LIABILITIES
Organization expenses
payablE................... 52,957 52,957 52,957 52,957 52,957 52,957 52,957 52,957 52,957
------------------------------------------------------------------------------------------
Total Liabilities........ 52,957 52,957 52,957 52,957 52,957 52,957 52,957 52,957 52,957
------------------------------------------------------------------------------------------
Net Assets............... $11,114 $11,112 $11,112 $11,112 $11,112 $11,112 $11,112 $11,112 $11,112
==========================================================================================
</TABLE>
See Notes to Financial Statement.
<PAGE>
DEUTSCHE PORTFOLIOS
NOTES TO FINANCIAL STATEMENT
SEPTEMBER 17, 1997
1 - GENERAL
Deutsche Portfolios ("Portfolio Trust") was organized on June 20, 1997, as a
business trust under the laws of the State of New York and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Portfolio Trust currently consists of ten
separate investment series (each a "Portfolio" and collectively the
"Portfolios"), each of which is, in effect, a separate mutual fund. The
accompanying financial statement and notes relate to nine of these Portfolios
which are Top 50 World Portfolio (US Dollar), Top 50 Europe Portfolio (US
Dollar), Top 50 Asia Portfolio (US Dollar), Top 50 US Portfolio (US Dollar),
Provesta Portfolio (US Dollar), Investa Portfolio (US Dollar) and Japanese
Equity Portfolio (US Dollar) (collectively, the "Equity Portfolios"), and Global
Bond Portfolio (US Dollar) and European Bond Portfolio (US Dollar)
(collectively, the "Bond Portfolios").
Deutsche Fund Management, Inc. ("DFM"), an indirect subsidiary of Deutsche
Bank AG, intends to serve as investment manager (the "Manager") to the Portfolio
Trust. Investors Bank & Trust Company intends to serve as the custodian to the
Portfolio Trust. IBT Fund Services (Canada) Inc. intends to serve as the fund
accounting agent to the Portfolio Trust.
The Declaration of Trust of the Portfolios permits its Trustees to issue
interests in the Portfolio Trust. The Portfolios have had no operations through
September 17, 1997, other than those relating to organizational matters,
including the issuance of the following initial interests ("Initial Interests")
to Deutsche Funds, Inc. (the "Deutsche Funds") and Edgewood Services Inc.,
("Edgewood"), distributor of the Deutsche Funds:
<TABLE>
<CAPTION>
INITIAL INTEREST
PORTFOLIO INITIAL INTEREST TO DEUTSCHE FUND AMOUNT TO EDGEWOOD AMOUNT
- --------- --------------------------------- ------ ----------- ------
<S> <C> <C> <C> <C>
Top 50 World
Portfolio (US Dollar) Deutsche Top 50 World $11,112 Edgewood $2
Top 50 Europe
Portfolio (US Dollar) Deutsche Top 50 Europe $11,111 Edgewood $1
Top 50 Asia
Portfolio (US Dollar) Deutsche Top 50 Asia $11,111 Edgewood $1
Top 50 US
Portfolio (US Dollar) Deutsche Top 50 US $11,111 Edgewood $1
Provesta
Portfolio (US Dollar) Deutsche European Mid-Cap Fund $11,111 Edgewood $1
Investa
Portfolio (US Dollar) Deutsche German Equity Fund $11,111 Edgewood $1
Japanese Equity
Portfolio (US Dollar) Deutsche Japanese Equity Fund $11,111 Edgewood $1
Global Bond
Portfolio (US Dollar) Deutsche Global Bond Fund $11,111 Edgewood $1
European Bond
Portfolio (US Dollar) Deutsche European Bond Fund $11,111 Edgewood $1
</TABLE>
The investment objective of the Equity Portfolios is primarily to achieve high
capital appreciation, and as a secondary objective, reasonable dividend income.
The investment objective of the Bond Portfolios is to achieve steady, high
income.
Organization expenses incurred in connection with the organization and initial
registration of the Portfolio Trust will be paid initially by DFM and reimbursed
by the Portfolios. Such organization expenses have been deferred and will be
amortized ratably over a period of sixty months from the commencement of
operations of the Portfolios. Any amount received by the Portfolio from its
corresponding Fund as a result of a redemption by Edgewood of any of its Initial
Interest in the Portfolio will be applied so as to reduce the amount of
unamortized organization expenses. The amount paid by the Portfolio Trust on any
withdrawal by the Deutsche Funds of all or part of its Initial Interest in the
Portfolios will be reduced by a portion of any unamortized organization expenses
of the Portfolios, determined by the proportion of the amount of the Initial
Interest withdrawn to the aggregate amount of the Initial Interests in the
Portfolios then outstanding after taking into account any prior withdrawals of
any portion of the Initial Interests in the Portfolios.
<PAGE>
2 - COMMITMENTS AND RELATED AGREEMENTS
The Portfolio Trust intends to retain the services of DFM as Manager. DFM
retains overall responsibility for supervision of the investment management
program for each Portfolio but has delegated the day-to-day management of the
investment operations of each Portfolio to an Adviser. As compensation for the
services rendered by DFM under the investment management agreement ("Management
Agreement") with the Portfolio Trust with respect to each Portfolio, DFM
receives a fee from each Portfolio, which is computed daily and paid monthly,
equal to the following percentages of each Portfolio's average daily net assets
on an annualized basis for the Portfolio's then-current fiscal year:
Top 50 World Portfolio (US Dollar) 1.00%
Top 50 Europe Portfolio (US Dollar) 1.00%
Top 50 Asia Portfolio (US Dollar) 1.00%
Top 50 US Portfolio (US Dollar) 0.85%
Provesta Portfolio (US Dollar) 0.85%
Investa Portfolio (US Dollar) 0.85%
Japanese Equity Portfolio (US Dollar) 0.85%
Global Bond Portfolio (US Dollar) 0.75%
European Bond Portfolio (US Dollar) 0.75%
DFM has retained the services of DWS International Portfolio Management GmbH
("DWS") as investment adviser of the Portfolios other than the Top 50 US
Portfolio (US Dollar). Deutsche Morgan Grenfell Investment Management, Inc.
("DMGIM") is the investment adviser of the Top 50 US Portfolio (US Dollar). The
advisers are indirect subsidiaries of Deutsche Bank AG. As compensation for
their services DWS and DMGIM receive a fee paid from DFM which is based on the
average daily net assets of the applicable Portfolio.
The Portfolio Trust intends to retain Federated Services Company as Operations
Agent to the Portfolios. As Operations Agent of the Portfolios, Federated
Services Company will receive a fee from each Portfolio, which is computed daily
and paid monthly, at the annual rate of 0.035% of the average daily net assets
of each Portfolio for the Portfolio's then-current fiscal year, subject to a
minimum fee of $60,000 per Portfolio annually. Additionally, Federated Services
Company will receive, in its capacity as Administrator and Transfer Agent of the
Deutsche Funds and as Operating Agent of the Portfolios, a minimum aggregate fee
from each Portfolio, its corresponding Fund and any other fund investing in each
Portfolio, taken together, of $75,000 for the first year of each Portfolio's
operations and $125,000 for the second year. Federated Services Company is
affiliated with Edgewood.
The Portfolio Trust intends to enter into an administrative agreement with IBT
Trust Company (Cayman) Ltd. ("IBT (Cayman)"). As Administrative Agent of the
Portfolios, IBT (Cayman) will receive a fee from each Portfolio, which is
computed daily and paid monthly, at the annual rate of $5000 per each Portfolio.
<PAGE>
Report of Independent Accountants
To the Initial Interest Holders and Board
of Trustees of Deutsche Portfolios
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of Top 50 World
Portfolio (US Dollar), Top 50 Europe Portfolio (US Dollar), Top 50 Asia
Portfolio (US Dollar), Top 50 US Portfolio (US Dollar), Provesta Portfolio (US
Dollar), Investa Portfolio (US Dollar), Japanese Equity Portfolio (US Dollar),
Global Bond Portfolio (US Dollar) and European Bond Portfolio (US Dollar) (nine
of ten separate portfolios constituting Deutsche Portfolios, hereafter referred
to as the "Portfolios") at September 17, 1997, in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Portfolios' management; our responsibility is to express an opinion on
this financial statement based on our audit. We conducted our audit of this
financial statement in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse
Price Waterhouse
Curacao, Netherlands Antilles
September 19, 1997
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by the
Corporation or the Distributor. The Prospectus and this Statement of Additional
Information do not constitute an offer by any Fund or by the Distributor to sell
or solicit any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Funds or the
Distributor to make such offer in such jurisdictions.
DEUT001S
<PAGE>
APPENDIX A
FUNDS AND CORRESPONDING PORTFOLIOS
The Corporation seeks to achieve the investment objective of each Fund
by investing all of the Fund's investable assets in the corresponding
non-diversified, open-end management investment company (each, a "Portfolio" and
collectively the "Portfolios") listed below:
Top 50 World Top 50 World Portfolio (US Dollar)
("Top 50 World Portfolio")
Top 50 Europe Top 50 Europe Portfolio (US Dollar)
("Top 50 Europe Portfolio")
Top 50 Asia Top 50 Asia Portfolio (US Dollar)
("Top 50 Asia Portfolio")
Top 50 US Top 50 US Portfolio (US Dollar)
("Top 50 US Portfolio")
(collectively, the "Top 50 Funds") (collectively, the "Top 50 Portfolios")
European Mid-Cap Fund Provesta Portfolio (US Dollar)
("Provesta Portfolio")
German Equity Fund Investa Portfolio (US Dollar)
("Investa Portfolio")
Japanese Equity Fund Japanese Equity Portfolio (US Dollar)
("Japanese Equity Portfolio")
(collectively with the Top 50 (collectively with the Top 50 Portfolios,
Funds, the "Equity Funds") the "Equity Portfolios")
Global Bond Fund Global Bond Portfolio (US Dollar)
("Global Bond Portfolio")
European Bond Fund European Bond Portfolio (US Dollar)
("European Bond Portfolio")
(collectively, the Bond Funds)(collectively, the Bond Portfolios)
DEUT001S
1
<PAGE>
APPENDIX B - Description of Security Ratings
STANDARD & POOR'S
Corporate and Municipal Bonds
AAA - Debt rated AAA has the highest ratings assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
MOODY'S
Corporate and Municipal Bonds
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
DEUT001S
A-1
<PAGE>
<PAGE>
DEUT028I
STATEMENT OF ADDITIONAL INFORMATION
DEUTSCHE MONEY MARKET FUNDS
FEDERATED INVESTORS TOWER, PITTSBURGH, PA 15222-3779
==============================================================================
The Deutsche US Money Market Fund (the "Class A and Class B Fund") and
the Deutsche Institutional US Money Market Fund (the "Class Y Fund")
(collectively, the "Funds"), each is a series of the Deutsche Funds, Inc. (the
"Corporation"), a management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"). The investment objective of
each Fund is to achieve as high a level of current income as is consistent with
the preservation of capital and the maintenance of liquidity.
The Corporation seeks to achieve the investment objective of each Fund
by investing all of the Fund's investable assets in US Money Market Portfolio
(US Dollar) (the "Portfolio"), a diversified, open-end management investment
company. The Portfolio pursues its investment objective by investing in high
quality, short-term money market instruments.
The Portfolio is a series of the Deutsche Portfolios (the "Portfolio
Trust"), an open-end investment company organized as a trust under the laws of
the State of New York. The Portfolio has the same investment objective as the
Funds. There can be no assurance that the Funds or the Portfolio will achieve
their investment objective.
The Class A and Class B Fund offers two classes of shares, Class A
shares and Class B shares (individually and collectively referred to as "Shares"
as the context may require). Class A shares are offered at net asset value;
Class B shares are designed primarily for temporary investment as part of a
special investment program in Class B shares, and unlike shares of most money
market funds, are offered at net asset value, but with a declining contingent
deferred sales charge on redemptions made within six years.
Deutsche Fund Management, Inc. ("DFM"), a registered investment adviser
and an indirect subsidiary of Deutsche Bank AG, a major global financial
institution, is the investment manager (the "Manager") of the Portfolio.
Deutsche Asset Management North America Inc. ("DMGIM") is the investment adviser
(the "Adviser") of the Portfolio. This Statement of Additional Information is
not a prospectus and should be read in conjunction with the Funds' Prospectus
dated
<PAGE>
[DATE] 1997, a copy of which may be obtained from the Corporation at the address
noted, above.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS [DATE,] 1997.
2
<PAGE>
TABLE OF CONTENTS
CROSS-REFERENCE
TO PAGE IN PROSPECTUS PAGE
Investment Objective and Policies
Investment Restrictions
Directors, Trustees and Officers
Manager
Adviser
Administrator
Operations Agent
Administrative Agent
Distributor
Transfer Agent, Custodian and Fund Accountant
Independent Accountants
Purchase of Shares
Redemption of Shares
Net Asset Value; Redemption in Kind
Computation of Performance
Portfolio Transactions
Federal Taxes
Description of Shares
Additional Information
Bond, Note and Commercial Paper Ratings
Financial Statements
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following supplements the information contained in the Funds'
Prospectus concerning the investment objective, policies and techniques of the
Portfolio.
LOANS OF PORTFOLIO SECURITIES. Securities of the Portfolio may be
loaned if such loans are secured continuously by cash or equivalent collateral
or by an irrevocable letter of credit in favor of the Portfolio at least equal
at all times to 100% of the market value of the securities loaned plus accrued
income. While such securities are on loan, the borrower pays the Portfolio any
income accruing thereon, and cash collateral may be invested for the Portfolio,
thereby earning additional income. All or any portion of interest earned on
invested collateral may be paid to the borrower. Loans are subject to
termination by the Portfolio in the normal settlement time, currently three
business days after notice, or by the borrower on one day's notice. Borrowed
securities are returned when the loan is terminated. Any appreciation or
depreciation in the market price of the borrowed securities which occurs during
the term of the loan inures to the
4
<PAGE>
Portfolio and its investors. Reasonable finders' and custodial fees may be paid
in connection with a loan. In addition, all facts and circumstances, including
the creditworthiness of the borrowing financial institution, are considered
before a loan is made and no loan is made in excess of one year. There is the
risk that a borrowed security may not be returned to the Portfolio.
INVESTMENT RESTRICTIONS
The investment restrictions of the Funds and the Portfolio are
identical, unless otherwise specified. Accordingly, references below to the
Funds also include the Portfolio unless the context requires otherwise;
similarly, references to the Portfolio also include the Funds unless the context
requires otherwise.
The investment restrictions below have been adopted by the Corporation
with respect to the Funds as indicated and by the Portfolio Trust with respect
to the Portfolio as indicated. Except where otherwise noted, these investment
restrictions are "fundamental" policies which, under the 1940 Act, may not be
changed without the vote of a "majority of the outstanding voting securities"
(as defined in the 1940 Act) of a Fund or the Portfolio, as the case may be. The
percentage limitations contained in the restrictions below apply at the time of
the purchase of securities except as otherwise noted. Whenever a Fund is
requested to vote on a change in the fundamental investment restrictions of the
Portfolio, the Corporation will hold a meeting of Fund shareholders and will
cast its votes as instructed by such Fund's shareholders.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any Securities and
Exchange Commission ("SEC") or SEC staff interpretations thereof are amended or
modified, each Fund and the Portfolio may not (except that the Corporation may
invest all of each Fund's assets in the Portfolio):
(1) enter into repurchase agreements with more than seven days to
maturity if, as a result thereof, more than 10% of the market value of its net
assets would be invested in such repurchase agreements together with any other
investment for which market quotations are not readily available;
(2) enter into reverse repurchase agreements which, including any
borrowings under Investment Restriction No. 3, exceed, in the aggregate,
one-third of the market value of its total assets, less liabilities other than
obligations created by reverse repurchase agreements. In the event that such
agreements exceed, in the aggregate, one-third of such market value, it will,
within three days thereafter (not including Sundays and holidays) or such longer
period as the SEC may prescribe, reduce the amount of the obligations created by
reverse repurchase agreements to an extent that such obligations will not
exceed, in the aggregate, one-third of the market value
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of its assets;
(3) borrow money, except from banks for extraordinary or emergency
purposes and then only in amounts not to exceed 10% of the value of its total
assets, taken at cost, at the time of such borrowing; mortgage, pledge or
hypothecate any assets except in connection with any such borrowing and in
amounts not to exceed 10% of the value of its net assets at the time of such
borrowing.
