Deutsche US Money Market Funds
Class A, Class B, and Class Y
Deutsche Fund Management, Inc., Manager [LOGO]
Edgewood Services, Inc., Distributor
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A Diversified Open-End Management Prospectus
Investment Company September 24, 1997
Deutsche US Money Market Funds
Federated Investors Tower
Pittsburgh, PA 15222-3779
For information call toll-free 888-4-DEUTSCHE (888-433-8872)
The Deutsche US Money Market Fund (the "Class A and Class B Fund") and
Deutsche Institutional US Money Market Fund (the "Class Y
Fund")(collectively, the "Funds") are series of the Deutsche Funds,
Inc., an open-end management investment company organized as a
Maryland corporation (the "Corporation"). The Class A and Class B Fund
offers two classes of shares. 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 of other
series of the Corporation (together with the Funds, the "Deutsche
Funds"), 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.
The objective of the Funds is to achieve as high a level of current
income as is consistent with the preservation of capital and the
maintenance of liquidity. Each Fund seeks to maintain a constant net
asset value. There can be no assurance that the investment objective
of the Funds will be achieved or that the net asset value per share
will not vary.
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund seeks to achieve its investment
objective by investing all of its investable assets in the US Money
Market Portfolio (US Dollar) (the "Portfolio"), a corresponding
diversified open-end management investment company. The Portfolio is a
series of the Deutsche Portfolios (the "Portfolio Trust") and has the
same investment objective as the Funds. The Funds invest in the
Portfolio through the Hub and Spoke(R) master-feeder investment fund
structure. "Hub and Spoke(R)" is a registered service mark of
Signature Financial Group, Inc.
The Portfolio is managed by Deutsche Fund Management, Inc. ("DFM"), a registered
investment adviser and an indirect subsidiary of Deutsche Bank AG, a major
global financial institution.
This Prospectus sets forth concisely the information about the Funds
that a prospective investor ought to know before investing and it
should be retained for future reference. Additional information about
the Funds has been filed with the Securities and Exchange Commission
in a Statement of Additional Information dated September 24, 1997 (as
supplemented from time to time). This information is incorporated
herein by reference and is available without charge from the Funds'
Transfer Agent, Federated Shareholder Services Company, by calling
toll-free 888-4-DEUTSCHE.
INVESTMENTS IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, DEUTSCHE BANK AG OR ANY OTHER BANK. SHARES
OF THE FUNDS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENTAL AGENCY. THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated September 24, 1997
TABLE OF CONTENTS
Expense Summary............................................................. 2
The Funds................................................................... 4
Investment Objective, Policies and Restrictions............................. 4
Loans of Portfolio Securities............................................... 5
Reverse Repurchase Agreements............................................... 5
Floating and Variable Rate Instruments...................................... 6
Investment Restrictions..................................................... 6
Fundamental Investment Restrictions......................................... 6
Non-Fundamental Investment Restrictions..................................... 6
Management of the Corporation and
the Portfolio Trust......................................................... 7
Manager..................................................................... 7
Adviser..................................................................... 7
Administrator............................................................... 8
Operations Agent............................................................ 8
Administrative Agent........................................................ 8
Distributor................................................................. 8
Transfer Agent, Custodian and Fund Accountant............................... 9
Expenses.................................................................... 10
Expenses of Class A Shares and Class B Shares............................... 10
Portfolio Transactions...................................................... 10
Purchase of Shares.......................................................... 10
Purchasing Shares Through a Financial Intermediary.......................... 11
Purchasing Shares by Wire................................................... 11
Purchasing Shares by Check.................................................. 11
Special Purchase Features................................................... 11
Systematic Investment Program............................................... 11
Retirement Plans............................................................ 12
Conversion of Class B Shares................................................ 12
Exchange Privilege.......................................................... 12
Class A Shares.............................................................. 12
Class B Shares.............................................................. 12
Class Y Shares.............................................................. 12
Requirements for Exchange................................................... 12
Tax Consequences............................................................ 12
Making an Exchange.......................................................... 12
Telephone Instructions...................................................... 13
Redemption of Shares........................................................ 13
Redeeming Shares Through a
Financial Intermediary...................................................... 13
Redeeming Shares by Telephone............................................... 13
Redeeming Shares by Mail.................................................... 13
Special Redemption Features................................................. 14
Systematic Withdrawal Program............................................... 14
Contingent Deferred Sales Charge............................................ 14
Class A Shares.............................................................. 14
Class B Shares.............................................................. 14
Class A Shares and Class B Shares........................................... 14
Elimination of Contingent Deferred Sales Charge............................. 15
Account and Share Information............................................... 15
Certificates and Confirmations.............................................. 15
Accounts with Low Balances.................................................. 15
Dividends and Distributions................................................. 15
Net Asset Value............................................................. 16
Organization................................................................ 16
Taxes....................................................................... 17
Additional Information...................................................... 18
Appendix A.................................................................. 18
EXPENSE SUMMARY
The following table summarizes estimated shareholder transaction and
annual operating expenses of the Funds and the allocable operating
expenses of the Portfolio. The Directors of the Corporation believe
that the aggregate per share expenses of each Fund and the allocable
operating expenses of the Portfolio will be approximately equal to and
may be less than the expenses that the Fund would incur if it retained
the services of an investment adviser and invested its assets directly
in portfolio securities. Actual expenses may vary. A hypothetical
example based on the summary is also shown. For more information
concerning the expenses of each Fund and the Portfolio, see
"Management of the Corporation and the Portfolio Trust."
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS Y
------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)............ None None None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)...................................................... None None None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable)...................................................... 0.00%(1) 5.00% (2) None
Redemption Fees (as a percentage of amount redeemed, if applicable)...................... None None None
Exchange Fees............................................................................ None None None
</TABLE>
(1) Class A shares acquired upon the exchange of Class A shares of another
Deutsche Fund purchased without an initial sales charge either (i) based on
an initial investment of $1,000,000 or more or (ii) with proceeds of a
redemption of shares of an unaffiliated investment company purchased or
redeemed with a sales charge and not distributed by Edgewood may be charged
a contingent deferred sales charge of 1.00% for redemptions made within one
full year of purchase. See "Contingent Deferred Sales Charge."
(2) In the first year declining to 1.00% in the sixth year and 0.00%
thereafter.
EXPENSE SUMMARY--CONTINUED
EXPENSE TABLE
ANNUAL OPERATING EXPENSES (AFTER EXPENSES REIMBURSEMENT)
(As a percentage of projected average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS Y
------- ------- -------
<S> <C> <C> <C>
Advisory Fees............................................................................. 0.15% 0.15% 0.15%
12b-1 Fees................................................................................ 0.25% 1.00% None
Other Expenses (after expense reimbursement).............................................. 0.15% 0.15% 0.05%
---------------------------
Total Operating Expenses (after expense reimbursement).................................. 0.55% 1.30% 0.20%
---------------------------
</TABLE>
EXAMPLE
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An investor would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS Y
-------------------------
<S> <C> <C> <C>
1 Year.................................................................................... $ 6 $63 $2
3 Years................................................................................... $18 $71 $6
</TABLE>
An investor would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) no redemption at the end of
each time period:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS Y
-------------------------
<S> <C> <C> <C>
1 Year.................................................................................... $ 6 $13 $2
3 Years................................................................................... $18 $41 $6
</TABLE>
The above expense table is designed to assist investors in
understanding the various estimated direct and indirect costs and
expenses that investors in a Fund would bear. Wire transferred
redemptions of less than $5,000 may be subject to additional fees. The
fees and expenses included in "Other Expenses" are estimated for each
Fund's first fiscal year and include (i) the fees paid to the
Administrator, Administrative Agent, Operations Agent, Transfer Agent,
Fund Accounting Agent and Custodian (as each are defined below), (ii)
amortization of organizational expenses, and (iii) other usual and
customary expenses of each Fund and the Portfolio. The Manager,
Administrator, Operations Agent, Transfer Agent, Administrative Agent,
Fund Accounting Agent and Custodian have voluntarily agreed to waive a
portion of their respective fees and/or reimburse expenses with
respect to the Class Y Fund, for at least the first year operations,
to the extent necessary to maintain such Fund's ratio of total
operating expenses to average annual net assets at the level indicated
above. The Manager and the Adviser have voluntarily agreed to
reimburse the Class A and Class B Fund, for at least the first year of
operations, to the extent necessary to maintain the ratio of total
operating expenses to average annual net assets of the Class A shares
and Class B shares at the respective levels indicated above. Assuming
no fee waivers or reimbursement of expenses, estimated "Other
Expenses" for Class A shares, Class B shares and the Class Y Fund for
the Funds' first fiscal year would be 0.20%, 0.20% and 0.12%,
respectively, and "Total Operating Expenses" would be 0.60%, 0.35% and
0.24%, respectively, of the average daily net assets of the class or
Fund. For a more detailed description of contractual fee arrangements,
including waivers and expense reimbursements, see "Management of the
Corporation and the Portfolio Trust" and "Expenses." In connection
with the above example, investors should note that $1,000 is less than
the minimum investment requirement for the Funds. See "Purchase of
Shares." Because the fees paid under the 12b-1 Plan of the Class A and
Class B Fund are charged against the assets of such Fund, long-term
shareholders may indirectly pay an amount that is more than the
economic equivalent of the maximum front-end sales charge that such
Fund would be permitted to charge. THE EXAMPLE IS HYPOTHETICAL; IT IS
INCLUDED SOLELY FOR ILLUSTRATIVE PURPOSES. IT SHOULD NOT BE CONSIDERED
A REPRESENTATION OF FUTURE PERFORMANCE; ACTUAL EXPENSES MAY BE MORE OR
LESS THAN THOSE SHOWN.
THE FUNDS
Each Fund is a diversified, open-end management investment company and
is a series of shares of common stock of the Deutsche Funds, Inc., a
Maryland corporation incorporated on May 22, 1997 (see
"Organization"). 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.
