As filed with the Securities and Exchange Commission on September 17, 1997
Registration No. 333 - 7008
811 - 8227
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 4
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 4
DEUTSCHE FUNDS, INC.
(Exact name of Registrant as specified in charter)
2nd Federated Square, Pittsburgh, PA 15222
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (800) 245-5000
BRIAN LEE Copy to: JOHN T. BOSTELMAN, ESQ.
Deutsche Fund Management, Inc. Sullivan & Cromwell
31 West 52nd Street 125 Broad Street
New York, New York 10019 New York, New York 10004
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this registration statement. It is proposed that this filing
will become effective (check appropriate box):
[ ] immediately upon filing pursuant to pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant elects, pursuant to Rule 24f-2 of the Investment Company
Act General Rules and Regulations, to register an indefinite number of shares of
its capital stock.
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The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
EXPLANATORY NOTE
This Pre-Effective Amendment No. 4 (the "Amendment") to the
Registrant's Registration Statement on Form N-1A is being filed with respect to
Deutsche European Mid-Cap Fund, Deutsche German Equity Fund, Deutsche Japanese
Equity Fund, Deutsche Global Bond Fund, Deutsche European Bond Fund, Deutsche
Top 50 World, Deutsche Top 50 Europe, Deutsche Top 50 Asia and Deutsche Top 50
US Fund, each a series of the Registrant (the "Funds"). The Amendment contains
two prospectuses and one statement of additional information for the Funds and
is being filed to revise and update information contained in the prospectuses
and the statement of additional information.
Deutsche US Money Market Fund and Deutsche Institutional US Money
Market Fund are each a series of the Registrant and are each offered by a
separate prospectus included in Pre-Effective Amendment No. 3 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. 3.
<PAGE>
PROSPECTUS
DEUTSCHE EUROPEAN MID-CAP FUND
DEUTSCHE GERMAN EQUITY FUND
DEUTSCHE JAPANESE EQUITY FUND
DEUTSCHE GLOBAL BOND FUND
DEUTSCHE EUROPEAN BOND FUND
CLASS A AND CLASS B SHARES
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
FOR INFORMATION CALL TOLL-FREE 888-4-DEUTSCHE
(888-438-7243)
This prospectus relates to the Deutsche European Mid-Cap Fund
("European Mid-Cap Fund"), Deutsche German Equity Fund ("German Equity Fund")
and Deutsche Japanese Equity Fund ("Japanese Equity Fund") (collectively, the
"Equity Funds") and Deutsche Global Bond Fund ("Global Bond Fund") and Deutsche
European Bond Fund ("European Bond Fund") (collectively, the "Bond Funds"). The
Equity Funds and the Bond Funds are referred to herein individually, as a "Fund"
and collectively, as the "Funds." Each Fund is a non-diversified series of the
Deutsche Funds, Inc., an open-end management investment company organized as a
Maryland corporation (the "Corporation"). The investment objective of European
Mid-Cap Fund and the German Equity Fund is primarily to achieve high capital
appreciation, and as a secondary objective, reasonable dividend income. The
investment objective of Japanese Equity Fund is to achieve high capital
appreciation. The investment objective of the Bond Funds is to achieve steady,
high income.
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 A CORRESPONDING NON-DIVERSIFIED
OPEN-END MANAGEMENT INVESTMENT COMPANY (EACH, A "PORTFOLIO" AND COLLECTIVELY,
THE "PORTFOLIOS"). EACH PORTFOLIO IS A SERIES OF THE DEUTSCHE PORTFOLIOS (THE
"PORTFOLIO TRUST") AND HAS THE SAME INVESTMENT OBJECTIVE AS ITS CORRESPONDING
FUND. EACH FUND INVESTS IN ITS CORRESPONDING 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.
Each Portfolio is managed by Deutsche Fund Management, Inc. ("DFM" or
the "Manager"), 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
upon written request from the Funds' transfer agent, Federated Shareholder
Services Company, or by calling toll-free 888-4-DEUTSCHE.
INVESTMENTS IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, DEUTSCHE BANK AG OR ANY OTHER BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN CLASS A SHARES
OR CLASS B SHARES IS SUBJECT TO RISKS THAT MAY CAUSE THE VALUE OF THE INVESTMENT
TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE HIGHER OR
LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
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.
DEUT016Q
<PAGE>
TABLE OF CONTENTS
PAGE
Expense Summary..............................................................
The Funds....................................................................
Investment Objectives, 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 Class A and Class B shares of each Fund and the
allocable operating expenses of its corresponding Portfolio. The Directors of
the Corporation believe that the aggregate per share expenses of each Fund and
the allocable operating expenses of its corresponding 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 its corresponding Portfolio, see
"Management of the Corporation and the Portfolio Trust."
<TABLE>
<CAPTION>
EQUITY FUNDS BOND FUNDS
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.50% None 4.50% None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None 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 0.00%1 5.00% in
the first year the first year
declining to declining to
1.00% in the 1.00% in the
sixth year and sixth year and
0% thereafter 0% thereafter
Redemption Fees (as a percentage of amount redeemed,
if applicable) None None None None
Exchange Fees None None None None
</TABLE>
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1 Class A shares purchased without an initial sales charge (i) based on an
initial investment of $1,000,000 or more or (ii) with proceeds of a redemption
of shares of an unaffiliated investment company purchased or redeemed with a
sales charge and not distributed by Edgewood may be charged a contingent
deferred sales charge of 1.00% for redemptions made within one full year of
purchase. See "Contingent Deferred Sales Charge."
EXPENSE TABLE
ANNUAL OPERATING EXPENSES (AFTER EXPENSE REIMBURSEMENT)
(As a percentage of projected average net assets)
<TABLE>
<CAPTION>
EQUITY FUNDS BOND FUNDS
CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C>
Advisory Fees 0.85% 0.85% 0.75% 0.75%
12b-1 Fees
Service 0.25% 0.25% 0.25% 0.25%
Distribution 0.00% 0.75% 0.00% 0.75%
Other Expenses (after expense
reimbursement) 0.50% 0.50% 0.30% 0.30%
---- ---- ---- ----
Total Operating Expenses
(after expense
reimbursement) 1.60% 2.35% 1.30% 2.05%
==== ==== ==== ====
</TABLE>
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
EQUITY FUNDS BOND FUNDS
CLASS A CLASS B CLASS A CLASS B
1 Year $ 70 $ 73 $ 58 $ 70
3 Years $103 $ 103 $ 84 $ 94
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<PAGE>
You would pay the following expenses on the same investment assuming no
redemption:
1 Year $ 70 $ 25 $ 58 $24
3 Years $103 $ 73 $ 84 $73
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 herein), (ii)
amortization of organizational expenses, and (iii) other usual and customary
expenses of each Fund and each Portfolio. DFM has agreed that it will reimburse
each Fund through at least August 31, 1998 to the extent necessary to maintain
such Fund's ratio of total operating expenses to average annual net assets at
the level indicated above. Assuming no reimbursement of expenses , estimated
"Other Expenses" for the first fiscal year of European Mid-Cap Fund, German
Equity Fund, Japanese Equity Fund, Global Bond Fund and European Bond Fund would
be 0.98%, 0.96%, 0.99%, 1.01% and 0.95%, respectively, and "Total Operating
Expenses" would be 2.08%, 2.06%, 2.09%, 2.01% and 1.95%, respectively, of the
Fund's average daily net assets attributed to Class A shares, and 2.83%, 2.81%,
2.84%, 2.76% and 2.70%, respectively, of the Fund's average daily net assets
attributed to Class B shares. For a more detailed description of contractual fee
arrangements, including expense reimbursements, see "Management of the
Corporation and the Portfolio Trust." In connection with the above example,
investors should note that $1,000 is less than the minimum investment
requirement for each Class of each Fund. See "Purchase of Shares." 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 non-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").
Each Fund seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Portfolio that has the same investment
objective as the Fund. The European Mid-Cap Fund invests all of its investable
assets in the Provesta Portfolio (US Dollar); the German Equity Fund invests all
of its investable assets in the Investa Portfolio (US Dollar); the Japanese
Equity Fund invests all of its investable assets in the Japanese Equity
Portfolio (US Dollar); the Global Bond Fund invests all of its investable assets
in the Global Bond Portfolio (US Dollar); and the European Bond Fund invests all
of its investable assets in the European Bond Portfolio (US Dollar). The
Provesta Portfolio (US Dollar), Investa Portfolio (US Dollar) and Japanese
Equity Portfolio (US Dollar) are referred to herein individually, as an "Equity
Portfolio" and collectively, as the "Equity Portfolios." The Global Bond
Portfolio (US Dollar) and the European Bond Portfolio (US Dollar) are referred
- -2-
<PAGE>
to herein individually, as a "Bond Portfolio" and collectively, as the "Bond
Portfolios." The Equity Portfolios and the Bond Portfolios are referred to
herein individually, as a "Portfolio" and collectively, as the "Portfolios."
