As filed with the Securities and Exchange Commission on September 19, 1997
Registration No. 333 - 7008
811 - 8227
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 5
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 5
DEUTSCHE FUNDS, INC.
(Exact name of Registrant as specified in charter)
2nd Federated Square, Pittsburgh, PA 15222
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (800) 245-5000
BRIAN LEE Copy to: JOHN T. BOSTELMAN, ESQ.
Deutsche Fund Management, Inc. Sullivan & Cromwell
31 West 52nd Street 125 Broad Street
New York, New York 10019 New York, New York 10004
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this registration statement. It is proposed that this filing
will become effective (check appropriate box):
[ ] immediately upon filing pursuant to pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant elects, pursuant to Rule 24f-2 of the Investment Company
Act General Rules and Regulations, to register an indefinite number of shares of
its capital stock.
===============================================================================
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
EXPLANATORY NOTE
This Pre-Effective Amendment No. 5 (the "Amendment") to the
Registrant's Registration Statement on Form N-1A is being filed with respect to
Deutsche US Money Market Fund and Deutsche Institutional US Money Market Fund,
each a series of the Registrant (the "Funds"). The Amendment contains one
prospectus and one statement of additional information for the Funds and is
being filed to revise and update information contained in the prospectus and the
statement of additional information.
Deutsche European Mid-Cap Fund, Deutsche German Equity Fund, Deutsche
Japanese Equity Fund, Deutsche Global Bond Fund, Deutsche European Bond Fund,
Deutsche Top 50 World, Deutsche Top 50 Europe, Deutsche Top 50 Asia and Deutsche
Top 50 US Fund are each a series of the Registrant and are each offered by two
separate prospectuses included in Pre-Effective Amendment No. 4 of the
Registrant's Registration Statement. This Amendment does not relate to, amend or
otherwise affect the separate prospectus contained in Pre-Effective Amendment
No. 4.
<PAGE>
PROSPECTUS
DEUTSCHE 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" 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 [DATE], 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
<PAGE>
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.
THE DATE OF THIS PROSPECTUS IS [DATE], 1997.
DEUT010M
-2-
<PAGE>
TABLE OF CONTENTS
PAGE
Expense Summary..............................................................
The Funds....................................................................
Investment Objective, Policies and Restrictions..............................
Risk Factors.................................................................
Management of the Corporation and the Portfolio Trust........................
Investing in the Funds.......................................................
Purchase of Shares...........................................................
Special Purchase Features....................................................
Exchange Privileges..........................................................
Redemption of Shares.........................................................
Special Redemption Features..................................................
Contingent Deferred Sales Charge.............................................
Dividends and Distributions..................................................
Account and Share Information................................................
Net Asset Value..............................................................
Organization.................................................................
Taxes........................................................................
Additional Information.......................................................
Appendix A...................................................................
<PAGE>
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."
<TABLE>
<CAPTION>
<S> <C>
CLASS A AND CLASS B FUND CLASS Y FUND
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
------- -------
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% in the first None
year declining to
1.00% in the sixth
year and 0.00%
thereafter
DEUT010M
-1-
<PAGE>
Redemption Fees (as a percentage of amount redeemed,
if applicable) None None None
Exchange Fees None None None
<FN>
</FN>
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."
</TABLE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES (AFTER EXPENSE REIMBURSEMENT)
(As a percentage of average net assets)
CLASS A AND CLASS FUND CLASS Y FUND
CLASS A CLASS B
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%
==== ==== ====
EXAMPLE
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:
CLASS A CLASS B CLASS Y FUND
1 Year $ 6 $63 $2
3 Years $18 $71 $6
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:
CLASS A CLASS B CLASS Y FUND
1 Year $6 $13 $2
3 Years $18 $41 $6
DEUT010M
-2-
<PAGE>
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 stockholders 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
DEUT010M
-3-
<PAGE>
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 the 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 Adviser is an indirect subsidiary 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
DEUT010M
-4-
<PAGE>
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 nor
is each Fund suitable for all investors.
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
DEUT010M
-5-
<PAGE>
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
DEUT010M
-6-
<PAGE>
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
DEUT010M
-7-
<PAGE>
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.
DEUT010M
-8-
<PAGE>
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 52nd 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
DEUT010M
-9-
<PAGE>
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. The offices of the Adviser are located at 31
West 52nd Street, New York, New York 10019. The Adviser is a wholly owned
indirect subsidiary of Deutsche Bank AG, a major German banking institution.
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
DEUT010M
-10-
<PAGE>
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
DEUT010M
-11-
<PAGE>
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 $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.
DEUT010M
-12-
<PAGE>
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, MA 02116 acts as the custodian of the Funds' and
DEUT010M
-13-
<PAGE>
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.
DEUT010M
-14-
<PAGE>
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
DEUT010M
-15-
<PAGE>
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. (Eastern time) in
order for the purchased shares to be entitled to divideends 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 2:00 p.m.
(Eastern time). Payment by federal funds must be received before 2:00 p.m.
(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# 0110-0143-8; BFN Account#
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
DEUT010M
-16-
<PAGE>
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, MA 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 purchase date. 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 or with proceeds from the redemptions of
shares of an unaffiliated investment company. 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
DEUT010M
-17-
<PAGE>
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 sharesholders 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
DEUT010M
-18-
<PAGE>
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. (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. (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
DEUT010M
-19-
<PAGE>
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.
(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
DEUT010M
-20-
<PAGE>
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
DEUT010M
-21-
<PAGE>
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 70 1/2; 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 Trustees, employees and sales
representatives of the Fund, the distributor, or affiliates of the Fund or
distributor; employees of any Financial Intermediary that sells shares of the
Fund 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 Trustees reserve the right to discontinue elimination of the contingent
deferred sales
DEUT010M
-22-
<PAGE>
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 Fund's 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
DEUT010M
-23-
<PAGE>
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. (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, PA 15222-3779; its
telephone number is 888-4-DEUTSCHE.
DEUT010M
-24-
<PAGE>
The Articles of Incorporation currently permit the Corporation to issue
17,500,000,000 shares of common stock, par value $0.001 per share, of which
10,000,000 shares have been classified as shares of each Fund. The 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
By-laws.
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.
DEUT010M
-25-
<PAGE>
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 3:00 p.m. (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 3:00 p.m. (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 3:00 p.m. (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 3:00 p.m. (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
DEUT010M
-26-
<PAGE>
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
DEUT010M
-27-
<PAGE>
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.
DEUT010M
-28-
<PAGE>
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
DEUT010M
<PAGE>
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,
DEUT010M
<PAGE>
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
DEUT010M
<PAGE>
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
DEUT010M
<PAGE>
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.
DEUT010M
<PAGE>
DEUT010M
<PAGE>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN 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.
DEUT010M
<PAGE>
DEUT028I
DRAFT AS OF 8/20/97
STATEMENT OF ADDITIONAL INFORMATION
DEUTSCHE MONEY MARKET FUNDS
FEDERATED INVESTORS TOWER, PITTSBURGH, PA 15222-3779
==============================================================================
The Deutsche US Money Market Fund (the "Class A and Class B Fund") and
the Deutsche Institutional US Money Market Fund (the "Class Y Fund")
(collectively, the "Funds"), each is a series of the Deutsche Funds, Inc. (the
"Corporation"), a management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"). The investment objective of
each Fund is to achieve as high a level of current income as is consistent with
the preservation of capital and the maintenance of liquidity.
The Corporation seeks to achieve the investment objective of each Fund
by investing all of the Fund's investable assets in US Money Market Portfolio
(US Dollar) (the "Portfolio"), a diversified, open-end management investment
company. The Portfolio pursues its investment objective by investing in high
quality, short-term money market instruments.
The Portfolio is a series of the Deutsche Portfolios (the "Portfolio
Trust"), an open-end investment company organized as a trust under the laws of
the State of New York. The Portfolio has the same investment objective as the
Funds. There can be no assurance that the Funds or the Portfolio will achieve
their investment objective.
The Class A and Class B Fund offers two classes of shares, Class A
shares and Class B shares (individually and collectively referred to as "Shares"
as the context may require). Class A shares are offered at net asset value;
Class B shares are designed primarily for temporary investment as part of a
special investment program in Class B shares, and unlike shares of most money
market funds, are offered at net asset value, but with a declining contingent
deferred sales charge on redemptions made within six years.
Deutsche Fund Management, Inc. ("DFM"), a registered investment adviser
and an indirect subsidiary of Deutsche Bank AG, a major global financial
institution, is the investment manager (the "Manager") of the Portfolio.
Deutsche Asset Management North America Inc. ("DMGIM") is the investment adviser
(the "Adviser") of the Portfolio. This Statement of Additional Information is
not a prospectus and should be read in conjunction with the Funds' Prospectus
dated
<PAGE>
[DATE] 1997, a copy of which may be obtained from the Corporation at the address
noted, above.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS [DATE,] 1997.
2
<PAGE>
TABLE OF CONTENTS
CROSS-REFERENCE
TO PAGE IN PROSPECTUS PAGE
Investment Objective and Policies
Investment Restrictions
Directors, Trustees and Officers
Manager
Adviser
Administrator
Operations Agent
Administrative Agent
Distributor
Transfer Agent, Custodian and Fund Accountant
Independent Accountants
Purchase of Shares
Redemption of Shares
Net Asset Value; Redemption in Kind
Computation of Performance
Portfolio Transactions
Federal Taxes
Description of Shares
Additional Information
Bond, Note and Commercial Paper Ratings
Financial Statements
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following supplements the information contained in the Funds'
Prospectus concerning the investment objective, policies and techniques of the
Portfolio.
LOANS OF PORTFOLIO SECURITIES. Securities of the Portfolio may be
loaned if such loans are secured continuously by cash or equivalent collateral
or by an irrevocable letter of credit in favor of the Portfolio at least equal
at all times to 100% of the market value of the securities loaned plus accrued
income. While such securities are on loan, the borrower pays the Portfolio any
income accruing thereon, and cash collateral may be invested for the Portfolio,
thereby earning additional income. All or any portion of interest earned on
invested collateral may be paid to the borrower. Loans are subject to
termination by the Portfolio in the normal settlement time, currently three
business days after notice, or by the borrower on one day's notice. Borrowed
securities are returned when the loan is terminated. Any appreciation or
depreciation in the market price of the borrowed securities which occurs during
the term of the loan inures to the
4
<PAGE>
Portfolio and its investors. Reasonable finders' and custodial fees may be paid
in connection with a loan. In addition, all facts and circumstances, including
the creditworthiness of the borrowing financial institution, are considered
before a loan is made and no loan is made in excess of one year. There is the
risk that a borrowed security may not be returned to the Portfolio.
INVESTMENT RESTRICTIONS
The investment restrictions of the Funds and the Portfolio are
identical, unless otherwise specified. Accordingly, references below to the
Funds also include the Portfolio unless the context requires otherwise;
similarly, references to the Portfolio also include the Funds unless the context
requires otherwise.