Neither the Portfolio nor the Corporation on behalf of the Funds, as
the case may be, will purchase securities while borrowings exceed 5% of its
total assets. This borrowing provision is included to facilitate the orderly
sale of portfolio securities, for example, in the event of abnormally heavy
redemption requests, and is not for investment purposes and does not apply to
reverse repurchase agreements;
(4) enter into when-issued commitments exceeding in the aggregate 15%
of the market value of its total assets, less liabilities other than obligations
created by when-issued commitments;
(5) purchase the securities or other obligations of issuers conducting
their principal business activity in the same industry if, immediately after
such purchase, the value of such investments in such industry would equal or
exceed 25% of the value of its total assets. For purposes of industry
concentration, there is no percentage limitation with respect to investments in
U.S. Government securities and negotiable certificates of deposit, fixed time
deposits and bankers' acceptances of U.S. branches of U.S. banks and U.S.
branches of non-U.S. banks that are subject to the same regulation as U.S.
banks;
(6) purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of its total assets
would be invested in securities or other obligations or any one such issuer.
This limitation does not apply to issues of the U.S. Government, its agencies or
instrumentalities;
(7) make loans, except through the purchase or holding of debt
obligations, repurchase agreements or loans of portfolio securities in
accordance with its investment objective and policies (see "Investment Objective
and Policies");
(8) purchase or sell puts, calls, straddles, spreads, or any
combinations thereof; real estate; commodities; commodity contracts or interests
in oil, gas or mineral exploration or development programs. However, bonds or
commercial paper issued by companies which invest in real estate or interests
therein including real estate investment trusts may be purchased;
(9) purchase securities on margin, make short sales of
securities or maintain a short position, provided that this
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restriction is not deemed to be applicable to the purchase or
sale of when-issued securities or of securities for delivery at a
future date;
(10) invest in fixed time deposits with a duration of over seven
calendar days, or in fixed time deposits with a duration of from two business
days to seven calendar days if more than 10% of its total assets would be
invested in such deposits;
(11) acquire securities of other investment companies;
(12) act as an underwriter of securities; or
(13) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act or the rules
and regulations promulgated thereunder.
NONFUNDAMENTAL RESTRICTIONS. In order to comply with certain federal
statutes and policies neither the Portfolio nor the Funds, may as a matter of
operating policy (except that each Fund may invest all of the its assets in an
open-end investment company with substantially the same investment objective,
policies and restrictions as the Fund): (i) borrow money at any time at which
the amount of its borrowings exceed 5% of its total assets (taken at market
value), (ii) purchase securities issued by any investment company if such
purchase at the time thereof would cause more than 5% of its total assets (taken
at the greater of cost or market value) to be invested in the securities of such
issuer, would cause more than 10% of its total assets (taken at the greater of
cost or market value) to be invested in the securities of such issuer and all
other investment companies or would cause more than 3% of the outstanding voting
securities of any such issuer to be held for it, or (iii) invest more than 10%
of its net assets in securities (valued at the greater of cost or market value)
that are subject to legal or contractual restrictions on resale or in securities
which are not readily marketable, including repurchase agreements and fixed time
deposits having maturities of more than 7 days, provided that there is no
limitation with respect to or arising out of investment in (a) securities that
have legal or contractual restrictions on resale but have a readily available
market or (b) securities that are not registered under the Securities Act but
which can be sold to qualified institutional buyers in accordance with Rule 144A
under the Securities Act. These policies are not fundamental and may be changed
without shareholder or investor approval in response to changes in the various
federal requirements.
PERCENTAGE AND RATING RESTRICTIONS. Except with respect to Fundamental
Investment Restriction No. 2 above and the limitation on the Portfolio's
obligations created by reverse repurchase agreements, described in the
Prospectus under "Investment Objectives, Policies and Restrictions - Reverse
Repurchase Agreements," a percentage or rating restriction on
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investment or utilization of assets set forth above or referred to in the
Prospectus is adhered to at the time an investment is made or assets are so
utilized, a later change in percentage resulting from changes in the value of
the portfolio securities or a later change in the rating of a portfolio security
is not considered a violation of policy. If the Funds' and the Portfolio's
investment restrictions relating to any particular investment practice or policy
are not consistent, the Portfolio has agreed with the Corporation, on behalf of
the Funds, that the Portfolio will adhere to the more restrictive limitation.
The Funds will comply with Rule 2a-7 under the 1940 Act, including the
diversification, quality and maturity limitations imposed by the Rule.
Currently, pursuant to Rule 2a-7, the Funds may invest only in U.S.
dollar-denominated "eligible securities" (as that term is defined in the Rule)
that have been determined by the Adviser to present minimal credit risks
pursuant to procedures approved by the Trustees. Generally, an eligible security
is a security that (i) has a remaining maturity of 397 days or less and (ii) is
rated, or is issued by an issuer with short-term debt outstanding that is rated
in one of the two highest rating categories by two nationally recognized
statistical rating organizations ("NRSROs") or, if only one NRSRO has issued a
rating, by that NRSRO. A security that originally had a maturity of greater than
397 days is an eligible security if its remaining maturity at the time of
purchase is 397 calendar days or less and the issuer has outstanding short-term
debt that would be an eligible security. Unrated securities may also be eligible
securities if the Adviser determines that they are of comparable quality to a
rated eligible security pursuant to guidelines approved by the Trustees. A
description to the ratings of some NRSROs appears in the Appendix attached
hereto.
Under Rule 2a-7 each Fund may not invest more than five percent of its
assets in the securities of any one issuer other than the United States
Government, its agencies and instrumentalities. In addition, each Fund may not
invest in a security that has received, or is deemed comparable in quality to a
security that has received, the second highest rating by the requisite number of
NRSROs (a "second tier security") if immediately after the acquisition thereof
the Fund would have invested more than (A) the greater of one percent of its
total assets or one million dollars in securities issued by that issuer which
are second tier securities, or (B) five percent of its total assets in second
tier securities.
DIRECTORS, TRUSTEES AND OFFICERS
The Directors of the Corporation, Trustees of the Portfolio Trust and
executive officers of the Corporation, and principal occupations during the past
five years (although their titles may have varied during the period) and
business addresses are:
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DIRECTORS OF THE CORPORATION AND TRUSTEES OF THE PORTFOLIO TRUST
Edward C. Schmults - Member of the Board of Directors of Green Point Financial
Corp. Chairman of the Board of Trustees of The Edna McConnell Clark Foundation.
Director of The Germany Fund, Inc. and The Central European Equity Fund, Inc.
Senior Vice President-External Affairs and General Counsel of GTE Corporation
(prior to 1994). Mr. Schmults' address is Rural Route One, Box 788,
Cuttingsville, Vermont 05738.
Robert H. Wadsworth - President of The Wadsworth Group, First Fund Distributors,
Inc. and Guinness Flight Investment Funds, Inc. Director of The Germany Fund,
Inc., The New Germany Fund, Inc. and The Central European Equity Fund, Inc. Vice
President of Professionally Managed Portfolios and Advisors Series Trust. Mr.
Wadsworth's address is Investment Company Administration Corp., 479 West 22nd
Street, New York, NY 10011.
Werner Walbroel - President and Chief Executive of the German American Chamber
of Commerce, Inc. Member of the United States German Youth Exchange Council.
Director of TUV Rheinland of North America, Inc. President and Director of
German American Partnership Program. Director of The Germany Fund, Inc., DB New
World Fund, Limited and LDC, and The Central European Equity Fund, Inc. Mr.
Walbroel's address is German American Chamber of Commerce, Inc., 40 West 57th
Street, New York, NY 10019.
G. Richard Stamberger* **- Managing Director of Deutsche Morgan Grenfell Inc.
President, Deutsche Morgan Grenfell Investment Management Inc. Director of The
Germany Fund, Inc. and The Central European Equity Fund, Inc. Managing Director
of C.J. Lawrence, Inc. (prior to 1993). Mr. Stamberger's address is Deutsche
Morgan Grenfell Investment Management Inc, 31 West 52nd Street, New York, NY
10019.
Christian Strenger* ** - Managing Director of DWS Deutsche Gesellschaft fuer
Wertpapiersparen mbH (since 1991). Director of The Germany Fund, Inc., The New
Germany Fund, Inc. and The Central European Equity Fund, Inc. Managing Director
of Deutsche Bank Securities Corp. (prior to 1991). Mr. Strenger's address is DWS
Deutsche Gesellschaft fuer Wertpapiersparen mbH, Gruneburgweg 113-115, 60323
Frankfurt am Main, Germany.
OFFICERS OF THE CORPORATION
Brian A. Lee* ** - President. President and Managing Director of DFM (since
January 1997). Director of Deutsche Bank Trust Company (since 1994). President
and Chief Operating Officer of Deutsche Bank Trust Company (1994 - 1997).
Director of Deutsche Bank Securities Corp. (1993-1994). Director of Value Line
Securities, Inc. (1992-1993). National Director and Head of Retail Sales and
Service Division, The Dreyfus Corporation (prior
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to 1992). Director, Boggy Creek Hole in the Wall Gang Camp for
Children. Trustee, Valley Hospital. Director, Capital Sources
Board, State of New Jersey.
Joseph Cheung* - Treasurer. Vice President (since 1996), Assistant Vice
President (1994-1996) and Associate (1991-1994) of Deutsche Morgan Grenfell Inc.
Treasurer of the CountryBaskets Index Fund, Inc. (1996-1997). Assistant
Secretary and Assistant Treasurer of The Germany Fund, Inc., The Central
European Equity Fund, Inc. and the New Germany Fund, Inc. (since 1993).
Robert R. Gambee* - Secretary. Director of Deutsche Morgan Grenfell, Inc. (since
1992). First Vice President of Deutsche Morgan Grenfell, Inc. (1987 - 1991).
Treasurer and Secretary of The Germany Fund, Inc., The Central European Equity
Fund, Inc. and the New Germany Fund, Inc.
Laura Weber* - Assistant Secretary and Assistant Treasurer. Associate of
Deutsche Morgan Grenfell Inc. (since June, 1997). Manager of Raymond James
Financial (1996-1997). Portfolio Accountant of Oppenheimer Capital (1995-1996).
Supervisor (1994-1995) and Mutual Fund Accountant (1993-1994) of Alliance
Capital Management.
* is an "interested person" of the Corporation or the Portfolio Trust as that
term is defined in the 1940 Act.
** Mr. Lee, Mr. Strenger and Mr. Stamberger own less than 1% of
the shares of Deutsche Bank AG, of which the Manager and Adviser
are indirect subsidiaries.
The address of each officer of the Corporation is 31 West 52nd Street,
New York, NY 10019.
The Portfolio Trust does not have officers, but instead acts
exclusively through its Trustees and agents of the Portfolio Trust authorized by
the Trustees.
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COMPENSATION TABLE
DIRECTORS OF THE CORPORATION
AGGREGATE COMPENSATION FROM ESTIMATED TOTAL
THE CORPORATION COMPENSATION FROM THE
CORPORATION AND FUND
COMPLEX*
Edward C. Schmults, $7,000 $44,750
Director
Robert H. Wadsworth,
Director $7,000 $62,000
Werner $7,000 $46,250
Walbroel,
Director
G. Richard Stamberger*,
Director None None
Christian None None
Strenger,
Director
===============================================================================
COMPENSATION TABLE
TRUSTEES OF THE PORTFOLIO TRUST
AGGREGATE COMPENSATION ESTIMATED TOTAL
FROM THE PORTFOLIO TRUST COMPENSATION FROM THE
CORPORATION AND FUND
COMPLEX*
Edward C. Schmults, $7,000 $44,750
Trustee
Robert H. Wadsworth, $7,000 $62,000
Trustee
Werner Walbroel, $7,000 $46,250
Trustee
G. Richard None None
Stamberger*,
Trustee
Christian Strenger, None None
Trustee
===============================================================================
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* The Fund Complex consists of the Corporation, the Portfolio
Trust, The New Germany Fund, Inc., The Central European Equity
13
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Fund, Inc. and The Germany Fund, Inc.
The non-interested Directors of the Corporation receive a base annual
fee of $5,000 and $500 per meeting attended, plus expenses, which are paid
jointly by all series of the Corporation and allocated among the series based
upon their respective net assets.
The non-interested Trustees of the Portfolio Trust receive a base
annual fee of $5,000 and $500 per meeting attended plus expenses which is paid
jointly by all series of the Portfolio Trust and allocated among the series
based upon their respective net assets.
Neither the Corporation nor the Portfolio Trust requires employees and
none of the Corporation's officers devote full time to the affairs of the
Corporation or receive any compensation from a Fund or a Portfolio.
FUND OWNERSHIP. On the date of this Statement of Additional Information, the
Directors of the Corporation, Trustees of the Portfolio Trust and officers of
the Corporation as a group beneficially owned no outstanding shares of the
Corporation and none of the beneficial interests in any Portfolio of the
Portfolio Trust. As of the same date, no person owned 5% or more of the
outstanding voting stock of any series of the Corporation or any Portfolio
except the Corporation owned 100% of the outstanding beneficial interests in
each Portfolio and Edgewood Services, Inc. owned 100% of the outstanding voting
shares of each Fund.
MANAGER
The investment manager to the Portfolio is DFM, an indirect subsidiary
of Deutsche Bank AG, a major global banking institution headquartered in
Germany. DFM, with principal offices at 31 West 52nd Street, New York, New York
10019, is a Delaware corporation and registered investment adviser under the
Investment Advisers Act of 1940.
Pursuant to an investment management agreement with the Portfolio Trust
with respect to the Portfolio ("Management Agreement"), DFM acts as investment
manager to the Portfolio and, subject to the supervision of the Board of
Trustees of the Portfolio Trust, is responsible for, but may and has delegated
as described below, under "Adviser," the management of the investment operations
of the Portfolio's investments in accordance with its investment objective,
policies and restrictions. DFM also provides the Portfolio with overall
supervisory services over the other service providers and certain other
services. The investment management services DFM provides to the Portfolio are
not exclusive under the terms of the Management Agreement. DFM is free to render
similar investment management services to others.
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The Management Agreement is dated July 28, 1997 and will remain in
effect until July 28, 1999 and from year to year thereafter, but only so long as
the agreement is specifically approved at least annually (i) by a vote of the
holders of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the Portfolio, or by the Portfolio Trust's Trustees, and (ii) by a
vote of a majority of the Trustees of the Portfolio Trust who are not parties to
such Management Agreement or "interested persons" (as defined in the 1940 Act)
of the Portfolio Trust, cast in person at a meeting called for the purpose of
voting on such approval. The Management Agreement was initially approved at a
meeting held on July 28, 1997. The Management Agreement will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio Trust's Trustees, or by a vote of the
holders of a majority of the Portfolio's outstanding voting securities, on 60
days' written notice to the Manager and by the Manager on 90 days' written
notice to the Portfolio Trust. The Management Agreement provides that neither
DFM nor its personnel shall be liable for any error of judgment or mistake of
law or for any loss or expense in connection with the matters in which the
agreement relates, except a loss resulting from wilful misfeasance, bad faith or
gross negligence on its part in the performance of its obligations and duties
under the agreement. See "Additional Information."
As compensation for the services rendered and related expenses borne by
DFM under the Management Agreement with the Portfolio Trust with respect to the
Portfolio, DFM receives a fee from the Portfolio, which is computed daily and
may be paid monthly, equal to 0.15% of the average daily net assets of the
Portfolio on an annualized basis for the Portfolio's then-current fiscal year.
DFM and the Adviser have agreed to reimburse certain expenses of the Class A and
Class B Fund, and, together with certain other service providers to the Class Y
Fund and the Portfolio, to waive and/or reimburse expenses of the Class Y Fund,
for at least one year from the respective Fund's commencement of operations. See
also "Expenses" in the Prospectus.