Each 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 Funds' distributor,
Edgewood Services, Inc. ("Edgewood" or the "Distributor"). The Funds require a
minimum initial investment of $5,000. The minimum subsequent investment is $500
(see "Purchase of Shares"). If a shareholder reduces his or her investment in a
Fund to less than the applicable minimum investment, the investment is subject
to mandatory redemption. See "Account and Share Information - Accounts with Low
Balances."
Proceeds from the sale of shares of each Fund are invested in its
corresponding Portfolio, which then invests its assets in accordance with its
investment objective and policies. DWS International Portfolio Management GmbH
is the investment adviser of the Portfolios (the "Adviser"). DFM and the Adviser
are indirect subsidiaries of Deutsche Bank AG. Federated Services Company is the
administrator of the Funds (the "Administrator") and the operations agent of the
Portfolios ("Operations Agent"). IBT Fund Services (Canada) Inc. ("IBT
(Canada)") is the fund accounting agent of the Funds and the Portfolios ("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 Portfolios
("Administrative Agent"). Investors Bank & Trust Company ("IBT") is the
custodian of the Funds and the Portfolios ("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 Portfolios,
respectively. The Directors who are not "interested persons" of the Corporation
as defined in the Investment Company Act of 1940, as amended (the "1940 Act")
(the "Independent Directors"), are the same as the Trustees who are not
"interested persons" of the Portfolio Trust as defined in the 1940 Act (the
"Independent Trustees"). A majority of the Corporation's Directors and the
Portfolio Trust's Trustees are not affiliated with the Manager, the Adviser or
the Distributor. For further information about the Directors of the Corporation
and the Trustees of the Portfolio Trust, see "Management of the Corporation and
the Portfolio Trust" herein and in the Statement of Additional Information.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
Each Fund seeks to achieve its investment objective by investing all
its investable assets in a corresponding Portfolio, an open end management
company that has the same investment objective and investment policies as the
Fund. Since the investment characteristics and experience of each Fund will
correspond directly with those of its corresponding Portfolio, the discussion in
this Prospectus focuses on the investments and investment policies of the
Portfolios. No Fund represents a complete investment program, nor is each Fund
suitable for all investors.
- -3-
<PAGE>
EQUITY FUNDS
The investment objective of European Mid-Cap Fund and the German Equity
Fund is primarily to achieve high capital appreciation and, as a secondary
objective, reasonable dividend income. The investment objective of Japanese
Equity Fund is to achieve high capital appreciation.
The PROVESTA PORTFOLIO (US DOLLAR) ("PROVESTA PORTFOLIO") pursues its
(and the European Mid-Cap Fund's) investment objective by investing primarily in
the equity securities of issuers located in European countries, including those
which are member states of the European Union, those which are party to the
Convention on the European Economic Area ("CEEA"), Switzerland, Slovakia, Czech
Republic, and Hungary.
The Provesta Portfolio seeks investment in companies which the Adviser
believes may grow at a higher rate than the average of other European companies.
These anticipated higher growth rates may cause the performance of the Fund to
be more volatile than that of other equity funds, and therefore, investors
should consider an investment in the European Mid-Cap Fund to be subject to more
risk and greater volatility. See "Risk Factors".
Under normal circumstances, at least 65% of the Portfolio's total
assets are invested in European equity securities issued by companies with
market capitalizations of between $115 million and $19 billion.
The INVESTA PORTFOLIO (US DOLLAR) ("INVESTA PORTFOLIO") pursues its
(and the German Equity Fund's) investment objective by investing primarily in
the equity securities of German companies.
Under normal circumstances, at least 65% of the Portfolio's total
assets are invested in equity securities issued by German issuers. In pursuing
the Portfolio's objective, the Adviser will emphasize German companies that have
some or all of the following attributes: high market capitalization, large
number of publicly held shares, high trading volume, high liquidity, financial
stability, or a widely known name or product/service.
The JAPANESE EQUITY PORTFOLIO (US DOLLAR) ("JAPANESE EQUITY PORTFOLIO")
pursues its (and the Japanese Equity Fund's) investment objective by investing
primarily in the equity securities of Japanese issuers. Under normal
circumstances, at least 65% of the Portfolio's total assets are invested in
equity securities issued by Japanese companies, which may include, for the
purpose of meeting such 65% minimum, up to 5% of the total assets in securities
that grant the right to acquire Japanese securities.
-------
FIXED INCOME SECURITIES. Each Equity Portfolio is permitted to invest
in fixed income securities, although it intends to remain invested in equity
securities to the extent practical in light of its objective. The Provesta
Portfolio's and Investa Portfolio's investment in fixed income securities
(excluding bank deposits and money market instruments) will not exceed 20% of
- -4-
<PAGE>
such Portfolio's net assets. The Japanese Equity Portfolio's investment in fixed
income securities (excluding bank deposits and money market instruments) will
not exceed 30% of the Portfolio's net assets. For purposes of each Portfolio's
investments, convertible bonds and bonds with warrants would be considered
equities, not fixed income securities. For the quality criteria of the fixed
income securities in which the Equity Portfolios may invest, see "Quality of
Fixed Income Securities" below.
BOND FUNDS
The investment objective of the Bond Funds is to achieve steady, high
income.
The GLOBAL BOND PORTFOLIO (US DOLLAR) ("GLOBAL BOND PORTFOLIO") pursues
its (and the Global Bond Fund's) investment objective by investing primarily in
the fixed income securities (including convertible bonds and bonds with
warrants) of issuers worldwide.
Under normal circumstances, at least 65% of the Global Bond Portfolio's
total assets are invested in bonds and the Portfolio will include securities of
issuers organized in at least three different countries.
The EUROPEAN BOND PORTFOLIO (US DOLLAR) ("EUROPEAN BOND PORTFOLIO")
pursues its (and the European Bond Fund's) investment objective by investing
primarily in the fixed income securities of European issuers.
Under normal circumstances, at least 65% of the Portfolio's total
assets are invested in bonds and the Portfolio will include securities issued by
European issuers.
Each Bond Portfolio's investment in equity securities will not exceed
25% of each Portfolio's net assets. For purposes of the foregoing investment
policies, the term "Bonds" includes all fixed income securities.
ALL FUNDS
LISTED SECURITIES. Each Portfolio will invest primarily in listed securities
("Listed Securities"). For purposes of this prospectus Listed Securities are
defined as securities meeting at least one of the following requirements: (a)
they are listed on a stock exchange in a member state of the European Union
("Member State") or in another state which is a party to the CEEA, or are
included on another regulated market in a Member State or in another state party
to the CEEA which market is recognized, open to the public and operates
regularly; (b) they are admitted to the official listing on one of the stock
exchanges listed in Appendix A or included on one of the regulated markets
listed in Appendix A; or (c) application is to be made for admission to official
listing on one of the aforementioned stock exchanges or inclusion in one of the
aforementioned regulated markets and such admission or inclusion is to take
place within 12 months of their issue.
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<PAGE>
UNLISTED SECURITIES AND NOTES. Up to a total of 10% of the net assets of
each Portfolio may be invested in:
(a) securities that are consistent with the Portfolio's investment
objective and policies, which are not admitted to official listing on
one of the stock exchanges or included on one of the regulated markets,
described above;
(b) interests in loans which are portions of an overall loan granted by a
third party and for which a note has been issued ("Notes"), provided
these Notes can be assigned at least twice after purchase by the
Portfolio, and the Note was issued by:
[bullet] the Federal Republic of Germany, a special purpose fund of the
Federal Republic of Germany, a state of the Federal Republic
of Germany, the European Union or a member state of the
Organisation for Economic Cooperation and Development (an
"OECD Member"),
[bullet] another German domestic authority, or a regional government
or local authority of another Member State or another
state party to the CEEA for which a zero weighting was
notified according to Article 7 of the Council Directive
89/647/EEC of 18 December 1989 on a solvency ratio for credit
institutions (Official Journal EC No. L386, p. 14),
[bullet] other corporate bodies or institutions organized under public
law and registered domestically in Germany or in another
Member State or another state party to the CEEA,
[bullet] other debtors, if guaranteed as to the payment of interest
and repayment of principal by one of the aforementioned
bodies, or
[bullet] companies which have issued securities which are admitted to
official listing on a German or other foreign stock exchange.