Each Fund seeks to achieve its investment objective by investing all
of its investable assets in the Portfolio, which has the same
investment objective as the Funds. The Portfolio is an open-end
management investment company and a series of shares of beneficial
interest in the Deutsche Portfolios, a trust organized under the laws
of the State of New York (see "Organization)".
Shares of the Funds are sold continuously by the Distributor. The
Class A and Class B Fund requires a minimum initial investment of
$5,000. The minimum subsequent investment for the Class A and Class B
Fund is $500. The minimum initial investment to purchase Class Y Fund
shares is $5 million, unless: (a) the investor has invested at least
$5 million in the aggregate among any class of shares of any Deutsche
Fund; or (b) the investor has, in the opinion of the Manager, adequate
intent and availability of funds to reach a future level of investment
of $5 million among any class of shares of the Deutsche Funds. There
is no minimum for subsequent purchases in the Class Y Fund. See
"Purchase of Shares." If a shareholder reduces his or her investment
in a Fund to less than the applicable minimum investment, the
investment is subject to mandatory redemption. See "Account and Share
Information - Accounts with Low Balances."
Proceeds from the sale of shares of each Fund are invested in the
Portfolio, which then invests its assets in accordance with its
investment objective and policies. DFM is the investment manager of
the Portfolio (the "Manager"). Deutsche Morgan Grenfell Investment
Management Inc. ("DMGIM") is the investment adviser of the Portfolio.
The Manager and the Adviser are indirect subsidiaries of Deutsche Bank
AG. Federated Services Company is the administrator of the Funds (the
"Administrator") and the operations agent of the Portfolio
("Operations Agent"). IBT Fund Services (Canada) Inc. ("IBT (Canada)")
is the fund accounting agent of the Funds and the Portfolio ("Fund
Accounting Agent"). Federated Shareholder Services Company is the
transfer agent and dividend disbursing agent of the Funds ("Transfer
Agent"). IBT Trust Company (Cayman) Ltd. ("IBT (Cayman)") is the
administrative agent of the Portfolio ("Administrative Agent").
Investors Bank & Trust Company ("IBT") is the custodian of the Funds
and the Portfolio ("Custodian"). The Board of Directors of the
Corporation and the Board of Trustees of the Portfolio Trust provide
broad supervision over the affairs of the Funds and of the Portfolio,
respectively. The Directors who are not "interested persons" of the
Corporation as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")(the "Independent Directors"), are the same as
the Trustees who are not "interested persons" of the Portfolio Trust
as defined in the 1940 Act (the "Independent Trustees"). A majority of
the Corporation's Directors and the Portfolio Trust's Trustees are not
affiliated with the Manager, the Adviser or the Distributor. For
further information about the Directors of the Corporation and the
Trustees of the Portfolio Trust, see "Management of the Corporation
and the Portfolio Trust" herein and in the Statement of Additional
Information.
INVESTMENT OBJECTIVE, POLICIES
AND RESTRICTIONS
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 net asset value of each of the
Funds' shares is expected to remain constant at $1.00. However, a
contingent deferred sales charge is imposed under certain
circumstances. There can be no assurance that the investment objective
of the Funds will be achieved or that the net asset value per share
will not vary.
Each Fund attempts to achieve its investment objective by investing
all its investable assets in the Portfolio, a series of the Portfolio
Trust which has the same investment objective as the Fund. Since the
investment characteristics and experience of the Funds will correspond
directly with those of the Portfolio, the discussion in this
Prospectus focuses on the investments and investment policies of the
Portfolio. The policies employed by the Funds and the Portfolio in
their efforts to achieve this objective are described below.
Additional information about the investment policies of the Funds and
the Portfolio appears in the Statement of Additional Information under
"Investment Objectives and Policies." No Fund represents a complete
investment program.
Investments for the Portfolio mature or are deemed to mature within
397 days (or 792 days in the case of U.S. Government securities) from
the date of purchase and the average maturity of the investments held
by the Portfolio (on a dollar-weighted basis) is 90 days or less.
Currently, the Portfolio's investment policy is to invest only in
money market instruments, including securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, and bank
obligations (such as certificates of deposit, fixed time deposits and
bankers' acceptances), commercial paper, repurchase agreements,
when-issued and delayed delivery securities, bonds issued by U.S.
corporations and obligations of certain supranational organizations
and foreign governments and their agencies and instrumentalities. (See
Appendix A for more information.) The Portfolio may also enter into
reverse repurchase agreements. The Portfolio will not invest more than
5% of its total assets in securities of a single issuer other than
U.S. Government securities. All of the assets of the Portfolio are
invested in securities which are rated within the highest rating
category for short-term debt obligations by at least two (unless only
rated by one) nationally recognized statistical rating organizations
(e.g., Moody's Investors Service, Inc. ("Moody's") and Standard &
Poor's Corporation ("S&P")) or, if unrated, are of comparable quality
as determined by or under the direction of the Portfolio Trust's Board
of Trustees.
Although the assets of the Portfolio are invested in high-quality,
short-term securities, the Portfolio is subject to interest rate risk
and credit risk which cause fluctuations in the amount of income
accrued on the Portfolio's investments and therefore in the daily
dividend paid by the Funds and, in extreme cases, could cause the net
asset value per share of the Funds to deviate from $1.00 per share.
Interest rate risk refers to the price fluctuation of a debt security
in response to changes in interest rates. In general, short-term
securities have relatively small fluctuations in price in response to
general changes in interest rates. Credit risk refers to the
likelihood that an issuer will default on interest and principal
payments. High-quality securities of short maturities generally have
relatively minimal credit risk.
Subject to the restriction on the Funds' and the Portfolio's
investments in securities that are not readily marketable (see
"Non-Fundamental Investment Restrictions"), the Portfolio may purchase
restricted securities, including securities eligible for resale under
Rule 144A under the Securities Act of 1933 (the "Securities Act") and
commercial paper issued in reliance upon the exemption from
registration in Section 4(2) of the Securities Act. Restricted
securities are securities subject to contractual or legal restrictions
on resale, such as those arising from an issuer's reliance upon
certain exemptions from registration under the Securities Act.
Loans of Portfolio Securities
Loans of portfolio securities up to 30% of the total value of the
Portfolio are permitted and may be entered into for not more than one
year. These loans must be 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. By lending securities, the
Portfolio's income can be increased by its continuing to receive
income on the loaned securities as well as by the opportunity to
receive interest on the collateral. Any appreciation or depreciation
in the market price of the borrowed securities which occurs during the
term of the loan inures to the Portfolio and its investors.
Reverse Repurchase Agreements
Reverse repurchase agreements may be entered into only with a "primary
dealer" (as designated by the Federal Reserve Bank of New York) in
U.S. Government securities. This is an agreement in which the
Portfolio agrees to repurchase securities sold by it at a mutually
agreed upon time and price. As such, it is viewed as the borrowing of
money for the Portfolio. Proceeds of borrowings under reverse
repurchase agreements are invested for the Portfolio. This is the
speculative factor known as "leverage." If interest rates rise during
the term of a reverse repurchase agreement utilized for leverage, the
value of the securities to be repurchased for the Portfolio as well as
the value of securities purchased with the proceeds will decline. In
these circumstances, the Portfolio's entering into reverse repurchase
agreements may have a negative impact on the ability to maintain the
Funds' net asset value of $1.00 per share. Proceeds of a reverse
repurchase transaction are not invested for a period which exceeds the
duration of the reverse repurchase agreement. A reverse repurchase
agreement is not entered into for the Portfolio if, as a result, more
than one-third of the market value of the Portfolio's total assets,
less liabilities other than the obligations created by reverse
repurchase agreements, is engaged in reverse repurchase agreements. In
the event that such agreements exceed, in the aggregate, one-third of
such market value, the amount of the Portfolio's obligations created
by reverse repurchase agreements is reduced within three days
thereafter (not including Sundays and holidays) or such longer period
as the Securities and Exchange Commission may prescribe, to an extent
that such obligations do not exceed, in the aggregate, one-third of
the market value of the Portfolio's assets, as defined above. A
segregated account with the Custodian is established and maintained
for the Portfolio with liquid assets in an amount at least equal to
the Portfolio's purchase obligations under its reverse repurchase
agreements. Such a segregated account consists of liquid, high grade
debt securities marked to the market daily, with additional liquid
assets added when necessary to insure that at all times the value of
such account is equal to the purchase obligations.
Floating and Variable Rate Instruments
Certain of the obligations that the Portfolio may purchase have a
floating or variable rate of interest. Such obligations bear interest
at rates that are not fixed, but vary with changes in specified market
rates or indices, such as the Prime Rate, and at specified intervals.
Certain of such obligations may carry a demand feature that would
permit the holder to tender them back to the issuer at par value prior
to maturity. The Portfolio will limit its purchase of floating and
variable rate obligations to those of the same quality as it otherwise
is allowed to purchase. The Adviser will monitor on an ongoing basis
the ability of an issuer of a demand instrument to pay principal and
interest on demand. The Portfolio's right to obtain payment at par on
a demand instrument could be affected by events occurring between the
date the Portfolio elects to demand payment and the date payment is
due that may affect the ability of the issuer of the instrument to
make payment when due, except when such demand instruments permit same
day settlement. To facilitate settlement, these same day demand
instruments may be held in book-entry form at a bank other than the
Custodian, subject to a subcustodian agreement approved by the
Portfolio Trust between that bank and the Custodian.
To the extent that floating and variable rate instruments without
demand features are not readily marketable, they will be subject to
the investment restriction on the Portfolio's investment in securities
that are not readily marketable.
Investment Restrictions
The investment objective of each Fund and the Portfolio, together with
the fundamental investment restrictions described below and in the
Statement of Additional Information, except as noted, are deemed
fundamental policies, i.e., they may be changed only with the approval
of the holders of a majority of the outstanding voting securities of
the Fund and the Portfolio. Each Fund has the same investment
restrictions as the Portfolio, except that the Fund may invest all of
its investable assets in the Portfolio. References below to the
Portfolio's investment restrictions also include the Funds' investment
restrictions. Any other investment policies of the Portfolio and each
Fund described herein or in the Statement of Additional Information
are not fundamental and may be changed without shareholder approval.