The investment restrictions below have been adopted by the Corporation
with respect to the Funds as indicated and by the Portfolio Trust with respect
to the Portfolio as indicated. Except where otherwise noted, these investment
restrictions are "fundamental" policies which, under the 1940 Act, may not be
changed without the vote of a "majority of the outstanding voting securities"
(as defined in the 1940 Act) of a Fund or the Portfolio, as the case may be. The
percentage limitations contained in the restrictions below apply at the time of
the purchase of securities except as otherwise noted. Whenever a Fund is
requested to vote on a change in the fundamental investment restrictions of the
Portfolio, the Corporation will hold a meeting of Fund shareholders and will
cast its votes as instructed by such Fund's shareholders.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any Securities and
Exchange Commission ("SEC") or SEC staff interpretations thereof are amended or
modified, each Fund and the Portfolio may not (except that the Corporation may
invest all of each Fund's assets in the Portfolio):
(1) enter into repurchase agreements with more than seven days to
maturity if, as a result thereof, more than 10% of the market value of its net
assets would be invested in such repurchase agreements together with any other
investment for which market quotations are not readily available;
(2) enter into reverse repurchase agreements which, including any
borrowings under Investment Restriction No. 3, exceed, in the aggregate,
one-third of the market value of its total assets, less liabilities other than
obligations created by reverse repurchase agreements. In the event that such
agreements exceed, in the aggregate, one-third of such market value, it will,
within three days thereafter (not including Sundays and holidays) or such longer
period as the SEC may prescribe, reduce the amount of the obligations created by
reverse repurchase agreements to an extent that such obligations will not
exceed, in the aggregate, one-third of the market value
5
<PAGE>
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
6
<PAGE>
restriction is not deemed to be applicable to the purchase or
sale of when-issued securities or of securities for delivery at a
future date;
(10) invest in fixed time deposits with a duration of over seven
calendar days, or in fixed time deposits with a duration of from two business
days to seven calendar days if more than 10% of its total assets would be
invested in such deposits;
(11) acquire securities of other investment companies;
(12) act as an underwriter of securities; or
(13) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act or the rules
and regulations promulgated thereunder.
NONFUNDAMENTAL RESTRICTIONS. In order to comply with certain federal
statutes and policies neither the Portfolio nor the Funds, may as a matter of
operating policy (except that each Fund may invest all of the its assets in an
open-end investment company with substantially the same investment objective,
policies and restrictions as the Fund): (i) borrow money at any time at which
the amount of its borrowings exceed 5% of its total assets (taken at market
value), (ii) purchase securities issued by any investment company if such
purchase at the time thereof would cause more than 5% of its total assets (taken
at the greater of cost or market value) to be invested in the securities of such
issuer, would cause more than 10% of its total assets (taken at the greater of
cost or market value) to be invested in the securities of such issuer and all
other investment companies or would cause more than 3% of the outstanding voting
securities of any such issuer to be held for it, or (iii) invest more than 10%
of its net assets in securities (valued at the greater of cost or market value)
that are subject to legal or contractual restrictions on resale or in securities
which are not readily marketable, including repurchase agreements and fixed time
deposits having maturities of more than 7 days, provided that there is no
limitation with respect to or arising out of investment in (a) securities that
have legal or contractual restrictions on resale but have a readily available
market or (b) securities that are not registered under the Securities Act but
which can be sold to qualified institutional buyers in accordance with Rule 144A
under the Securities Act. These policies are not fundamental and may be changed
without shareholder or investor approval in response to changes in the various
federal requirements.
PERCENTAGE AND RATING RESTRICTIONS. Except with respect to Fundamental
Investment Restriction No. 2 above and the limitation on the Portfolio's
obligations created by reverse repurchase agreements, described in the
Prospectus under "Investment Objectives, Policies and Restrictions - Reverse
Repurchase Agreements," a percentage or rating restriction on
7
<PAGE>
investment or utilization of assets set forth above or referred to in the
Prospectus is adhered to at the time an investment is made or assets are so
utilized, a later change in percentage resulting from changes in the value of
the portfolio securities or a later change in the rating of a portfolio security
is not considered a violation of policy. If the Funds' and the Portfolio's
investment restrictions relating to any particular investment practice or policy
are not consistent, the Portfolio has agreed with the Corporation, on behalf of
the Funds, that the Portfolio will adhere to the more restrictive limitation.
The Funds will comply with Rule 2a-7 under the 1940 Act, including the
diversification, quality and maturity limitations imposed by the Rule.
Currently, pursuant to Rule 2a-7, the Funds may invest only in U.S.
dollar-denominated "eligible securities" (as that term is defined in the Rule)
that have been determined by the Adviser to present minimal credit risks
pursuant to procedures approved by the Trustees. Generally, an eligible security
is a security that (i) has a remaining maturity of 397 days or less and (ii) is
rated, or is issued by an issuer with short-term debt outstanding that is rated
in one of the two highest rating categories by two nationally recognized
statistical rating organizations ("NRSROs") or, if only one NRSRO has issued a
rating, by that NRSRO. A security that originally had a maturity of greater than
397 days is an eligible security if its remaining maturity at the time of
purchase is 397 calendar days or less and the issuer has outstanding short-term
debt that would be an eligible security. Unrated securities may also be eligible
securities if the Adviser determines that they are of comparable quality to a
rated eligible security pursuant to guidelines approved by the Trustees. A
description to the ratings of some NRSROs appears in the Appendix attached
hereto.
Under Rule 2a-7 each Fund may not invest more than five percent of its
assets in the securities of any one issuer other than the United States
Government, its agencies and instrumentalities. In addition, each Fund may not
invest in a security that has received, or is deemed comparable in quality to a
security that has received, the second highest rating by the requisite number of
NRSROs (a "second tier security") if immediately after the acquisition thereof
the Fund would have invested more than (A) the greater of one percent of its
total assets or one million dollars in securities issued by that issuer which
are second tier securities, or (B) five percent of its total assets in second
tier securities.
DIRECTORS, TRUSTEES AND OFFICERS
The Directors of the Corporation, Trustees of the Portfolio Trust and
executive officers of the Corporation, and principal occupations during the past
five years (although their titles may have varied during the period) and
business addresses are:
8
<PAGE>
DIRECTORS OF THE CORPORATION AND TRUSTEES OF THE PORTFOLIO TRUST
Edward C. Schmults - Member of the Board of Directors of Green Point Financial
Corp. Chairman of the Board of Trustees of The Edna McConnell Clark Foundation.
Director of The Germany Fund, Inc. and The Central European Equity Fund, Inc.
Senior Vice President-External Affairs and General Counsel of GTE Corporation
(prior to 1994). Mr. Schmults' address is Rural Route One, Box 788,
Cuttingsville, Vermont 05738.
Robert H. Wadsworth - President of The Wadsworth Group, First Fund Distributors,
Inc. and Guinness Flight Investment Funds, Inc. Director of The Germany Fund,
Inc., The New Germany Fund, Inc. and The Central European Equity Fund, Inc. Vice
President of Professionally Managed Portfolios and Advisors Series Trust. Mr.
Wadsworth's address is Investment Company Administration Corp., 479 West 22nd
Street, New York, NY 10011.
Werner Walbroel - President and Chief Executive of the German American Chamber
of Commerce, Inc. Member of the United States German Youth Exchange Council.
Director of TUV Rheinland of North America, Inc. President and Director of
German American Partnership Program. Director of The Germany Fund, Inc., DB New
World Fund, Limited and LDC, and The Central European Equity Fund, Inc. Mr.
Walbroel's address is German American Chamber of Commerce, Inc., 40 West 57th
Street, New York, NY 10019.
G. Richard Stamberger* **- Managing Director of Deutsche Morgan Grenfell Inc.
President, Deutsche Morgan Grenfell Investment Management Inc. Director of The
Germany Fund, Inc. and The Central European Equity Fund, Inc. Managing Director
of C.J. Lawrence, Inc. (prior to 1993). Mr. Stamberger's address is Deutsche
Morgan Grenfell Investment Management Inc, 31 West 52nd Street, New York, NY
10019.
Christian Strenger* ** - Managing Director of DWS Deutsche Gesellschaft fuer
Wertpapiersparen mbH (since 1991). Director of The Germany Fund, Inc., The New
Germany Fund, Inc. and The Central European Equity Fund, Inc. Managing Director
of Deutsche Bank Securities Corp. (prior to 1991). Mr. Strenger's address is DWS
Deutsche Gesellschaft fuer Wertpapiersparen mbH, Gruneburgweg 113-115, 60323
Frankfurt am Main, Germany.
OFFICERS OF THE CORPORATION
Brian A. Lee* ** - President. President and Managing Director of DFM (since
January 1997). Director of Deutsche Bank Trust Company (since 1994). President
and Chief Operating Officer of Deutsche Bank Trust Company (1994 - 1997).
Director of Deutsche Bank Securities Corp. (1993-1994). Director of Value Line
Securities, Inc. (1992-1993). National Director and Head of Retail Sales and
Service Division, The Dreyfus Corporation (prior
9
<PAGE>
to 1992). Director, Boggy Creek Hole in the Wall Gang Camp for
Children. Trustee, Valley Hospital. Director, Capital Sources
Board, State of New Jersey.
Joseph Cheung* - Treasurer. Vice President (since 1996), Assistant Vice
President (1994-1996) and Associate (1991-1994) of Deutsche Morgan Grenfell Inc.
Treasurer of the CountryBaskets Index Fund, Inc. (1996-1997). Assistant
Secretary and Assistant Treasurer of The Germany Fund, Inc., The Central
European Equity Fund, Inc. and the New Germany Fund, Inc. (since 1993).
Robert R. Gambee* - Secretary. Director of Deutsche Morgan Grenfell, Inc. (since
1992). First Vice President of Deutsche Morgan Grenfell, Inc. (1987 - 1991).
Treasurer and Secretary of The Germany Fund, Inc., The Central European Equity
Fund, Inc. and the New Germany Fund, Inc.
Laura Weber* - Assistant Secretary and Assistant Treasurer. Associate of
Deutsche Morgan Grenfell Inc. (since June, 1997). Manager of Raymond James
Financial (1996-1997). Portfolio Accountant of Oppenheimer Capital (1995-1996).
Supervisor (1994-1995) and Mutual Fund Accountant (1993-1994) of Alliance
Capital Management.
* is an "interested person" of the Corporation or the Portfolio Trust as that
term is defined in the 1940 Act.
** Mr. Lee, Mr. Strenger and Mr. Stamberger own less than 1% of
the shares of Deutsche Bank AG, of which the Manager and Adviser
are indirect subsidiaries.
The address of each officer of the Corporation is 31 West 52nd Street,
New York, NY 10019.
The Portfolio Trust does not have officers, but instead acts
exclusively through its Trustees and agents of the Portfolio Trust authorized by
the Trustees.