Investments in Notes are subject to the Provesta Portfolio's and
Investa Portfolio's overall 20% limitation on fixed income securities and the
Japanese Equity Portfolio's overall 30% limitation on fixed income securities.
See "Equity Funds" above.
The current Member States and the states party to the CEEA and OECD
Members are listed in Appendix A.
QUALITY OF FIXED INCOME SECURITIES. The fixed income securities in which each
Portfolio may invest will be rated on the date of investment, within the four
highest ratings of Moody's Investors Service, Inc. ("Moody's"), currently Aaa,
Aa, A and Baa, or of Standard & Poor's Rating Services ("S&P"), currently AAA,
AA, A and BBB or, if unrated, will be, in the opinion of the Adviser, of
comparable quality to such rated securities discussed above. See Appendix B to
the Statement of Additional Information for a description of these ratings.
- -6-
<PAGE>
BANK DEPOSITS AND MONEY MARKET INSTRUMENTS. Each Portfolio may temporarily
invest in bank deposits and money market instruments maturing in less than 12
months. These instruments include credit balances and bank certificates of
deposit, discounted treasury notes and bills issued by the Federal Republic of
Germany ("FRG"), the states of the FRG, the European Union, OECD Members or
quasi-governmental entities of any of the foregoing.
Under normal circumstances each Portfolio will purchase bank deposits and
money market instruments to invest temporary cash balances or to maintain
liquidity to meet redemptions. However, each Portfolio may temporarily invest in
bank deposits and money market instruments, up to 49% of its net assets, as a
measure taken in the Adviser's judgment during, or in anticipation of, adverse
market conditions. Certificates of deposit from the same credit institution may
not account for more than 10% of a Portfolio's total assets. See "Investment
Objectives and Policies" in the Statement of Additional Information.
OPTIONS TRANSACTIONS ON SECURITIES. Options transactions may be carried out for
each Portfolio if the securities options are admitted to official listing on a
recognized futures or securities exchange and the securities underlying the
options are within the applicable investment objective and policies of the
Portfolio. Each of these instruments is a derivative instrument as its value
derives from the underlying asset. Each Portfolio may use options for hedging
and risk management purposes and may purchase call options and sell put options
for speculation. See "Risk Factors".
By purchasing a put option, a Portfolio obtains the right (but not the
obligation) to sell the instrument underlying the option at a fixed strike
price. In return for this right, the Portfolio pays the current market price for
the option (known as the option premium). The purchaser of a call option obtains
the right to purchase, rather than sell, the instrument underlying the option at
the option's strike price.
Put options on securities may be purchased only if the securities
underlying the option transaction are held by a Portfolio at the time of the
purchase of the put option.
When a Portfolio writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of the premium,
the Portfolio assumes the obligation to pay the strike price for the instrument
underlying the option if the other party to the option chooses to exercise it.
Writing a call option obligates a Portfolio to sell or deliver the
option's underlying instrument in return for the strike price upon exercise of
the option.
Call options on securities may be sold only if the securities
underlying the option transaction are held by a Portfolio at the time of the
sale. These securities may not be sold during the maturity of the call option
and may not be the subject of a securities loan.
There is no limitation on the value of the options that may be
purchased or written by a Portfolio. However, the strike prices of the
securities options,
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<PAGE>
together with the strike prices of the securities that underlie other
securities options already purchased or granted for the account of each
Portfolio, may not exceed 20% of net assets of the Portfolio. See "Risk
Factors." With respect to the Provesta Portfolio and the Investa Portfolio, the
strike prices of options on fixed income securities held by each Portfolio may
not exceed 4% of the net assets of the Portfolio (i.e., 20% of the 20%
investment limitation on fixed income securities). See "Equity Funds - Fixed
Income Securities" above. Options on securities may only be purchased or granted
to a third party to the extent that the strike prices of such options, together
with the strike prices of options on securities of the same issuer already
purchased by or granted for the account of a Portfolio, do not exceed 10% of the
net assets of the Portfolio. Options on securities may only be written (sold) to
the extent that the strike prices of such options, together with the strike
prices of options on securities of the same issuer already written for the
account of a Portfolio, do not exceed 2% of the net assets of the Portfolio.
When an option transaction is offset by a back-to-back transaction (e.g., where
a Portfolio writes a put option on a security and purchases a put option on the
same security having the same expiration date), these two transactions will not
be counted for purposes of the limits set forth in this paragraph.
FUTURES CONTRACTS, OPTIONS ON FUTURES AND SECURITIES INDICES AND WARRANTS. Each
Portfolio may purchase and sell stock index futures contracts and interest rate
futures contracts and may purchase options on interest rate futures contracts,
options on securities indices and warrants on futures contracts and stock
indices. A Portfolio will engage in transactions in such instruments only if
they are admitted to official listing on a recognized futures or securities
exchange and meet certain other requirements stated below. A Portfolio may use
these techniques for hedging or risk management purposes or, subject to certain
limitations, for the purposes of obtaining desired exposure to certain
securities or markets.
For the purpose of hedging a Portfolio's assets, the Portfolio may sell
(but not purchase) stock index or interest rate futures contracts and may
purchase put or call options on futures contracts, options on securities indices
and any of the warrants described above. Any such transaction will be considered
a hedging transaction, and not subject to the limitations on non-hedging
transactions stated below, to the extent that (1) in the case of stock index
futures, options on securities indices and warrants thereon, the contract value
does not exceed the market value of the shares held by the Portfolio for which
the hedge is intended and such shares are admitted to official listing on a
stock exchange in the country in which the relevant futures or securities
exchange is based or (2) in the case of interest rate futures and options on
securities indices and warrants thereon, the contract value does not exceed the
interest rate exposure associated with the assets held in the applicable
currency by the Portfolio. In carrying out a particular hedging strategy, a
Portfolio may sell futures contracts and purchase options or warrants based on
securities, financial instruments or indices that have issuers, maturities or
other characteristics that do not precisely match those of the Portfolio's
assets for which such hedge is intended, thereby creating a risk that the
futures, options or warrants position will not mirror the performance of such
assets. A Portfolio may also
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<PAGE>
enter into transactions in futures contracts, options on futures, options
on indices and warrants for non-hedging purposes, as described below.
Each Portfolio may purchase or sell stock index or interest rate
futures contracts, put or call options on futures, options on securities indices
and warrants other than for hedging purposes. Transactions for non-hedging
purposes may be entered into only to the extent that (1) the underlying contract
values, together with the contract values of any instrument then held by the
Portfolio for non-hedging purposes, do not exceed in the aggregate 20% of the
net assets of the Portfolio and (2) such instruments relate to categories of
assets which the Portfolio is permitted to hold. In addition, with respect to
the Provesta Portfolio and the Investa Portfolio, the contract values of all
interest rate futures contracts and options and warrants on interest rate
futures contracts held for non-hedging purposes may not exceed 4% of the net
assets of the Portfolio (i.e., 20% of the 20% limitation on fixed income
securities). See "Equity Funds - Fixed Income Securities" above.
CURRENCY FORWARD CONTRACTS, OPTION RIGHTS AND WARRANTS ON CURRENCIES AND
CURRENCY FUTURES CONTRACTS. Each Portfolio may enter into foreign currency
transactions to hedge currency risks associated with the assets of each
Portfolio denominated or principally traded in foreign currencies. The Provesta
Portfolio and the Investa Portfolio, however, do not presently intend to engage
in such hedging activity but reserve the ability to do so under circumstances in
which the Adviser believes that one or more currencies in which such Portfolio's
assets are denominated may suffer a substantial decline against the U.S. dollar.
Each Portfolio other than the Provesta Portfolio and the Investa Portfolio may
also enter into foreign currency transactions to hedge against currencies other
than the U.S. dollar.
A Portfolio may purchase or sell foreign currency contracts for forward
delivery, purchase option rights for the purchase or sale of currencies or
currency futures contracts or warrants which entitle the holder to the right to
purchase or sell currencies or currency futures contracts or to receive payment
of a difference, which is measured by the performance of currencies or currency
futures contracts, provided that these option rights and warrants are admitted
to official listing on an exchange.