Each Fund will comply with Rule 2a-7 under the 1940 Act, including the
diversification, quality and maturity limitations imposed by the Rule.
A more detailed description of Rule 2a-7 is set forth in the Funds'
Statement of Additional Information under "Investment Objective and
Policies."
Fundamental Investment Restrictions
Each Fund is classified as "diversified" under the 1940 Act, which
means that at least 75% of its total assets is represented by cash;
securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities; and other securities limited in respect of any
one company to an amount no greater than 5% of the Fund's total assets
(other than securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities). As a matter of operating policy,
the foregoing fundamental policy would give the Portfolio the ability
to invest, with respect to 25% of its assets, more than 5% of its
assets in any one issuer only in the event that Rule 2a-7 is amended
in the future.
The Portfolio may not purchase securities or other obligations of
issuers conducting their principal business activity in the same
industry if its investments in such industry would equal or exceed 25%
of the value of the Portfolio's total assets, except this limitation
shall not apply to investments in securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities or
certificates of deposit, bankers' acceptances or time deposits.
Non-Fundamental Investment Restrictions
The Portfolio will not purchase more than 10% of the principal amount
of all outstanding debt obligations of any one issuer (other than
securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities). In addition, except for the investment of all
of each Fund's assets in the Portfolio, not more than 10% of the net
assets of a Fund or the Portfolio, as the case may be, may be invested
in securities that are subject to legal or contractual restrictions on
resale or in securities which are not readily marketable, 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.
For a more detailed discussion of the above investment restrictions,
as well as a description of certain other investment restrictions, see
"Investment Restrictions" in the Statement of Additional Information.
MANAGEMENT OF THE CORPORATION
AND THE PORTFOLIO TRUST
The Board of Directors of the Corporation and the Board of Trustees of
the Portfolio Trust provide broad supervision over the affairs of each
Fund and the Portfolio, respectively. Each Fund has retained the
services of Federated Services Company as Administrator, Federated
Shareholder Services Company as Transfer Agent, IBT (Canada) as Fund
Accounting Agent and IBT as Custodian but has not retained the
services of an investment manager or adviser since each Fund seeks to
achieve its investment objective by investing all of its investable
assets in the Portfolio. The Portfolio has retained the services of
DFM as Manager, Federated Services Company as Operations Agent, IBT
(Canada) as Fund Accounting Agent, IBT (Cayman) as Administrative
Agent and IBT as Custodian. DFM has retained the services of DMGIM as
Adviser of the Portfolio.
Manager
The Portfolio Trust has retained the services of DFM as investment
manager to the Portfolio. DFM, with principal offices at 31 West
52/nd/ Street, New York, New York 10019, is a Delaware corporation and
registered investment adviser under the Advisers Act of 1940.
DFM is a wholly-owned subsidiary of Deutsche Fonds Holding GmbH
("DFH"), a company with limited liability organized under the laws of
Germany and a consolidated subsidiary of Deutsche Bank AG, a major
global banking institution. With total assets the equivalent of $570
billion and 75,000 employees as of the year-ended 1996, Deutsche Bank
AG is Europe's largest universal bank. It is engaged in a wide range
of financial services, including retail and commercial banking,
investment banking and insurance. Deutsche Bank AG's creditworthiness
ranks it among the most highly rated financial institutions in the
world. For example, Deutsche Bank AG has been rated AAA by S&P.
Deutsche Bank AG and its affiliates may have commercial lending
relationships with companies whose securities may be held by the
Portfolio.
Subject to the overall supervision of the Portfolio Trust's Trustees,
DFM is responsible for the day-to-day investment decisions, the
execution of portfolio transactions and the general management of the
Portfolio's investments and provides certain supervisory services.
Under its investment management agreement with the Portfolio Trust
(the "Management Agreement"), DFM is permitted, subject to the
approval of the Board of Trustees of the Portfolio Trust, to delegate
to a third party responsibility for management of the investment
operations of the Portfolio. DFM has delegated this responsibility to
the Adviser. DFM retains overall responsibility, however, for
supervision of the investment management program for the Portfolio.
See "Manager" in the Statement of 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 "Expenses."
Adviser
Pursuant to an investment advisory agreement ("Advisory Agreement")
between DFM and DMGIM, DMGIM provides investment advice and portfolio
management services to the Portfolio. Subject to the overall
supervision of DFM, the Adviser conducts the day-to-day investment
decisions of the Portfolio, arranges for the execution of portfolio
transactions and furnishes a continuous investment program for the
Portfolio.
The Adviser is an SEC-registered investment adviser and an indirect
subsidiary of Deutsche Bank AG, a major German banking institution.
The offices of the Adviser are located at 31 West 52/nd/ Street, New
York, New York 10019.
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.
Administrator
Under a master agreement for administration services with the
Corporation, Federated Services Company serves as Administrator to the
Funds. 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 documents; (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.
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 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 0.0525% of the average daily net assets of each Fund
greater than $200 million. The Administrator has agreed, together with
the Manager and the Adviser and certain other service providers to the
Class Y Fund and the Portfolio, to waive a portion of their 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,
Federated Services Company serves as Operations Agent to the
Portfolio. In connection with its responsibilities as Operations
Agent, 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; (vii) prepares investor
meeting materials; and (viii) monitors and supervises collection of
tax reclaims.
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 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."
Administrative Agent
Under an administration agreement with the Portfolio Trust, IBT
(Cayman) provides certain services to the Portfolio, including (i)
filing and maintaining the governing documents, registration
statements and other regulatory filings; (ii) maintaining a telephone
line; (iii) approving annual expense budgets; (iv) authorizing
expenses; (v) distributing materials to the Trustees of the Portfolio
Trust; (vi) authorizing dividend distributions; (vii) maintaining
books and records; (viii) filing tax returns; and (ix) maintaining the
investor register.
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
Edgewood serves as principal distributor for shares of each Fund.
Edgewood is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a New York corporation organized on
October 26, 1993, and is the principal distributor for a number of
investment companies. Edgewood is a subsidiary of Federated Investors
and an affiliate of Federated Services Company.
Under a distribution and services plan adopted in accordance with Rule
12b-1 of the 1940 Act, 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 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 subject to the Distribution Plan. Because
distribution fees to be paid by a Fund to the Distributor may not
exceed an annual rate of 0.75% of Class B shares' average daily net
assets, it will take the Distributor a number of years to recoup the
expenses, including payments to other dealers, it has incurred for its
sales services and distribution-related support services pursuant to
the Distribution Plan.
The Distribution Plan is a compensation-type plan. As such, the Fund
makes no payments to the Distributor except as described above.
Therefore, the Fund does not pay for unreimbursed expenses of the
Distributor, including amounts expended by the Distributor in excess
of amounts received by it from the Fund, interest, carrying or other
financing charges in connection with excess amounts expended, or the
Distributor's overhead expenses. However, the Distributor may be able
to recover such amounts or may earn a profit from future payments made
by shares under the Distribution Plan.
Under the Service Plan, the Class A and Class B Fund pays to DFM for
the provision of certain services to the holders of Class A shares and
Class B shares a fee computed at an annual rate of 0.25% of the
average daily net assets of each such Class of shares. The service
provided may include personal services relating to shareholder
accounts, such as answering shareholder inquiries regarding the Fund,
providing reports and other information to shareholders and financial
intermediaries ("Financial Intermediaries"), and services related to
the maintenance of shareholder accounts, and other services. DFM
determines the amounts to be paid to Financial Intermediaries, the
schedules of such fees and the basis upon which such fees will be
paid. Securities laws may require certain Financial Intermediaries (as
defined below) such as depository institutions to register as dealers.
DFM may pay Financial Intermediaries a shareholder services fee of up
to 0.25% of the amount invested in Class A and Class B shares by
employees participating in qualified or non-qualified employee benefit
plans or other programs where (i) the employers or affiliated
employers maintaining such plans or programs have a minimum of 250
employees eligible for participation in such plans or programs, or
(ii) such plan's or program's aggregate investment in the Deutsche
Funds or certain other products made available by the Distributor to
such plans or programs is $1,000,000 or more ("Eligible Benefit
Plans"). Shares in the Deutsche Funds then held by Eligible Benefit
Plans will be aggregated to determine the fee payable. DFM reserves
the right to cease paying these fees at any time. DFM may pay such
fees from its own funds in addition to amounts received from the Funds
under the Service Plan, including past profits or any other source
available to it. Such payments are subject to a reclaim from the
Financial Intermediary should the assets leave the plan or program
within 12 months after purchase.
Furthermore, with respect to Class A shares and Class B shares, the
Distributor may offer to pay a fee from its own assets to Financial
Intermediaries as financial assistance for providing substantial sales
services, distribution- related support services, or shareholder
services. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes
of the Class A and Class B Fund. Such assistance may be predicated
upon the amount of shares the Financial Intermediary sells or may
sell, and/or upon the type and nature of sales or marketing support
furnished by the Financial Intermediary.
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. IBT, 200 Clarendon Street,
Boston, Massachusetts 02116 acts as the custodian of the Funds' and
the Portfolio's assets. Securities held for the Portfolio may be held
by a sub-custodian bank approved by the Trustees or Custodian of the
Portfolio Trust. IBT (Canada) 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 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
Internal Revenue Code (the "Code").
Expenses
In addition to the fees payable under the various agreements discussed
above, each Fund and the Portfolio are responsible for usual and
customary expenses associated with their respective operations. Such
expenses may include organization expenses, legal fees, audit fees and
expenses, insurance costs, the compensation and expenses of the
Directors or Trustees, as the case may be, registration fees under
applicable securities laws, fund accounting fees, custodian fees and
extraordinary expenses. For each Fund, such expenses also include
transfer, registrar and dividend disbursing costs, and the expenses of
printing and mailing reports and notices and proxy statements to Fund
shareholders. For the Portfolio, such expenses also include brokerage
expenses.