The Glass-Steagall Act and other applicable laws generally prohibit
banks (including foreign banks having U.S. operations, such as Deutsche Bank AG)
from engaging in the business of underwriting or distributing securities in the
United States, and the Board of Governors of the Federal Reserve System has
issued an interpretation to the effect that under these laws a bank holding
company registered under the Federal Bank Holding Company Act (or a foreign bank
subject to such Act's provisions) or certain subsidiaries thereof may not
sponsor, organize, or control a registered open-end investment company
continuously engaged in the issuance of its shares, such as the Corporation. The
interpretation does not prohibit a holding company (or such a foreign bank) or a
subsidiary thereof from acting as investment
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manager and custodian to such an investment company. Deutsche Bank AG believes
that DFM may perform the services for the Portfolio Trust and the Corporation
contemplated by the Management Agreement without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. It is possible that future
changes in federal statutes and regulations concerning the permissible
activities of banks or trust companies, as well as further judicial or
administrative decisions and interpretations of present and future statutes and
regulations, might prevent DFM from continuing to perform such services for the
Portfolio.
ADVISER
DFM has entered into an investment advisory agreement (the "Advisory
Agreement") dated July 28, 1997 with DMGIM on behalf of the Portfolio Trust with
respect to the Portfolio and certain other portfolios of the Portfolio Trust. It
is the Adviser's responsibility, under the overall supervision of DFM, to
conduct the day-to-day investment decisions of the Portfolio, arrange for the
execution of portfolio transactions and generally manage the Portfolio's
investments in accordance with its investment objective, policies and
restrictions.
The Adviser is an indirect subsidiary of Deutsche Bank AG. For these
services, the Adviser receives from DFM a fee, which is computed daily and may
be paid monthly, equal to 0.1125% of the average daily net assets of the
Portfolio on an annualized basis for the Portfolio's then-current fiscal year.
The Advisory Agreement is dated July 28, 1997 and will remain in effect
until July 28, 1999 and from year to year thereafter, but only so long as the
agreement is specifically approved at least annually (i) by a vote of the
holders of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the Portfolio, or by the Portfolio Trust's Trustees, and (ii) by a
vote of a majority of the Trustees of the Portfolio Trust who are not parties to
such Advisory Agreement or "interested persons" (as defined in the 1940 Act) of
the Portfolio Trust, cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement was initially approved at a
meeting held on July 28, 1997. The Advisory Agreement will terminate
automatically if assigned or if the Management Agreement is terminated and is
terminable at any time without penalty by a vote of a majority of the Portfolio
Trust's Trustees, or by a vote of the holders of a majority of the Portfolio's
outstanding voting securities, on 60 days' written notice to the Adviser and by
the Adviser on 90 days' written notice to the Manager and the Portfolio Trust.
The Advisory Agreement provides that neither the Adviser nor its personnel shall
be liable for any error of judgment or mistake of law or for any loss or expense
in connection with the matters in which the agreement relates, except a loss
resulting from wilful misfeasance, bad faith or gross negligence on its part in
the
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performance of its obligations and duties under the agreement.
See "Additional Information."
ADMINISTRATOR
Under the master agreement for administration services with the
Corporation ("Administration Agreement"), Federated Services Company serves as
administrator to the Funds ("Administrator"). In connection with its
responsibilities as Administrator, Federated Services Company, among other
things (i) prepares, files and maintains the Funds' governing documents,
registration statements and regulatory filings; (ii) prepares and coordinates
the printing of publicly disseminated documents; (iii) monitors declaration and
payment of dividends and distributions; (iv) projects and reviews the Funds'
expenses; (v) performs internal audit examinations; (vi) prepares and
distributes materials to the Directors of the Corporation, (vii) coordinates the
activities of all service providers; (viii) monitors and supervises collection
of tax reclaims; and (ix) prepares shareholder meeting materials.
The Administration Agreement between the Corporation and Federated
Services Company (dated July 28, 1997) with respect to the Funds has an initial
term of three years. Thereafter, the Administration Agreement will remain in
effect until terminated by either party thereto. The agreement is terminable by
the Corporation at any time after the initial term without penalty by a vote of
a majority of the Directors of the Corporation, or by a vote of the holders of a
"majority of the outstanding voting securities" (as defined in the 1940 Act) of
the Corporation (see "Additional Information"). The Administration Agreement is
terminable by the Directors of the Corporation or shareholders of the Funds on
60 days' written notice to Federated Services Company. The agreement is
terminable by the Administrator on 90 days' written notice to the Corporation.
The Administration Agreement provides that neither Federated Services Company
nor its personnel shall be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in its
services, except for wilful misfeasance, bad faith or negligence or reckless
disregard of its obligations and duties under the Agreement. See "Additional
Information."
As Administrator, Federated Services Company receives a fee from each
Fund, which is computed daily and may be paid monthly, at an annual rate, for at
least the Fund's first year of operations, equal to 0.045% of the average daily
net assets of the Fund on an annualized basis for the Fund's then-current fiscal
year. If, after the Funds' first year of operations, the average net assets of
the Portfolio (excluding net assets attributable to the Class Y Fund) have not
reached $325 million, the Administrator's fee would be increased to an annual
rate of 0.065% of the average daily net assets of each Fund up to $200 million
and 0.525% of the average daily net assets of each Fund
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<PAGE>
greater than $200 million. The Administrator has agreed, together with the
Manager, the Adviser and certain other service providers to the Class Y Fund and
the Portfolio, to waive a portion of its fees and/or reimburse expenses of the
Fund under certain circumstances for at least one year from the Fund's
commencement of investment operations. See "Expenses."
OPERATIONS AGENT
Under an operations agency agreement with the Portfolio Trust
("Operations Agency Agreement"), Federated Services Company serves as operations
agent to the Portfolio ("Operations Agent"). In connection with its
responsibilities as Operations Agent of the Portfolio, Federated Services
Company, among other things, (i) prepares governing documents, registration
statements and regulatory filings; (ii) performs internal audit examinations
(iii) prepares expense projections; (iv) prepares materials for the Trustees of
the Portfolio Trust, (v) coordinates the activities of all service providers;
(vi) conducts compliance training for the Adviser; and (vii) prepares investor
meeting materials.
The Operations Agency Agreement between the Portfolio Trust and
Federated Services Company (dated July 28, 1997) with respect to the Portfolio
has an initial term of three years. Thereafter, the Operations Agency Agreement
will remain in effect until terminated by either party thereto. The agreement is
terminable by the Portfolio Trust at any time after the initial term without
penalty by a vote of a majority of the Trustees of the Portfolio Trust, or by a
vote of the holders of a "majority of the outstanding voting securities" (as
defined in the 1940 Act) of the Portfolio Trust (see "Additional Information").
The Operations Agency Agreement is terminable by the Trustees of the Portfolio
Trust or investors of the Portfolio on 60 days' written notice to Federated
Services Company. The agreement is terminable with respect to the Portfolio by
Federated Services Company on 90 days' written notice to the Portfolio Trust.
The Operations Agent Agreement provides that neither Federated Services Company
nor its personnel shall be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in its
services, except for wilful misfeasance, bad faith or gross negligence or
reckless disregard of its obligations and duties under the Agreement.
As Operations Agent of the Portfolio, Federated Services Company
receives a fee from the Portfolio, which is computed daily and paid monthly, at
an annual rate, for at least the Portfolio's first year of operations, equal to
0.015% of the average daily net assets of the Portfolio. If, after the
Portfolio's first year of operations, the average net assets of the Portfolio
(excluding net assets attributable to the Class Y Fund) have not reached $325
million, the Operations Agent's fee would be increased to an annual rate of
0.035% of the average daily net assets of the Portfolio. See "Expenses" in the
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Prospectus.
ADMINISTRATIVE AGENT
Under an administration agreement with the Portfolio Trust
("Administration Agreement"), IBT Trust Company (Cayman) Ltd. ("IBT (Cayman)")
serves as administrative agent to the Portfolio ("Administrative Agent"). In
connection with its responsibilities as Administrative Agent of the Portfolio,
IBT (Cayman) (i) files and maintains governing documents, registration
statements and regulatory filings; (ii) maintains a telephone line; (iii)
approves annual expense budget; (iv) authorizes expenses; (v) distributes
materials to the Trustees of the Portfolio Trust; (vi) authorizes dividend
distributions; (vii) maintains books and records; (viii) files tax returns and
(ix) maintains an investor register.
The Administration Agreement between the Portfolio Trust and IBT
(Cayman) (dated July 28, 1997) with respect to the Portfolio has an initial term
of three years. Thereafter, the Administration Agreement will remain in effect
until terminated by either party thereto. The agreement is terminable by the
Portfolio Trust at any time after the initial term without penalty by a vote of
a majority of the Trustees of the Portfolio Trust, or by a vote of the holders
of a "majority of the outstanding voting securities" (as defined in the 1940
Act) of the Portfolio Trust (see "Additional Information"). The Administration
Agreement is terminable by the Trustees of the Portfolio Trust or investors of
the Portfolio on 60 days' written notice to IBT (Cayman). The agreement is
terminable by IBT (Cayman) on 90 days' written notice to the Portfolio. The
Administration Agreement provides that neither IBT (Cayman) nor its personnel
shall be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in its services, except
for wilful misfeasance, bad faith or negligence or reckless disregard of its
obligations and duties under the Agreement.
As Administrative Agent of the Portfolio, IBT (Cayman) receives a fee
from the Portfolio, which may be paid monthly, at the annual rate of $5,000.
DISTRIBUTOR
The distribution agreement (the "Distribution Agreement")(dated July
28, 1997) between the Corporation and Edgewood Services, Inc. (the
"Distributor") remains in effect
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indefinitely, but only so long as such agreement is specifically approved at
least annually (i) by a vote of the holders of a "majority of the outstanding
voting securities" (as defined in the 1940 Act) of the Funds, or by the
Corporation's Directors, and (ii) by a vote of a majority of the Directors of
the Corporation who are not parties to such Distribution Agreement or
"interested persons" (as defined in the 1940 Act) of the Corporation, cast in
person at a meeting called for the purpose of voting on such approval. The
Distribution Agreement terminates automatically if assigned by either party
thereto and is terminable with respect to the Funds at any time without penalty
by a vote of a majority of the Directors of the Corporation or by a vote of the
holders of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the Funds (see "Additional Information"). The Distribution
Agreement is terminable with respect to the Funds by the Corporation's Directors
or shareholders of the Funds on 60 days' written notice to Edgewood. The
Agreement is terminable by the Distributor on 90 days' written notice to the
Corporation.
The Distributor is not obligated to sell any specific number of shares.
Under a plan adopted in accordance with Rule 12b-1 of the 1940 Act on July 28,
1997, Class B Shares of the Class A and Class B Fund are subject to a
distribution plan (the "Distribution Plan") and Class A Shares and Class B
Shares of the Class A and Class B Fund are subject to a service plan (the
"Service Plan").
Under the Distribution Plan, Class B Shares will pay a fee to the
Distributor in an amount computed at an annual rate of 0.75% of the average
daily net assets of the Class A and Class B Fund represented by Class B Shares
to finance any activity which is principally intended to result in the sale of
Class B Shares of the Class A and Class B Fund subject to the Distribution Plan.
A report of the amounts expended pursuant to the Distribution Plan, and the
purposes for which such expenditures were incurred, must be made to the
Directors of the Corporation for review at least quarterly.
The Distribution Plan provides that it may not be amended to increase
materially the costs which the Fund may bear pursuant to the Distribution Plan
without shareholder approval and that other material amendments of the
Distribution Plan must be approved by the Directors of the Corporation, and by
the Directors who have no direct or indirect financial interest in the operation
of the Distribution Plan or any related agreement and are not "interested
persons" (as defined in the 1940 Act) of the Corporation ("Qualifying
Directors"), by vote cast in person at a meeting called for the purpose of
considering such amendments. While the Distribution Plan is in effect, the
selection and nomination of the Directors of the Corporation has been committed
to the discretion of the Qualifying Directors. The Distribution Plan has been
approved, and is subject to annual approval, by the Directors of the Corporation
and the Qualifying Directors, by
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vote cast in person at a meeting called for the purpose of voting on the
Distribution Plan. The Qualifying Directors voted to approve the Distribution
Plan at a meeting held on July 28, 1997. The Distribution Plan is terminable
with respect to the Class A and Class B Fund at any time by a vote of a majority
of the Qualifying Directors or by vote of the holders of a majority of the
Shares of the Fund.
TRANSFER AGENT, CUSTODIAN AND FUND ACCOUNTANT
Federated Shareholder Services Company, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779, serves as the transfer agent and dividend
disbursing agent for the Funds. As Transfer Agent and Dividend Disbursing Agent,
Federated Shareholder Services Company is responsible for maintaining account
records detailing the ownership of Fund shares and for crediting income, capital
gains and other changes in share ownership to shareholder accounts. Investors
Bank & Trust Company, 200 Clarendon Street, Boston, MA 02116 acts as the
custodian of the Funds' and the Portfolio's assets. Pursuant to the Custodian
Contract with the Portfolio Trust, IBT is responsible for maintaining the books
and records of portfolio transactions and holding portfolio securities and cash.
In the case of foreign assets held outside the United States, IBT employs
various subcustodians who were approved in accordance with the regulations of
the SEC. The Custodian maintains portfolio transaction records. IBT Fund
Services (Canada) Inc., One First Canadian Place, King Street West, Suite 2800,
P.O. Box 231, Toronto, Ontario M5X1C8, provides fund accounting services to the
Funds and the Portfolio including (i) calculation of the daily net asset value
for the Funds and the Portfolio; (ii) monitoring compliance with investment
portfolio restrictions, including all applicable federal and state securities
and other regulatory requirements; and (iii) monitoring the Funds' and
Portfolio's compliance with the requirements applicable to a regulated
investment company under the Code.
The Transfer Agent, Custodian and Fund Accountant each has agreed to waive fees
and/or reimburse expenses with respect to the Class Y Fund for its first year of
operations. See "Expenses" in the Prospectus.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Corporation are Price Waterhouse
LLP, 1177 Avenue of the Americas, New York, NY 10036. The independent
accountants of the Portfolio Trust are Price Waterhouse, Kaya W.F.G. (Jombi)
Mensing 18, P.O. Box 46, Curacao, Netherlands Antilles. The independent
accountants conduct annual audits of financial statements, assist in the
preparation and/or review of federal and state income tax returns and provide
consulting as to matters of accounting and
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<PAGE>
federal and state income taxation for the Funds or Portfolio, as
the case may be.
PURCHASE OF SHARES
Shares are sold at their net asset value on days the New York Stock
Exchange and Federal Reserve Bank are open for business. The procedure for
purchasing Shares is explained in the Prospectus under "Purchase of Shares."
CONVERSION TO FEDERAL FUNDS. It is the policy of each Fund to be as fully
invested as possible so that maximum interest may be earned. To this end, all
payments from shareholders must be in federal funds or be converted into federal
funds before shareholders begin to earn dividends. Federated Shareholder
Services Company acts as the shareholder's agent in depositing checks and
converting them to federal funds.
REDEMPTION OF SHARES
The Funds redeems Shares at the next computed net asset value, less any
applicable contingent deferred sales charge, after a Fund receives the
redemption request. Redemption procedures are explained in the Funds' Prospectus
under "Redemption of Shares." Although the transfer agent does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
Class B Shares redeemed within six years of purchase (determined with
reference to the date of purchase of the Class B shares of the Deutsche Fund
from which the shareholder exchanged) may be subject to a contingent deferred
sales charge. The amount of the contingent deferred sales charge is based upon
the amount of the administrative fee paid at the time of the original purchase
by the Distributor to the financial institution for services rendered, and the
length of time the investor remains a shareholder in the Class A and Class B
Fund. Should Financial Intermediaries elect to receive an amount less than the
fee that is stated in the Fund's Prospectus for servicing a particular
shareholder, the contingent deferred sales charge and/or holding period for that
particular shareholder will be reduced accordingly.