SECURITIES LOANS. Subject to applicable investment restrictions, each Portfolio
is permitted to lend its securities. These loans may not exceed 33 1/3% of a
Portfolio's total assets. The Portfolios may pay reasonable administrative and
custodial fees in connection with the loan of securities. The following
conditions will be met whenever portfolio securities of a Portfolio are loaned:
(1) the Portfolio must receive at least 100% collateral from the borrower; (2)
- -9-
<PAGE>
the borrower must increase such collateral whenever the market value of the
securities loaned rises above the level of the collateral; (3) the Portfolio
must be able to terminate the loan at any time; (4) the Portfolio must receive
reasonable interest on the loan, as well as payments in respect of any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (5) the Portfolio may pay only reasonable custodian
and finder's fees in connection with the loan; and (6) while voting rights on
the loaned securities may pass to the borrower, the Portfolio must terminate the
loan and regain the right to vote the securities if a material event conferring
voting rights and adversely affecting the investment occurs. In addition, a
Portfolio will consider all facts and circumstances, including the
creditworthiness of the borrowing financial institution. No Portfolio will lend
its securities to any officer, Trustee, Director, employee or other affiliate of
the Corporation or the Portfolio Trust, the Manager, the Adviser or the
Distributor, unless otherwise permitted by applicable law.
Each Portfolio may lend its securities on a demand basis provided the
market value of the assets transferred in securities loans together with the
market value of the securities already transferred as a securities loan for the
Portfolio's account to the same borrower does not exceed 10% of the total assets
of the Portfolio.
BORROWING. Each Portfolio may borrow money from banks for temporary or
short-term purposes and then only in amounts not to exceed 10% of the
Portfolio's total assets at the time of such borrowing.
WARRANTS. Each Portfolio may purchase warrants in value of up to 10% of the
Portfolio's net assets. The warrants in which the Portfolios invest are a type
of security that entitles the holder to buy a fixed amount of securities of such
issuer at a specified price at a fixed date or for a fixed period of time (which
may be in perpetuity) or to demand settlement in cash based on the price
performance of the underlying security. If the market price of the underlying
security is below the exercise price set forth in the warrant on the expiration
date, the warrant will expire worthless.
Warrants do not entitle the holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also the value of the warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date.
CONVERTIBLE SECURITIES. The convertible securities in which the Portfolios may
invest include any debt securities or preferred stock which may be converted
into common stock or which carry the right to purchase common stock. Convertible
securities entitle the holder to exchange the securities for a specified number
of shares of common stock, usually of the same company, at specified prices
within a certain period of time.
SHORT-TERM TRADING. Each Portfolio intends to manage its portfolio actively in
pursuit of its investment objective. A Portfolio may take advantage of
short-term trading opportunities that are consistent with its objective. To the
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<PAGE>
extent a Portfolio engages in short-term trading, it may realize short-term
capital gains or losses and incur increased transaction costs. See "Taxes"
below.
INVESTMENT RESTRICTIONS. The investment objective of each Fund and each
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 a Fund and its
corresponding Portfolio. Each Fund has the same investment restrictions as its
corresponding Portfolio, except that each Fund may invest all of its investable
assets in the corresponding Portfolio. References below to the Portfolios'
investment restrictions also include the Funds' investment restrictions. Any
other investment policies of the Portfolios and the Funds described herein or in
the Statement of Additional Information are not fundamental and may be changed
without shareholder approval.
FUNDAMENTAL INVESTMENT RESTRICTIONS.
Each Portfolio is classified as "non-diversified" under the 1940 Act,
which means that each corresponding Fund is not limited by the 1940 Act with
respect to the portion of its assets which may be invested in securities of a
single company (although certain diversification requirements are imposed by the
Internal Revenue Code of 1986, as amended (the "Code")). The possible assumption
of large positions in the securities of a small number of companies may cause
the performance of a Fund to fluctuate to a greater extent than that of a
diversified investment company as a result of changes in the financial condition
or in the market's assessment of the companies.
At least 65% of the Provesta Portfolio's total assets are invested in
European equity securities issued by companies with market capitalizations of
between $115 million and $19 billion. At least 65% of the Investa Portfolio's
total assets are invested in equity securities issued by German companies. At
least 65% of the Japanese Equity Portfolio's total assets are invested in equity
securities issued by Japanese companies, which may include, for the purposes of
meeting such 65% minimum, up to 5% of the total assets in securities that grant
the right to acquire Japanese securities. At least 65% of the Global Bond
Portfolio's total assets are invested in bonds and such Portfolio will include
securities of issuers organized in at least three different countries. At least
65% of the European Bond Portfolio's total assets are invested in bonds issued
by European issuers.
No Portfolio may 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, provided that the foregoing limitation shall not apply
to investments in securities issued by the U.S. Government or its agencies or
instrumentalities.
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<PAGE>
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS.
Each Portfolio generally will not borrow money. Each Portfolio may not
issue senior securities except as permitted by the 1940 Act or any rule, order
or interpretation thereunder. Each Portfolio may not invest more than 10% of its
net assets in the securities of any one issuer or invest more than 40% of its
net assets in the aggregate in the securities of those issuers in which the
Portfolio has invested in excess of 5% but not more than 10% of its net assets.
For 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.
RISK FACTORS
EQUITY INVESTMENTS. Because the assets of each Equity Portfolio are invested
primarily in equity securities, the Equity Portfolios are subject to market risk
and the risks associated with the individual companies in which the Portfolios
invest, meaning that stock prices in general may decline over short or extended
periods of time. As with any equity-based investment company, the investor
should be aware that unfavorable economic conditions can adversely affect
corporate earnings and cause declines in stock prices.
With respect to the Provesta Portfolio, investing in equity securities
of mid-sized companies involves risks not typically associated with investing in
comparable securities of large companies. Assets of the Portfolio are invested
in companies which may have narrow product lines and limited financial and
managerial resources. Since the market for the equity securities of mid-sized
companies is often characterized by less information and liquidity than that for
the equity securities of large companies, the Portfolio's investments can
experience unexpected sharp declines in their market prices. Therefore,
investments in the Portfolio may be subject to greater declines in value than
shares of equity funds investing in the equity securities of large companies.
FIXED INCOME SECURITIES. The value of fixed income securities generally goes
down when interest rates go up, and vice versa. Furthermore, the value of fixed
income securities may vary based on anticipated or potential changes in interest
rates. Changes in interest rates will generally cause bigger changes in the
prices of longer-term securities than in the prices of shorter-term securities.
Prices of fixed income securities fluctuate based on changes in the
actual and perceived creditworthiness of issuers. The prices of lower rated
securities often fluctuate more than those of higher rated securities. It is
possible that some issuers will be unable to make required payments on fixed
income securities.
FOREIGN INVESTMENTS. Each Portfolio invests in foreign securities. Investment in
securities of foreign issuers involves somewhat different investment risks from
those affecting securities of U.S. domestic issuers. There may be limited
publicly available information with respect to foreign issuers, and foreign
issuers are not generally subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to U.S. domestic
- -12-
<PAGE>
companies. Dividends and interest paid by foreign issuers may be subject to
withholding and other foreign taxes (such as capital gain taxes) which may
decrease the net return on foreign investments as compared to dividends and
interest paid to a Portfolio by U.S. domestic companies.
Investors should realize that the value of a Portfolio's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) currency exchange control or tax regulations in those foreign
countries. In addition, changes in government administrations or economic or
monetary policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect a
Portfolio's operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, whether favorably or unfavorably, in areas
such as growth of gross domestic product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Portfolios must be made in
compliance with foreign currency restrictions and tax laws restricting the
amounts and types of foreign investments.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic securities exchanges. Accordingly, the Portfolios'
foreign investments may be less liquid and their prices may be more volatile
than comparable investments in securities of U.S. companies. Moreover, the
settlement periods for foreign securities, which are often longer than those for
securities of U.S. issuers, may affect portfolio liquidity. In buying and
selling securities on foreign exchanges, purchasers normally pay fixed
commissions that are generally higher than the negotiated commissions charged in
the United States. In addition, there is generally less government supervision
and regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.
Since each Portfolio's investments in foreign securities involve
foreign currencies, the value of the Portfolio's assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in currency rates
and in exchange control regulations, including currency blockage. Because the
Provesta Portfolio and Investa Portfolio do not presently intend to engage in
currency transactions to hedge currency risks, these Portfolios may be more
vulnerable to the aforementioned currency risks. See "Foreign Currency Exchange
Transactions" in the Statement of Additional Information.
EMERGING MARKETS (PROVESTA PORTFOLIO AND GLOBAL BOND PORTFOLIO ONLY).