As discussed above, if, after the Portfolio's first year of
operations, the average net assets of the Portfolio have not reached
$325 million, Federated Services Company, as Administrator and
Operations Agent to the Funds and the Portfolio, respectively, may
increase the annual rate of its asset-based fees. See "Administrator"
and "Operations Agent". In addition, in such circumstance IBT and IBT
(Canada), as Custodian and Fund Accounting Agent, respectively, to the
Funds and the Portfolio, may increase the asset-based fees charged to
the Portfolio. Such increase by the Custodian and Fund Accounting
Agent could add fees of as much as 0.015% per annum of the average
annual assets of the Funds and the Portfolio.
The Manager, Adviser, Administrator, Operations Agent, Administrative
Agent, Transfer Agent, Fund Accounting Agent and Custodian have
voluntarily agreed to waive a portion of their respective fees and/or
reimburse expenses with respect to the Class Y Fund, for at least the
Fund's first year of operations, to the extent necessary to maintain
such Fund's ratio of total operating expenses to average annual net
assets at not more than 0.20%. The Manager and the Adviser have agreed
to reimburse the expenses of the Class A and Class B Fund, for at
least the Fund's first year of operations, to the extent necessary to
maintain the ratio of total operating expenses to average annual net
assets of the Class A shares and Class B shares at 0.55% and 1.30%,
respectively. There can be no assurance that the Manager or the other
service providers will continue such fee waivers or reimbursement
beyond one year.
Expenses of Class A Shares and Class B Shares
Holders of Class A shares and Class B shares bear their allocable
portion of the Class A and Class B Fund's expenses along with their
allocable share of the Portfolio's operating expenses. At present, the
only expenses which are allocated specifically to Class A shares and
Class B shares as classes are expenses under the Distribution Plan and
expenses under the Service Plan. However, the Directors reserve the
right to allocate certain other expenses to holders of Class A shares
and Class B shares ("Class Expenses"). In any case, Class Expenses
would be limited to: distribution fees; shareholder services fees;
transfer agent fees as identified by the Transfer Agent as
attributable to holders of Class A shares and Class B shares; printing
and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current
shareholders as attributable to holders of Class A shares and Class B
shares; registration fees paid to the Securities and Exchange
Commission and to state securities commissions as attributable to
holders of Class A shares and Class B shares; expenses related to
administrative personnel and services as required to support holders
of Class A shares and Class B shares; legal fees relating solely to
Class A shares and Class B shares; and Directors' fees incurred as a
result of issues related solely to Class A shares and Class B shares.
Portfolio Transactions
Although the Portfolio generally holds investments until maturity and
does not seek profits through short-term trading, it may dispose of
any portfolio security prior to its maturity if it believes such
disposition advisable. Money market securities are generally traded on
a net basis and do not normally involve brokerage commissions or
transfer taxes. See "Portfolio Transactions" in the Statement of
Additional Information.
PURCHASE OF SHARES
Shares of the Funds are sold on days on which the New York Stock
Exchange and Federal Reserve Bank are open. Shares of each Fund may be
purchased as described below either through a Financial Intermediary
(such as a bank or broker/dealer which has a sales agreement with the
Distributor) or by sending a wire or a check directly to a Fund, with
a minimum initial investment of $5,000 for the Class A and Class B
Fund; or $5 million for the Class Y Fund, unless: (a) the investor has
invested at least $5 million in the aggregate among any class of
shares of any Deutsche Fund; or (b) the investor has, in the opinion
of the Manager, adequate intent and availability of funds to reach a
future level of investment of $5 million among any class of shares of
Deutsche Funds. Additional investments in the Class A and Class B Fund
can be made for as little as $500. There is no minimum for subsequent
purchases in the Class Y Fund. The minimum initial investments for
retirement plan participants is $1,000 and the subsequent investment
for retirement plan participants is $100. (Financial Intermediaries
may impose different minimum investment requirements on their
customers.) Class B shares may be purchased, without an initial sales
charge but subject to a contingent deferred sales charge (see
"Contingent Deferred Sales Charge"), only upon an exchange of Class B
shares of another Deutsche Fund.
In connection with any sale, the Distributor may from time to time
offer certain items of nominal value to any shareholder or investor.
The Funds reserves the right to reject any purchase request. An
account must be established through a Financial Intermediary or by
completing, signing, and returning the new account form available from
the Funds before shares can be purchased.
Purchasing Shares Through a Financial Intermediary
An investor may call his Financial Intermediary (such as a bank or an
investment dealer, which has a sales agreement with the Distributor)
to place an order to purchase shares. Orders placed through a
Financial Intermediary are considered received when the Fund is
notified of the purchase order. Shares are purchased at a price equal
to their net asset value next determined after receipt of the purchase
order. Purchase orders must be received by the Funds before 3:00 p.m.
(U.S. Eastern time) in order for the purchased shares to be entitled to
dividends declared that day. It is the Financial Intermediary's responsibility
to transmit orders promptly. Financial Intermediaries may charge additional fees
for their services.
The Financial Intermediary which maintains investor accounts in Class
B shares with the Class A and Class B Fund must do so on a fully
disclosed basis unless it accounts for share ownership periods used in
calculating the contingent deferred sales charge (see "Contingent
Deferred Sales Charge").
Purchasing Shares by Wire
Once an account has been established, shares may be purchased by
Federal Reserve wire by calling the Transfer Agent before 3:00 p.m.
(U.S. Eastern time). Payment by federal funds must be received before
4:00 p.m. (U.S. Eastern time) in order to begin earning dividends that
same day. All information needed will be taken over the telephone, and
the order is considered received when IBT receives payment by wire.
Federal funds should be wired as follows: Investors Bank & Trust,
Boston, MA: ABA Number 0110-0143-8; BFN Account Number 570000307; For
Credit to: (Fund Name) (Fund Class); (Fund Number, this number can be
found on the account statement or by contacting the Funds); Account
Number; Trade Date and Order Number; Group Number or Dealer Number;
Nominee or Institution Name; and ABA Number [#]. Shares cannot be
purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your account
representative at the telephone number listed on your account
statement.
Purchasing Shares by Check
Once an account has been established, shares may be purchased by
sending a check made payable to the name of the specific Fund
(designate class of shares and account number) to: Deutsche Funds,
Inc., P.O. Box 8612, Boston, Massachusett 02266-8612. Please include
an account number on the check. Orders by mail are considered received
when payment by check is converted into federal funds (normally the
business day after the check is received).
SPECIAL PURCHASE FEATURES
Systematic Investment Program
Once an account has been opened with the minimum initial investment,
shareholders of Class A shares may add to their investment on a
regular basis in a minimum amount of $100. Under this program, funds
may be automatically withdrawn periodically from the shareholder's
checking account at an Automated Clearing House ("ACH") member and
invested in the Fund at the net asset value next determined after an
order is received by the Fund. Shareholders should contact their
Financial Intermediary or the Fund directly to participate in this
program.
Retirement Plans
Class A and Class B Fund shares can be purchased as an investment for
retirement plans or IRA accounts. For further details, contact the
Funds and consult a tax adviser.
CONVERSION OF CLASS B SHARES
Class B shares will automatically convert into Class A shares on or
about the fifteenth of the month eight full years after the initial
purchase date in any one Deutsche Fund. Until conversion, Class B
shares will have a higher expense ratio and pay lower dividends than
Class A shares due to the higher 12b-1 fees.
EXCHANGE PRIVILEGE
Class A Shares
Class A shareholders may exchange all or some of their shares for
Class A shares of other Deutsche Funds at relative net asset value
plus a sales charge to the extent required by that Deutsche Fund.
Sales charges will not be imposed to the extent the exchange is made
with proceeds from the previous redemption of Class A shares of
another Deutsche Fund that imposed a sales charge on the initial
purchase. None of the Deutsche Funds imposes any additional fees on
exchanges. However, Class A shares acquired upon the exchange of Class
A shares of another Deutsche Fund purchased without an initial sales
charge (i) based on an initial investment of $1,000,000 or more or
(ii) with proceeds of a redemption of shares of an unaffiliated
investment company purchased or redeemed with a sales charge and not
distributed by Edgewood may be charged a contingent deferred sales
charge of 1.00% for redemptions made within one full year of the
original purchase.
Class B Shares
Class B shareholders may exchange all or some of their shares for
Class B shares of other Deutsche Funds. Contact your Financial
Intermediary regarding the availability of other Class B shares in the
Deutsche Funds. Exchanges are made at net asset value without being
assessed a contingent deferred sales charge on the exchanged shares.
To the extent that a shareholder exchanges shares for Class B shares
of other Deutsche Funds, the time for which exchanged-from shares were
held will be credited against the time for which the exchanged-for
shares are required to be held for purposes of satisfying the
applicable holding period in respect of the contingent deferred sales
charge. For more information, see "Contingent Deferred Sales Charge."
Class Y Shares
Class Y shareholders have no exchange privileges.
Please contact your Financial Intermediary directly or the Distributor
for information on and prospectuses for the Deutsche Funds into which
your shares may be exchanged free of charge.
Requirements for Exchange
Shareholders using this privilege must exchange shares having a net
asset value equal to the minimum investment requirements of the
Deutsche Fund into which the exchange is being made. The shareholder
must receive a Prospectus of the Deutsche Fund for which the exchange
is being made.
This privilege is available to shareholders resident in any state in
which the shares being acquired may be sold. Upon receipt of proper
instructions and required supporting documents, shares submitted for
exchange are redeemed and proceeds invested in the same class of
shares of the other Fund. The exchange privilege may be modified or
terminated at any time. Shareholders will be notified in advance of
the modification or termination of the exchange privilege.