10
<PAGE>
COMPENSATION TABLE
DIRECTORS OF THE CORPORATION
AGGREGATE COMPENSATION FROM ESTIMATED TOTAL
THE CORPORATION COMPENSATION FROM THE
CORPORATION AND FUND
COMPLEX*
Edward C. Schmults, $7,000 $44,750
Director
Robert H. Wadsworth,
Director $7,000 $62,000
Werner $7,000 $46,250
Walbroel,
Director
G. Richard Stamberger*,
Director None None
Christian None None
Strenger,
Director
===============================================================================
COMPENSATION TABLE
TRUSTEES OF THE PORTFOLIO TRUST
AGGREGATE COMPENSATION ESTIMATED TOTAL
FROM THE PORTFOLIO TRUST COMPENSATION FROM THE
CORPORATION AND FUND
COMPLEX*
Edward C. Schmults, $7,000 $44,750
Trustee
Robert H. Wadsworth, $7,000 $62,000
Trustee
Werner Walbroel, $7,000 $46,250
Trustee
G. Richard None None
Stamberger*,
Trustee
Christian Strenger, None None
Trustee
===============================================================================
12
<PAGE>
* The Fund Complex consists of the Corporation, the Portfolio
Trust, The New Germany Fund, Inc., The Central European Equity
13
<PAGE>
Fund, Inc. and The Germany Fund, Inc.
The non-interested Directors of the Corporation receive a base annual
fee of $5,000 and $500 per meeting attended, plus expenses, which are paid
jointly by all series of the Corporation and allocated among the series based
upon their respective net assets.
The non-interested Trustees of the Portfolio Trust receive a base
annual fee of $5,000 and $500 per meeting attended plus expenses which is paid
jointly by all series of the Portfolio Trust and allocated among the series
based upon their respective net assets.
Neither the Corporation nor the Portfolio Trust requires employees and
none of the Corporation's officers devote full time to the affairs of the
Corporation or receive any compensation from a Fund or a Portfolio.
FUND OWNERSHIP. On the date of this Statement of Additional Information, the
Directors of the Corporation, Trustees of the Portfolio Trust and officers of
the Corporation as a group beneficially owned no outstanding shares of the
Corporation and none of the beneficial interests in any Portfolio of the
Portfolio Trust. As of the same date, no person owned 5% or more of the
outstanding voting stock of any series of the Corporation or any Portfolio
except the Corporation owned 100% of the outstanding beneficial interests in
each Portfolio and Edgewood Services, Inc. owned 100% of the outstanding voting
shares of each Fund.
MANAGER
The investment manager to the Portfolio is DFM, an indirect subsidiary
of Deutsche Bank AG, a major global banking institution headquartered in
Germany. DFM, with principal offices at 31 West 52nd Street, New York, New York
10019, is a Delaware corporation and registered investment adviser under the
Investment Advisers Act of 1940.
Pursuant to an investment management agreement with the Portfolio Trust
with respect to the Portfolio ("Management Agreement"), DFM acts as investment
manager to the Portfolio and, subject to the supervision of the Board of
Trustees of the Portfolio Trust, is responsible for, but may and has delegated
as described below, under "Adviser," the management of the investment operations
of the Portfolio's investments in accordance with its investment objective,
policies and restrictions. DFM also provides the Portfolio with overall
supervisory services over the other service providers and certain other
services. The investment management services DFM provides to the Portfolio are
not exclusive under the terms of the Management Agreement. DFM is free to render
similar investment management services to others.
14
<PAGE>
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
15
<PAGE>
manager and custodian to such an investment company. Deutsche Bank AG believes
that DFM may perform the services for the Portfolio Trust and the Corporation
contemplated by the Management Agreement without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. It is possible that future
changes in federal statutes and regulations concerning the permissible
activities of banks or trust companies, as well as further judicial or
administrative decisions and interpretations of present and future statutes and
regulations, might prevent DFM from continuing to perform such services for the
Portfolio.
ADVISER
DFM has entered into an investment advisory agreement (the "Advisory
Agreement") dated July 28, 1997 with DMGIM on behalf of the Portfolio Trust with
respect to the Portfolio and certain other portfolios of the Portfolio Trust. It
is the Adviser's responsibility, under the overall supervision of DFM, to
conduct the day-to-day investment decisions of the Portfolio, arrange for the
execution of portfolio transactions and generally manage the Portfolio's
investments in accordance with its investment objective, policies and
restrictions.
The Adviser is an indirect subsidiary of Deutsche Bank AG. For these
services, the Adviser receives from DFM a fee, which is computed daily and may
be paid monthly, equal to 0.1125% of the average daily net assets of the
Portfolio on an annualized basis for the Portfolio's then-current fiscal year.
The Advisory Agreement is dated July 28, 1997 and will remain in effect
until July 28, 1999 and from year to year thereafter, but only so long as the
agreement is specifically approved at least annually (i) by a vote of the
holders of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the Portfolio, or by the Portfolio Trust's Trustees, and (ii) by a
vote of a majority of the Trustees of the Portfolio Trust who are not parties to
such Advisory Agreement or "interested persons" (as defined in the 1940 Act) of
the Portfolio Trust, cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement was initially approved at a
meeting held on July 28, 1997. The Advisory Agreement will terminate
automatically if assigned or if the Management Agreement is terminated and is
terminable at any time without penalty by a vote of a majority of the Portfolio
Trust's Trustees, or by a vote of the holders of a majority of the Portfolio's
outstanding voting securities, on 60 days' written notice to the Adviser and by
the Adviser on 90 days' written notice to the Manager and the Portfolio Trust.
The Advisory Agreement provides that neither the Adviser nor its personnel shall
be liable for any error of judgment or mistake of law or for any loss or expense
in connection with the matters in which the agreement relates, except a loss
resulting from wilful misfeasance, bad faith or gross negligence on its part in
the
16
<PAGE>
performance of its obligations and duties under the agreement.
See "Additional Information."
ADMINISTRATOR
Under the master agreement for administration services with the
Corporation ("Administration Agreement"), Federated Services Company serves as
administrator to the Funds ("Administrator"). In connection with its
responsibilities as Administrator, Federated Services Company, among other
things (i) prepares, files and maintains the Funds' governing documents,
registration statements and regulatory filings; (ii) prepares and coordinates
the printing of publicly disseminated documents; (iii) monitors declaration and
payment of dividends and distributions; (iv) projects and reviews the Funds'
expenses; (v) performs internal audit examinations; (vi) prepares and
distributes materials to the Directors of the Corporation, (vii) coordinates the
activities of all service providers; (viii) monitors and supervises collection
of tax reclaims; and (ix) prepares shareholder meeting materials.
The Administration Agreement between the Corporation and Federated
Services Company (dated July 28, 1997) with respect to the Funds has an initial
term of three years. Thereafter, the Administration Agreement will remain in
effect until terminated by either party thereto. The agreement is terminable by
the Corporation at any time after the initial term without penalty by a vote of
a majority of the Directors of the Corporation, or by a vote of the holders of a
"majority of the outstanding voting securities" (as defined in the 1940 Act) of
the Corporation (see "Additional Information"). The Administration Agreement is
terminable by the Directors of the Corporation or shareholders of the Funds on
60 days' written notice to Federated Services Company. The agreement is
terminable by the Administrator on 90 days' written notice to the Corporation.
The Administration Agreement provides that neither Federated Services Company
nor its personnel shall be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in its
services, except for wilful misfeasance, bad faith or negligence or reckless
disregard of its obligations and duties under the Agreement. See "Additional
Information."
As Administrator, Federated Services Company receives a fee from each
Fund, which is computed daily and may be paid monthly, at an annual rate, for at
least the Fund's first year of operations, equal to 0.045% of the average daily
net assets of the Fund on an annualized basis for the Fund's then-current fiscal
year. If, after the Funds' first year of operations, the average net assets of
the Portfolio (excluding net assets attributable to the Class Y Fund) have not
reached $325 million, the Administrator's fee would be increased to an annual
rate of 0.065% of the average daily net assets of each Fund up to $200 million
and 0.525% of the average daily net assets of each Fund
17
<PAGE>
greater than $200 million. The Administrator has agreed, together with the
Manager, the Adviser and certain other service providers to the Class Y Fund and
the Portfolio, to waive a portion of its fees and/or reimburse expenses of the
Fund under certain circumstances for at least one year from the Fund's
commencement of investment operations. See "Expenses."
OPERATIONS AGENT
Under an operations agency agreement with the Portfolio Trust
("Operations Agency Agreement"), Federated Services Company serves as operations
agent to the Portfolio ("Operations Agent"). In connection with its
responsibilities as Operations Agent of the Portfolio, Federated Services
Company, among other things, (i) prepares governing documents, registration
statements and regulatory filings; (ii) performs internal audit examinations
(iii) prepares expense projections; (iv) prepares materials for the Trustees of
the Portfolio Trust, (v) coordinates the activities of all service providers;
(vi) conducts compliance training for the Adviser; and (vii) prepares investor
meeting materials.
The Operations Agency Agreement between the Portfolio Trust and
Federated Services Company (dated July 28, 1997) with respect to the Portfolio
has an initial term of three years. Thereafter, the Operations Agency Agreement
will remain in effect until terminated by either party thereto. The agreement is
terminable by the Portfolio Trust at any time after the initial term without
penalty by a vote of a majority of the Trustees of the Portfolio Trust, or by a
vote of the holders of a "majority of the outstanding voting securities" (as
defined in the 1940 Act) of the Portfolio Trust (see "Additional Information").
The Operations Agency Agreement is terminable by the Trustees of the Portfolio
Trust or investors of the Portfolio on 60 days' written notice to Federated
Services Company. The agreement is terminable with respect to the Portfolio by
Federated Services Company on 90 days' written notice to the Portfolio Trust.
The Operations Agent Agreement provides that neither Federated Services Company
nor its personnel shall be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in its
services, except for wilful misfeasance, bad faith or gross negligence or
reckless disregard of its obligations and duties under the Agreement.
As Operations Agent of the Portfolio, Federated Services Company
receives a fee from the Portfolio, which is computed daily and paid monthly, at
an annual rate, for at least the Portfolio's first year of operations, equal to
0.015% of the average daily net assets of the Portfolio. If, after the
Portfolio's first year of operations, the average net assets of the Portfolio
(excluding net assets attributable to the Class Y Fund) have not reached $325
million, the Operations Agent's fee would be increased to an annual rate of
0.035% of the average daily net assets of the Portfolio. See "Expenses" in the
18
<PAGE>
Prospectus.
ADMINISTRATIVE AGENT
Under an administration agreement with the Portfolio Trust
("Administration Agreement"), IBT Trust Company (Cayman) Ltd. ("IBT (Cayman)")
serves as administrative agent to the Portfolio ("Administrative Agent"). In
connection with its responsibilities as Administrative Agent of the Portfolio,
IBT (Cayman) (i) files and maintains governing documents, registration
statements and regulatory filings; (ii) maintains a telephone line; (iii)
approves annual expense budget; (iv) authorizes expenses; (v) distributes
materials to the Trustees of the Portfolio Trust; (vi) authorizes dividend
distributions; (vii) maintains books and records; (viii) files tax returns and
(ix) maintains an investor register.