Investments in securities of issuers in emerging markets countries may involve a
high degree of risk and many may be considered speculative. Investments in
developing and emerging markets may be subject to potentially greater risks than
those of other foreign issuers. These risks include: (i) the small current size
of the markets for such securities and the low volume of trading, which result
in less liquidity and in greater price volatility; (ii) certain national
policies which may restrict the Portfolio's investment opportunities, including
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<PAGE>
restrictions on investment in issuers or industries deemed sensitive to national
interests; (iii) foreign taxation; (iv) the absence, until recently, of a
capital market structure or market oriented economy as well as issuers without a
long period of successful operations; (v) the possibility that recent favorable
economic developments may be slowed or reversed by unanticipated political or
social events in such countries or their neighboring countries; and (vi) greater
risks of expropriation, confiscatory taxation, nationalization, and less social,
political and economic stability.
FUTURES, OPTIONS AND WARRANTS. Each Portfolio's successful use of futures,
options and warrants depends on the ability of the Adviser to predict the
direction of the market or, in the case of hedging transactions, the correlation
between market movements and movements in the value of the Portfolio's assets,
and is subject to various additional risks. The investment techniques and skills
required to use futures, options and warrants successfully are different from
those required to select equity securities for investment. The correlation
between movements in the price of the futures contract, option or warrant and
the price of the securities or financial instruments being hedged is imperfect
and the risk from imperfect correlation increases, with respect to stock index
futures, options and warrants, as the composition of a Portfolio's portfolio
diverges from the composition of the index underlying such stock index futures,
options or warrants. If a Portfolio has hedged portfolio securities by
purchasing put options or selling futures contracts, the Portfolio could suffer
a loss which is only partially offset or not offset at all by an increase in the
value of the Portfolio's securities. As noted, a Portfolio may also enter into
transactions in future contracts, options and warrants for other than hedging
purposes (subject to applicable law), including speculative transactions, which
involve greater risk. In particular, in entering into such transactions, a
Portfolio may experience losses which are not offset by gains on other portfolio
positions, thereby reducing its gross income. In addition, the markets for such
instruments may be volatile from time to time, which could increase the risk
incurred by a Portfolio in entering into such transactions. The ability of a
Portfolio to close out a futures, options or warrants position depends on a
liquid secondary market.
The use of futures contracts potentially exposes the Portfolios to the
effects of "leveraging," which occurs when futures are used so a Portfolio's
exposure to the market is greater than it would have been if the Portfolio had
invested directly in the underlying instruments. Leveraging increases a
Portfolio's potential for both gain and loss. As noted above, the Portfolios
intend to adhere to certain policies relating to the use of futures contracts,
which should have the effect of limiting the amount of leverage by the
Portfolios. See "Futures and Option Contracts" in the Statement of Additional
Information.
LOCAL SECURITIES MARKETS
THE GERMAN SECURITIES MARKETS. Equity securities trade on the country's
eight regional stock exchanges of which Frankfurt accounted for approximately
79.5% of the total volume in 1996.
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<PAGE>
Share prices of companies traded on German stock exchanges declined in
1991 and 1992 as the German economy entered a recessionary period following
unification of eastern and western Germany in 1990. The DM total return of the
CDAX German Composite Index of stocks was -6.39% in 1992, 44.56% in 1993, -5.83%
in 1994, 4.75% in 1995, 22.14% in 1996 and 29.96% for the first half of 1997.
Trading volume tends to concentrate on the relatively few companies
having both large market capitalization and a broad distribution of their stock
with few or no large holders. The five companies having the largest annual
trading volume of their stock in 1996 represented 46.8% of total trading volume
on the German stock exchanges: Daimler-Benz Ag with DM 261.9 billion, Siemens AG
with DM 256.1 billion, Deutsche Bank AG with DM 216.8 billion, Bayer AG with DM
186.4 billion and Volkswagen AG with DM 162.2 billion.Siemens Aktiengesellschaft
with DM 178.1 billion, Daimler Benz AG with DM 176.3 billion, Deutsche Bank AG
with DM 150.9 billion, Bayer AG with DM 135.3 billion and Volkswagen
Aktiengesellschaft with DM 110.2 billion.
JAPANESE EQUITY SECURITIES MARKETS. Listed securities in Japan trade on three
Main Japanese Exchanges (including the Tokyo Stock Exchange) and five regional
stock exchanges, although the Tokyo Stock Exchange ("TSE") has generally
represented over 75% of annual trade of volume. In 1996, three industrial groups
(banks, electric appliances and transportation equipment) accounted for
approximately 40% of the total market value of TSE stocks. Share prices of
companies traded on Japanese stock exchanges reached historical peaks in 1989
and 1990. Afterwards stock prices decreased significantly, reaching their lowest
levels in 1992. For example, the Nikkei index of 225 stocks fell from 38916 at
year-end 1989 to a low in 1992 of 14309, a drop of 63%. The index was 19161 at
the end of 1996, and 18701 at June 30, 1997. The decline in stock prices after
1989 has raised the cost of capital for industry and has reduced the value of
stock holdings by banks and corporations. These effects have, in turn,
contributed to the recent weakness in Japan's economy and could continue to have
an adverse impact in the future.
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 each
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 its corresponding Portfolio. Each 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 DWS International Portfolio
Management GmbH as Adviser for each Portfolio.
MANAGER. The Portfolio Trust has retained the services of DFM as investment
manager to each Portfolio. DFM, with principal offices at 31 West 52nd Street,
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<PAGE>
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 year-end 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 Standard & Poor's
Corporation, New York. Deutsche Bank AG and its affiliates may have commercial
lending relationships with companies whose securities may be held by a
Portfolio.
DFH subsidiaries include German-based DWS Deutsche Gesellschaft fuer
Wertpapiersparen mbH ("DWS") and others based in Luxembourg, Austria,
Switzerland, Singapore, France and Italy. Together, DFH subsidiaries serve as
manager and/or investment adviser to more than 150 mutual funds outside the
United States, having aggregate assets under management of more than the
equivalent of $68 billion as of August 1997. DFH and its subsidiaries employ
approximately 500 professionals and is the largest mutual fund operator in
Europe based on assets under management.
The primary subsidiary of DFH is DWS. Founded in 1956, it is the
largest mutual fund company in Germany, holding a 25% share of the German mutual
fund market based on assets under management as of August 1997. DFH and its
subsidiaries are known in the financial market as "DWS Group, Investmentgroup of
Deutsche Bank."
DFH subsidiaries have received widespread industry recognition in Europe.
For example, Micropal, Europe's leading fund rating organization, has accorded
DWS the following awards: 1994: best fund manager for 1, 3 and 5 year periods;
1995: best fund manager for 1, 3 and 5 year periods; 1996: best fund manager for
3 and 5 year periods. These awards were given to fund managers having 10 or more
funds registered for sale in Germany, based on the manager with the highest
number of funds ranked first within various categories of investment objective
defined by Micropal. Fund rankings are based on above-average performance in
Deutsche Mark ("DM") terms and below-average volatility.
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 each 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 each Portfolio. DFM has delegated this responsibility
to the Adviser. DFM retains overall responsibility, however, for supervision of
the investment management program for each Portfolio. See "Manager" in the
Statement of Additional Information.
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<PAGE>
As compensation for the services rendered and related expenses borne by
DFM under the Management Agreement with the Portfolio Trust with respect to each
Equity Portfolio, DFM receives a fee from each Equity Portfolio, which is
computed daily and paid monthly, equal to 0.85% of the average daily net assets
of each Equity Portfolio on an annualized basis for the Portfolio's then-current
fiscal year. As compensation for the services rendered and related expenses
borne by DFM under the Management Agreement with the Portfolio Trust with
respect to each Bond Portfolio, DFM receives a fee from each Bond Portfolio,
which is computed daily and paid monthly, equal to 0.75% of the average daily
net assets of each Bond Portfolio on an annualized basis for the Portfolio's
then-current fiscal year. See also "Expenses."
ADVISER. Pursuant to an investment advisory agreement ("Advisory Agreement")
between DFM and DWS International Portfolio Management GmbH, the Adviser
provides investment advice and portfolio management services to each Portfolio.
Subject to the overall supervision of DFM, the Adviser conducts the day-to-day
investment decisions of each Portfolio, arranges for the execution of portfolio
transactions and furnishes a continuous investment program for each 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
Grueneburgweg 113-115, 60323 Frankfurt am Main, Germany.
For these services, the Adviser receives from DFM a fee, which is
computed daily and may be paid monthly, equal to 0.60% of the average daily net
assets of each Equity Portfolio and 0.50% of the average daily net assets of
each Bond Portfolio on an annualized basis for the Portfolio's then-current
fiscal year.