Tax Consequences
An exchange will be treated as a taxable sale for federal income tax purposes
and any gain or loss realized will be subject to the rules applicable to
reinvestments (described above under "Tax Treatment of Reinvestments"). See
"Taxes" below for additional information.
Making an Exchange
Instructions for exchanging may be given in writing or by telephone.
Written instructions may require a signature guarantee. Shareholders
of the Class A and Class B Fund may have difficulty in making
exchanges by telephone through brokers and other Financial
Intermediaries during times of drastic economic or market changes. If
a shareholder cannot contact his broker or Financial Intermediary by
telephone, it is recommended that an exchange request be made in
writing and sent by overnight mail to: Deutsche Funds, Inc., c/o
Federated Shareholder Services Company, 1099 Hingham Street, Rockland,
MA 02370-3317.
Telephone Instructions
Telephone instructions made by the investor may be carried out only if
a telephone authorization form completed by the investor is on file
with the Funds. If the instructions are given by a broker, a telephone
authorization form completed by the broker must be on file with the
Funds. If reasonable procedures are not followed, the responsible
party may be liable for losses due to unauthorized or fraudulent
telephone instructions. Shares may be exchanged between two Funds by
telephone only if the two Deutsche Funds have identical shareholder
registrations.
Any shares held in certificated form cannot be exchanged by telephone
but must be forwarded to Federated Shareholder Services Company and
deposited to the shareholder's account before being exchanged.
Telephone exchange instructions are recorded and will be binding upon
the shareholder. Such instructions will be processed as of 2:00 p.m.
(U.S. Eastern time) and must be received by the Fund before that time
for shares to be exchanged the same day. Shareholders exchanging into
the Class A and Class B Fund will begin receiving dividends the
following business day. This privilege may be modified or terminated
at any time.
REDEMPTION OF SHARES
Shares are redeemed at their net asset value, next determined after a
Fund receives the redemption request, less any applicable contingent
deferred sales charge. Redemptions will be made on days on which each
Fund computes its net asset value. Investors who redeem shares through
a Financial Intermediary may be charged a service fee by that
Financial Intermediary. Redemption requests must be received in proper
form and can be made as described below.
Redeeming Shares Through a Financial Intermediary
Shares of the Funds may be redeemed by calling your Financial
Intermediary to request the redemption. Shares will be redeemed at the
net asset value next determined after a Fund receives the redemption
request from the Financial Intermediary, less any applicable
contingent deferred sales charge. The Financial Intermediary is
responsible for promptly submitting redemption requests and providing
proper written redemption instructions. Customary fees and commissions
may be charged by the Financial Intermediary for this service.
Redemption requests must be received by the Fund before 2:00 p.m.
(U.S. Eastern time) in order for redemption proceeds to be disbursed
the same day.
Redeeming Shares by Telephone
Shares may be redeemed in any amount by calling a Fund provided the
Fund has received a properly completed authorization form. These forms
can be obtained from the Distributor. Proceeds will be mailed in the
form of a check, to the shareholder's address of record or by wire
transfer to the shareholder's account at a domestic commercial bank
that is a member of the Federal Reserve System. Wire transfer requests
received before 2:00 p.m. (U.S. Eastern time) will be processed the
same day, but will not include that day's dividend. Wire transfer
requests received after that time will be processed the following
business day, but will include that day's dividend. The minimum amount
for a wire transfer is $1,000. Proceeds from redeemed shares purchased
by check or through ACH will not be wired until the payment has
cleared. Proceeds from redemption requests received on holidays when
wire transfers are restricted will be wired the following business
day.
Telephone instructions will be recorded. If reasonable procedures are
not followed by a Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. In the event of
drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, redemption by
mail (see "Redeeming Shares by Mail") should be considered. If at any
time a Fund shall determine it necessary to terminate or modify the
telephone redemption privilege, shareholders would be promptly
notified.
Redeeming Shares by Mail
Shares may be redeemed in any amount by mailing a written request to:
Deutsche Funds, Inc., c/o Federated Shareholder Services Company, P.O.
Box 8612, Boston, MA 02266-8612. If share certificates have been
issued, they should be sent unendorsed with the written request by
registered or certified mail to the address noted above.
The written request should state: Fund Name and the share Class name;
the account name as registered with the Fund; the account number; and
the number of shares to be redeemed or the dollar amount requested.
All owners of the account must sign the request exactly as the shares
are registered. Normally, a check for the proceeds is mailed within
one business day, but in no event more than seven days after receipt
of a proper written redemption request. Dividends are paid up to and
including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with a Fund, or a redemption payable
other than to the shareholder of record, must have their signatures
guaranteed by a commercial or savings bank, trust company or savings
association whose deposits are insured by an organization which is
administered by the Federal Deposit Insurance Corporation; a member
firm of a domestic stock exchange; or any other "eligible guarantor
institution," as defined by the Securities and Exchange Act of 1934,
as amended. The Funds do not accept signatures guaranteed by a notary
public.
The Funds and the Transfer Agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect
in the future to limit eligible signature guarantors to institutions
that are members of a signature guarantee program. The Funds and the
Transfer Agent reserve the right to amend these standards at any time
without notice.
SPECIAL REDEMPTION FEATURES
Systematic Withdrawal Program
The Systematic Withdrawal Program permits the Class A and Class B Fund
shareholders to receive payments of a predetermined amount from
accounts with a $10,000 minimum at the time the shareholder elects to
participate in the Systematic Withdrawal Program. Under this program,
shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder.
Depending upon the amount of the withdrawal payments, redemptions may
reduce, and eventually deplete, the shareholder's investment in the
Fund. For this reason, payments under this program should not be
considered as yield or income on the shareholder's investment in the
Fund. A shareholder may apply for participation in this program
through his Financial Intermediary.
CONTINGENT DEFERRED SALES CHARGE
Shareholders may be subject to a contingent deferred sales charge upon
redemption of their shares under the following circumstances:
Class A Shares
No initial sales charge applies, but a contingent deferred sales
charge of 1% is imposed on certain redemptions of shares issued in
exchange for Class A shares of another Deutsche Fund within one year
of the original purchase. See "Exchange Privilege." Any applicable
contingent deferred sales charge will be imposed on the lesser of the
net asset value of the shares of the exchanged-from Deutsche Fund at
the time of purchase or the net asset value of the redeemed shares at
the time of redemption.
Class B Shares
Shareholders redeeming Class B shares from their Fund accounts within
six full years of the purchase date of the Class B shares originally
purchased in the Deutsche Fund from which the shareholder exchanged
will be charged a contingent deferred sales charge by the Distributor.
Any applicable contingent deferred sales charge will be imposed on the
lesser of (i) the net asset value of the Class B shares of the
exchanged-from Deutsche Fund, at the time of their original purchase
or (ii) the net asset value of the redeemed shares at the time of
redemption.
Class A Shares and Class B Shares
The contingent deferred sales charge will be deducted from the
redemption proceeds otherwise payable to the shareholder and will be
retained by the Distributor. The contingent deferred sales charge will
not be imposed with respect to: (1) shares acquired through the
reinvestment of dividends or distributions of long-term capital gains;
and (2) shares held for more than six full years from the date of
purchase with respect to Class B shares and one full year from the
date of purchase with respect to applicable Class A shares.
Redemptions will be processed in a manner intended to maximize the
amount of redemption which will not be subject to a contingent
deferred sales charge. In computing the amount of the applicable
contingent deferred sales charge, redemptions are deemed to have
occurred in the following order: (1) shares acquired through the
reinvestment of dividends and long-term capital gains; (2) shares held
for more than six full years from the date of purchase with respect to
Class B shares and one full year from the date of purchase with
respect to applicable Class A shares; (3) shares held for fewer than
six years with respect to Class B shares and one full year from the
date of purchase with respect to applicable Class A shares on a
first-in, first-out basis. A contingent deferred sales charge is not
assessed in connection with an exchange of Fund shares for shares of
other funds in the Deutsche Funds of the same class (see "Exchange
Privilege"). Any contingent deferred sales charge imposed at the time
the Fund shares issued in an exchange from another Deutsche Fund are
redeemed is calculated as if the shareholder had held the shares from
the date on which he became a shareholder of the exchanged-from
shares. Moreover, the contingent deferred sales charge will be
eliminated with respect to certain redemptions (see "Contingent
Deferred Sales Charge - Elimination of Contingent Deferred Sales
Charge").
Elimination of Contingent Deferred Sales Charge
The contingent deferred sales charge will be eliminated with respect
to the following redemptions: (1) redemptions following the death or
disability, as defined in Section 72(m)(7) of the Code of a
shareholder; (2) redemptions representing minimum required
distributions from an Individual Retirement Account or other
retirement plan to a shareholder who has attained the age of 701/2;
and (3) involuntary redemptions by the Fund of shares in shareholder
accounts that do not comply with the minimum balance requirements. No
contingent deferred sales charge will be imposed on redemptions of
shares held by Directors, employees and sales representatives of the
Corporation, Trustees or employees of the Portfolio Trust, the
distributor, or affiliates of the Funds or distributor; employees of
any Financial Intermediary that sells shares of the Funds pursuant to
a sales agreement with the Distributor; and spouses and children under
the age of 21 of the aforementioned persons. Finally, no contingent
deferred sales charge will be imposed on the redemption of shares
originally purchased through a bank trust department, an investment
adviser registered under the Investment Advisers Act of 1940, or
retirement plans where the third party administrator has entered into
certain arrangements with the Distributor or its affiliates, or any
other Financial Intermediary, to the extent that no payments were
advanced for purchases made through such entities. The Directors
reserve the right to discontinue elimination of the contingent
deferred sales charge. Shareholders will be notified of such
elimination. Any shares purchased prior to the termination of such
waiver would have the contingent deferred sales charge eliminated as
provided in the Funds' Prospectus at the time of the purchase of the
shares. If a shareholder making a redemption qualifies for an
elimination of the contingent deferred sales charge, the shareholder
must notify the Distributor or the transfer agent in writing that he
is entitled to such elimination.