REDEMPTION IN KIND. Although the Corporation intends to redeem Shares in cash,
it reserves the right under certain circumstances to pay the redemption price in
whole or in part by a distribution of securities from the Funds' portfolio. In
such a case, the portfolio instruments to be distributed as redemption proceeds
would be, valued in the same way as the Portfolio determines net asset value.
The portfolio instruments will be selected in a manner that the Directors of the
Corporation and Trustees of the Portfolio deem fair and equitable. To the extent
available, such securities will be readily marketable.
22
<PAGE>
Redemption in kind is not as liquid as a cash redemption. If redemption
is made in kind, shareholders receiving their securities and selling them before
their maturity could receive less than the redemption value of their securities
and could incur certain transaction costs.
SYSTEMATIC WITHDRAWAL PROGRAM. The Systematic Withdrawal Program permits the
Class A and Class B Fund shareholders to request withdrawal of a specified
dollar amount (minimum $100) on either a monthly or quarterly basis from
accounts with $10,000 minimum at the time the shareholder elects to participate
in the Systematic Withdrawal Program. The amounts that a shareholder may
withdraw under a Systematic Withdrawal Program that qualify for elimination of
the contingent deferred sales charge may not exceed 12% annually with reference
initially to the value of the Class B Shares upon establishment of the
Systematic Withdrawal Program and then as calculated at the fiscal year end.
Amounts that exceed the 12% annual limit for redemption, as described, will be
subject to the contingent deferred sales charge. In determining the
applicability of the contingent deferred sales charge, the 12 month holding
requirement for any new Class B Shares received through an exchange will include
the period for which the exchanged Class B Shares were held. However, for
purposes of meeting the $10,000 minimum account value requirement, Class B Share
account values will not be aggregated.
EXCHANGE OF SHARES
An investor may exchange shares from any series of the Deutsche Funds,
Inc. (a "Deutsche Fund") into shares of the same class of any other Deutsche
Fund, as described under "Exchange of Shares" in the Funds' Prospectus. Class A
Shares, when exchanged into another Deutsche Fund, may incur a sales load at the
time as required by that Deutsche Fund. For complete information, the prospectus
relating to the Fund into which a transfer is being made should be read prior to
the transfer. Requests for exchange are made in the same manner as requests for
redemptions. See "Redemption of Shares." Shares of the Fund to be acquired are
purchased for settlement when the proceeds from redemption become available. The
Corporation reserves the right to discontinue, alter or limit the exchange
privilege at any time.
NET ASSET VALUE
The net asset value of each of the Funds' shares is determined each day
the New York Stock Exchange is open for regular trading and the Federal Reserve
Bank is open for business. (As of the date of this Statement of Additional
Information, such Exchange and banks are so open every weekday except for the
following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veteran's Day, Thanksgiving Day and Christmas Day.) This determination of net
23
<PAGE>
asset value of each share of the Funds is made once during each such day as of
3:00 p.m. (Eastern time) by subtracting from the value of each Fund's total
assets (I.E., the value of its investment in the Portfolio and other assets) the
amount of its pro rata share liabilities, including expenses payable or accrued,
and dividing the difference by the number of shares of each share class or Fund
outstanding at the time the determination is made. It is anticipated that the
net asset value of each share class and each Fund will remain constant at $1.00
and, although no assurance can be given that it will be able to do so on a
continuing basis, the Corporation and the Portfolio Trust employ specific
investment policies and procedures to accomplish this result.
The value of the Portfolio's net assets (I.E., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued) is determined at the same time and on the same days as the net asset
value per share of the Funds is determined. The value of each Fund's investment
in the Portfolio is determined by multiplying the value of the Portfolio's net
assets by the percentage, effective for that day, which represents the Fund's
share of the aggregate beneficial interests in the Portfolio.
The securities held by the Portfolio are valued at their amortized
cost. Pursuant to a rule of the SEC, an investment company may use the amortized
cost method of valuation subject to certain conditions and the determination
that such method is in the best interests of the Funds' shareholders and the
Portfolio's other investors. The use of amortized cost valuations is subject to
the following conditions: (i) as a particular responsibility within the overall
duty of care owed to the Portfolio's investors, the Trustees of the Portfolio
Trust have established procedures reasonably designed, taking into account
current market conditions and the investment objective of its investors, to
stabilize the net asset value as computed; (ii) the procedures include periodic
review by the Trustees of the Portfolio Trust, as they deem appropriate and at
such intervals as are reasonable in light of current market conditions, of the
relationship between the value of the Portfolio's net assets using amortized
cost and the value of the Portfolio's net assets based upon available
indications of market value with respect to such portfolio securities; (iii) the
Trustees of the Portfolio Trust will consider what steps, if any, should be
taken if a difference of more than 1/2 of 1% occurs between the two methods of
valuation; and (iv) the Trustees of the Portfolio Trust will take such steps as
they consider appropriate, such as shortening the average portfolio maturity,
realizing gains or losses, establishing the value of the Portfolio's net assets
by using available market quotations, or reducing the value of interests in the
Portfolio, to minimize any material dilution or other unfair results which might
arise from differences between the two methods of valuation.
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<PAGE>
Such conditions also generally require that: (i) investments for the
Portfolio be limited to instruments which the Trustees of the Portfolio Trust
determine present minimal credit risks and which are of high quality as
determined by any nationally recognized statistical rating organization that is
not an affiliated person of the issuer of, or any issuer, guarantor or provider
of credit support for, the instrument, or, in the case of any instrument that is
not so rated, is of comparable quality as determined by the Investment Adviser
under the general supervision of the Trustees of the Portfolio Trust; (ii) a
dollar-weighted average portfolio maturity of not more than 90 days be
maintained and no instrument is purchased with a remaining maturity of more than
397 days (792 in the case of U.S. Government securities); (iii) the Portfolio's
available cash will be invested in such a manner as to reduce such maturity to
90 days or less as soon as is reasonably practicable, if the disposition of a
portfolio security results in a dollar-weighted average portfolio maturity of
more than 90 days; and (iv) no more than 5% of the Portfolio's total assets may
be invested in the securities of any one issuer (other than U.S. Government
securities).
It is expected that the Funds will have a positive net income at the
time of each determination thereof. If for any reason a Fund's net income is a
negative amount, which could occur, for instance, upon default by an issuer of a
portfolio security, the Fund would first offset the negative amount with respect
to each shareholder account from the dividends declared during the month with
respect to those accounts. If and to the extent that negative net income exceeds
declared dividends at the end of the month, the Fund would reduce the number of
outstanding Fund shares by treating each shareholder as having contributed to
the capital of the Fund that number of full and fractional shares in his or her
account which represents his or her share of the amount of such excess. Each
shareholder would be deemed to have agreed to such contribution in these
circumstances by his or her investment in the Fund.
PERFORMANCE DATA
From time to time, the Funds may quote performance in reports, sales
literature and advertisements published by the Corporation. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See also "Management of
the Corporation and the Portfolio Trust - Performance Information" in the
Prospectus.
YIELD. The current and effective yield for each class of Shares of the
Funds may be used from time to time in shareholder reports or other
communications to shareholders or prospective investors. Seven-day current yield
is computed by dividing the net change in account value (exclusive of capital
changes) of a hypothetical pre-existing account having a balance of one share
25
<PAGE>
at the beginning of a seven-day calendar period by the value of that account at
the beginning of that period, and multiplying the return over the seven-day
period by 365/7. For purposes of the calculation, net change in account value
reflects the value of additional shares purchased with dividends from the
original share and dividends declared on both the original share and any such
additional shares, but does not reflect realized gains or losses or unrealized
appreciation or depreciation. In addition, the Corporation may use an effective
annualized yield quotation for the Funds computed on a compounded basis by
adding 1 to the base period return (calculated as described above), raising the
sum to a power equal to 365/7, and subtracting 1 from the result.
GENERAL. The performance of each of the classes of Shares will vary
from time to time depending upon market conditions, the composition of the
Portfolio, and its operating expenses. Consequently, any given performance
quotation should not be considered representative of the Funds' performance for
any specified period in the future. In addition, because performance will
fluctuate, it may not provide a basis for comparing an investment in either Fund
with certain bank deposits or other investments that pay a fixed yield or return
for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Funds' shares, including appropriate market indices or averages
or data from Lipper Analytical Services, Inc., Micropal, Inc., Ibbotson
Associates, Morningstar Inc., the Dow Jones Industrial Average and other
industry
publications.
The performance of the Funds may also be compared to the performance of
money managers as reported in market surveys such as SEI Fund Evaluation Survey
(a leading data base of tax-exempt funds) or mutual funds such as those reported
by Lipper Analytical Services, Morningstar, Micropal, Money Magazine's Fund
Watch or Wiesenberger Investment Companies Service, each of which measures
performance following their own specific and well-defined calculation measures.
The yield should not be considered a representation of the yield of a
Fund in the future since the yield is not fixed. Actual yields will depend on
the type, quality and maturities of the investments held for the Portfolio,
changes in interest rates on investments, and the Fund's expenses during the
period.
Yield information may be useful for reviewing the performance of the
Funds and for providing a basis for comparison with other investment
alternatives. However, unlike bank deposits or other investments which pay a
fixed yield for a stated period of time, a Fund's yield does fluctuate, and this
should be considered when reviewing performance or making comparisons.
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<PAGE>
PORTFOLIO TRANSACTIONS
The Adviser for the Portfolio places orders for all purchases and sales
of portfolio securities, enters into repurchase and reverse repurchase
agreements and executes loans of portfolio securities. Fixed-income securities
are generally traded at a net price with dealers acting as principal for their
own account without a stated commission. The price of the security usually
includes a profit to the dealer. In underwritten offerings, securities are
purchased at a fixed price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
On occasion, certain money market instruments may be purchased directly from an
issuer, in which case no commissions or discounts are paid. From time to time
certificates of deposit may be purchased through intermediaries who may charge a
commission for their services.
The Adviser does not seek profits through short-term trading. However,
it may on behalf of the Portfolio dispose of any portfolio security prior to its
maturity if it believes such disposition is advisable even if this action
realizes profits.
Since brokerage commissions are not normally paid on investments which
are made for the Portfolio, turnover resulting from such investments should not
adversely affect the net asset value of the Portfolio. In connection with
portfolio transactions for the Portfolio, the Adviser intends to seek best price
and execution on a competitive basis for both purchases and sales of securities.
On those occasions when the Adviser deems the purchase or sale of a
security to be in the best interests of the Portfolio as well as other
customers, the Adviser to the extent permitted by applicable laws and
regulations, may, but is not obligated to, aggregate the securities to be sold
or purchased with those to be sold or purchased for other customers in order to
obtain best execution, including lower brokerage commissions, if appropriate.
In such event, allocation of the securities so purchased or sold as well as any
expenses incurred in the transaction are made by the Adviser in the manner it
considers to be most equitable and consistent with its fiduciary obligations to
its customers, including the Portfolio. In some instances, this procedure might
adversely affect the Portfolio.
Deutsche Bank AG or one of its subsidiaries or affiliates may act as
one of the agents of the Portfolio in the purchase and sale of portfolio
securities when, in the judgment of the Adviser, that firm will be able to
obtain a price and execution at least as favorable as other qualified brokers.
As one of the principal brokers for the Portfolio, Deutsche Bank AG may receive
brokerage commissions from the Portfolio.
TAXES
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THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH THE SECTIONS IN THE PROSPECTUS ENTITLED "THE FUNDS -- DIVIDENDS AND
DISTRIBUTIONS" AND "-- TAXES".
UNITED STATES TAXATION. Each Fund intends to qualify and intends to
remain qualified as a regulated investment company (a "RIC") under Subchapter M
of the Code. As a RIC, a Fund must, among other things: (a) derive at least 90%
of its gross income from dividends, interest, payments with respect to loans of
stock and securities, gains from the sale or other disposition of stock,
securities or foreign currency and other income (including but not limited to
gains from options, futures, and forward contracts) derived with respect to its
business of investing in such stock, securities or foreign currency; and (b)
diversify its holdings so that, at the end of each fiscal quarter, (i) at least
50% of the value of the Fund's total assets is represented by cash, U.S.
Government securities, investments in other RICs and other securities limited in
respect of any one issuer, to an amount not greater than 5% of the Fund's total
assets, and 10% of the outstanding voting securities of such issuer and (ii) not
more than 25% of the value of its total assets is invested in the securities of
any one issuer (other than U.S. Government securities or the securities of other
RICs). As a RIC, the Fund (as opposed to its shareholders) will not be subject
to federal income taxes on the net investment income and capital gains that it
distributes to its shareholders, provided that at least 90% of its net
investment income and realized net short-term capital gains in excess of net
long-term capital losses for the taxable year is distributed.
To maintain a constant $1.00 per share net asset value, the Trustees
may direct that the number of outstanding shares be reduced pro rata. If this
adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses.
STATE AND LOCAL TAXES. Each Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of the Fund and its shareholders in those states that have income
tax laws might differ from treatment under the federal income tax laws. For
example, a portion of the dividends received by shareholders may be subject to
state income tax. Shareholders should consult their own tax advisors with
respect to any state or local taxes.
The foregoing discussion is based on U.S. federal tax laws in effect on
the date hereof. These laws are subject to change by legislative or
administrative action, possibly with retroactive effect.
THE FOREGOING DISCUSSION IS A SUMMARY ONLY AND IS NOT INTENDED AS A
SUBSTITUTE FOR CAREFUL TAX PLANNING. PROSPECTIVE INVESTORS IN SHARES OF THE
FUNDS SHOULD CONSULT THEIR OWN TAX
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<PAGE>
ADVISERS AS TO THE TAX CONSEQUENCES OF INVESTING IN SUCH SHARES, INCLUDING THE
CONSEQUENCES UNDER STATE, LOCAL AND OTHER TAX LAWS.
DESCRIPTION OF SHARES
The Corporation is an open-end management investment company organized
as a Maryland corporation on May 22, 1997. The Articles of Incorporation
currently permit the Corporation to issue 17,500,000,000 shares of common stock,
par value $0.001 per share, of which 10,000,000 shares have been classified as
shares of each Fund. The Corporation currently consists of eleven such series
and two classes of shares for each series except the Class Y Fund known as Class
A Shares and Class B Shares.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Corporation do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Corporation may elect all of the Directors of the
Corporation if they choose to do so and in such event the other shareholders in
the Corporation would not be able to elect any Director. The Corporation is not
required and has no current intention to hold meetings of shareholders annually,
but the Corporation will hold special meetings of shareholders when in the
judgment of the Corporation's Directors it is necessary or desirable to submit
matters for a shareholder vote. Shareholders have under certain circumstances
(E.G., upon application and submission of certain specified documents to the
Directors by a specified number of shareholders) the right to communicate with
other shareholders in connection with requesting a meeting of shareholders for
the purpose of removing one or more Directors. Shareholders also have the right
to remove one or more Directors without a meeting by a declaration in writing by
a specified number of shareholders. Shares have no preference, pre-emptive,
conversion or similar rights (except the automatic conversion of Class B Shares
into Class A Shares as discussed in the Prospectus under "Purchase of Shares").
Shares, when issued, are fully paid and non-assessable.
Stock certificates are not issued by the Corporation except upon
written request. No certificates will be issued for fractional shares.
The Articles of Incorporation of the Corporation contain a provision
permitted under Maryland Corporation Law which under certain circumstances
eliminates the personal liability of the Corporation's Directors to the
Corporation or its shareholders.
The Articles of Incorporation and the By-Laws of the Corporation
provide that the Corporation indemnify the Directors and officers of the
Corporation to the full extent permitted by the Maryland Corporation Law, which
permits indemnification of such persons against liabilities and expenses
incurred in
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<PAGE>
connection with litigation in which they may be involved because of their
offices with the Corporation. However, nothing in the Articles of Incorporation
or the By-Laws of the Corporation protects or indemnifies a Director or officer
of the Corporation against any liability to the Corporation or its shareholders
to which he would otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
Interests in the Portfolio have no preference, preemptive, conversion
or similar rights and are fully paid and non-assessable. The Portfolio Trust is
not required to hold annual meetings of investors, but will hold special
meetings of investors when, in the judgment of its Trustees, it is necessary or
desirable to submit matters for an investor vote. Each investor is entitled to a
vote in proportion to the share of its investment in the Portfolio.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" (as defined in the 1940
Act) currently means the vote of (i) 67% or more of the outstanding voting
securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities are present in person or represented by proxy; or
(ii) more than 50% of the outstanding voting securities, whichever is less.