HISTORICAL PERFORMANCE OF CORRESPONDING DWS FUNDS
Provesta and Investa are German-registered mutual funds and are
referred to herein as the "DWS Funds". Each of their investment policies and
restrictions are the same as those of its corresponding Portfolio except as
noted below. The Provesta and Investa Portfolios (and therefore indirectly the
corresponding European Mid-Cap Fund and German Equity Fund) are designed to
produce investment results substantially the same as the DWS Funds, Provesta and
Investa, respectively. The Provesta and Investa Portfolios seek to accomplish
this by duplicating to the extent practical the portfolio holdings and
transactions of Provesta and Investa. The Adviser will manage the investment
operations of each Portfolio with a portfolio manager and a staff of investment
professionals that is composed of the same persons as those that manage and have
full discretionary authority over the selection of investments for the
corresponding DWS Fund.
The European Mid-Cap Fund and its corresponding Provesta Portfolio and
the German Equity Fund and its corresponding Investa Portfolio commenced
operations in 1997 and have no operating or performance history.
Information about the performance of the two corresponding DWS Funds --
Provesta (corresponding to European Mid-Cap Fund) and Investa (corresponding to
German Equity Fund) is set forth below. Although each Equity Fund and its
corresponding Portfolio have the same investment objectives, policies and
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<PAGE>
restrictions as their corresponding DWS Fund, and each Portfolio has the
same staff of investment professionals and the same portfolio manager as its
corresponding DWS Fund, the DWS Funds are separate funds and you should not
assume that a Fund offered by this Prospectus will have the same future
performance as its corresponding DWS Fund. The DWS Funds operate under the
German regulatory and tax framework and the Portfolios operate under the U.S.
regulatory and tax framework (diversification requirements, specific tax
restrictions and investment limitations). Since the historical performance of
the DWS Funds would not have been materially affected by the differences in the
regulation of investment companies under U.S. federal securities and tax laws
and regulations, the differences in regulation are not expected to result in any
material differences in performance between the DWS Funds and their
corresponding Portfolios going forward. Investors should note that the past
performance of the DWS Funds is not predictive of the future performance of the
European Mid-Cap Fund or the German Equity Fund or their corresponding
Portfolios.
The following tables show the average annualized total return for the
Provesta and Investa Funds for the one-, three-, five- and ten-year periods
ended June 30, 1997 and of securities indices believed by the Adviser to be
suitable for performance comparisons with the Provesta and Investa Portfolios
and the DWS Funds. These figures, which are unaudited, are based on the actual
gross investment performance of the DWS Funds with the adjustments indicated
below:
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<PAGE>
PROVESTA1
(corresponding to the Provesta Portfolio
and European Mid-Cap Fund)
Average Annual Return for the Periods Ending June 30, 1997
Historical Performance
Adjusted to Reflect Max.
U.S. Expense Ratio (Class A) CDAX Index (in U.S.$, ANNUALIZED)4
IN U.S.$
WITHOUT SALES WITH SALES LOAD3
LOAD2
One Year 26.44% 19.49% 28.97%
Three Years 14.33% 19.58% 16.51%
Five Years 13.87% 12.59% 13.59%
Ten Years 12.27% 11.64% 11.10%
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1 Net Assets as of 6/30/97 were DM 1,730 million ($992 million). Provesta
commenced investment operations in November, 1985.
2 The sales load may be reduced or eliminated on the purchases of Class A
Shares in certain circumstances. See "Purchase of Shares -- Reducing or
Eliminating the Sales Charge."
3 Adjusted to reflect deduction for the maximum sales charge of 5.50% applicable
to Class A Shares and the Fund's maximum expense ratio of 1.60% for Class A
Shares through August 31, 1998.
4 The DAX Composite Index ("CDAX") is a total rate of return index of all
domestic stocks traded on the Frankfurt Stock Exchange. It is a broad-based
index consisting of 16 industry groups. "CDAX" is a registered trademark of
Deutsche Borse AG.
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<PAGE>
INVESTA1
(corresponding to the Investa Portfolio
and German Equity Fund)
Average Annual Returns for the Periods Ending June 30, 1997
Historical Performance
Adjusted to Reflect Max.
U.S. Expense Ratio (Class A)2
IN U.S.$ DAX Index (in U.S.$,
ANNUALIZED)4
WITHOUT SALES WITH SALES LOAD
LOAD2
One Year 28.87% 21.78% 23.91%
Three Years 18.54% 16.44% 15.93%
Five Years 12.98% 11.68% 11.30%
Ten Years 10.76% 10.13% 10.51%
The above results are shown in U.S. dollars on the basis of conversion of
DM values to U.S. dollars at the end of each month at the prevailing rate. The
results assume all dividends and capital gain distributions have been reinvested
with no sales charge.
In calculating the historical performance of the two DWS Funds shown above
the first step was to calculate the historical performance according to a
methodology generally acknowledged in Germany and developed by the BVI
Bundesverband Deutscher Investment -- Gesellschaften (Association of German Fund
Companies) ("BVI") . The BVI method measures total return by comparing the net
asset value per share of a fund in DM at the beginning and at the end of the
relevant measurement period, assuming the reinvestment of distributions made by
the fund during such period. For this purpose, the reinvestment of distributions
is increased by including the corporate income tax credit that is available to
shareholders of German fund companies in connection with such distributions. The
- --------
1 Assets as of 6/30/97 were DM 3,451 million ($1,980 million). Investa
commenced investment operations in December 1956.
2 Adjusted to reflect deduction for the maximum sales charge of 5.50% applicable
to Class A Shares and the Fund's maximum expense ratio for Class A Shares
through August 31, 1998.
3 The sales load may be reduced or eliminated on the purchase of Class A Shares
in certain circumstances. See "Purchase of Shares -- Reducing or Eliminating
the Sales Charge."
4 DAX is a total rate of return index consisting of 30 selected German stocks
traded on the Frankfurt Stock Exchange. "DAX" is a registered trademark of
Deutsche Borse AG.
- -20-
<PAGE>
BVI method does not take account of any sales load charged to an investor
on the initial investment.
Second, for purposes of calculating the equivalent U.S. dollar returns
from the DM returns yielded by the BVI method, DWS made the following
adjustments: (1) the credit for the German corporate tax credit referred to
above was subtracted from the distributions reinvested since it will not be
available to shareholders of the Funds (but the effect of corporate income taxes
incurred by the corresponding DWS Funds was not eliminated) ; (2) the effect of
the German combined fund management and expense fee charged against the assets
of each DWS Fund (0.5% per annum of net assets) was eliminated; and (3) the DM
returns (including capital gains and income) were converted to U.S. dollars at
prevailing exchange rates as of the end of each month.
Third, these adjusted BVI returns were then further adjusted to apply the
relevant U.S. maximum expense ratio in place of the eliminated expense ratioof
the DWS Fund. These adjustments resulted in the performance indicated in the
first column. The second column, "With Sales Load", made a further adjustment by
reducing the performance by assuming the maximum sales load was charged to the
investor on the initial investment.
Except as described below in the case of Investa, it is not expected
that there will be any material differences in the securities held by the
Provesta and Investa Portfolios and their corresponding DWS Funds and thus the
investment characteristics of each Portfolio, such as industry diversification,
country diversification, portfolio beta, portfolio quality, average maturity of
fixed-income assets and equity/non-equity mix will be substantially the same as
the investment characteristics of its corresponding DWS Fund. The Investa
Portfolio may not
invest in securities issued by Deutsche Bank AG or its affiliated persons that
are engaged in securities-related businesses, although Investa was and is
permitted to invest in such securities. However, the elimination of
Deutsche Bank AG securities from Investa's portfolio during the periods shown in
the table above would not have materially affected Investa's performance.
Consequently, there is no regulatory or tax difference between either of the two
Portfolios and its corresponding DWS Fund that would be expected to have a
material effect on the investment performance of the Portfolio as compared to
its corresponding DWS Fund.
PORTFOLIO MANAGEMENT
Elisabeth Weisenhorn is the senior portfolio manager for the Investa
Portfolio and the Provesta Portfolio. Ms. Weisenhorn also serves as portfolio
manager for Investa and Provesta, the Portfolios' corresponding DWS Funds. She
has held this position since 1991. Ms. Weisenhorn has 12 years of experience as
an investment manager and joined the DWS Group in 1985. She is Senior Investment
Officer, head of the German equity team, supervising funds holding assets under
management of DM 8 billion ($4.7 billion) as of March 31, 1997. Ms. Weisenhorn
is based at DWS Group's office in Frankfurt, Germany.
Hannah Cunliffe is the portfolio manager for the Japanese Equity
Portfolio. Ms. Cunliffe also serves as portfolio manager of the DWS-Japan Fonds,
a German
- -21-
<PAGE>
registered mutual fund with the same investment objective, policies and
restrictions as the Japanese Equity Portfolio. She has held this position since
February, 1994. Prior to this, she was the Asian equity market analyst for
Deutsche Bank Research. Ms. Cunliffe joined the Deutsche Bank Group in 1989.