ACCOUNT AND SHARE INFORMATION
Certificates and Confirmations
As transfer agent for the Funds, Federated Shareholder Services
Company maintains a share account for each shareholder. Share
certificates are not issued unless requested in writing to Federated
Shareholder Services Company. No certificates will be issued for
fractional shares.
Detailed confirmations of each purchase and redemption are sent to
each shareholder. Monthly confirmations are sent to report dividends
paid during that month.
Accounts with Low Balances
Due to the high cost of maintaining accounts with low balances, a Fund
may redeem shares in any account, except retirement plans, and pay the
proceeds to the shareholder if the account balance falls below the
required minimum value of $5,000. This requirement does not apply,
however, if the balance falls below the required minimum value because
of changes in the net asset value of the respective share Class.
Before shares are redeemed to close an account, the shareholder is
notified in writing and allowed 30 days to purchase additional shares
to meet the minimum requirement.
DIVIDENDS AND DISTRIBUTIONS
All the Funds' net income and short-term capital gains and losses, if
any, are declared as a dividend daily and paid monthly. All
shareholders on the record date are entitled to dividends and
distributions.
Dividends and distributions paid by a Fund are automatically
reinvested in additional shares of that Fund at net asset value with
no sales charge unless the shareholder has elected to have them paid
in cash. Dividends and distributions to be paid in cash are mailed by
check in accordance with the customer's instructions. The Funds
reserve the right to discontinue, alter or limit the automatic
reinvestment privilege at any time.
U.S. federal Regulations require that a shareholder provide a
certified taxpayer identification number ("TIN") upon opening an
account. A TIN is either the Social Security number or employer
identification number of the record owner of the account. Failure to
furnish a certified TIN to a Fund could subject a shareholder to a $50
penalty which will be imposed by the Internal Revenue Service ("IRS")
on the Fund and passed on by the Fund to the shareholder. With respect
to individual investors and certain non-qualified retirement plans,
U.S. federal Regulations generally require the Funds to withhold
("backup withholding") and remit to the U.S. Treasury 31% of any
dividends and distributions (including the proceeds of any redemption)
payable to a shareholder if such shareholder fails to certify either
that the TIN furnished in connection with opening an account is
correct, or that such shareholder has not received notice from the IRS
of being subject to backup withholding as a result of a failure to
properly report taxable dividend or interest income on a federal
income tax return. Furthermore, the IRS may notify the Funds to
institute backup withholding if the IRS determines a shareholder's TIN
is incorrect.
NET ASSET VALUE
The net asset value for shares of each class of the Class A and Class
B Fund and the Class Y Fund is determined by subtracting from the
value of each Fund's and Class' 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 per share of each Fund will
remain constant at $1.00. No assurance can be given that this goal can
be achieved.
Each Fund computes its net asset value once daily at 3:00 p.m. (U.S.
Eastern time) on Monday through Friday, except on the holidays listed
under "Net Asset Value" in the Statement of Additional Information.
The Portfolio's assets are valued by using the amortized cost method
of valuation. This method involves valuing a security at its cost at
the time of purchase and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. The
market value of the securities held by the Portfolio fluctuates on the
basis of the creditworthiness of the issuers of such securities and on
the levels of interest rates generally. While the amortized cost
method provides certainty in valuation, it may result in periods when
the value so determined is higher or lower than the price the
Portfolio would receive if the security were sold. (See "Net Asset
Value" in the Statement of Additional Information.)
ORGANIZATION
The Corporation is an open-end management investment company organized
on May 22, 1997, as a corporation under the laws of the State of
Maryland. Its offices are located at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779; its telephone number is
888-4-DEUTSCHE.
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 5,000,000,000 shares have been classified as shares of
Deutsche US Money Market Fund and 10,000,000,000 shares have been
classified as shares of Deutsche Institutional US Money Market Fund.
The Board of Directors of the Corporation may increase the number of
shares the Corporation is authorized to issue without the approval of
shareholders. The Board of Directors of the Corporation also has the
power to designate one or more additional series of shares of common
stock and to classify and reclassify any unissued shares with respect
to such series. Currently there are 11 such series and two classes of
shares for each series except the Class Y Fund, known as Class A
shares and Class B shares.
Each share of a Fund or Class shall have equal rights with each other
share of the Fund or Class with respect to the assets of the
Corporation pertaining to the Fund or Class. Upon liquidation of a
Fund, shareholders of each Class are entitled to share pro rata in the
net assets of the Fund available for distribution to their Class.
Shareholders of each Fund are entitled to one vote for each full share
held and to a fractional vote for fractional shares. The voting rights
of shareholders are not cumulative. Shares have no preemptive or
conversion rights (other than the automatic conversion of Class B
shares into Class A shares as described under "Purchase of Shares -
Conversion of Class B Shares"). The rights of redemption are described
elsewhere herein. Shares are fully paid and nonassessable by the
Corporation. It is the intention of the Corporation not to hold
meetings of shareholders annually. The Directors of the Corporation
may call meetings of shareholders for action by shareholder vote as
may be required by the 1940 Act or as may be permitted by the Articles
of Incorporation or Bylaws.
The Corporation's Articles of Incorporation provide that the presence
in person or by proxy of the holders of record of one third of the
shares outstanding and entitled to vote thereat shall constitute a
quorum at all meetings of shareholders of a Fund, except as otherwise
required by applicable law. The Articles of Incorporation further
provide that all questions shall be decided by a majority of the votes
cast at any such meeting at which a quorum is present, except as
otherwise required by applicable law.
The Corporation's Articles of Incorporation provide that, at any
meeting of shareholders of a Fund or Class, a Financial Intermediary
may vote any shares as to which that Financial Intermediary is the
agent of record and which are otherwise not represented in person or
by proxy at the meeting, proportionately in accordance with the votes
cast by holders of all shares otherwise represented at the meeting in
person or by proxy as to which that Financial Intermediary is the
agent of record. Any shares so voted by an Financial Intermediary are
deemed represented at the meeting for purposes of quorum requirements.
The Portfolio is a series of the Deutsche Portfolios, a trust
organized under the law of the State of New York. The Deutsche
Portfolios' Declaration of Trust provides that the Funds and other
entities investing in the Portfolio (e.g., other investment companies,
insurance company separate accounts and common and commingled trust
funds) are each liable for all obligations of the Portfolio. However,
the risk of a Fund incurring financial loss on account of such
liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its
obligations. Accordingly, the Directors of the Corporation believe
that neither the Funds nor their shareholders will be adversely
affected by reason of the investment of all of the assets of the Funds
in the Portfolio.
Each investor in the Portfolio, including the Funds, may add to or
reduce its investment in the Portfolio on each day the New York Stock
Exchange is open for regular trading. At 4:00 p.m. (U.S. Eastern time)
on each such business day, the value of each investor's beneficial
interest in the Portfolio is determined by multiplying the net asset
value of the Portfolio by the percentage, effective for that day that
represents that investor's share of the aggregate beneficial interests
in the Portfolio. Any additions or withdrawals, which are to be
effected on that day, are then effected. The investor's percentage of
the aggregate beneficial interests in the Portfolio is then recomputed
as the percentage equal to the fraction (i) the numerator of which is
the value of such investor's investment in the Portfolio as of 4:00
p.m. (U.S. Eastern time) on such day plus or minus, as the case may
be, the amount of any additions to or withdrawals from the investor's
investment in the Portfolio effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio
as of 4:00 p.m. (U.S. Eastern time) on such day plus or minus, as the
case may be, the amount of the net additions to or withdrawals from
the aggregate investments in the Portfolio by all investors in the
Portfolio. The percentage so determined is then applied to determine
the value of the investor's interest in the Portfolio as of 4:00 p.m.
(U.S. Eastern time) on the following business day of the Portfolio.
Whenever the Corporation is requested to vote on a matter pertaining
to the Portfolio, the Corporation will vote its shares without a
meeting of shareholders of the Funds if the proposal is one that, if
made with respect to the Funds, would not require the vote of
shareholders of the Funds, as long as such action is permissible under
applicable statutory and regulatory requirements. For all other
matters requiring a vote, the Corporation will hold a meeting of
shareholders of the Funds and, at the meeting of investors in the
Portfolio, the Corporation will cast all of its votes in the same
proportion as the votes of the Funds' shareholders even if all Fund
shareholders did not vote. Even if the Corporation votes all its
shares at the Portfolio Trust meeting, other investors with a greater
pro rata ownership in the Portfolio could have effective voting
control of the operations of the Portfolio.
TAXES
The Corporation intends that the Funds will qualify as a separate
"regulated investment company" under Subchapter M of the Code. As a
regulated investment company, each Fund will not be subject to U.S.
federal income tax on its income and gains that it distributes to
stockholders, provided that it distributes at least 90% of its net
investment income (which includes income, other than capital gains,
net of operating expenses, and the Fund's net short-term capital gains
in excess of its net long-term capital losses and capital loss carry
forward, if any). Each Fund intends to distribute at least annually to
its shareholders substantially all of its net investment income (and
realized net capital gains, if any) for each taxable year. The
Portfolio intends to elect to be treated as a partnership for U.S.
federal income tax purposes. As such, the Portfolio generally should
not be subject to U.S. taxes.
Dividends of net investment income are taxable to a U.S. shareholder
as ordinary income whether such distributions are taken in cash or are
reinvested in additional shares. Although each Fund does not
anticipate to have any long-term capital gains, distributions of net
long-term capital gains, if any, are taxable to a U.S. shareholder as
long-term capital gains, regardless of how long the shareholder has
held the Fund's shares and regardless of whether taken in cash or
reinvested in additional shares.
Each Fund may be required to backup withhold for U.S. federal income
tax purposes 31% of any dividends and distributions (including the
proceeds of any redemption) payable to a shareholder who fails to
provide the Fund with his correct TIN or to make required
certifications, or who has been notified by the IRS that he is subject
to backup withholding. Backup withholding is not an additional tax;
amounts withheld may be credited against the shareholder's U.S.
federal income tax liability.