Fund shareholders receive semi-annual reports containing unaudited
financial statements and annual reports containing financial statements audited
by independent auditors.
A shareholder's right to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed: (i) during
periods when the New York Stock Exchange or foreign stock exchange is closed for
other than weekends and holidays or when regular trading on such Exchange is
restricted as determined by the SEC by rule or regulation, (ii) during periods
in which an emergency exists which causes disposal of, or evaluation of the net
asset value of, portfolio securities to be unreasonable or impracticable, or
(iii) for such other periods as the SEC may permit.
Telephone calls to a Fund, the Transfer Agent, the Distributor, or
Financial Intermediaries with respect to shareholder servicing may be tape
recorded. With respect to the securities offered hereby, this Statement of
Additional Information and the Prospectus do not contain all the information
included in the Corporation's Registration Statement filed with the SEC under
the 1933 Act and the Corporation's and the Portfolio Trust's Registration
Statement filed under the 1940 Act. Pursuant to the rules and regulations of the
SEC, certain portions have been omitted. The Registration Statement including
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the exhibits filed therewith may be examined at the office of the
SEC in Washington, D.C.
<PAGE>
DEUTSCHE FUNDS, INC.
STATEMENT OF ASSETS & LIABILITIES
SEPTEMBER 19, 1997
Deutsche Deutsche
US Institutional US
Money Market Money Market
Fund Fund
ASSETS:
Investment in corresponding
Deutsche Portfolio........... $ 100 $ 100
Deferred organization
expenses (Note 1)............ 5,022 5,022
------- -------
Total Assets................ 5,122 $ 5,122
------- -------
LIABILITIES
Organization expenses
payable................... 5,022 5,022
------- -------
Total Liabilities........... 5,022 5,022
------- -------
$ 100 $ 100
======= =======
Shares outstanding ($.001
par value)..................... $100.00 $100.00
======= =======
Net Asset Value per share........ $ 1.00 $ 1.00
======= =======
COMPOSITION OF NET ASSETS
Paid in capital................ 100 100
------- -------
Net Assets, September 19,
1997...................... $ 100 $ 100
======= =======
See Notes to Financial Statement.
<PAGE>
DEUTSCHE FUNDS, INC.
NOTES TO FINANCIAL STATEMENT
SEPTEMBER 19, 1997
NOTE 1 - GENERAL
Deutsche Funds, Inc. (the "Company") was incorporated in Maryland on May 22,
1997 and is registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company. The Company currently
consists of eleven separate investment series (the "Funds"). The accompanying
financial statement and notes relate to the Deutsche US Money Market Fund and
Deutsche Institutional US Money Market Fund, (each a "Fund" and collectively the
"Money Market Funds") each of which is, in effect, a separate mutual fund.
Each of the Money Market Funds will seek to achieve their respective investment
objective by investing substantially all of their assets in the US Money Market
Portfolio (US Dollar) (the "Portfolio", one of the ten portfolios constituting
the Deutsche Portfolios (the "Portfolio Trust")) having substantially the same
investment objective of each of the Money Market Funds.
The Company has not retained the services of an investment adviser since the
Money Market Funds will seek to achieve their investment objective by investing
all of their investable assets in the Portfolio. The Portfolio is managed by
Deutsche Fund Management, Inc. ("DFM"), an indirect subsidiary of Deutsche Bank
AG. Federated Services Company intends to serve as Administrator to the Money
Market Funds and Federated Shareholder Services Company intends to serve as
transfer agent and dividend disbursing agent to the Money Market Funds. Edgewood
Services, Inc. ("Edgewood") intends to serve as distributor to the Money Market
Funds (the "Distributor").
Each Fund will absorb daily a pro-rata portion of the Portfolio's income and
expenses, including fees paid to DFM and the amortization of organization
expenses. Additionally, the Deutsche US Money Market Fund offers two classes of
shares to investors, Class A and Class B. Both Class A Shares and Class B Shares
are subject to a Service Plan and Class B Shares are also subject to a
Distribution Plan. Each Class will bear their respective portion of the expenses
under the Service and Distribution Plan.
The Company has had no operations through September 19, 1997, other than
those relating to organizational matters and the sale of 100 Class A shares for
$100 by each Fund to Edgewood. Organization expenses incurred in connection with
the organization and initial registration of the Company will be paid initially
by DFM and reimbursed by the Funds. Such organization expenses have been
deferred and will be amortized ratably over a period of sixty months from the
commencement of operations of the Funds. The amount paid by each Fund on any
redemption by Edgewood (or any subsequent holder) of such Fund's initial shares
will be reduced by the pro-rata portion of any unamortized organization expenses
of the Money Market Funds.
NOTE - 2 COMMITMENTS AND RELATED AGREEMENTS
The Company intends to retain the services of Federated Services Company as
Administrator. Under the Administration Agreement, Federated Services Company
will assist in the operations of the Funds subject to the direction and control
of the Board of Directors of the Company. For its services, Federated Services
Company will receive a fee from each Fund, which is computed daily and paid
monthly, at an annual rate of 0.045% of each Fund's average daily net assets. If
after the first year of operations of each Fund, the average net assets of the
Portfolio have not reached $325 million, the Administrator's fee would be
increased to an annual rate of 0.065% of the average daily net assets of each
Fund up to $200 million and 0.0525% of such assets in excess of $200 million for
the Fund's then current fiscal year.
<PAGE>
The Company intends to enter into a distribution agreement with Edgewood.
Edgewood will serve as principal distributor for shares of the Funds. The
Company intends to adopt a Service and Distribution Plan in accordance with Rule
12b-1 of the 1940 Act whereby Class B Shares are subject to the Distribution
Plan and Class A Shares and Class B Shares are subject to the Service Plan.
Under the Distribution Plan, Class B Shares of Deutsche US Money Market Fund
will pay a fee to the Distributor in an amount computed at an annual rate of
0.75% of the average daily net assets of the Deutsche US Money Market Fund
represented by Class B Shares to finance any activity which is principally
intended to result in the sale of Class B Shares of the Deutsche US Money Market
Fund.
Federated Shareholder Services Company will serve as the transfer agent and
dividend disbursing agent for the Funds. Federated Services Company and
Federated Shareholder Services Company are both affiliated with Edgewood. IBT
Fund Services (Canada) Inc. will provide fund accounting services to the Funds.
DFM together with IBT Fund Services (Canada) Inc., its affiliates, and other
service providers have voluntarily agreed that they will waive their fees and/or
reimburse each Fund through at least one year from the Money Market Funds'
commencement of operations, to the extent necessary to maintain each Fund's
total operating expenses (which includes expenses of the Fund and its pro-rata
portion of expenses of the corresponding Portfolio, but does not cover
extraordinary expenses during the period) at not more than 0.20% of the average
daily net assets of Deutsche Institutional US Money Market Fund, and at not more
than 0.55% and 1.30% of the average daily net assets of Class A Shares and Class
B Shares, respectively, of the Deutsche US Money Market Fund.
<PAGE>
Report of Independent Accountants
To the Shareholder and Board
of Directors of Deutsche Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of Deutsche US Money
Market Fund and Deutsche Institutional US Money Market Fund (two of eleven
separate funds constituting Deutsche Funds, Inc., hereafter referred to as the
"Funds") at September 19, 1997, in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the Funds'
management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this financial statement
in accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
September 22, 1997
<PAGE>
DEUTSCHE PORTFOLIOS
STATEMENT OF ASSETS & LIABILITIES
SEPTEMBER 19, 1997
US
Money Market
Portfolio (US Dollar)
ASSETS:
Cash................................. $ 210
Deferred organization
expenses (Note 1).................. 52,957
-------
Total Assets...................... 53,957
-------
LIABILITIES
Organization expenses payable........ 52,957
-------
Total Liabilities................. 52,957
-------
Net Assets........................ $ 210
=======
See Notes to Financial Statement.
<PAGE>
DEUTSCHE PORTFOLIOS
NOTES TO FINANCIAL STATEMENT
SEPTEMBER 19, 1997
1 - GENERAL
Deutsche Portfolios ("Portfolio Trust") was organized on June 20, 1997, as a
business trust under the laws of the State of New York and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Portfolio Trust currently consists of ten
separate investment series (the "Portfolios"), each of which is, in effect, a
separate mutual fund. The accompanying financial statement and notes relate to
the US Money Market Portfolio (US Dollar) (the "Portfolio").
Deutsche Fund Management, Inc. ("DFM"), an indirect subsidiary of Deutsche
Bank AG, intends to serve as investment manager (the "Manager") to the Portfolio
Trust. Investors Bank & Trust Company intends to serve as the custodian to the
Portfolio Trust. IBT Fund Services (Canada) Inc. intends to serve as the fund
accounting agent to the Portfolio Trust.
The Declaration of Trust of the Portfolios permits its Trustees to issue
interests in the Portfolio Trust. The Portfolio has had no operations through
September 19, 1997, other than those relating to organizational matters,
including the issuance of the following initial interests ("Initial Interests")
to the Deutsche US Money Market Fund and the Deutsche Institutional US Money
Market Fund, two of the eleven funds constituting Deutsche Funds, Inc. (each a
"Fund" and collectively the "Funds"), and Edgewood Services Inc. ("Edgewood"),
distributor of the Funds:
<TABLE>
<CAPTION>
INITIAL INTEREST
PORTFOLIO INITIAL INTEREST TO DEUTSCHE FUND AMOUNT TO EDGEWOOD AMOUNT
- --------- --------------------------------- ------ ----------- ------
<S> <C> <C> <C>
US Money Market Deutsche US
Portfolio (US Dollar) Money Market Fund $100 Edgewood $10
US Money Market Deutsche Institutional
Portfolio (US Dollar) US Money Market Fund $100
</TABLE>
The investment objective of the Portfolio is primarily to achieve as high a
level of current income as is consistent with the preservation of capital and
the maintenance of liquidity.
Organization expenses incurred in connection with the organization and initial
registration of the Portfolio Trust will be paid initially by DFM and reimbursed
by the Portfolios. Such organization expenses have been deferred and will be
amortized ratably over a period of sixty months from the commencement of
operations of the Portfolios. Any amount received by the Portfolio from its
corresponding Fund as a result of a redemption by Edgewood of any of its Initial
Interests in the Portfolio will be applied so as to reduce the amount of
unamortized organization expenses. The amount paid by the Portfolio Trust on any
withdrawal by the Funds of all or part of its Initial Interests in the Portfolio
will be reduced by a portion of any unamortized organization expenses of the
Portfolio, determined by the proportion of the amount of the Initial Interest
withdrawn to the aggregate amount of the Initial Interests in the Portfolio then
outstanding after taking into account any prior withdrawals of any portion of
the Initial Interests in the Portfolio.
<PAGE>
2 - COMMITMENTS AND RELATED AGREEMENTS
The Portfolio Trust intends to retain the services of DFM as Manager. DFM
retains overall responsibility for supervision of the investment management
program for the Portfolio but has delegated the day-to-day management of the
investment operations of the Portfolio to an Adviser. As compensation for the
services rendered by DFM under the investment management agreement ("Management
Agreement") with the Portfolio Trust with respect to the Portfolio, DFM receives
a fee from the Portfolio, which is computed daily and paid monthly, equal to
0.15% of the average daily net assets of the Portfolio on an annualized basis
for the Portfolio's then-current fiscal year. DFM has retained the services of
Deutsche Morgan Grenfell Investment Management, Inc. ("DMGIM") as the investment
adviser. The adviser is an indirect subsidiary of Deutsche Bank AG. As
compensation for its services DMGIM receives a fee paid from DFM which is based
on the average daily net assets of the Portfolio.
The Portfolio Trust intends to retain Federated Services Company as Operations
Agent to the Portfolios. As Operations Agent of the Portfolios, Federated
Services Company will receive a fee from the Portfolio, which is computed daily
and paid monthly, at the annual rate of 0.015% of the average daily net assets
of the Portfolio. If after the first year of operations, the average net assets
of the Portfolio have not reached $325 million, the Operations Agent's fee would
be increased to an annual rate of 0.035% of the average daily net assets of the
Portfolio. Federated Services Company is affiliated with Edgewood.
The Portfolio Trust intends to enter into an administrative agreement with IBT
Trust Company (Cayman) Ltd. ("IBT (Cayman)"). As Administrative Agent of the
Portfolios, IBT (Cayman) will receive a fee from the Portfolio, which is
computed daily and paid monthly, at the annual rate of 0.025% of the average
daily net assets of the Portfolio.
<PAGE>
Report of Independent Accountants
To the Initial Interest Holders and Board
of Trustees of Deutsche Portfolios
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of US Money Market
Portfolio (US Dollar) (one of ten separate portfolios constituting Deutsche
Portfolios, hereafter referred to as the "Portfolios") at September 19, 1997, in
conformity with generally accepted accounting principles. This financial
statement is the responsibility of the Portfolios' management; our
responsibility is to express an opinion on this financial statement based on our
audit. We conducted our audit of this financial statement in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statement is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse
Price Waterhouse
Curacao, Netherlands Antilles
September 22, 1997
<PAGE>
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
<PAGE>
BOND, NOTE AND COMMERCIAL PAPER RATINGS
Bond Ratings
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Aaa - Bonds rated Aaa are judged to be of the "best quality". Aa1 is
the rating directly below Aaa, and then continues to Aa2, Aa3 to show relative
strength within the rating category.
STANDARD & POOR'S CORPORATION ("S&P")
AAA - The AAA rating is the highest rating assigned to debt obligations
and indicates an extremely strong capacity to pay principal and interest.
Note and Variable Rate Investment Ratings
Moody's - MIG-1. Notes rated MIG-1 are judged to be of the best
quality, enjoying strong protection from established cash flow of funds for
their services or from established and broad-based access to the market for
refinancing or both.
S&P - SP-1. SP-1 denotes a very strong or strong capacity to pay
principal and interest. Issues determined to possess overwhelming safety
characteristics are given a plus (+) designation (SP-1+).
Corporate Commercial Paper Ratings
Moody's - Commercial Paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of nine months. Prime-1 indicates highest quality repayment
capacity of rated issue.
S&P - Commercial Paper ratings are a current assessment of the
likelihood of timely payment of debts having an original maturity of no more
than 365 days. Issues rated A-1 have the greatest capacity for timely payment.
Issues rated "A-1+" are those with an "overwhelming degree of credit
protection."
Other Considerations
31
<PAGE>
Among the factors considered by Moody's in assigning bond, note and
commercial paper ratings are the following: (i) evaluation of the management of
the issuer; (ii) economic evaluation of the issuer's industry or industries and
an appraisal of speculative-type risks which may be inherent in certain areas;
(iii) evaluation of the issuer's products in relation to competition and
customer acceptance; (iv) liquidity; (v) amount and quality of long-term debt;
(vi) trend of earnings over a period of 10 years; (vii) financial strength of a
parent company and the relationships which exist with the issuer; and (viii)
recognition by management of obligations which may be present or may arise as a
result of public interest questions and preparations to meet such obligations.
Among the factors considered by S&P in assigning bond, note and
commercial paper ratings are the following: (i) trend of earnings and cash flow
with allowances made for unusual circumstances, (ii) stability of the issuer's
industry, (iii) the issuer's relative strength and position within the industry
and (iv) the reliability and quality of management.
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THE
PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION, IN CONNECTION WITH THE
OFFER CONTAINED THEREIN AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
CORPORATION OR THE DISTRIBUTOR. THE PROSPECTUS AND THIS STATEMENT OF ADDITIONAL
INFORMATION DO NOT CONSTITUTE AN OFFER BY THE FUNDS OR BY THE DISTRIBUTOR TO
SELL OR SOLICIT ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUNDS OR THE
DISTRIBUTOR TO MAKE SUCH OFFER IN SUCH JURISDICTIONS.