Heinz-Wilhelm Fesser is senior portfolio manager for the Global Bond
Portfolio and European Bond Portfolio. Mr. Fesser joined the DWS Group in 1987,
where he has been engaged in the management of global fixed income funds. He is
Senior Investment Officer, head of the global fixed-income team, supervising
funds holding assets under management of DM 19.5 billion ($11.5 billion) as of
March 31, 1997.
ADMINISTRATOR. Under a master agreement for administration services with
the Corporation, Federated Services Company serves as Administrator to the
Funds. In connection with its responsibilities as Administrator , Federated
Services Company, among other things (i) prepares, files and maintains the
Funds' governing documents, registration statements and regulatory documents;
(ii) prepares and coordinates the printing of publicly disseminated documents;
(iii) monitors declaration and payment of dividends and distributions; (iv)
projects and reviews the Funds' expenses; (v) performs internal audit
examinations; (vi) prepares and distributes materials to the Directors of the
Corporation, (vii) coordinates the activities of all service providers; (viii)
monitors and supervises collection of tax reclaims; and (ix) prepares
shareholder meeting materials.
As Administrator, Federated Services Company receives a fee from each
Fund, which is computed daily and may be paid monthly, at the annual rate of
0.065% of the average daily net assets of each Fund up to $200 million and
0.0525% of the average daily net assets of each Fund greater than $200 million
for the Fund's then-current fiscal year. The Administrator will receive a
minimum fee of $75,000 per Fund annually after the second full year.
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 Portfolios, Federated Services Company
receives a fee from each Portfolio, which is computed daily and paid monthly, at
the annual rate of 0.035% of the average daily net assets of each Portfolio for
the Portfolio's then-current fiscal year. The Operations Agent of the Portfolios
will receive a minimum fee of $60,000 per Portfolio annually and a minimum
aggregate fee for each Portfolio, corresponding Fund and any other fund
investing in the Portfolio, taken together, of $75,000 for the first year of the
Portfolio's operation and $125,000 for the second year, in each case payable to
the Operations Agent, the Administrator and Transfer Agent combined.
- -22-
<PAGE>
ADMINISTRATIVE AGENT. Under an administration agreement with the Portfolio
Trust, IBT (Cayman) provides certain services to the Portfolios, including (i)
filing and maintaining the governing documents, registration statements and
other regulatory filings; (ii) maintaining a telephone line; (iii) approving
annual expense budgets; (iv) authorizing expenses; (v) distributing materials to
the Trustees of the Portfolio Trust; (vi) authorizing dividend distributions;
(vii) maintaining books and records; (viii) filing tax returns; and (ix)
maintaining the investor register.
As Administrative Agent of the Portfolios, IBT (Cayman) receives a fee
from each Portfolio, which may be paid monthly, at the annual rate of $5,000.
DISTRIBUTOR. Edgewood serves as principal distributor for shares of each Fund.
Edgewood is located at Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779. It is a New York corporation organized on October 26, 1993, and is
the principal distributor for a number of investment companies. Edgewood is a
subsidiary of Federated Investors and an affiliate of Federated Services
Company.
Securities laws may require certain Financial Intermediaries (as
defined below) such as depository institutions to register as dealers. The
Distributor may pay dealers an amount up to 5.0% of the net asset value of Class
B shares purchased by their clients or customers as an advance payment. These
payments will be made directly by the Distributor from its assets, and will not
be made from the assets of a Fund. Dealers may voluntarily waive receipt of all
or any portion of these advance payments. The Distributor may pay all or a
portion of the distribution fee discussed below to Financial Intermediaries (as
defined below) that waive all or any portion of the advance payments.
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 of each Fund will pay a fee
to the Distributor in an amount computed at an annual rate of 0.75% of the
average daily net assets of the Fund represented by Class B shares to finance
any activity which is principally intended to result in the sale of Class B
shares of the Fund subject to the Distribution Plan. 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.
- -23-
<PAGE>
The Distribution Plan is a compensation-type plan. As such, a Fund makes no
payments to the Distributor except as described above. Therefore, a Fund does
not pay for unreimbursed expenses of the Distributor, including amounts expended
by the Distributor in excess of amounts received by it from a 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 payments made by shares under the
Distribution Plan.
Under the Service Plan, each 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.
DFM may pay Financial Intermediaries a shareholder services fee of up to
0.25% of the amount invested in Fund 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 series of the
Corporation (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 a 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 each Fund. IBT, 200
Clarendon Street, Boston, MA 02116 acts as the custodian of each Fund's and each
- -24-
<PAGE>
Portfolio's assets. Securities held for a Portfolio may be held by a
sub-custodian bank approved by the Trustees or the Custodian of the Portfolio
Trust. IBT (Canada) provides fund accounting services to the Funds and the
Portfolios, including (i) calculation of the daily net asset value for the Funds
and the Portfolios; (ii) monitoring compliance with investment portfolio
restrictions, including all applicable federal securities and other regulatory
requirements; and (iii) monitoring each Fund's and Portfolio's compliance with
the requirements applicable to a regulated investment company under the Code.
EXPENSES. In addition to the fees payable under the various agreements discussed
above, each Fund and each Portfolio is responsible for usual and customary
expenses associated with its 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 each Portfolio, such expenses also include brokerage expenses.
DFM has agreed that it will reimburse each Fund through at least August
31, 1998 to the extent necessary to maintain each Fund's total operating
expenses (which includes expenses of the Fund and its corresponding Portfolio
but does not cover extraordinary expenses during the period) at not more than
1.60%, 2.35%, 1.30% and 2.05% of the average annual net assets of Class A shares
of the Equity Funds, the Class B shares of the Equity Funds, the Class A shares
of the Bond Funds and the Class B shares of the Bond Funds, respectively. There
is no assurance that DFM will continue this reimbursement beyond the specified
period.
EXPENSES OF CLASS A SHARES AND CLASS B SHARES. Holders of Class A shares
and Class B shares bear their allocable portion of a Fund's expenses along with
their allocable share of the corresponding 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 or Class B shares; and Directors' fees incurred as a result of
issues related solely to Class A shares or Class B shares.
PORTFOLIO BROKERAGE. The estimated annual portfolio turnover rate for the
Provesta Portfolio, Investa Portfolio, Japanese Equity Portfolio, Global Bond
- -25-
<PAGE>
Portfolio and European Bond Portfolio is generally not expected to exceed 180%,
80%, 150%, 350% and 350%, respectively. A 100% annual turnover rate would occur,
for example, if all portfolio securities (excluding short-term obligations) were
replaced once in a period of one year, or if 10% of the portfolio securities
were replaced ten times in one year. The amount of brokerage commissions and
taxes on realized capital gains to be borne by the shareholders of a Fund tend
to increase as the level of portfolio activity increases.
In effecting securities transactions, the Adviser seeks to obtain the
best price and execution of orders. In selecting a broker, the Adviser considers
a number of factors including: the broker's ability to execute orders without
disturbing the market price; the broker's reliability for prompt, accurate
confirmations and on-time delivery of securities; the broker's financial
condition and responsibility; the research and other investment information
provided to the Adviser by the broker; and the commissions charged. Accordingly,
the commissions charged by any such broker may be greater than the amount
another firm might charge if the Adviser determines in good faith that the
amount of such commissions is reasonable in relation to the value of the
brokerage services and research information provided by such broker.
The Adviser may direct a portion of a Portfolio's securities
transactions to certain unaffiliated brokers which in turn use a portion of the
commissions they receive from a Portfolio to pay other unaffiliated service
providers on behalf of that Portfolio for services provided for which the
Portfolio would otherwise be obligated to pay. Such commissions paid by a
Portfolio are at the same rate paid to other brokers for effecting similar
transactions in listed equity securities.
Deutsche Bank AG or one of its subsidiaries or affiliates may act as
one of the agents of the Portfolios 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 Portfolios, Deutsche Bank AG receives
brokerage commissions from each Portfolio.
On those occasions when the Adviser deems the purchase or sale of a
security to be in the best interests of a 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 for a
Portfolio 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 a Portfolio.
INVESTING IN THE FUNDS
Each Fund offers investors two classes of shares that carry sales
charges and contingent deferred sales charges in different forms and amounts and
which bear different levels of expenses.