For further information on taxes, see "Taxes" in the Statement of
Additional Information.
ADDITIONAL INFORMATION
Each Fund sends to its shareholders annual and semiannual reports. The
financial statements appearing in annual reports are audited by
independent accountants. Shareholders also will be sent confirmations
of each purchase and redemption and monthly statements, reflecting all
other account activity, including dividends and any distributions
reinvested in additional shares or credited as cash.
In addition to selling beneficial interests to the Funds, the
Portfolio may sell beneficial interests to other mutual funds or
institutional investors. Such investors will invest in the Portfolio
on the same terms and conditions and will pay a proportionate share of
the Portfolio's expenses. However, the other investors investing in
the Portfolio may sell shares of their own fund using a different
pricing structure than the Funds. Such different pricing structures
may result in differences in returns experienced by investors in other
funds that invest in the Portfolio. Such differences in returns are
not uncommon and are present in other mutual fund structures.
Information concerning other holders of interests in the Portfolio is
available from the Administrator at 888-4-DEUTSCHE.
Each Fund may withdraw its investment from the Portfolio at any time
if the Board of Directors of the Corporation determines that it is in
the best interests of the Fund to do so. Upon any such withdrawal, the
Board of Directors would consider what action might be taken,
including the investment of all the assets of the Fund in another
pooled investment entity having the same investment objective and
restrictions as the Fund or the retaining of an investment adviser to
manage the Fund's assets in accordance with its investment objective
and policies.
APPENDIX A
THIS APPENDIX IS INTENDED TO PROVIDE DESCRIPTIONS OF THE SHORT-TERM
SECURITIES THE PORTFOLIO MAY PURCHASE. HOWEVER, OTHER SUCH SECURITIES
NOT MENTIONED BELOW MAY BE PURCHASED FOR THE PORTFOLIO IF THEY MEET
THE QUALITY AND MATURITY GUIDELINES SET FORTH IN THE PORTFOLIO'S
INVESTMENT POLICIES.
U.S. Government Securities
Assets of the Portfolio may be invested in securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
These securities, including those which are guaranteed by federal
agencies or instrumentalities, may or may not be backed by the "full
faith and credit" of the United States. In the case of securities not
backed by the full faith and credit of the United States, it may not
be possible to assert a claim against the United States itself in the
event the agency or instrumentality issuing or guaranteeing the
security for ultimate repayment does not meet its commitments.
Securities which are not backed by the full faith and credit of the
United States include, but are not limited to, securities of the
Tennessee Valley Authority, the Federal National Mortgage Association
(FNMA), the U.S. Postal Service and the Resolution Funding Corporation
(REFCORP), each of which has a limited right to borrow from the U.S.
Treasury to meet its obligations, and securities of the Federal Farm
Credit System, the Federal Home Loan Banks, the Federal Home Loan
Mortgage Corporation (FHLMC) and the Student Loan Marketing
Association, the obligations of each of which may be satisfied only by
the individual credit of the issuing agency. Securities which are
backed by the full faith and credit of the United States include
Treasury bills, Treasury notes, Treasury bonds and pass-through
obligations of the Government National Mortgage Association (GNMA),
the Farmers Home Administration and the Export-Import Bank. There is
no percentage limitation with respect to investments in U.S.
Government securities.
Bank Obligations
Assets of the Portfolio may be invested in U.S. dollar-denominated
negotiable certificates of deposit, fixed time deposits and bankers'
acceptances of banks, savings and loan associations and savings banks
organized under the laws of the United States or any state thereof,
including obligations of non-U.S. branches of such banks, or of
non-U.S. banks or their U.S. or non-U.S. branches, provided that in
each case, such bank has more than $500 million in total assets, and
has an outstanding short-term debt issue rated within the highest
rating category for short-term debt obligations by at least two
(unless only rated by one) nationally recognized statistical rating
organizations (e.g., Moody's and S&P) or, if unrated, are of
comparable quality as determined by or under the direction of the
Portfolio's Board of Trustees. See "Bond, Note and Commercial Paper
Ratings" in the Statement of Additional Information.
There is no additional percentage limitation with respect to
investments in 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. Since the Portfolio may contain U.S. dollar-denominated
certificates of deposit, fixed time deposits and bankers' acceptances
that are issued by non-U.S. banks and their non-U.S. branches, the
Portfolio may be subject to additional investment risks with respect
to those securities that are different in some respects from
obligations of U.S. issuers, such as currency exchange control
regulations, the possibility of expropriation, seizure or
nationalization of non-U.S. deposits, less liquidity and more
volatility in non-U.S. securities markets and the impact of political,
social or diplomatic developments or the adoption of other foreign
government restrictions which might adversely affect the payment of
principal and interest on securities held by the Portfolio. If it
should become necessary, greater difficulties might be encountered in
invoking legal processes abroad than would be the case in the United
States. Issuers of non-U.S. bank obligations may be subject to less
stringent or different regulations than are U.S. bank issuers, there
may be less publicly available information about a non- U.S. issuer,
and non-U.S. issuers generally are not subject to uniform accounting
and financial reporting standards, practices and requirements
comparable to those applicable to U.S. issuers. Income earned or
received by the Portfolio from sources within countries other than the
United States may be reduced by withholding and other taxes imposed by
such countries. Tax conventions between certain countries and the
United States, however, may reduce or eliminate such taxes. All such
taxes paid by the Portfolio would reduce its net income available for
distribution to investors (i.e., the Funds and other investors in the
Portfolio); however, the Adviser would consider available yields, net
of any required taxes, in selecting securities of non-U.S. issuers.
While early withdrawals are not contemplated, fixed time deposits are
not readily marketable and may be subject to early withdrawal
penalties, which may vary. Assets of the Portfolio are not invested in
obligations of the Manager, or the Distributor, or in the obligations
of the affiliates of any such organization. Assets of the Portfolio
are also not invested in fixed time deposits with a maturity of over
seven calendar days, or in fixed time deposits with a maturity of from
two business days to seven calendar days if more than 10% of the
Portfolio's net assets would be invested in such deposits.
Commercial Paper
Assets of the Portfolio may be invested in commercial paper including
variable rate demand master notes issued by U.S. corporations or by
non-U.S. corporations which are direct parents or subsidiaries of U.S.
corporations. Master notes are demand obligations that permit the
investment of fluctuating amounts at varying market rates of interest
pursuant to arrangements between the issuer and a U.S. commercial bank
acting as agent for the payees of such notes. Master notes are
callable on demand, but are not marketable to third parties.
Consequently, the right to redeem such notes depends on the borrower's
ability to pay on demand. At the date of investment, commercial paper
must be rated within the highest rating category for short-term debt
obligations by at least two (unless only rated by one) nationally
recognized statistical rating organizations (e.g., Moody's and S&P)
or, if unrated, are of comparable quality as determined by or under
the direction of the Portfolio's Board of Trustees. Any commercial
paper issued by a non-U.S. corporation must be U.S. dollar-denominated
and not subject to non-U.S. withholding tax at the time of purchase.
Aggregate investments in non-U.S. commercial paper of non-U.S. issuers
cannot exceed 10% of the Portfolio's net assets. Since the Portfolio
may contain commercial paper issued by non-U.S. corporations, it may
be subject to additional investment risks with respect to those
securities that are different in some respects from obligations of
U.S. issuers, such as currency exchange control regulations, the
possibility of expropriation, seizure or nationalization of non-U.S.
deposits, less liquidity and more volatility in non-U.S. securities
markets and the impact of political, social or diplomatic developments
or the adoption of other foreign government restrictions which might
adversely affect the payment of principal and interest on securities
held by the Portfolio. If it should become necessary, greater
difficulties might be encountered in invoking legal processes abroad
than would be the case in the United States. There may be less
publicly available information about a non-U.S. issuer, and non-U.S.
issuers generally are not subject to uniform accounting and financial
reporting standards, practices and requirements comparable to those
applicable to U.S. issuers.
Repurchase Agreements
Repurchase agreements may be entered into for the Portfolio only with
a "primary dealer" (as designated by the Federal Reserve Bank of New
York) in U.S. Government securities. This is an agreement in which the
seller (the "Lender") of a security agrees to repurchase from the
Portfolio the security sold at a mutually agreed upon time and price.
As such, it is viewed as the lending of money to the Lender. The
resale price normally is in excess of the purchase price, reflecting
an agreed upon interest rate. The rate is effective for the period of
time assets of the Portfolio are invested in the agreement and is not
related to the coupon rate on the underlying security. The period of
these repurchase agreements is usually short, from overnight to one
week, and at no time are assets of the Portfolio invested in a
repurchase agreement with a maturity of more than one year. The
securities which are subject to repurchase agreements, however, may
have maturity dates in excess of one year from the effective date of
the repurchase agreement. The Portfolio always receives as collateral
securities which are issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. Collateral is marked to the market
daily and has a market value including accrued interest at least equal
to 100% of the dollar amount invested on behalf of the Portfolio in
each agreement along with accrued interest. Payment for such
securities is made for the Portfolio only upon physical delivery or
evidence of book-entry transfer to the account of IBT, the Portfolio's
Custodian. If the Lender defaults, the Portfolio might incur a loss if
the value of the collateral securing the repurchase agreement declines
and might incur disposition costs in connection with liquidating the
collateral. In addition, if bankruptcy proceedings are commenced with
respect to the Lender, realization upon the collateral on behalf of
the Portfolio may be delayed or limited in certain circumstances. A
repurchase agreement with more than seven days to maturity may not be
entered into for the Portfolio if, as a result, more than 10% of the
Portfolio's net assets would be invested in such repurchase agreement
together with any other investment for which market quotations are not
readily available.