The Administration Agreement between the Portfolio Trust and IBT
(Cayman) (dated July 28, 1997) with respect to the Portfolio has an initial term
of three years. Thereafter, the Administration Agreement will remain in effect
until terminated by either party thereto. The agreement is terminable by the
Portfolio Trust at any time after the initial term without penalty by a vote of
a majority of the Trustees of the Portfolio Trust, or by a vote of the holders
of a "majority of the outstanding voting securities" (as defined in the 1940
Act) of the Portfolio Trust (see "Additional Information"). The Administration
Agreement is terminable by the Trustees of the Portfolio Trust or investors of
the Portfolio on 60 days' written notice to IBT (Cayman). The agreement is
terminable by IBT (Cayman) on 90 days' written notice to the Portfolio. The
Administration Agreement provides that neither IBT (Cayman) nor its personnel
shall be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in its services, except
for wilful misfeasance, bad faith or negligence or reckless disregard of its
obligations and duties under the Agreement.
As Administrative Agent of the Portfolio, IBT (Cayman) receives a fee
from the Portfolio, which may be paid monthly, at the annual rate of $5,000.
DISTRIBUTOR
The distribution agreement (the "Distribution Agreement")(dated July
28, 1997) between the Corporation and Edgewood Services, Inc. (the
"Distributor") remains in effect
19
<PAGE>
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
20
<PAGE>
vote cast in person at a meeting called for the purpose of voting on the
Distribution Plan. The Qualifying Directors voted to approve the Distribution
Plan at a meeting held on July 28, 1997. The Distribution Plan is terminable
with respect to the Class A and Class B Fund at any time by a vote of a majority
of the Qualifying Directors or by vote of the holders of a majority of the
Shares of the Fund.
TRANSFER AGENT, CUSTODIAN AND FUND ACCOUNTANT
Federated Shareholder Services Company, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779, serves as the transfer agent and dividend
disbursing agent for the Funds. As Transfer Agent and Dividend Disbursing Agent,
Federated Shareholder Services Company is responsible for maintaining account
records detailing the ownership of Fund shares and for crediting income, capital
gains and other changes in share ownership to shareholder accounts. Investors
Bank & Trust Company, 200 Clarendon Street, Boston, MA 02116 acts as the
custodian of the Funds' and the Portfolio's assets. Pursuant to the Custodian
Contract with the Portfolio Trust, IBT is responsible for maintaining the books
and records of portfolio transactions and holding portfolio securities and cash.
In the case of foreign assets held outside the United States, IBT employs
various subcustodians who were approved in accordance with the regulations of
the SEC. The Custodian maintains portfolio transaction records. IBT Fund
Services (Canada) Inc., One First Canadian Place, King Street West, Suite 2800,
P.O. Box 231, Toronto, Ontario M5X1C8, provides fund accounting services to the
Funds and the Portfolio including (i) calculation of the daily net asset value
for the Funds and the Portfolio; (ii) monitoring compliance with investment
portfolio restrictions, including all applicable federal and state securities
and other regulatory requirements; and (iii) monitoring the Funds' and
Portfolio's compliance with the requirements applicable to a regulated
investment company under the Code.
The Transfer Agent, Custodian and Fund Accountant each has agreed to waive fees
and/or reimburse expenses with respect to the Class Y Fund for its first year of
operations. See "Expenses" in the Prospectus.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Corporation are Price Waterhouse
LLP, 1177 Avenue of the Americas, New York, NY 10036. The independent
accountants of the Portfolio Trust are Price Waterhouse, Kaya W.F.G. (Jombi)
Mensing 18, P.O. Box 46, Curacao, Netherlands Antilles. The independent
accountants conduct annual audits of financial statements, assist in the
preparation and/or review of federal and state income tax returns and provide
consulting as to matters of accounting and
21
<PAGE>
federal and state income taxation for the Funds or Portfolio, as
the case may be.
PURCHASE OF SHARES
Shares are sold at their net asset value on days the New York Stock
Exchange and Federal Reserve Bank are open for business. The procedure for
purchasing Shares is explained in the Prospectus under "Purchase of Shares."
CONVERSION TO FEDERAL FUNDS. It is the policy of each Fund to be as fully
invested as possible so that maximum interest may be earned. To this end, all
payments from shareholders must be in federal funds or be converted into federal
funds before shareholders begin to earn dividends. Federated Shareholder
Services Company acts as the shareholder's agent in depositing checks and
converting them to federal funds.
REDEMPTION OF SHARES
The Funds redeems Shares at the next computed net asset value, less any
applicable contingent deferred sales charge, after a Fund receives the
redemption request. Redemption procedures are explained in the Funds' Prospectus
under "Redemption of Shares." Although the transfer agent does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
Class B Shares redeemed within six years of purchase (determined with
reference to the date of purchase of the Class B shares of the Deutsche Fund
from which the shareholder exchanged) may be subject to a contingent deferred
sales charge. The amount of the contingent deferred sales charge is based upon
the amount of the administrative fee paid at the time of the original purchase
by the Distributor to the financial institution for services rendered, and the
length of time the investor remains a shareholder in the Class A and Class B
Fund. Should Financial Intermediaries elect to receive an amount less than the
fee that is stated in the Fund's Prospectus for servicing a particular
shareholder, the contingent deferred sales charge and/or holding period for that
particular shareholder will be reduced accordingly.
REDEMPTION IN KIND. Although the Corporation intends to redeem Shares in cash,
it reserves the right under certain circumstances to pay the redemption price in
whole or in part by a distribution of securities from the Funds' portfolio. In
such a case, the portfolio instruments to be distributed as redemption proceeds
would be, valued in the same way as the Portfolio determines net asset value.
The portfolio instruments will be selected in a manner that the Directors of the
Corporation and Trustees of the Portfolio deem fair and equitable. To the extent
available, such securities will be readily marketable.
22
<PAGE>
Redemption in kind is not as liquid as a cash redemption. If redemption
is made in kind, shareholders receiving their securities and selling them before
their maturity could receive less than the redemption value of their securities
and could incur certain transaction costs.
SYSTEMATIC WITHDRAWAL PROGRAM. The Systematic Withdrawal Program permits the
Class A and Class B Fund shareholders to request withdrawal of a specified
dollar amount (minimum $100) on either a monthly or quarterly basis from
accounts with $10,000 minimum at the time the shareholder elects to participate
in the Systematic Withdrawal Program. The amounts that a shareholder may
withdraw under a Systematic Withdrawal Program that qualify for elimination of
the contingent deferred sales charge may not exceed 12% annually with reference
initially to the value of the Class B Shares upon establishment of the
Systematic Withdrawal Program and then as calculated at the fiscal year end.
Amounts that exceed the 12% annual limit for redemption, as described, will be
subject to the contingent deferred sales charge. In determining the
applicability of the contingent deferred sales charge, the 12 month holding
requirement for any new Class B Shares received through an exchange will include
the period for which the exchanged Class B Shares were held. However, for
purposes of meeting the $10,000 minimum account value requirement, Class B Share
account values will not be aggregated.
EXCHANGE OF SHARES
An investor may exchange shares from any series of the Deutsche Funds,
Inc. (a "Deutsche Fund") into shares of the same class of any other Deutsche
Fund, as described under "Exchange of Shares" in the Funds' Prospectus. Class A
Shares, when exchanged into another Deutsche Fund, may incur a sales load at the
time as required by that Deutsche Fund. For complete information, the prospectus
relating to the Fund into which a transfer is being made should be read prior to
the transfer. Requests for exchange are made in the same manner as requests for
redemptions. See "Redemption of Shares." Shares of the Fund to be acquired are
purchased for settlement when the proceeds from redemption become available. The
Corporation reserves the right to discontinue, alter or limit the exchange
privilege at any time.
NET ASSET VALUE
The net asset value of each of the Funds' shares is determined each day
the New York Stock Exchange is open for regular trading and the Federal Reserve
Bank is open for business. (As of the date of this Statement of Additional
Information, such Exchange and banks are so open every weekday except for the
following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veteran's Day, Thanksgiving Day and Christmas Day.) This determination of net
23
<PAGE>
asset value of each share of the Funds is made once during each such day as of
3:00 p.m. (Eastern time) by subtracting from the value of each Fund's total
assets (I.E., the value of its investment in the Portfolio and other assets) the
amount of its pro rata share liabilities, including expenses payable or accrued,
and dividing the difference by the number of shares of each share class or Fund
outstanding at the time the determination is made. It is anticipated that the
net asset value of each share class and each Fund will remain constant at $1.00
and, although no assurance can be given that it will be able to do so on a
continuing basis, the Corporation and the Portfolio Trust employ specific
investment policies and procedures to accomplish this result.
The value of the Portfolio's net assets (I.E., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued) is determined at the same time and on the same days as the net asset
value per share of the Funds is determined. The value of each Fund's investment
in the Portfolio is determined by multiplying the value of the Portfolio's net
assets by the percentage, effective for that day, which represents the Fund's
share of the aggregate beneficial interests in the Portfolio.
The securities held by the Portfolio are valued at their amortized
cost. Pursuant to a rule of the SEC, an investment company may use the amortized
cost method of valuation subject to certain conditions and the determination
that such method is in the best interests of the Funds' shareholders and the
Portfolio's other investors. The use of amortized cost valuations is subject to
the following conditions: (i) as a particular responsibility within the overall
duty of care owed to the Portfolio's investors, the Trustees of the Portfolio
Trust have established procedures reasonably designed, taking into account
current market conditions and the investment objective of its investors, to
stabilize the net asset value as computed; (ii) the procedures include periodic
review by the Trustees of the Portfolio Trust, as they deem appropriate and at
such intervals as are reasonable in light of current market conditions, of the
relationship between the value of the Portfolio's net assets using amortized
cost and the value of the Portfolio's net assets based upon available
indications of market value with respect to such portfolio securities; (iii) the
Trustees of the Portfolio Trust will consider what steps, if any, should be
taken if a difference of more than 1/2 of 1% occurs between the two methods of
valuation; and (iv) the Trustees of the Portfolio Trust will take such steps as
they consider appropriate, such as shortening the average portfolio maturity,
realizing gains or losses, establishing the value of the Portfolio's net assets
by using available market quotations, or reducing the value of interests in the
Portfolio, to minimize any material dilution or other unfair results which might
arise from differences between the two methods of valuation.
24
<PAGE>
Such conditions also generally require that: (i) investments for the
Portfolio be limited to instruments which the Trustees of the Portfolio Trust
determine present minimal credit risks and which are of high quality as
determined by any nationally recognized statistical rating organization that is
not an affiliated person of the issuer of, or any issuer, guarantor or provider
of credit support for, the instrument, or, in the case of any instrument that is
not so rated, is of comparable quality as determined by the Investment Adviser
under the general supervision of the Trustees of the Portfolio Trust; (ii) a
dollar-weighted average portfolio maturity of not more than 90 days be
maintained and no instrument is purchased with a remaining maturity of more than
397 days (792 in the case of U.S. Government securities); (iii) the Portfolio's
available cash will be invested in such a manner as to reduce such maturity to
90 days or less as soon as is reasonably practicable, if the disposition of a
portfolio security results in a dollar-weighted average portfolio maturity of
more than 90 days; and (iv) no more than 5% of the Portfolio's total assets may
be invested in the securities of any one issuer (other than U.S. Government
securities).