DEUT028I
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements included in Part A:
Not Applicable.
Financial Statements included in Part B:
All Funds and Portfolios, except Deutsche US Money Market Fund, Deutsche
Institutional US Money Market Fund and US Money Market Portfolio
(US Dollar):
Statements of Assets & Liabilities at September 17, 1997
Notes to Financial Statements, September 17, 1997
Deutsche US Money Market Fund, Deutsche Institutional US Money Market Fund
and US Money Market Portfolio (US Dollar):
Statements of Assets & Liabilities at September 19, 1997
Notes to Financial Statements, September 19, 1997
(b) Exhibits:
1 -- (a) Articles of Amendment and Restatement. (3)
(b) Articles of Amendment.(3)
2 -- By-Laws of the Registrant.(1)
3 -- Not Applicable.
4 -- (a) Class A Specimen certificate.
(b) Class B Specimen certificate.
Additional rights of security holders are set forth
in Articles Fifth and Twelfth of the Registrant's
Articles of Incorporation and Articles I and V of
the Registrant's By-Laws, which are filed as
Exhibits 1 and 2, respectively, to this
Registration Statement.
5 -- Investment Advisory Agreement.(3)
(a) Investment Management Agreement
6 -- (a) Distribution Agreement.(3)
(b) Mutual Funds Sales and Service Agreement.(3)
7 -- Not Applicable.
8 -- (i) Custodian Agreement between Investors Bank and Trust
Company and the Registrant.(3)
(ii) Custodian Agreement between Deutsche Portfolios and
Investors Bank and Trust Company.(3)
9 -- (a) (i) Master Agreement for Administration Services
between Federated Services Company and the
Registrant.(3)
(a)(ii) Administration Agreement between Deutsche
Portfolios and IBT Trust Company (Cayman) Ltd.(3)
(b) (i) Fund Accounting Agreement between IBT Fund Services
(Canada) Inc. and the Registrant.(3)
(b)(ii) Fund Accounting Agreement between Deutsche
Porfolios and IBT Funds Services (Canada) Inc.(3)
(c) Services Agreement.(3)
(d) Operations Agency Agreement.(4)
10 -- Opinion of Counsel (including consent).
11 -- Independent auditors' consents.
12 -- Not Applicable.
13 -- Investment representation letters from initial
shareholders.
14 -- Not Applicable.
15 -- Distribution and Services Plan. (3)
16 -- Not Applicable.
17(1-11) Financial Data Schedules.
18 -- Multiple Class (Rule 18f-3) Plan.(3)
99 -- Power of Attorney.
- ---------------------
(1) Incorporated by reference to the Registrant's registration statement on
Form N-1A as filed with the Commission on May 23, 1997.
(2) Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registrant's registration statement on Form N-1A as filed with the
Commission on August 1, 1997.
(3) Incorporated by reference to Pre-Effective Amendment No. 4 to the
Registrant's registration statement on Form N-1A as filed with the
Commission on September 18, 1997.
(3) Incorporated by reference to Pre-Effective Amendment No. 5 to the
Registrant's registration statement on Form N-1A as filed with the
Commission on September 19, 1997.
C-1
<PAGE>
Item 25. Persons Controlled by or under Common Control with
Registrant
Immediately prior to the intial public offering of the shares of
the Registrant, Edgewood Services, Inc., a New York corporation
will own all of the outstanding shares of Deutsche Top 50 World,
Deutsche Top 50 Europe, Deutsche Top 50 Asia, Deutsche Top
50 U.S., Deutsche European Mid-Cap Fund, Deutsche German
Equity Fund, Deutsche Japanese Equity Fund, Deutsche Global
Bond Fund, Deutsche European Bond Fund, Deutsche U.S.
Money Market Fund and Deutsche Institutional U.S. Money
Market Fund. Edgewood Services, Inc. may, therefore, be
deemed to control the Registrant. The following entities may
therefore be deemed to be under common control with the
Registrant:
Advanced Information Services, a Delaware business trust
Federated Bank and Trust, a New Jersey bank
Federated Administrative Services, a Delaware business trust
Federated Shareholder Services Company, a Delaware business
trust
Retirement Plan Services Company of America, a Delaware
business trust
Federated Administrative Services, Inc., a Pennsylvania
corporation
FS Holdings Inc., a Delaware corporation
Federated Services Company, a Pennsylvania corporation
FII Holdings Inc., a Delaware corporation
Federated Shareholder Services, a Delaware business trust
FFSI Insurance Agency Inc., a Massachusetts corporation
Federated Investors Insurance Inc., a Pennsylvania corporation
Federated International Management Limited, an Irish limited
liability company
Federated Global Research Corp., a Delaware corporation
Federated Investment Counseling, a Delaware business trust
Federated Research, a Delaware business trust
Federated Management, a Delaware business trust
Federated Research Corp., a Maryland corporation
Federated Advisers, a Delaware business trust
Federated Investors Building Corp., a Pennsylvania corporation
Federated Financial Services, Inc., a Pennsylvania corporation
Federated Securities Corp., a Pennsylvania corporation
Exchange Fund Research Corp, a Pennsylvania corporation
Federated Investors Management Company, a Pennsylvania
corporation
Federated Investors, Inc., a Pennsylvania corporation
Each listed entity is wholly owned by Federated Investors, a Delaware
business trust. Each listed entity is included in the consolidated financial
statements of Federated Investors.
Item 26. Number of Holders of Securities.
Title of Class Number of Record Holders
Common Stock Class A (as of September 22, 1997)
Deutsche European Mid-Cap Fund 1
Deutsche German Equity Fund 1
Deutsche Japanese Equity Fund 1
Deutsche Global Bond Fund 1
Deutsche European Bond Fund 1
Deutsche Top 50 World 1
Deutsche Top 50 Europe 1
Deutsche Top 50 Asia 1
Deutsche Top 50 US 1
Deutsche US Money Market Fund 1
Deutsche Institutional US Money Market Fund 1
Title of Class Number of Record Holders
Common Stock Class B (as of September 22, 1997)
Deutsche European Mid-Cap Fund 0
Deutsche German Equity Fund 0
Deutsche Japanese Equity Fund 0
Deutsche Global Bond Fund 0
Deutsche European Bond Fund 0
Deutsche Top 50 World 0
Deutsche Top 50 Europe 0
Deutsche Top 50 Asia 0
Deutsche Top 50 US 0
Deutsche US Money Market Fund 0
Deutsche Institutional US Money Market Fund 0
Item 27. Indemnification
Reference is made to Article EIGHTH of Registrant's Articles of
Amendment and Restatement.
Registrant, its Directors and officers, and persons affiliated with
them are insured against certain expenses in connection with the defense of
actions, suits or proceedings, and certain liabilities that might be imposed as
a result of such actions, suits or proceedings.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to Directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Director, officer of controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
C-2
<PAGE>
Item 28. Business and Other Connections of Investment Adviser.
Deutsche Fund Management, Inc. ("DFM"), DWS International Portfolio Management
GmbH ("DWS-IPM") and Deutsche Morgan Grenfell Investment Management Inc.
("DMGIM") are each indirect subsidiaries of Deutsche Bank AG.
Deutsche Fonds Holding GmbH ("DFH"), a holding company organized under German
law, 93% owned by Deutsche Bank AG; sole shareholder of DFM (since 1/97); sole
shareholder of DWS-IPM (since 5/97).
Deutsche Bank AG, a publicly-held global financial institution, trading on the
Frankfurt Stock Exchange); sole shareholder of DFH (since 9/94).
Deutsche Bank North America Holding Corp. ("DBNAH"), a holding company organized
under US law, 100% owned by Deutsche Bank AG; sole shareholder of Deutsche Bank
U.S. Financial Markets Holding Corporation.
Deutsche Bank U.S. Financial Markets Holding Corporation, a holding company
organized under US law, 100% owned by DBNAH; sole shareholder of DMGIM.
Brian A. Lee, President and Managing Director of DFM (since 1/97); President and
Chief Operating Officer of Deutsche Bank Trust Company ("DBTC")(prior to 1997).
Christian Strenger, Chairman of the Board of Directors of DFM (since 1/97);
Managing Director/Spokesman of DFH (since 9/94); Managing Director/Spokesman of
DWS-IPM (since 5/97); Managing Director/Spokesman of DWS Deutsche Gesellschaft
fuer Wertpapiersparen mbH ("DWS-DGW)(since 8/91).
Udo Behrenwaldt, Director of DFM (since (5/97); Managing Director of DFH (since
9/94); Manager Director of DWS-IPM (since 5/97); Executive Director of DB
Investment Management, S.A. (since 7/87); Managing Director of DWS-DGW (since
11/75).
Holger Naumann, Director of DFM (since 1/97); Head of Participations at DWS-DGW
(since 12/95); Group Strategy Department at Deutsche Bank AG (prior to 12/95).
Bernd-Albrecht von Maltzan, Director of DFM (since 5/97); Divisional Board
Member of Deutsche Bank AG (since 7/96); Managing Director of Deutsche Morgan
Grenfell in Frankfurt and London (prior to 7/96).
Michael C. Lowengrub, Treasurer of DFM (since 1/97); Treasurer of DBTC (since
4/95); Director and Comptroller - Private Banking at Deutsche Bank AG-New York
Branch (since 10/92).
Thomas A. Curtis, Secretary of DFM (since 1/97); Secretary of CB Management
Corp. (since 2/96); Director and Counsel of Deutsche Bank AG-New York Branch
(since 7/95).
Axel-Guenther Benkner, Managing Director of DWS-IPM (since 5/97); Managing
Director of DFH (since 9/94); Managing Director of Deutsche
Vermoegensbildungsgesellschaft mbH (since 12/90); Managing Director of DWS-DGW
(since 2/91).
Heinz-Wilheim Fesser, Senior Portfolio Manager of DWS-IPM (since 5/97); Fixed
Income-Global at DWS-DGW (since 12/??).
Klaus Kaldmorgen, Senior Portfolio Manager of DWS-IPM (since 5/97);
Equities-Global at DWS-DGW (since 12/??).
C-3
<PAGE>
Klaus Martini, Senior Portfolio Manager of DWS-IPM (since 6/97); Head of
Equities - Europe at DWS-DGW (since 7/84).
Elisabeth Weisenhorn, Senior Portfolio Manager of DWS-IPM (since 6/97); Head of
Equities - Germany at DWS-DGW (since 11/85).
Reinhold Volk, Chief Financial Officer of DWS-IPM (since 6/97); Head of
Controlling at DWS-DGW (sincec 10/86).
Mathias Geuckler, Chief Compliance Officer of DWS-IPM (since 6/97), Chief
Compliance Officer of DWS-DGW (since 11/92).
Gerhard Seifried, Chief Operations Officer of DWS-IPM (since 6/97); Head of Fund
Administration at DWS-DGW (since 10/85).
Guy Richard Stamberger, President, Chief Executive Officer and Director of DMGIM
(since 10/94); Director of DBTC (since 4/95); Managing Director of Deutsche Bank
Securities Corporation (prior to 10/94).
David Alan Zornitsky, Secretary and Treasurer of DMGIM (since 10/94); Assistant
Vice President at Deutsche Bank Securities Corporation (prior to 10/94).
C-4
<PAGE>
Item 29. Principal Underwriters.
(a) Edgewood Services, Inc. ("Edgewood") the Distributor
for shares of the Registrant, also acts as principal
underwriter for the following open-end investment
companies: Excelsior Institutional Trust (formerly,
UST Master Funds, Inc.), Excelsior Tax-Exempt Funds,
Inc. (formerly, UST Master Tax-Exempt Funds, Inc.),
Excelsior Institutional Trust, FTI Funds, FundManager
Portfolios, Marketvest Funds, Marketvest Funds, Inc.,
Old Westbury Funds, Inc., BT Advisor Funds, BT
Pyramid Funds, BT Investment Funds and BT
Institutional Funds.
(b) Set forth below are the names and positions of each
Director and officer of Edgewood. The principal
business address of these individuals is Federated
Investors Tower, Pittsburgh, PA 15222. Unless
otherwise specified, no officer or Director of
Edgewood serves as an officer or Director of the
Registrant.
Position and Offices with Position and Offices
Name Edgewood with the Registrant
- ------------- --------------------------- --------------------
Lawrence Caracciolo Director, President, --
Edgewood Services, Inc.
Arthur L. Cherry Director, --
Edgewood Services, Inc.
J. Christopher Donohue Director, --
Edgewood Services, Inc.
Thomas P. Sholes Director, --
Edgewood Services, Inc.
Ronald M. Petnuch Vice President, --
Edgewood Services, Inc.
Thomas P. Schmitt Vice President, --
Edgewood Services, Inc.
Ernest L. Linane Assistant Vice President, --
Edgewood Services, Inc.
S. Elliot Cohan Secretary, --
Edgewood Services, Inc.
Thomas J. Ward Assistant Secretary, --
Edgewood Services, Inc.
Kenneth W. Pegher, Jr. Treasurer, --
Edgewood Services, Inc.
(c) Not Applicable.
C-5
<PAGE>
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained at the offices of:
Deutsche Funds, Inc.
2nd Federated Square
Pittsburgh, PA 15222
Edgewood Services, Inc.
Federated Investors Tower
Pittsburgh, PA 15222-3779
(distributor)
Federated Services Company
Federated Investors Tower
Pittsburgh, PA 15222-3779
(administrator)
Federated Shareholder Services Company
Federated Investors Tower
Pittsburgh, PA 15222-3779
(transfer agent)
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
(Custodian)
IBT Fund Services (Canada) Inc.
One First Place
King Street West, Suite 2800
P.O. Box 231
Toronto, Ontario M5X1C8
(Fund Accountant)
Item 31. Management Services.
Other than as set forth under the caption "Management of the
Corporation and the Portfolio Trust" in the Prospectus constituting Part A of
the Registration Statement, Registrant is not a party to any management-related
service contract.
Item 32. Undertakings.
(a) The Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
(b) The Registrant undertakes to file a post-effective amendment,
including financials, which need not be certified, within four to six months
following the commencement of operations of each of its series. The financial
statements included in such amendment will be as of and for the time period
ended on a date reasonably close or as soon as practicable to the date of the
amendment.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
the registration statement to be signed on its behalf by the undersigned,
thereto duly authorized in New York, New York on the 23rd day of September,
1997.
DEUTSCHE FUNDS, INC.
By /S/ BRIAN A. LEE
Brian A. Lee
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated above.
Signature Title
EDWARD C. SCHMULTS* Director
Edward C. Schmults
ROBERT A. WADSWORTH* Director
Robert A. Wadsworth
WERNER WALBROEL* Director
Werner Walbroel
G. RICHARD STAMBERGER* Director
G. Richard Stamberger
CHRISTIAN STRENGER* Director
Christian Strenger
JOSEPH E. CHEUNG* Treasurer
Joseph E. Cheung
*By: /S/ BRIAN A. LEE
Brian A. Lee
as Attorney-in-Fact pursuant to a
Power of Attorney filed previously.
<PAGE>
SIGNATURES
Deutsche Portfolios has duly caused this Pre-effective Amendment to the
Registration Statement on Form N-1A of Deutsche Funds, Inc. (File No. 333-7008)
to be signed on its behalf by the undersigned, thereto duly authorized, in
Frankfurt, Germany on the 23rd day of September, 1997.
DEUTSCHE PORTFOLIOS
By /S/CHRISTIAN STRENGER
Christian Strenger
This Pre-effective Amendment to the Registration Statement on Form N-1A of
Deutsche Funds, Inc. (File No. 333-7008) has been signed below by the following
persons in the capacities indicated on the date indicated above.
Signature Title
EDWARD C. SCHMULTS* Trustee
Edward C. Schmults
ROBERT A. WADSWORTH* Trustee
Robert A. Wadsworth
WERNER WALBROEL* Trustee
Werner Walbroel
G. RICHARD STAMBERGER* Trustee
G. Richard Stamberger
/S/CHRISTIAN STRENGER Trustee
Christian Strenger
JOSEPH E. CHEUNG* Treasurer
Joseph E. Cheung
*By: /S/CHRISTIAN STRENGER
Christian Strenger
as Attorney-in-Fact pursuant to a
Power of Attorney filed herewith.