When-Issued and Delayed Delivery Securities
Securities may be purchased for the Portfolio on a when-issued or
delayed delivery basis. For example, delivery and payment may take
place a month or more after the date of the transaction. The purchase
price and the interest rate payable on the securities are fixed on the
transaction date. The securities so purchased are subject to market
fluctuation and no interest accrues to the Portfolio until delivery
and payment take place. At the time the commitment to purchase
securities for the Portfolio on a when-issued or delayed delivery
basis is made, the transaction is recorded and thereafter the value of
such securities is reflected each day in determining the Portfolio's
net asset value. At the time of its acquisition, a when-issued
security may be valued at less than the purchase price. Commitments
for such when-issued securities are made only when there is an
intention of actually acquiring the securities. To facilitate such
acquisitions, a segregated account with the Custodian is maintained
for the Portfolio with liquid assets in an amount at least equal to
such commitments. Such a segregated account consists of liquid, high
grade debt securities marked to the market daily, with additional
liquid assets added when necessary to insure that at all times the
value of such account is equal to the commitments. On delivery dates
for such transactions, such obligations are met from maturities or
sales of the securities held in the segregated account and/or from
cash flow. If the right to acquire a when-issued security is disposed
of prior to its acquisition, the Portfolio could, as with the
disposition of any other portfolio obligation, incur a gain or loss
due to market fluctuation. When- issued commitments for the Portfolio
may not be entered into if such commitments exceed in the aggregate
15% of the market value of the Portfolio's total assets, less
liabilities other than the obligations created by when-issued
commitments.
Securities of the World Bank, Other Supranational Organizations and Foreign
Governments
Assets of the Portfolio may also be invested in obligations of the
International Bank of Reconstruction and Development (also known as
the World Bank) and certain other supranational organizations, which
are supported by subscribed but unpaid commitments of member
countries. There is no assurance that these commitments will be
undertaken or complied with in the future. The Portfolio limits its
investment in United States dollar-denominated obligations of foreign
governments and their agencies and instrumentalities to the commercial
paper and other short-term notes (or other notes with remaining
maturities meeting the requirements of Rule 2a-7) issued or guaranteed
by the governments, or agencies and instrumentalities thereof, that
are members of the OECD (Organisation for Economic Co-Operation and
Development) and those countries whose sovereign issuances qualify as
Eligible Securities.
Other Obligations
Assets of the Portfolio may be invested in bonds, with maturities not
exceeding one year, issued by U.S. corporations which at the date of
investment are rated within the highest rating category for such
obligations by at least two (unless only rated by one) nationally
recognized statistical rating organizations (e.g., Moody's and S&P)
or, if unrated, are of comparable quality as determined by or under
the direction of the Portfolio's Board of Trustees.
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED
IN THIS PROSPECTUS 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. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER BY THE CORPORATION OR BY THE DISTRIBUTOR TO SELL
OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR
THE CORPORATION OR THE DISTRIBUTOR TO MAKE SUCH OFFER IN SUCH
JURISDICTION.
Investment Manager
Deutsche Fund Management, Inc.
31 West 52/nd/ Street
New York, NY 10019
Distributor
Edgewood Services, Inc.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Transfer Agent
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600
Custodian
Investors Bank & Trust Co.
200 Claredon Street
Boston, MA 0211G02179-06 (10/97)
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Edgewood Services, Inc., Distributor
G02179-06 (10/97) [LOGO OF RECYCLED PAPER]
DEUTSCHE US MONEY MARKET FUNDS
Statement of Additional Information
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 Morgan
Grenfell Investment Management 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
September 24, 1997, a copy of which may be obtained from the Corporation at the
address noted below.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
The date of this Statement of Additional Information is September 24,
1997.
Edgewood Services, Inc.
G02179-07 (9/97) [RECYCLED LOGO]
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES 1
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Loans of Portfolio Securities 1
INVESTMENT RESTRICTIONS 1
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Nonfundamental Restrictions 2
Percentage and Rating Restrictions 2
DIRECTORS, TRUSTEES AND OFFICERS 3
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Directors of the Corporation and Trustees of the Portfolio Trust 3
Officers of the Corporation 4
Compensation Table_Directors of
the Corporation 5
Compensation Table_Trustees of
the Portfolio Trust 5
Fund Ownership 5
MANAGER 6
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ADVISER 7
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ADMINISTRATOR 7
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OPERATIONS AGENT 8
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ADMINISTRATIVE AGENT 8
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DISTRIBUTOR 8
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TRANSFER AGENT, CUSTODIAN AND FUND ACCOUNTANT 9
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INDEPENDENT ACCOUNTANTS 10
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PURCHASE OF SHARES 10
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Conversion to Federal Funds 10
REDEMPTION OF SHARES 10
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Redemption in Kind 10
Systematic Withdrawal Program 10
Exchange of Shares 11
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NET ASSET VALUE 11
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PERFORMANCE DATA 12
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Yield 12
General 12
PORTFOLIO TRANSACTIONS 13
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TAXES 13
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United States Taxation 13
State and Local Taxes 14
DESCRIPTION OF SHARES 14
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ADDITIONAL INFORMATION 15
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BOND, NOTE AND COMMERCIAL PAPER RATINGS 15
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Moody's Investors Service, Inc. ("Moody's") Bond Ratings 15
Standard & Poor's Corporation ("S&P") 15
Note and Variable Rate Investment Ratings 15
Corporate Commercial Paper Ratings 15
Other Considerations 15
FINANCIAL STATEMENTS 16
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INVESTMENT OBJECTIVE AND POLICIES
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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 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
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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 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 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 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 and
Nonfundamental Restriction (iii) 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 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
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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:
DIRECTORS OF THE CORPORATION AND TRUSTEES OF THE PORTFOLIO TRUST
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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, VT
05738.
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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.
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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.
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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.
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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). [ADDRESS] Mr. Strenger's address is DWS Deutsche
Gesellschaft fuer Wertpapiersparen mbH, Gruneburgweg 113-115, 60323 Frankfurt am
Main, Germany.
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OFFICERS OF THE CORPORATION
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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.
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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).
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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.
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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.
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* 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.
<TABLE>
<CAPTION>
COMPENSATION TABLE_DIRECTORS OF THE CORPORATION
AGGREGATE ESTIMATED TOTAL
COMPENSATION COMPENSATION
FROM THE FROM THE CORPORATION
CORPORATION AND FUND COMPLEX*
<S> <C> <C>
Edward C. Schmults,
Director $7,000 $44,750
Robert H. Wadsworth,
Director $7,000 $62,000
Werner Walbroel,
Director $7,000 $46,250
G. Richard Stamberger,*
Director None None
Christian Strenger,
Director None None
<CAPTION>
COMPENSATION TABLE_TRUSTEES OF THE PORTFOLIO TRUST
AGGREGATE ESTIMATED TOTAL
COMPENSATION COMPENSATION
FROM THE FROM THE CORPORATION
PORTFOLIO TRUST AND FUND COMPLEX*
<S> <C> <C>
Edward C. Schmults,
Trustee $7,000 $44,750
Robert H. Wadsworth,
Trustee $7,000 $62,000
Werner Walbroel,
Trustee $7,000 $46,250
G. Richard Stamberger,*
Trustee None None
Christian Strenger,
Trustee None None
</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 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
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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.
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 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
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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
performance of its obligations and duties under the agreement. See
"Additional Information."
ADMINISTRATOR
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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 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
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 budgets; (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
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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 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 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
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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, Massachusetts 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
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The independent accountants of the Corporation are Price Waterhouse
LLP, 1177 Avenue of the Americas, New York, New York 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 federal and state income taxation for the
Funds or Portfolio, as the case may be.
PURCHASE OF SHARES
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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
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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. 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
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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 asset
value of each share of the Funds is made once during each such day as
of 3:00 p.m. (U.S. 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.
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
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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 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.
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 ADVISERS AS TO THE TAX
CONSEQUENCES OF INVESTING IN SUCH SHARES, INCLUDING THE CONSEQUENCES
UNDER STATE, LOCAL AND OTHER TAX LAWS.
DESCRIPTION OF SHARES
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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 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 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
willful 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 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.
BOND, NOTE, AND COMMERCIAL PAPER RATINGS
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MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") BOND RATINGS
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
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.
DEUTSCHE FUNDS, INC.
STATEMENT OF ASSETS & LIABILITIES
SEPTEMBER 19, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEUTSCHE DEUTSCHE
US INSTITUTIONAL US
MONEY MARKET MONEY MARKET
FUND FUND
- -----------------------------------------------------------------------------------
<S> <C> <C>
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
- -----------------------------------------------------------------------------------
Net Assets $ 100 $ 100
===================================================================================
Shares outstanding ($.001 par value) 100 100
===================================================================================
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
===================================================================================
</TABLE>
See Notes to Financial Statements
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.
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.
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
DEUTSCHE PORTFOLIOS
STATEMENT OF ASSETS & LIABILITIES
SEPTEMBER 19, 1997
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
US
MONEY MARKET
PORTFOLIO (US DOLLAR)
- -----------------------------------------------------------------------
<S> <C>
ASSETS:
Cash $ 210
Deferred organization expenses (Note 1) 52,957
- -----------------------------------------------------------------------
Total Assets 53,167
- -----------------------------------------------------------------------
LIABILITIES
Organization expenses payable 52,957
- -----------------------------------------------------------------------
Total Liabilities 52,957
=======================================================================
Net Assets $ 210
=======================================================================
</TABLE>
See Notes to Financial Statement.
DEUTSCHE PORTFOLIOS
NOTES TO FINANCIAL STATEMENT
SEPTEMBER 19, 1997
- -------------------------------------------------------------------------------
NOTE 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 INITIAL INTEREST
PORTFOLIO TO DEUTSCHE FUND AMOUNT TO EDGEWOOD AMOUNT
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US Money Market
Portfolio (US Dollar) Deutsche US Money Market Fund $100 Edgewood $10
US Money Market
Portfolio (US Dollar) Deutsche Institutional
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.
NOTE 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.
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
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.