It is expected that the Funds will have a positive net income at the
time of each determination thereof. If for any reason a Fund's net income is a
negative amount, which could occur, for instance, upon default by an issuer of a
portfolio security, the Fund would first offset the negative amount with respect
to each shareholder account from the dividends declared during the month with
respect to those accounts. If and to the extent that negative net income exceeds
declared dividends at the end of the month, the Fund would reduce the number of
outstanding Fund shares by treating each shareholder as having contributed to
the capital of the Fund that number of full and fractional shares in his or her
account which represents his or her share of the amount of such excess. Each
shareholder would be deemed to have agreed to such contribution in these
circumstances by his or her investment in the Fund.
PERFORMANCE DATA
From time to time, the Funds may quote performance in reports, sales
literature and advertisements published by the Corporation. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See also "Management of
the Corporation and the Portfolio Trust - Performance Information" in the
Prospectus.
YIELD. The current and effective yield for each class of Shares of the
Funds may be used from time to time in shareholder reports or other
communications to shareholders or prospective investors. Seven-day current yield
is computed by dividing the net change in account value (exclusive of capital
changes) of a hypothetical pre-existing account having a balance of one share
25
<PAGE>
at the beginning of a seven-day calendar period by the value of that account at
the beginning of that period, and multiplying the return over the seven-day
period by 365/7. For purposes of the calculation, net change in account value
reflects the value of additional shares purchased with dividends from the
original share and dividends declared on both the original share and any such
additional shares, but does not reflect realized gains or losses or unrealized
appreciation or depreciation. In addition, the Corporation may use an effective
annualized yield quotation for the Funds computed on a compounded basis by
adding 1 to the base period return (calculated as described above), raising the
sum to a power equal to 365/7, and subtracting 1 from the result.
GENERAL. The performance of each of the classes of Shares will vary
from time to time depending upon market conditions, the composition of the
Portfolio, and its operating expenses. Consequently, any given performance
quotation should not be considered representative of the Funds' performance for
any specified period in the future. In addition, because performance will
fluctuate, it may not provide a basis for comparing an investment in either Fund
with certain bank deposits or other investments that pay a fixed yield or return
for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Funds' shares, including appropriate market indices or averages
or data from Lipper Analytical Services, Inc., Micropal, Inc., Ibbotson
Associates, Morningstar Inc., the Dow Jones Industrial Average and other
industry
publications.
The performance of the Funds may also be compared to the performance of
money managers as reported in market surveys such as SEI Fund Evaluation Survey
(a leading data base of tax-exempt funds) or mutual funds such as those reported
by Lipper Analytical Services, Morningstar, Micropal, Money Magazine's Fund
Watch or Wiesenberger Investment Companies Service, each of which measures
performance following their own specific and well-defined calculation measures.
The yield should not be considered a representation of the yield of a
Fund in the future since the yield is not fixed. Actual yields will depend on
the type, quality and maturities of the investments held for the Portfolio,
changes in interest rates on investments, and the Fund's expenses during the
period.
Yield information may be useful for reviewing the performance of the
Funds and for providing a basis for comparison with other investment
alternatives. However, unlike bank deposits or other investments which pay a
fixed yield for a stated period of time, a Fund's yield does fluctuate, and this
should be considered when reviewing performance or making comparisons.
26
<PAGE>
PORTFOLIO TRANSACTIONS
The Adviser for the Portfolio places orders for all purchases and sales
of portfolio securities, enters into repurchase and reverse repurchase
agreements and executes loans of portfolio securities. Fixed-income securities
are generally traded at a net price with dealers acting as principal for their
own account without a stated commission. The price of the security usually
includes a profit to the dealer. In underwritten offerings, securities are
purchased at a fixed price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
On occasion, certain money market instruments may be purchased directly from an
issuer, in which case no commissions or discounts are paid. From time to time
certificates of deposit may be purchased through intermediaries who may charge a
commission for their services.
The Adviser does not seek profits through short-term trading. However,
it may on behalf of the Portfolio dispose of any portfolio security prior to its
maturity if it believes such disposition is advisable even if this action
realizes profits.
Since brokerage commissions are not normally paid on investments which
are made for the Portfolio, turnover resulting from such investments should not
adversely affect the net asset value of the Portfolio. In connection with
portfolio transactions for the Portfolio, the Adviser intends to seek best price
and execution on a competitive basis for both purchases and sales of securities.
On those occasions when the Adviser deems the purchase or sale of a
security to be in the best interests of the Portfolio as well as other
customers, the Adviser to the extent permitted by applicable laws and
regulations, may, but is not obligated to, aggregate the securities to be sold
or purchased with those to be sold or purchased for other customers in order to
obtain best execution, including lower brokerage commissions, if appropriate.
In such event, allocation of the securities so purchased or sold as well as any
expenses incurred in the transaction are made by the Adviser in the manner it
considers to be most equitable and consistent with its fiduciary obligations to
its customers, including the Portfolio. In some instances, this procedure might
adversely affect the Portfolio.
Deutsche Bank AG or one of its subsidiaries or affiliates may act as
one of the agents of the Portfolio in the purchase and sale of portfolio
securities when, in the judgment of the Adviser, that firm will be able to
obtain a price and execution at least as favorable as other qualified brokers.
As one of the principal brokers for the Portfolio, Deutsche Bank AG may receive
brokerage commissions from the Portfolio.
TAXES
27
<PAGE>
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
28
<PAGE>
ADVISERS AS TO THE TAX CONSEQUENCES OF INVESTING IN SUCH SHARES, INCLUDING THE
CONSEQUENCES UNDER STATE, LOCAL AND OTHER TAX LAWS.
DESCRIPTION OF SHARES
The Corporation is an open-end management investment company organized
as a Maryland corporation on May 22, 1997. The Articles of Incorporation
currently permit the Corporation to issue 17,500,000,000 shares of common stock,
par value $0.001 per share, of which 10,000,000 shares have been classified as
shares of each Fund. The Corporation currently consists of eleven such series
and two classes of shares for each series except the Class Y Fund known as Class
A Shares and Class B Shares.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Corporation do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Corporation may elect all of the Directors of the
Corporation if they choose to do so and in such event the other shareholders in
the Corporation would not be able to elect any Director. The Corporation is not
required and has no current intention to hold meetings of shareholders annually,
but the Corporation will hold special meetings of shareholders when in the
judgment of the Corporation's Directors it is necessary or desirable to submit
matters for a shareholder vote. Shareholders have under certain circumstances
(E.G., upon application and submission of certain specified documents to the
Directors by a specified number of shareholders) the right to communicate with
other shareholders in connection with requesting a meeting of shareholders for
the purpose of removing one or more Directors. Shareholders also have the right
to remove one or more Directors without a meeting by a declaration in writing by
a specified number of shareholders. Shares have no preference, pre-emptive,
conversion or similar rights (except the automatic conversion of Class B Shares
into Class A Shares as discussed in the Prospectus under "Purchase of Shares").
Shares, when issued, are fully paid and non-assessable.
Stock certificates are not issued by the Corporation except upon
written request. No certificates will be issued for fractional shares.
The Articles of Incorporation of the Corporation contain a provision
permitted under Maryland Corporation Law which under certain circumstances
eliminates the personal liability of the Corporation's Directors to the
Corporation or its shareholders.
The Articles of Incorporation and the By-Laws of the Corporation
provide that the Corporation indemnify the Directors and officers of the
Corporation to the full extent permitted by the Maryland Corporation Law, which
permits indemnification of such persons against liabilities and expenses
incurred in
29
<PAGE>
connection with litigation in which they may be involved because of their
offices with the Corporation. However, nothing in the Articles of Incorporation
or the By-Laws of the Corporation protects or indemnifies a Director or officer
of the Corporation against any liability to the Corporation or its shareholders
to which he would otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
Interests in the Portfolio have no preference, preemptive, conversion
or similar rights and are fully paid and non-assessable. The Portfolio Trust is
not required to hold annual meetings of investors, but will hold special
meetings of investors when, in the judgment of its Trustees, it is necessary or
desirable to submit matters for an investor vote. Each investor is entitled to a
vote in proportion to the share of its investment in the Portfolio.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" (as defined in the 1940
Act) currently means the vote of (i) 67% or more of the outstanding voting
securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities are present in person or represented by proxy; or
(ii) more than 50% of the outstanding voting securities, whichever is less.
Fund shareholders receive semi-annual reports containing unaudited
financial statements and annual reports containing financial statements audited
by independent auditors.
A shareholder's right to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed: (i) during
periods when the New York Stock Exchange or foreign stock exchange is closed for
other than weekends and holidays or when regular trading on such Exchange is
restricted as determined by the SEC by rule or regulation, (ii) during periods
in which an emergency exists which causes disposal of, or evaluation of the net
asset value of, portfolio securities to be unreasonable or impracticable, or
(iii) for such other periods as the SEC may permit.
Telephone calls to a Fund, the Transfer Agent, the Distributor, or
Financial Intermediaries with respect to shareholder servicing may be tape
recorded. With respect to the securities offered hereby, this Statement of
Additional Information and the Prospectus do not contain all the information
included in the Corporation's Registration Statement filed with the SEC under
the 1933 Act and the Corporation's and the Portfolio Trust's Registration
Statement filed under the 1940 Act. Pursuant to the rules and regulations of the
SEC, certain portions have been omitted. The Registration Statement including
30
<PAGE>
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
Bond Ratings
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Aaa - Bonds rated Aaa are judged to be of the "best quality". Aa1 is
the rating directly below Aaa, and then continues to Aa2, Aa3 to show relative
strength within the rating category.
STANDARD & POOR'S CORPORATION ("S&P")
AAA - The AAA rating is the highest rating assigned to debt obligations
and indicates an extremely strong capacity to pay principal and interest.
Note and Variable Rate Investment Ratings
Moody's - MIG-1. Notes rated MIG-1 are judged to be of the best
quality, enjoying strong protection from established cash flow of funds for
their services or from established and broad-based access to the market for
refinancing or both.
S&P - SP-1. SP-1 denotes a very strong or strong capacity to pay
principal and interest. Issues determined to possess overwhelming safety
characteristics are given a plus (+) designation (SP-1+).
Corporate Commercial Paper Ratings
Moody's - Commercial Paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of nine months. Prime-1 indicates highest quality repayment
capacity of rated issue.
S&P - Commercial Paper ratings are a current assessment of the
likelihood of timely payment of debts having an original maturity of no more
than 365 days. Issues rated A-1 have the greatest capacity for timely payment.
Issues rated "A-1+" are those with an "overwhelming degree of credit
protection."