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
4(a) Class A Specimen Certificate.
4(b) Class B Specimen Certificate.
5(a) Investment Management Agreement
10 Opinion of Counsel (including consent).
11 Independent auditors consent.
13 Investment representation letters from
initial shareholders.
17(1)-(11) Financial Data Schedules
99 Powers of Attorney.
Exhibit (4)
DEUTSCHE [FUND] CLASS A SHARES
Number Shares
- ----- -----
Account No. Alpha Code See Reverse Side For
Certain Definitions
THIS IS TO CERTIFY THAT is the owner of
CUSIP ___________________
Fully Paid and Non-Assessable Class A Shares of Common Stock of Deutsche
____________________ hereafter called the Corporation, transferable on the books
of the Corporation by the owner in person or by duly authorized attorney upon
surrender of this certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to
the provisions of the Articles of Incorporation and By-Laws of the Corporation
and all amendments thereto, all of which the holder by acceptance hereof
assents.
This Certificate is not valid unless countersigned by the Transfer
Agent.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed in its name by its proper officers and to be sealed with its seal.
Dated: DEUTSCHE __________________________________
Corporate Seal
1997
Maryland
/s/ Joseph Cheung /s/ Christian Strenger
Treasurer Chairman
Countersigned:
Federated Services Company (Boston)
Transfer Agent
By:
Authorized Signature
<PAGE>
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-...Custodian
TEN ENT - as tenants by the entireties (Cust) (Minors)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act...........................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received__________ hereby sell, assign, and transfer unto
Please insert social security or other
identifying number of assignee
- --------------------------------------
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
______________________________________________________________________ shares
of common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint __________________________________________
- -----------------------------------------------------------------------------
to transfer the said shares on the books of the within named corporation with
full power of substitution in the premises.
Dated______________________
NOTICE:______________________________
The signature to this
assignment must correspond
with the name as written
upon the face of the
certificate in every
particular, without
alteration or enlargement
or any change whatever.
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE>
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
- --------
A. The Certificate is outlined by a black one-half inch border.
B. The number in the upper left-hand corner and the number of shares in
the upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
- --------
The social security or other identifying number of the assignee appears in
a box in the top-third upper-left area of the page.
Exhibit (4)
DEUTSCHE [FUND] CLASS B SHARES
Number Shares
- ----- -----
Account No. Alpha Code See Reverse Side For
Certain Definitions
THIS IS TO CERTIFY THAT is the owner of
CUSIP ___________________
Fully Paid and Non-Assessable Class B Shares of Common Stock of Deutsche
____________________ hereafter called the Corporation, transferable on the books
of the Corporation by the owner in person or by duly authorized attorney upon
surrender of this certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to
the provisions of the Articles of Incorporation and By-Laws of the Corporation
and all amendments thereto, all of which the holder by acceptance hereof
assents.
This Certificate is not valid unless countersigned by the Transfer
Agent.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed in its name by its proper officers and to be sealed with its seal.
Dated: DEUTSCHE __________________________________
Corporate Seal
1997
Maryland
/s/ Joseph Cheung /s/ Christian Strenger
Treasurer Chairman
Countersigned:
Federated Services Company (Boston)
Transfer Agent
By:
Authorized Signature
<PAGE>
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-...Custodian
TEN ENT - as tenants by the entireties (Cust) (Minors)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act...........................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received__________ hereby sell, assign, and transfer unto
Please insert social security or other
identifying number of assignee
- --------------------------------------
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
______________________________________________________________________ shares
of common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint __________________________________________
- -----------------------------------------------------------------------------
to transfer the said shares on the books of the within named corporation with
full power of substitution in the premises.
Dated______________________
NOTICE:______________________________
The signature to this
assignment must correspond
with the name as written
upon the face of the
certificate in every
particular, without
alteration or enlargement
or any change whatever.
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE>
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
- --------
A. The Certificate is outlined by a black one-half inch border.
B. The number in the upper left-hand corner and the number of shares in
the upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
- --------
The social security or other identifying number of the assignee appears in
a box in the top-third upper-left area of the page.
The Deutsche Portfolios
INVESTMENT MANAGEMENT AGREEMENT
Agreement, made this 28th day of July, 1997, between the Deutsche
Portfolios, a trust organized under New York law (the "Trust"), and Deutsche
Fund Management, Inc., a Delaware corporation (the "Investment Manager"),
registered as an investment adviser under the Investment Advisers Act of 1940
(the "Advisers Act").
W I T N E S S E T H:
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), and consists initially of the ten sub-trusts listed on Schedule A to this
Agreement (each such sub-trust, together with each other sub-trust of the Trust
hereafter established by the Trustees of the Trust and made subject to this
Agreement in accordance with Section 13 hereof, individually a "Portfolio" and,
collectively, the "Portfolios"); and
WHEREAS, the Board of Trustees of the Trust desires to retain the
Investment Manager to render various investment management services to each
Portfolio, and the Investment Manager is willing to render such services;
NOW, THEREFORE, in consideration of the premises and mutual
promises hereinafter set forth, the parties hereto agree as follows:
The Trust hereby appoints the Investment
Manager to act as investment manager to each of the Portfolios for the period
and the terms set forth in this Agreement, with the understanding that it may
appoint an adviser to perform certain services relating to the management of the
investment operations of the Portfolios as set forth in Section 4. The
Investment Manager accepts such appointment and agrees to render or provide the
services herein set forth, for the compensation herein provided.
The activities of the Investment Manager or
any adviser appointed hereunder shall at all times be
subject to the supervision of the Trustees of the Trust.
NY12527: 44504.4
<PAGE>
The Investment Manager shall manage, or appoint an adviser to
manage, the investment operations of the Portfolios and the composition of each
Portfolio's holdings of securities and investments, including cash, the
purchase, retention and disposition thereof and agreements relating thereto, in
accordance with such Portfolio's investment objectives and policies as stated in
the Registration Statement (as defined in paragraph 6(d) of this Agreement). The
Investment Manager, or in case it appoints an adviser, such adviser, shall
perform such services (the person performing such services being referred to
herein as the "Adviser") subject to the following understandings:
The Adviser in the performance of its duties and
obligations under this Agreement, shall act in conformity with the
Declaration of Trust and By-Laws of the Trust and the Registration
Statement and with the instructions and directions of the Trustees of
the Trust and will conform to and comply with the requirements of the
1940 Act and all other applicable federal and state laws and
regulations;
the Adviser shall furnish a continuous investment program
for each Portfolio and determine from time to time what securities,
instruments and other investments, including futures contracts, will be
purchased, retained, sold or lent by such Portfolio, and what portion of
the assets will be invested or held uninvested as cash;
the Adviser shall use the same skill and care in the
management of each Portfolio's investments as it uses in the
administration of other accounts for which it has investment
responsibility as agent;
the Adviser shall determine the securities or other
investments to be purchased, sold or lent by each Portfolio and as agent
for each Portfolio will effect portfolio transactions pursuant to its
determinations either directly with the issuer or with any broker and/or
dealer in such securities, including a broker affiliated with the
Adviser; in placing orders with brokers and/or dealers the Adviser
intends to seek best price and execution for purchases and sales; the
Adviser shall also determine whether or not a Portfolio shall enter into
repurchase or reverse repurchase agreements;
On occasions when the Adviser deems the purchase or sale of a
security or other investment to be in the best interest of a Portfolio
as well as other customers
-2-
NY12527: 44504.4
<PAGE>
of the Adviser, the Adviser may, to the extent permitted by applicable
laws and regulations, but shall not be obligated to, aggregate the
securities to be so sold or purchased on behalf of such Portfolio and
such other customer of the Adviser in order to obtain best execution,
including lower brokerage commissions, if applicable. In such event,
allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Adviser in the
manner it considers to be the most equitable and consistent with its
fiduciary obligations to a Portfolio;
the Adviser shall maintain a set of books and records with
respect to each Portfolio's securities and other investment transactions
as required by the Advisers Act and other applicable laws and
regulations and shall render to the Trustees of the Trust such periodic
and special reports as the Trustees may reasonably request; and
the services of the Adviser to the Trust under this
Agreement are not to be deemed exclusive, and the Adviser shall be free
to render similar services to others.
The Investment Manager is authorized to
appoint an investment adviser to carry out the aforementioned investment
operations of each Portfolio, as Adviser, on the above terms pursuant to an
investment advisory contract conforming to the requirements of the 1940 Act and
subject to approval of the Board of Trustees and the holders of beneficial
interests in the Trust as required by the 1940 Act. Any such investment advisory
contract shall provide that the Adviser is not authorized to make any business,
operational or management decisions on behalf of the Trust or any Portfolio
other than with respect to the investment operations and composition of a
Portfolio's holdings of securities and other investments as set forth herein.
The compensation of any such Adviser will be paid by the Investment Manager.
The Investment Manager shall also provide
certain supervisory and administrative services to the
Trust, including:
negotiating, maintaining, evaluating and coordinating
contractual arrangements with third-party service providers, including,
but not limited to, administrators, custodians, transfer agents, fund
-3-
NY12527: 44504.4
<PAGE>
accounting agents, independent accountants, attorneys,
printers and insurers;
assisting the various third-party service providers
retained by or for the Trust by, among other things, providing any
information to such service providers as the Trustees of the Trust deem
appropriate, including information concerning Portfolio performance and
administration;
reviewing agendas for and minutes of meetings of Trustees
and committees of Trustees; and preparing such supporting documents for
such meetings as the Trustees may request the Investment Manager to
prepare;
arranging, if desired by the Trust, for directors,
officers or employees of the Investment Manager to serve as Trustees,
officers or agents of the Trust if duly elected or appointed to such
positions and subject to their individual consent and to any limitations
imposed by law; and
reviewing all registration statements, amendments thereto
and other documents as may be required for compliance by the Trust and
each Portfolio with all applicable laws and regulations and preparing
such portions thereof as the Trustees of the Trust may request the
Investment Manager to prepare.
Notwithstanding the foregoing, the Investment Manager shall not
be deemed to have assumed any duties under this Agreement with respect to, and
shall not be responsible for, functions specifically assumed by any
administrator, fund accounting agent custodian, private placement agent or
transfer agent of the Trust.
The Trust has delivered copies of each of the
following documents to the Investment Manager and will promptly notify and
deliver to it all future amendments and supplements, if any:
Declaration of Trust of the Trust (such Declaration of
Trust, as presently in effect and as amended from time to time, is
herein called the "Declaration of Trust");
By-Laws of the Trust (such By-Laws, as presently in effect
and as amended from time to time, are herein called the "By-Laws");
-4-
NY12527: 44504.4
<PAGE>
Certified resolutions of the Trustees of the Trust
authorizing the appointment of the Investment Manager and approving the
form of this Agreement;
The Trust's Notification of Registration on Form N-8A
under the 1940 Act, its Registration Statement on Form N-1A under the
1940 Act (No. ______) and the Registration Statement on Form N-1A of
Deutsche Funds, Inc. (No. 333-27709) under the Securities Act of 1933,
as amended, and the 1940 Act, as filed with the Securities and Exchange
Commission (the "Commission") on May 23, 1997, including all amendments
thereto (together with the Registration Statement of the Trust, the
"Registration Statement").
The Adviser shall keep the books and records
required to be maintained by it pursuant to paragraph 3(e). The Investment
Manager agrees that all records which it maintains for the Trust are the
property of the Trust and it will promptly surrender any of such records to the
Trust upon request. The Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 of the Commission under the 1940 Act any such records
as are required to be maintained by the Adviser with respect to the Portfolios
by Rule 31a-2 of the Commission under the 1940 Act.
During the term of this Agreement the
Investment Manager will pay all expenses, including personnel costs and
overhead, incurred by it in connection with the performance of its obligations
under this Agreement other than the cost of securities and investments purchased
for each Portfolio (including taxes and brokerage commissions, if any) and
extraordinary expenses and shall pay the salaries of Trustees and officers of
the Trust who are affiliated persons (as defined in the 1940 Act) of the
Investment Manager. The Investment Manager shall not be required to pay expenses
of any activity which is intended primarily to result in sales of shares of the
Portfolio.
For the services provided and the expenses
borne pursuant to this Agreement, each Portfolio will pay to the Investment
Manager as full compensation therefor a fee, computed daily and paid monthly in
arrears, at an annual rate equal to the percentage of the average daily net
assets of such Portfolio specified in Schedule A hereto.
The Investment Manager shall not be liable
for any error of judgment or mistake of law or for any loss or expense suffered
by the Trust or any Portfolio in connection with the matters to which this
Agreement relates, except a loss or expense resulting from willful misfeasance,
-5-
NY12527: 44504.4
<PAGE>
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement.
This Agreement shall continue in effect until
the date two years after its execution and shall continue in effect from year to
year thereafter with respect to each Portfolio if such continuance is
specifically approved at least annually in conformity with the requirements of
the 1940 Act; provided, however, that this Agreement may be terminated by the
Trust in its entirety or with respect to any Portfolio, at any time, without the
payment of any penalty, by vote of a majority of all the Trustees of the Trust
or by vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of the Trust or such Portfolio, as the case may be, on 60 days'
written notice to the Investment Manager, or by the Investment Manager at any
time, without the payment of any penalty, on 90 days' written notice to the
Trust. This Agreement will automatically and immediately terminate in the event
of its assignment (as defined in the 1940 Act).
The Investment Manager shall for all purposes
herein be deemed to be an independent contractor and shall, unless otherwise
expressly provided herein or authorized by the Trustees of the Trust from time
to time, have no authority to act for or represent the Trust or any Portfolio in
any way or otherwise be deemed an agent of the Trust or any Portfolio.
This Agreement may be amended by mutual
consent, but the consent of the Trust must be approved (a) by vote of a majority
of those Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such amendment, and (b) by vote of a majority of the
outstanding voting securities of the Trust or, in the case of an amendment to
this Agreement affecting only one or several Portfolios, a majority of the
outstanding voting securities of each such Portfolio. In the event that the
Trustees of the Trust establish one or more additional sub-trusts with respect
to which they wish to retain the Investment Manager to act as investment
manager, the Trust and the Investment Manager may amend Schedule A hereto to add
each such sub-trust and specify the fee payable to the Investment Manager in
respect thereof, in which event such sub-trust shall become subject to the
provisions of this Agreement and be deemed a "Portfolio" hereunder to the same
extent as the existing Portfolios, except to the extent that such provisions may
be modified with respect to any additional Portfolio in writing by the
-6-
NY12527: 44504.4
<PAGE>
Trust and the Investment Manager at the time of the addition of the Portfolio.
Notices of any kind to be given to the
Investment Manager by the Trust shall be in writing and shall be duly given if
mailed or delivered to the Investment Manager at 31 West 52nd Street, New York,
New York 10019, Attention: President and Managing Director, or at such other
address or to such other individual as shall be specified by the Investment
Manager to the Trust. Notices of any kind to be given to the Trust by the
Investment Manager shall be in writing and shall be duly given if mailed or
delivered to the Trust at Cardinal Avenue, Grand Cayman, Cayman Islands, BWI or
at such other address or to such other individual as shall be specified by the
Trust to the Investment Manager.
The Trustees of the Trust have authorized the
execution of this Agreement in their capacity as Trustees and not individually
and the Investment Manager agrees that neither the holders of interests in the
Trust nor the Trustees nor any officer, employee, representative or agent of the
Trust shall be personally liable upon, or shall resort be had to their private
property for the satisfaction of, obligations given, executed or delivered on
behalf of or by the Trust or any Portfolio, that the interest holders of the
Portfolios and the trustees, officers, employees, representatives and agents of
the Trust shall not be personally liable hereunder, and that the Investment
Manager shall look solely to the property of the Trust for the satisfaction of
any claim hereunder.
This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an
original.
-7-
NY12527: 44504.4
<PAGE>
This Agreement shall be governed by and
construed in accordance with the laws of the State of New
York.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the 28th day
of July, 1997.
DEUTSCHE PORTFOLIOS
By:__________________________________
Trustee
DEUTSCHE FUND MANAGEMENT, INC.