Other Considerations
31
<PAGE>
Among the factors considered by Moody's in assigning bond, note and
commercial paper ratings are the following: (i) evaluation of the management of
the issuer; (ii) economic evaluation of the issuer's industry or industries and
an appraisal of speculative-type risks which may be inherent in certain areas;
(iii) evaluation of the issuer's products in relation to competition and
customer acceptance; (iv) liquidity; (v) amount and quality of long-term debt;
(vi) trend of earnings over a period of 10 years; (vii) financial strength of a
parent company and the relationships which exist with the issuer; and (viii)
recognition by management of obligations which may be present or may arise as a
result of public interest questions and preparations to meet such obligations.
Among the factors considered by S&P in assigning bond, note and
commercial paper ratings are the following: (i) trend of earnings and cash flow
with allowances made for unusual circumstances, (ii) stability of the issuer's
industry, (iii) the issuer's relative strength and position within the industry
and (iv) the reliability and quality of management.
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THE
PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION, IN CONNECTION WITH THE
OFFER CONTAINED THEREIN AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
CORPORATION OR THE DISTRIBUTOR. THE PROSPECTUS AND THIS STATEMENT OF ADDITIONAL
INFORMATION DO NOT CONSTITUTE AN OFFER BY THE FUNDS OR BY THE DISTRIBUTOR TO
SELL OR SOLICIT ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUNDS OR THE
DISTRIBUTOR TO MAKE SUCH OFFER IN SUCH JURISDICTIONS.
DEUT028I
32
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements included in Part A:
Not Applicable.
Financial Statements included in Part B:
To be filed by amendment.
(b) Exhibits:
1 -- (a) Articles of Amendment and Restatement. (3)
(b) Articles of Amendment.(3)
2 -- By-Laws of the Registrant.(1)
3 -- Not Applicable.
4 -- (a) Class A Specimen certificate.(4)
(b) Class B Specimen certificate.(4)
(c) Additional rights of security holders are set forth
in Articles Fifth and Twelfth of the Registrant's
Articles of Incorporation and Articles I and V of
the Registrant's By-Laws, which are filed as
Exhibits 1 and 2, respectively, to this
Registration Statement.
5 -- Investment Advisory Agreement.(3)
6 -- (a) Distribution Agreement.(3)
(b) Mutual Funds Sales and Service Agreement.(3)
7 -- Not Applicable.
8 -- (i) Custodian Agreement between Investors Bank and Trust
Company and the Registrant.(3)
(ii) Custodian Agreement between Deutsche Portfolios and
Investors Bank and Trust Company.(3)
9 -- (a) (i) Master Agreement for Administration Services
between Federated Services Company and the
Registrant.(3)
(a)(ii) Administration Agreement between Deutsche
Portfolios and IBT Trust Company (Cayman) Ltd.(3)
(b) (i) Fund Accounting Agreement between IBT Fund Services
(Canada) Inc. and the Registrant.(3)
(b)(ii) Fund Accounting Agreement between Deutsche
Porfolios and IBT Funds Services (Canada) Inc.(3)
(c) Services Agreement.(3)
(d) Operations Agency Agreement.
10 -- Opinion of Counsel (including consent).(4)
11 -- Independent auditors' consent.(4)
12 -- Not Applicable.
13 -- Copies of investment representation letters from initial
shareholders.(4)
14 -- Not Applicable.
15 -- Distribution and Services Plan. (3)
16 -- Not Applicable.
17 -- Financial Data Schedule.(4)
18 -- Multiple Class (Rule 18f-3) Plan.(3)
99 -- Power of Attorney. (2)
- ---------------------
(1) Incorporated by reference to the Registrant's registration statement on
Form N-1A as filed with the Commission on May 23, 1997.
(2) Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registrant's registration statement on Form N-1A as filed with the
Commission on August 1, 1997.
(3) Incorporated by reference to Pre-Effective Amendment No. 4 to the
Registrant's registration statement on Form N-1A as filed with the C
Commission on September 18, 1997.
(4) To be filed by amendment.
C-1
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant.
[TO BE FILED BY AMENDMENT]
Item 26. Number of Holders of Securities.
Title of Class Number of Record Holders
Common Stock (as of September 19, 1997)
Deutsche European Mid-Cap Fund 0
Deutsche German Equity Fund 0
Deutsche Japanese Equity Fund 0
Deutsche Global Bond Fund 0
Deutsche European Bond Fund 0
Deutsche Top 50 World 0
Deutsche Top 50 Europe 0
Deutsche Top 50 Asia 0
Deutsche Top 50 US 0
Deutsche US Money Market Fund 0
Deutsche Institutional US Money Market Fund 0
Item 27. Indemnification
Reference is made to Article EIGHTH of Registrant's Articles of
Amendment and Restatement.
Registrant, its Directors and officers, and persons affiliated with
them are insured against certain expenses in connection with the defense of
actions, suits or proceedings, and certain liabilities that might be imposed as
a result of such actions, suits or proceedings.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to Directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Director, officer of controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
C-2
<PAGE>
Item 28. Business and Other Connections of Investment Adviser.
Deutsche Fund Management, Inc. ("DFM"), DWS International Portfolio Management
GmbH ("DWS-IPM") and Deutsche Morgan Grenfell Investment Management Inc.
("DMGIM") are each indirect subsidiaries of Deutsche Bank AG.
Deutsche Fonds Holding GmbH ("DFH"), a holding company organized under German
law, 93% owned by Deutsche Bank AG; sole shareholder of DFM (since 1/97); sole
shareholder of DWS-IPM (since 5/97).
Deutsche Bank AG, a publicly-held global financial institution, trading on the
Frankfurt Stock Exchange); sole shareholder of DFH (since 9/94).
Deutsche Bank North America Holding Corp. ("DBNAH"), a holding company organized
under US law, 100% owned by Deutsche Bank AG; sole shareholder of Deutsche Bank
U.S. Financial Markets Holding Corporation.
Deutsche Bank U.S. Financial Markets Holding Corporation, a holding company
organized under US law, 100% owned by DBNAH; sole shareholder of DMGIM.
Brian A. Lee, President and Managing Director of DFM (since 1/97); President and
Chief Operating Officer of Deutsche Bank Trust Company ("DBTC")(prior to 1997).
Christian Strenger, Chairman of the Board of Directors of DFM (since 1/97);
Managing Director/Spokesman of DFH (since 9/94); Managing Director/Spokesman of
DWS-IPM (since 5/97); Managing Director/Spokesman of DWS Deutsche Gesellschaft
fuer Wertpapiersparen mbH ("DWS-DGW)(since 8/91).
Udo Behrenwaldt, Director of DFM (since (5/97); Managing Director of DFH (since
9/94); Manager Director of DWS-IPM (since 5/97); Executive Director of DB
Investment Management, S.A. (since 7/87); Managing Director of DWS-DGW (since
11/75).
Holger Naumann, Director of DFM (since 1/97); Head of Participations at DWS-DGW
(since 12/95); Group Strategy Department at Deutsche Bank AG (prior to 12/95).
Bernd-Albrecht von Maltzan, Director of DFM (since 5/97); Divisional Board
Member of Deutsche Bank AG (since 7/96); Managing Director of Deutsche Morgan
Grenfell in Frankfurt and London (prior to 7/96).
Michael C. Lowengrub, Treasurer of DFM (since 1/97); Treasurer of DBTC (since
4/95); Director and Comptroller - Private Banking at Deutsche Bank AG-New York
Branch (since 10/92).
Thomas A. Curtis, Secretary of DFM (since 1/97); Secretary of CB Management
Corp. (since 2/96); Director and Counsel of Deutsche Bank AG-New York Branch
(since 7/95).
Axel-Guenther Benkner, Managing Director of DWS-IPM (since 5/97); Managing
Director of DFH (since 9/94); Managing Director of Deutsche
Vermoegensbildungsgesellschaft mbH (since 12/90); Managing Director of DWS-DGW
(since 2/91).
Heinz-Wilheim Fesser, Senior Portfolio Manager of DWS-IPM (since 5/97); Fixed
Income-Global at DWS-DGW (since 12/??).
Klaus Kaldmorgen, Senior Portfolio Manager of DWS-IPM (since 5/97);
Equities-Global at DWS-DGW (since 12/??).
C-3
<PAGE>
Klaus Martini, Senior Portfolio Manager of DWS-IPM (since 6/97); Head of
Equities - Europe at DWS-DGW (since 7/84).
Elisabeth Weisenhorn, Senior Portfolio Manager of DWS-IPM (since 6/97); Head of
Equities - Germany at DWS-DGW (since 11/85).
Reinhold Volk, Chief Financial Officer of DWS-IPM (since 6/97); Head of
Controlling at DWS-DGW (sincec 10/86).
Mathias Geuckler, Chief Compliance Officer of DWS-IPM (since 6/97), Chief
Compliance Officer of DWS-DGW (since 11/92).
Gerhard Seifried, Chief Operations Officer of DWS-IPM (since 6/97); Head of Fund
Administration at DWS-DGW (since 10/85).
Guy Richard Stamberger, President, Chief Executive Officer and Director of DMGIM
(since 10/94); Director of DBTC (since 4/95); Managing Director of Deutsche Bank
Securities Corporation (prior to 10/94).
David Alan Zornitsky, Secretary and Treasurer of DMGIM (since 10/94); Assistant
Vice President at Deutsche Bank Securities Corporation (prior to 10/94).
C-4
<PAGE>
Item 29. Principal Underwriters.
(a) Edgewood Services, Inc. ("Edgewood") the Distributor
for shares of the Registrant, also acts as principal
underwriter for the following open-end investment
companies: Excelsior Institutional Trust (formerly,
UST Master Funds, Inc.), Excelsior Tax-Exempt Funds,
Inc. (formerly, UST Master Tax-Exempt Funds, Inc.),
Excelsior Institutional Trust, FTI Funds, FundManager
Portfolios, Marketvest Funds, Marketvest Funds, Inc.,
Old Westbury Funds, Inc., BT Advisor Funds, BT
Pyramid Funds, BT Investment Funds and BT
Institutional Funds.
(b) Set forth below are the names and positions of each
Director and officer of Edgewood. The principal
business address of these individuals is Federated
Investors Tower, Pittsburgh, PA 15222. Unless
otherwise specified, no officer or Director of
Edgewood serves as an officer or Director of the
Registrant.
Position and Offices with Position and Offices
Name Edgewood with the Registrant
- ------------- --------------------------- --------------------
Lawrence Caracciolo Director, President, --
Edgewood Services, Inc.
Arthur L. Cherry Director, --
Edgewood Services, Inc.
J. Christopher Donohue Director, --
Edgewood Services, Inc.
Thomas P. Sholes Director, --
Edgewood Services, Inc.
Ronald M. Petnuch Vice President, --
Edgewood Services, Inc.
Thomas P. Schmitt Vice President, --
Edgewood Services, Inc.
Ernest L. Linane Assistant Vice President, --
Edgewood Services, Inc.
S. Elliot Cohan Secretary, --
Edgewood Services, Inc.
Thomas J. Ward Assistant Secretary, --
Edgewood Services, Inc.
Kenneth W. Pegher, Jr. Treasurer, --
Edgewood Services, Inc.
(c) Not Applicable.
C-5
<PAGE>
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained at the offices of:
Deutsche Funds, Inc.