By:__________________________________
President and Managing Director
-8-
NY12527: 44504.4
<PAGE>
Schedule A
Fee (annualized
% of average
daily net assets)
Portfolio
Top 50 World Portfolio 1.00%
Top 50 Europe Portfolio 1.00
Top 50 Asia Portfolio 1.00
Top 50 US Portfolio 1.00
Provesta Portfolio 0.85
Investa Portfolio 0.85
Japanese Equity Portfolio 0.85
Global Bond Portfolio 0.75
European Bond Portfolio 0.75
US Money Market Portfolio 0.15
-9-
NY12527: 44504.4
<PAGE>
SULLIVAN & CROMWELL
NEW YORK TELEPHONE: (212) 558-4000
TELEX: 62694 (INTERNATIONAL) 127816 (DOMESTIC)
CABLE ADDRESS: LADYCOURT, NEW YORK
FACSIMILE: (212) 558-3588
125 Broad Street, New York 10004-2498
1701 PENNSYLVANIA AVE., N.W., WASHINGTON, DC 20006-5805
444 SOUTH FLOWER STREET, LOS ANGELES 90071-2901
8, PLACE VENDOME, 75001 PARIS
ST. OLAVE'S HOUSE, 9a IRONMONGER LANE, LONDON EC2V 8EY
101 COLLINS STREET, MELBOURNE 3000
2-1, MARUNOUCHI 1-CHOME, CHIYODA-KU, TOKYO 100
NINE QUEEN'S ROAD, CENTRAL, HONG KONG
September 22, 1997
Deutsche Funds, Inc.,
2nd Federated Square,
Pittsburgh, Pennsylvania 15222.
Dear Sirs:
In connection with Pre-Effective Amendment No. 6 to the
Registration Statement on Form N-1A (File No. 333- 7008) of Deutsche Funds,
Inc., a Maryland corporation (the "Corporation"), filed under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to an indefinite number
of shares of Common Stock, par value $0.001 per share, of the Corporation (the
"Shares"), we, as your counsel, have examined such corporate records,
certificates and other documents and such questions of law as we have considered
necessary or appropriate for the purposes of this opinion.
Upon the basis of such examination, we advise you that, in our
opinion, the Shares have been duly authorized to the extent of 10,000,000 shares
of each of the series known as Deutsche German Equity Fund, Deutsche European
Mid-Cap Fund, Deutsche Japanese Equity Fund, Deutsche European Bond Fund,
Deutsche Global Bond Fund, Deutsche Top
<PAGE>
Deutsche Funds, Inc. -2-
50 Europe, Deutsche Top 50 World, Deutsche Top 50 Asia and Deutsche Top 50 US;
to the extent of 5,000,000,000 shares of the series known as Deutsche US Money
Market Fund; and to the extent of 10,000,000,000 shares of Deutsche
Institutional US Money Market Fund; and, when the Registration Statement
referred to above has become effective under the Securities Act and the Shares
have been issued (a) for at least the par value thereof in accordance with the
Registration Statement referred to above and the Articles of Incorporation of
the Corporation, (b) so as not to exceed the then authorized number of Shares
and (c) in accordance with the authorization of the Board of Directors, the
Shares will be duly and validly issued, fully paid and non-assessable.
The foregoing opinion is limited to the Federal laws of the
United States and the General Corporation Law of the State of Maryland, and we
are expressing no opinion as to the effect of the laws of any other
jurisdiction.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement referred to above.
<PAGE>
Deutsche Funds, Inc. -3-
In giving such consent, we do not thereby admit that we are in the category of
person whose consent is required under Section 7 of the Securities Act.
Very truly yours,
/s/ Sullivan & Cromwell
NY12527\50132
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 6 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
September 22, 1997, relating to the statement of assets and liabilities of
Deutsche US Money Market Fund and Deutsche Institutional US Money Market Fund
(two of eleven separate funds constituting Deutsche Funds, Inc.), which report
appears in such Statement of Additional Information, and to the incorporation by
reference of our report into the Prospectus which constitutes part of this
Registration Statement. We also consent to the reference to us under the heading
"Independent Accountants" in such Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
September 22, 1997
<PAGE>
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 6 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
September 22, 1997, relating to the statement of assets and liabilities of US
Money Market Portfolio (US Dollar) (one of ten separate portfolios constituting
Deutsche Portfolios), which report appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Independent Accountants" in
such Statement of Additional Information.
/s/ Price Waterhouse
Price Waterhouse
Curacao, Netherlands Antilles
September 22, 1997
<PAGE>
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 6 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
September 19, 1997, relating to the statement of assets and liabilities of
Deutsche Top 50 World, Deutsche Top 50 Europe, Deutsche Top 50 Asia, Deutsche
Top 50 US, Deutsche European Mid-Cap Fund, Deutsche German Equity Fund, Deutsche
Japanese Equity Fund, Deutsche Global Bond Fund and Deutsche European Bond Fund
(nine of eleven separate funds constituting Deutsche Funds, Inc.), which report
appears in such Statement of Additional Information, and to the incorporation by
reference of our report into the Prospectuses which constitute part of this
Registration Statement. We also consent to the reference to us under the heading
"Independent Accountants" in such Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
September 19, 1997
<PAGE>
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 6 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
September 19, 1997, relating to the statement of assets and liabilities of Top
50 World Portfolio (US Dollar), Top 50 Europe Portfolio (US Dollar), Top 50 Asia
Portfolio (US Dollar), Top 50 US Portfolio (US Dollar), Provesta Portfolio (US
Dollar), Investa Portfolio (US Dollar), Japanese Equity Portfolio (US Dollar),
Global Bond Portfolio (US Dollar) and European Bond Portfolio (US Dollar) (nine
of ten separate portfolios constituting Deutsche Portfolios), which report
appears in such Statement of Additional Information, and to the incorporation by
reference of our report into the Prospectus which constitutes part of this
Registration Statement. We also consent to the reference to us under the heading
"Independent Accountants" in such Statement of Additional Information.
/s/ Price Waterhouse
Price Waterhouse
Curacao, Netherlands Antilles
September 19, 1997
EXHIBIT 13
EDGEWOOD SERVICES, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
September 18, 1997
Deutsche Funds, Inc.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
Edgewood Services, Inc. agrees to purchase the number of shares at the cost
listed below of the following portfolios of Deutsche Funds, Inc.:
Number of
Portfolio Shares Cost
Deutsche Top 50 World 888.96 $12.50
Deutsche Top 50 Europe 888.88 $12.50
Deutsche Top 50 Asia 888.88 $12.50
Deutsche Top 50 US 888.88 $12.50
Deutsche European Mid-Cap Fund 888.88 $12.50
Deutsche German Equity Fund 888.88 $12.50
Deutsche Japanese Equity Fund 888.88 $12.50
Deutsche Global Bond Fund 888.88 $12.50
Deutsche European Bond Fund 888.88 $12.50
These shares are purchased for investment purposes and Edgewood Services, Inc.
has no present intention of redeeming these shares.
Very truly yours,
/S/ S. ELLIOTT COHAN
S. Elliott Cohan
Secretary
<PAGE>
EXHIBIT 13
EDGEWOOD SERVICES, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
September 22, 1997
Deutsche Funds, Inc.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
Edgewood Services, Inc. agrees to purchase 100 shares of Deutsche US
Money Market Fund and 100 shares of Deutsche Institutional US Money Market Fund
at the cost of $1.00 per share. These shares are purchased for investment
purposes and Edgewood Services, Inc. has no present intention of redeeming these
shares.
Very truly yours,
/S/ S. ELLIOTT COHAN
S. Elliott Cohan
Secretary
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY CONSTITUTES AND
APPOINTS EACH OTHER TRUSTEE OF DEUTSCHE PORTFOLIOS AND EACH OF THE FOLLOWING
PERSONS*, HIS TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION FOR THEM AND THEIR NAMES, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL DOCUMENTS TO BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON BEHALF OF DEUTSCHE FAMILY OF FUNDS, INC.
PURSUANT TO THE SECURITIES ACT OF 1933, THE SECURITIES EXCHANGE ACT OF 1934 AND
THE INVESTMENT COMPANY ACT OF 1940, BY MEANS OF THE SECURITIES AND EXCHANGE
COMMISSION'S ELECTRONIC DISCLOSURE SYSTEM KNOWN AS EDGAR; AND TO FILE THE SAME,
WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND
AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO SIGN AND PERFORM EACH AND
EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN CONNECTION THEREWITH,
AS FULLY TO ALL INTENTS AND PURPOSES AS EACH OF THEM MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS, OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY
DO OR CAUSE TO BE DONE BY VIRTUE THEREOF.
SIGNATURES TITLE DATE
/S/ BRIAN A. LEE PRESIDENT JULY 28, 1997
BRIAN A. LEE
/S/ JOSEPH CHEUNG TREASURER JULY 28, 1997
JOSEPH CHEUNG
/S/ EDWARD C. SCHMULTS JULY 28, 1997
EDWARD C. SCHMULTS
/S/ ROBERT H. WADSWORTH JULY 28, 1997
ROBERT H. WADSWORTH
/S/ WERNER WALBROEL JULY 28, 1997
WERNER WALBROEL
/S/ G. RICHARD STAMBERGER JULY 28, 1997
G. RICHARD STAMBERGER
/S/ CHRISTIAN STRENGER JULY 28, 1997
CHRISTIAN STRENGER
/S/ ROBERT R. GAMBEE SECRETARY JULY 28, 1997
ROBERT R. GAMBEE
* BRIAN A. LEE, JOSEPH M. CHEUNG, ROBERT R. GAMBEE, RAYMOND O'NEIL AND
LAURA WEBER
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the audited
Statement of Assets & Liabilities of Deutsche Funds, Inc. dated September 17,
1997 and is qualified in its entirety by reference to such financial
statement
</LEGEND>
<CIK> 0001039826
<NAME> Deutsche Funds, Inc.
<SERIES>
<NAME> Deutsche Top 50 World
<NUMBER> 1
<S> <C>
<PERIOD-TYPE> Other
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-17-1997
<PERIOD-END> SEP-17-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 21,155
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,155
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 10,043
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,112
<SHARES-COMMON-STOCK> 889
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 11,112
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 889
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 889
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.50
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the audited
Statement of Assets & Liabilities of Deutsche Funds, Inc. dated September 17,
1997 and is qualified in its entirety by reference to such financial
statement
</LEGEND>
<CIK> 0001039826
<NAME> Deutsche Funds, Inc.
<SERIES>
<NAME> Deutsche Top 50 Europe
<NUMBER> 2
<S> <C>
<PERIOD-TYPE> Other
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-17-1997
<PERIOD-END> SEP-17-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 21,154
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<TOTAL-LIABILITIES> 10,043
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,111
<SHARES-COMMON-STOCK> 888
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 11,111
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
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<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
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<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 889
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 889
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.50
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the audited
Statement of Assets & Liabilities of Deutsche Funds, Inc. dated September 17,
1997 and is qualified in its entirety by reference to such financial
statement
</LEGEND>
<CIK> 0001039826
<NAME> Deutsche Funds, Inc.
<SERIES>
<NAME> Deutsche Top 50 Asia
<NUMBER> 3
<S> <C>
<PERIOD-TYPE> Other
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-17-1997
<PERIOD-END> SEP-17-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 21,154
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,154
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 10,043
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,111
<SHARES-COMMON-STOCK> 889
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 11,111
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 889
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 889
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.50
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the audited
Statement of Assets & Liabilities of Deutsche Funds, Inc. dated September 17,
1997 and is qualified in its entirety by reference to such financial
statement
</LEGEND>
<CIK> 0001039826
<NAME> Deutsche Funds, Inc.
<SERIES>
<NAME> Deutsche Top 50 US
<NUMBER> 4
<S> <C>
<PERIOD-TYPE> Other
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-17-1997
<PERIOD-END> SEP-17-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 21,154
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,154
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 10,043
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,111
<SHARES-COMMON-STOCK> 889
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 11,111
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 889
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 889
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.50
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the audited
Statement of Assets & Liabilities of Deutsche Funds, Inc. dated September 17,
1997 and is qualified in its entirety by reference to such financial
statement
</LEGEND>
<CIK> 0001039826
<NAME> Deutsche Funds, Inc.
<SERIES>
<NAME> Deutsche European Mid-Cap Fund
<NUMBER> 5
<S> <C>
<PERIOD-TYPE> Other
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-17-1997
<PERIOD-END> SEP-17-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 21,154
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,154
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 10,043
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,111
<SHARES-COMMON-STOCK> 889
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 11,111
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 889
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 889
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.50
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the audited
Statement of Assets & Liabilities of Deutsche Funds, Inc. dated September 17,
1997 and is qualified in its entirety by reference to such financial
statement
</LEGEND>
<CIK> 0001039826
<NAME> Deutsche Funds, Inc.
<SERIES>
<NAME> Deutsche German Equity Fund
<NUMBER> 6
<S> <C>
<PERIOD-TYPE> Other
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-17-1997
<PERIOD-END> SEP-17-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 21,154
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,154
<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 10,043
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,111
<SHARES-COMMON-STOCK> 889
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 11,111
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
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<APPREC-INCREASE-CURRENT> 0
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 889
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<NET-CHANGE-IN-ASSETS> 889
<ACCUMULATED-NII-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.50
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the audited
Statement of Assets & Liabilities of Deutsche Funds, Inc. dated September 17,
1997 and is qualified in its entirety by reference to such financial
statement
</LEGEND>
<CIK> 0001039826
<NAME> Deutsche Funds, Inc.
<SERIES>
<NAME> Deutsche Japanese Equity Fund
<NUMBER> 7
<S> <C>
<PERIOD-TYPE> Other
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-17-1997
<PERIOD-END> SEP-17-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
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<ASSETS-OTHER> 21,154
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,154
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 10,043
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,111
<SHARES-COMMON-STOCK> 889
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 11,111
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 889
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 889
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.50
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the audited
Statement of Assets & Liabilities of Deutsche Funds, Inc. dated September 17,
1997 and is qualified in its entirety by reference to such financial
statement
</LEGEND>
<CIK> 0001039826
<NAME> Deutsche Funds, Inc.
<SERIES>
<NAME> Deutsche Global Bond Fund
<NUMBER> 8
<S> <C>
<PERIOD-TYPE> Other
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-17-1997
<PERIOD-END> SEP-17-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 21,154
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,154
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 10,043
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,111
<SHARES-COMMON-STOCK> 889
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 11,111
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 889
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<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.50
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the audited
Statement of Assets & Liabilities of Deutsche Funds, Inc. dated September 17,
1997 and is qualified in its entirety by reference to such financial
statement
</LEGEND>
<CIK> 0001039826
<NAME> Deutsche Funds, Inc.
<SERIES>
<NAME> Deutsche European Bond Fund
<NUMBER> 9
<S> <C>
<PERIOD-TYPE> Other
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-17-1997
<PERIOD-END> SEP-17-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 21,154
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,154
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 10,043
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,111
<SHARES-COMMON-STOCK> 889
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 11,111
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 889
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 889
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.50
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the audited
Statement of Assets & Liabilities of Deutsche Funds, Inc. dated September 19,
1997 and is qualified in its entirety by reference to such financial
statement
</LEGEND>
<CIK> 0001039826
<NAME> Deutsche Funds, Inc.
<SERIES>
<NAME> Deutsche US Money Market Fund
<NUMBER> 10
<S> <C>
<PERIOD-TYPE> Other
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-19-1997
<PERIOD-END> SEP-19-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 5,122
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,122
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 5,022
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 100
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 100
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the audited
Statement of Assets & Liabilities of Deutsche Funds, Inc. dated September 19,
1997 and is qualified in its entirety by reference to such financial
statement
</LEGEND>
<CIK> 0001039826
<NAME> Deutsche Funds, Inc.
<SERIES>
<NAME> Deutsche Institutional US Money Market Fund
<NUMBER> 11
<S> <C>
<PERIOD-TYPE> Other
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-19-1997
<PERIOD-END> SEP-19-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 5,122
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,122
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 5,022
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 100
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 100
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