2nd Federated Square
Pittsburgh, PA 15222
Edgewood Services, Inc.
Federated Investors Tower
Pittsburgh, PA 15222-3779
(distributor)
Federated Services Company
Federated Investors Tower
Pittsburgh, PA 15222-3779
(administrator)
Federated Shareholder Services Company
Federated Investors Tower
Pittsburgh, PA 15222-3779
(transfer agent)
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
(Custodian)
IBT Fund Services (Canada) Inc.
One First Place
King Street West, Suite 2800
P.O. Box 231
Toronto, Ontario M5X1C8
(Fund Accountant)
Item 31. Management Services.
Other than as set forth under the caption "Management of the
Corporation and the Portfolio Trust" in the Prospectus constituting Part A of
the Registration Statement, Registrant is not a party to any management-related
service contract.
Item 32. Undertakings.
(a) The Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
(b) The Registrant undertakes to file a post-effective amendment,
including financials, which need not be certified, within four to six months
following the commencement of operations of each of its series. The financial
statements included in such amendment will be as of and for the time period
ended on a date reasonably close or as soon as practicable to the date of the
amendment.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
the registration statement to be signed on its behalf by the undersigned,
thereto duly authorized in New York, New York on the 19th day of September,
1997.
DEUTSCHE FUNDS, INC.
By /S/ BRIAN A. LEE
Brian A. Lee
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated above.
Signature Title
EDWARD C. SCHMULTS* Director
Edward C. Schmults
ROBERT A. WADSWORTH* Director
Robert A. Wadsworth
WERNER WALBROEL* Director
Werner Walbroel
G. RICHARD STAMBERGER* Director
G. Richard Stamberger
CHRISTIAN STRENGER* Director
Christian Strenger
JOSEPH E. CHEUNG* Treasurer
Joseph E. Cheung
*By: /S/ BRIAN A. LEE
Brian A. Lee
as Attorney-in-Fact pursuant to a
Power of Attorney filed previously.
<PAGE>
SIGNATURES
Deutsche Portfolios has duly caused this Pre-effective Amendment to the
Registration Statement on Form N-1A of Deutsche Funds, Inc. (File No. 333-7008)
to be signed on its behalf by the undersigned, thereunto duly authorized, in New
York, New York on the 19th day of September, 1997.
DEUTSCHE PORTFOLIOS
By /S/ BRIAN A. LEE
Brian A. Lee
President
This Pre-effective Amendment to the Registration Statement on Form N-1A
of Deutsche Funds, Inc. (File No. 333-7008) has been signed below by the
following persons in the capacities indicated on the date indicated above.
Signature Title
EDWARD C. SCHMULTS* Trustee
Edward C. Schmults
ROBERT A. WADSWORTH* Trustee
Robert A. Wadsworth
WERNER WALBROEL* Trustee
Werner Walbroel
G. RICHARD STAMBERGER* Trustee
G. Richard Stamberger
CHRISTIAN STRENGER* Trustee
Christian Strenger
JOSEPH E. CHEUNG* Treasurer
Joseph E. Cheung
*By: /s/ BRIAN A. LEE
Brian A. Lee
as Attorney-in-Fact pursuant to a
Power of Attorney filed previously.
<PAGE>
INDEX TO EXHIBITS
9(d). Operations Agency Agreement.
OPERATIONS AGENCY
AGREEMENT
AGREEMENT made as of (DATE), by and between DEUTSCHE PORTFOLIOS having its
principal office and place of business at ______, Cayman Islands (the
"Investment Company"), on behalf of the portfolios (individually referred to
herein as a "Fund" and collectively as "Funds") of the Investment Company, and
FEDERATED SERVICES COMPANY, a Pennsylvania Corporation, having its principal
office and place of business at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779, on behalf of itself and its subsidiaries (the
"Company").
WHEREAS, the Investment Company is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), with authorized and issued beneficial interests ("Interest(s)");
WHEREAS, the Fund is a Hub(R) in a Hub(R) and Spoke(R) investment
structure; and
WHEREAS the Investment Company may desire to appoint the Company as its
operations agent to provide it with operations agency services (as herein
defined) and the Company desires to accept such appointment; and
WHEREAS, from time to time the Investment Company may desire and may
instruct the Company to subcontract for the performance of certain of its duties
and responsibilities hereunder to another agent (the "Agent").
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
SECTION ONE: OPERATIONS AGENCY SERVICES.
ARTICLE 1. APPOINTMENT The Investment Company hereby appoints the Company
as Operations Agent for the period and on the terms and conditions set forth in
this Agreement. The Company accepts such appointment and agrees to furnish the
services set forth in Article 2 of this Agreement in return for the compensation
set forth in Article 6 of this Agreement.
ARTICLE 2. THE COMPANY'S DUTIES. As Operations Agent, and subject to the
supervision and control of the Board, and in accordance with Proper Instructions
(as defined hereafter) from the Investment Company the Company will provide
facilities, equipment, and personnel to carry out the following operations
agency services for operation of the business and affairs of the Investment
Company and each of its portfolios:
<PAGE>
(1) following the organization of the Investment Company, prepare
the Investment Company's governing documents and any amendments thereto,
including the Charter (which has already been prepared and filed), the By-laws
and minutes of meetings of the Board and Investors;
(2) following the Investment Company's effectiveness with the
Securities and Exchange Commission, prepare the registration statements for the
Fund and all amendments thereto, reports to regulatory authorities and
Investors, offering documents, proxy and/or information statements, and such
other documents all as may be necessary to enable the Investment Company to make
a private offering of its shares;
(3) conduct compliance training sessions for the benefit of the
investment advisers of the Funds;
(4) maintain the Investment Company's calendar of reporting and
filing obligations
(5) perform internal audit examinations ;
(6) monitor and supervise the collection of tax reclaims;
(7) plan and prepare for meetings of the Investment Company's Board,
including maintaining the Board's agenda and preparing materials for the Board's
review and consideration;
(8) attend in person, and record the minutes of meetings of, the
Investment Company's Board;
(9) consult with the Investment Company and its Board on matters
concerning the Investment Company and its affairs;
(10) prepare materials necessary for shareholder meetings and record
the minutes of shareholder meetings;
(11) prepare expense projections for the Funds;
(12) coordinate the activities of all service providers to the
Investment Company. By way of example, the Company will, in conjunction with
item (4) above, communicate to the other service providers to the Investment
Company lists of information and materials needed for filing obligations, as
well as deadlines for the receipt of such materials. The Company does not take
responsibility for the failure of other service providers to provide such
materials to the Investment Company in a timely fashion or for the performance
of functions for which other service providers are responsible.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Fund under this Section One, shall hereafter
be referred to as "Operations Agency Services."
<PAGE>
ARTICLE 3. RECORDS.
The Company shall maintain a set of all necessary books and records in
accordance with all applicable laws, rules and regulations, including but not
limited to records required by Section 31(a) of the Investment Company act of
1940 and the rules thereunder, as the same may be amended from time to time,
pertaining to the Operations Agency Services performed by it and not otherwise
created and maintained by another party pursuant to contract with the Investment
Company. Where applicable, such records shall be maintained by the Company for
the periods and in the places required by Rule 31a-2 under the 1940 Act. The
books and records pertaining to the Investment Company which are in the
possession of the Company shall be the property of the Fund. The Investment
Company, or the Investment Company's authorized representatives, shall have
access to such books and records at all times during the Company 's normal
business hours. Upon the reasonable request of the Investment Company, copies of
any such books and records shall be provided promptly by the Company to the
Investment Company or the Investment Company's authorized representatives.
ARTICLE 4. DUTIES OF THE FUND.
The Fund assumes full responsibility for the preparation, contents and
distribution of its own offering document and for complying with all applicable
requirements the 1940 Act, the Internal Revenue Code, and any other laws, rules
and regulations of government authorities having jurisdiction.
ARTICLE 5. EXPENSES.
The Company shall be responsible for expenses incurred in providing office
space, equipment, and personnel as may be necessary or convenient to provide the
Operations Agency Services to the Fund, including the compensation of the
Company employees who serve as officers of the Fund. The Fund shall be
responsible for all other reasonable and documented expenses incurred by the
Company on behalf of the Fund, including without limitation postage and courier
expenses, printing expenses, travel expenses, registration fees, filing fees,
fees of outside counsel and independent auditors or other professional services,
organizational expenses, insurance premiums, fees payable to persons who are not
the Company employees, trade association dues, and other expenses properly
payable by the Funds and/or Classes.
ARTICLE 6. COMPENSATION.
For the Operations Agency Services provided, the Investment Company hereby
agrees to pay and the Company hereby agrees to accept as full compensation for
its services rendered hereunder an operations agency fee at an annual rate per
portfolio of the Investment Company's shares as specified on Exhibit A.
The compensation and out-of-pocket expenses attributable to the Fund shall
be accrued by the Fund and shall be paid to the Company no less frequently than
monthly, and shall be paid daily upon request of the Company. The Company will
<PAGE>
maintain detailed information about the compensation and out-of-pocket expenses
by the Fund.
ARTICLE 7. RESPONSIBILITY OF OPERATIONS AGENT.
A. The Company shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Investment Company in connection
with the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or [gross] negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. The Company shall be entitled to rely on and
may act upon advice of counsel (who may be counsel for the Fund) on all matters,
and shall be without liability for any action reasonably taken or omitted
pursuant to such advice. Any person, even though also an officer, director,
trustee, partner, employee or agent of the Company, who may be or become an
officer, director, trustee, partner, employee or agent of the Investment
Company, shall be deemed, when rendering services to the Investment Company or
acting on any business of the Investment Company (other than services or
business in connection with the duties of the Company hereunder) to be rendering
such services to or acting solely for the Investment Company and not as an
officer, director, trustee, partner, employee or agent or one under the control
or direction of the Company even though paid by the Company.
B. The Company shall be kept indemnified by the Investment Company
and be without liability for any action taken or thing done by it in performing
the Operations A gency Services in accordance with the above standards. In order
that the indemnification provisions contained in this Article 10 shall apply,
however, it is understood that if in any case the Investment Company may be
asked to indemnify or save the Company harmless, the Investment Company shall be
fully and promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the Company will use all reasonable
care to identify and notify the Investment Company promptly concerning any
situation which presents or appears likely to present the probability of such a
claim for indemnification against the Investment Company. The Investment Company
shall have the right to defend the Company against any claim which may be the
subject of this indemnification. In the event that the Investment Company so
elects, it will so notify the Company and thereupon the Investment Company shall
take over complete defense of the claim, and the Company shall in such situation
initiate no further legal or other expenses for which it shall seek
indemnification under this Article. The Company shall in no case confess any
claim or make any compromise in any case in which the Investment Company will be
asked to indemnify the Company except with the Investment Company's written
consent.
<PAGE>
SECTION TWO: GENERAL PROVISIONS.
ARTICLE 8. PROPER INSTRUCTIONS. As used throughout this Agreement, a
"Proper Instruction" means a writing signed or initialed by one or more person
or persons as the Board shall have from time to time authorized. Each such
writing shall set forth the specific transaction or type of transaction
involved. Oral instructions will be deemed to be Proper Instructions if (a) the
Company reasonably believes them to have been given by a person previously
authorized in Proper Instructions to give such instructions with respect to the
transaction involved, and (b) the Investment Company, or the Fund, and the
Company promptly cause such oral instructions to be confirmed in writing. Proper
Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Investment Company,
or the Fund, and the Company are satisfied that such procedures afford adequate
safeguards for the Fund's assets. Proper Instructions may only be amended in
writing.
ARTICLE 9. ASSIGNMENT.
Except as provided below, neither this Agreement nor any of the rights or
obligations under this Agreement may be assigned by either party without the
written consent of the other party.
A. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
B. With regard to Operations Agency Services, the Company may without
further consent on the part of the Investment Company subcontract for the
performance of such services with Federated Administrative Services, a
wholly-owned subsidiary of the Company.
C. The Company shall upon instruction from the Investment Company
subcontract for the performance of services under this Agreement with an Agent
selected by the Investment Company, other than as described in B. above;
provided, however, that the Company shall in no way be responsible to the
Investment Company for the acts and omissions of the Agent.
ARTICLE 10. DOCUMENTS.
A. In connection with the appointment of the Company under this Agreement,
the Investment Company shall file with the Company the following documents
relating to it:
(1) a copy of its Charter and By-Laws and all amendments
thereto;
(2) a copy of the resolution of its Board authorizing this
Agreement;
(3) all documents relating to the Fund or Investor accounts;and
(4) a copy of its current offering document.
B. The Investment Company will also furnish from time to time the following
documents relating to it:
<PAGE>
(1) a resolution of its Board authorizing the original offering
of its Interests;
(2) a Registration Statement filed with the SEC and amendments
thereof and orders relating thereto in effect with respect
to the sale of its Interests;
(3) a certified copy of each amendment to the governing
document and the By-Laws of the Investment Company;
(4) certified copies of each vote of the Board authorizing
persons to give Proper Instructions;
(5) such other documents or opinions which the Company may, in
its discretion, deem necessary or appropriate in the proper
performance of its duties; and
(6) revisions to the offering document for each Fund.
ARTICLE 11. REPRESENTATIONS AND WARRANTIES.
A. Representations and Warranties of the Company
The Company represents and warrants to the Fund that:
(1) it is a corporation duly organized and existing and in good
standing under the laws of the Commonwealth of Pennsylvania;
(2) it is duly qualified to carry on its business in the
Commonwealth of Pennsylvania;
(3) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this
Agreement;
(4) all requisite corporate proceedings have been taken to
authorize it to enter into and perform its obligations under
this Agreement;
(5) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties
and obligations under this Agreement;
(6) it is in compliance with federal securities law requirements
and in good standing as an administrator and fund
accountant; and
(7) it has obtained all required approvals from all government
or regulatory authorities necessary to enter into this
arrangement and to provide the services contemplated herein.
B. Representations and Warranties of the Investment Company
The Investment Company represents and warrants to the Company that:
(1) it is an investment company duly organized and existing and
in good standing under the laws of its state of
organization;
(2) it is empowered under applicable laws and by its Charter
and ByLaws to enter into and perform its obligations under
this Agreement;
(3) all corporate proceedings required by said Declaration of
Trust and By-Laws have been taken to authorize it to enter
into and perform its obligations under this Agreement; and
(4) it is an open-end investment company registered under the
1940 Act.
ARTICLE 12. STANDARD OF CARE AND INDEMNIFICATION.
A. Standard of Care
With regard to section One, the Company shall be held to a standard
of reasonable care in carrying out the provisions of this Agreement. The Company
shall be entitled to rely on and may act upon advice of Fund counsel on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice, provided that such action is not in violation
of applicable federal or state laws or regulations, and is in good faith and
without negligence.
B. Indemnification by the Investment Company
The Company shall not be responsible for and the Investment Company
or Fund shall indemnify and hold the Company, including its officers, directors,
shareholders and their agents employees and affiliates, harmless against any and
all losses, damages, costs, charges, counsel fees, payments, expenses and
liabilities arising out of or attributable to:
(1) the acts or omissions of any Custodian, adviser, sub-adviser or
other party contracted by or approved by the Investment Company;
(2) the reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper form which
(a) are received by the Company or its agents or
subcontractors and furnished to it by or on behalf of the Fund, or its Investors
regarding account information, the purchase, sale, redemption or transfer of
Interests;
(b) are received by the Company from independent pricing
services or sources for use in valuing the Interests of the
Fund;
(c) are received by the Company or its agents or
subcontractors from Advisers, Sub-advisers or other third parties contracted by
or approved by such Fund for use in the performance of services under this
Agreement; or
(d) have been prepared and/or maintained by the Fund or
its affiliates or any other person or firm on
behalf of the Investment Company.
Deutsche Portfolios Page 10 1997
<PAGE>
(3) the reliance on, or the carrying out by the Company or
its agents or subcontractors of Proper Instructions of the
Investment Company or the Fund; or
(4) the offer or sale of Interests in violation of any
requirement under the federal securities laws or
regulations; or in violation of any stop order or other
determination or ruling by any federal agency respect to
the offer or sale of such Interest.
Provided, however, that the Company shall not be protected
by this Article 12.B. from liability for any act or omission
resulting from the Company's willful misfeasance, bad faith,
negligence or reckless disregard of its duties of failure to
meet the standard of care set forth in 12.A. above.
C. Reliance
At any time the Company may apply to any officer of the Investment
Company or Fund for instructions for matters relating to the
Investment Company or Fund, and may consult with legal counsel with
respect to any matter arising in connection with the services to be
performed by the Company under this Agreement, and the Company and
its agents or subcontractors shall not be liable and shall be
indemnified by the Investment Company or the appropriate Fund for any
action reasonably taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel provided such action
is not in violation of applicable federal laws or regulations.
D. Notification
In order that the indemnification provisions contained in this
Article 12 shall apply, upon the assertion of a claim for which
either party may be required to indemnify the other, the party
seeking indemnification shall promptly notify the other party of such
assertion, and shall keep the other party advised with respect to all
developments concerning such claim. The party who may be required to
indemnify shall have the option to participate with the party seeking
indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to
indemnify it except with the other party's prior written consent.
ARTICLE 13. TERM AND TERMINATION OF AGREEMENT.
The initial term of this Agreement shall commence on the date hereof, and
extend for a period of three years following the date of the commencement of the
public offering of the Fund's shares. After the initial term of this Agreement,
the Agreement will be terminable on not less than 90 days' notice by either the
Company or the Investment Company subject to the payment of all deferred
expenses and unamortized expenses.
Deutsche Portfolios Page 11 1997
<PAGE>
In the event, however, of willful misfeasance, bad faith, negligence or
reckless disregard of its duties by the Company, the Investment Company has the
right to terminate the Agreement upon 30 days written notice, if Company has not
cured such willful misfeasance, bad faith, negligence or reckless disregard of
its duties within that same 30 days. The termination date for all original or
after-added Investment companies which are, or become, a party to this Agreement
shall be coterminous. Investment Companies that merge or dissolve during the
Term shall cease to be a party on the effective date of such merger or
dissolution.
Should the Investment Company exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and materials
will be borne by the Investment Company or the appropriate Fund. Additionally,
the Company reserves the right to charge for any other reasonable expenses
associated with such termination. The provisions of Article 7 and Article 12
shall survive the termination of this Agreement.
ARTICLE 14. AMENDMENT.
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by a written agreement executed by both parties.
ARTICLE 15. INTERPRETIVE AND ADDITIONAL PROVISIONS.
In connection with the operation of this Agreement, the Company and the
Investment Company may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Agreement as may in their joint
opinion be consistent with the general tenor of this Agreement. Any such
interpretive or additional provisions shall be in a writing signed by all
parties and shall be annexed hereto, PROVIDED that no such interpretive or
additional provisions shall contravene any applicable federal regulations or any
provision of the organizational documents. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Agreement.
ARTICLE 16. GOVERNING LAW.
This Agreement shall be construed and the provisions hereof interpreted under
and in accordance with the laws of the State of New York.
ARTICLE 17. NOTICES. Except as otherwise specifically provided herein,
notices and other writings delivered or mailed postage prepaid to the Investment
Company at Cardinal Avenue, Grand Cayman, Cayman Islands, BWI with a copy to
Deutsche Fund Management, Inc. at 31 West 52nd Street, new York, New York 10019,
Attn: President or to the Company at Federated Investors Tower, Pittsburgh,
Pennsylvania, 15222-3779, or to such other address as the Investment Company or
the Company may hereafter specify, shall be deemed to have been properly
delivered or given hereunder to the respective address.
Deutsche Portfolios Page 12 1997
<PAGE>
ARTICLE 18. COUNTERPARTS.
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original.
ARTICLE 19. SUCCESSOR AGENT.
If a successor agent shall be appointed by the Investment Company, the
Company shall upon termination of this Agreement deliver to such successor agent
at the office of the Company all properties of the Fund held by it hereunder. If
no such successor agent shall be appointed, the Company shall at its office upon
receipt of Proper Instructions deliver such properties in accordance with such
instructions.
With regard to Section One, in the event that no written order designating a
successor agent or Proper Instructions shall have been delivered to the Company
on or before the date when such termination shall become effective, then the
Company shall have the right to deliver to a bank or trust company, which is a
"bank" as defined in the 1940 Act, of its own selection, having an aggregate
capital, surplus, and undivided profits, as shown by its last published report,
of not less than $2,000,000, all properties held by the Company under this
Agreement. Thereafter, such bank or trust company shall be the successor of the
Company under this Agreement.
ARTICLE 20. FORCE MAJEURE.
The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Investment Company or the Fund as a
result of work stoppage, natural disaster, governmental action, loss or
malfunction of utilities or other impossibility of performance.
Deutsche Portfolios Page 13 1997
<PAGE>
ARTICLE 21. ASSIGNMENT; SUCCESSORS.
Either party may assign all of or a substantial portion of its business to a
party controlling, controlled by, or under common control with such party.
Nothing in this Article 21 shall prevent the Company from delegating its
responsibilities to another entity to the extent provided herein.
ARTICLE 22. SEVERABILITY.
In the event any provision of this Agreement or any interpretive or
additional provision described in Article 15 are held illegal, void or
unenforceable, the balance shall remain in effect.
ARTICLE 23. LIMITATIONS OF LIABILITY OF TRUSTEES AND INVESTORS OF THE INVESTMENT
COMPANY.
The execution and delivery of this Agreement have been authorized by the
Trustees of Investment Company and signed by an authorized officer of the
Investment Company, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding upon the
Trustees, the Fund or Investors, but bind only the appropriate property of the
Investment Company, as provided in the Declaration of Trust.
Deutsche Portfolios Page 14 1997
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf under their seals by and through their duly
authorized officers, as of the day and year first above written.
DEUTSCHE PORTFOLIOS
By:
President
FEDERATED SERVICES COMPANY
By:
Senior Vice President
Deutsche Portfolios Page 15 1997