- -26-
<PAGE>
CLASS A SHARES. An investor who purchases Class A shares of a Fund pays a
maximum sales charge of 5.50% for the Equity Funds and 4.50% for the Bond Funds
at the time of purchase. Certain purchases of Class A shares are not subject to
a sales charge. See "Purchase of Shares - Investing in Class A Shares." As a
result, Class A shares are not subject to any charges when they are redeemed
(except for special programs offered under "Purchase of Shares - Purchases with
Proceeds From Redemptions of Unaffiliated Investment Companies.") Certain
purchases of Class A shares qualify for reduced sales charges. See "Purchase of
Shares - Reducing or Eliminating the Sales Charge." Class A shares have no
conversion feature.
CLASS B SHARES. Class B shares of each Fund are sold without an initial sales
charge, but are subject to a contingent deferred sales charge in accordance with
the following schedule:
Contingent
Year of Redemption Deferred
AFTER PURCHASE SALES CHARGE
-------------- ------------
First 5.00%
Second 4.00%
Third 3.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
Class B shares also bear a fee pursuant to a Distribution Plan, adopted
in accordance with Rule 12b-1 of the 1940 Act, while Class A shares do not bear
such a fee. Both Class A shares and Class B shares will bear shareholder
services fees. Class B shares will automatically convert into Class A shares,
based on relative net asset value, on or about the fifteenth of the month eight
full years after the purchase date. Class B shares provide an investor the
benefit of putting all of the investor's dollars to work from the time the
investment is made, but (until conversion) will have a higher expense ratio and
pay lower dividends than Class A shares due to the higher 12b-1 fees.
PURCHASE OF SHARES
Shares of each Fund are sold on days on which the New York Stock
Exchange is open. Shares of a 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 the Fund, with a minimum initial investment of $5,000 for Class A shares and
Class B shares. Additional investments can be made for as little as $500. The
minimum initial investment for retirement plan participants is $1,000. The
minimum subsequent investment for retirement plan participants is $100.
(Financial Intermediaries may impose different minimum investment requirements
on their customers.)
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
reserve
- -27-
<PAGE>
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.
INVESTING IN CLASS A SHARES
Class A shares of each Fund are sold at their net asset value next
determined after an order is received, plus a sales charge as follows:
EQUITY FUNDS
Sales Charge Dealer
Sales Charge as as a Percentage Concession
a Percentage of Net As a Percentage
Amount of Offering Amount of Public
TRANSACTION PRICE INVESTED OFFERING PRICE
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less
than $100,000 4.50% 4.71% 3.75%
$100,000 but less
than $250,000 3.50% 3.63% 2.75%
$250,000 but less
than $500,000 2.50% 2.56% 2.00%
$500,000 but less
than $1 million 2.00% 2.04% 1.75%
$1 million or
greater None None Up to 1.00%*
BOND FUNDS
Sales Charge Dealer
Sales Charge as as a Percentage Concession
a Percentage of Net As a Percentage
Amount of Offering Amount of Public
TRANSACTION PRICE INVESTED OFFERING PRICE
Less than $50,000 4.50% 4.71% 4.00%
$50,000 but less
than $100,000 4.00% 4.17% 3.50%
$100,000 but less
than $250,000 3.50% 3.63% 3.00%
$250,000 but less
than $500,000 2.50% 2.56% 2.25%
$500,000 but less
than $1 million 2.00% 2.04% 1.75%
$1 million or
greater None None Up to 1.00%*
* See "Dealer Concession" below.
DEALER CONCESSION. The dealer concession may be changed from time to time but
will remain the same for all dealers. Dealer concession will be paid to dealers
- -28-
<PAGE>
who initiate and are responsible for purchases of $1 million or more. Any
portion of the sales charge which is not paid to a dealer will be retained by
the Distributor. The Distributor, at its expense, may provide additional
promotional incentives to dealers. In some instances, these incentives may be
offered only to certain dealers who have sold or may sell significant numbers of
shares of the Fund or other Deutsche Funds.
The sales charge for shares sold other than through registered
broker/dealers will be retained by the Distributor. The Distributor may pay fees
to banks out of the sales charge in exchange for sales and/or administrative
services performed on behalf of the bank's customers in connection with the
initiation of customer accounts and purchases of shares.
REDUCING OR ELIMINATING THE SALES CHARGE. The sales charge can be reduced or
eliminated on the purchase of Class A shares through:
o sales charge waiver;
o quantity discounts and accumulated purchases;
o concurrent purchases;
o signing a 13-month letter of intent;
o using the reinvestment privilege; or
o purchases with proceeds from redemptions
of unaffiliated investment company shares.
SALES CHARGE WAIVER. Sales charges may be waived on Class A shares of the Fund
(subject to appropriate documentation furnished to the Distributor as it may
request from time to time in order to verify eligibility for this privilege) if
purchased by:
1. Full-time employees of National Association of Securities Dealers, Inc.
("NASD") member firms and full-time employees of other Financial Institutions
which have entered into a supplemental agreement with the Distributor pertaining
to the sale of Fund shares, either for themselves directly or pursuant to an
employee benefit plan or other program, or for their spouses or minor children.
This privilege also applies to full-time employees of Financial Institutions
affiliated with NASD member firms whose full-time employees are eligible to
purchase Class A shares at net asset value;
2. Current full-time, part-time or retired employees of Deutsche Bank AG and its
affiliates or subsidiaries, current or former directors or trustees of Deutsche
Bank AG and its affiliates or subsidiaries, current or former Board members of a
fund advised by Deutsche Bank AG or any of its affiliates or subsidiaries,
including the Directors of the Corporation, or the spouse or minor child of the
foregoing, including an employee of Deutsche Bank AG or any of its affiliates or
subsidiaries who act as custodian for a minor child;
3. Registered representatives, bank trust officers , certified financial
planners and other employees (and their immediate families) of investment
professionals who have entered into a supplemental agreement with the
Distributor;
- -29-
<PAGE>
4. IRA Rollover accounts sponsored by Deutsche Morgan Grenfell, Inc.,
Deutsche Bank Trust Company, Deutsche Bank AG or any of its affiliates as
administrator, trustee or custodian, provided that the distribution proceeds are
made from a qualified retirement plan or from a 403(b)(7) plan that is
sponsored, administered or custodied by Deutsche Bank Trust Company or any of
its affiliates, and provided that, at the time of such distribution, such
qualified retirement plan or 403(b)(7) plan met the requirements of an Eligible
Benefit Plan and all or a portion of such plan's assets were invested in the
Deutsche Funds or certain other products made available by the Distributor to
such plans;
5. As part of an Eligible Benefit Plan having a minimum of 250 eligible
employees or a minimum of $1,000,000, or such lesser amount as may be determined
by the Distributor, invested in Deutsche Funds;
6. Investor accounts through certain broker-dealers and other Financial
Intermediaries that have entered into supplemental agreements with the
Distributor, which include a requirement that such shares be sold for the
benefit of clients participating in a "wrap account" or similar program under
which such clients pay a fee to the broker-dealer or other Financial
Intermediary, or such other accounts to which the broker-dealer or other
Financial Intermediary charges an asset management fee;
7. Qualified separate accounts maintained by an insurance company pursuant
to the laws of any State or territory of the United States;
8. Trust companies and bank trust departments, including Deutsche Bank Trust
Company and its affiliates, initially investing at least $100,000 of assets held
in a fiduciary, agency, advisory, custodial or similar capacity on behalf of any
one of their investor clients;
9. Accounts investing $100,000 or more of (1) a State or territory of the United
States, county, city or instrumentality thereof, (2) charitable organizations as
defined under Section 501(c)(3) of the Code, and (3) charitable remainder trusts
or life income pools as defined under Section 501(c)(3) of the Code;
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. Larger purchases reduce the sales
charge paid. A Fund will combine purchases of Class A shares made on the same
day by the investor, the investor's spouse, and the investor's children under
age 21 when it calculates the sales charge. In addition, the sales charge, if
applicable, is reduced for purchases made at one time by a trustee or fiduciary
for a single trust estate or a single fiduciary account.
If an additional purchase of Class A shares is made in a Fund, the Fund
will consider the previous purchases still invested in the Fund. For example, if
a shareholder already owns Class A shares of an Equity Fund having a current
value at the public offering price of $30,000 and he purchases $20,000 more at
the current public offering price, the sales charge on the additional purchase
according to the schedule now in effect would be 4.50%, not 5.50%.
- -30-
<PAGE>
To receive the sales charge reduction, the Distributor must be notified by
the shareholder in writing or by his Financial Intermediary at the time the
purchase is made that Class A shares are already owned or that purchases are
being combined. A Fund will reduce the sales charge after it confirms the
purchases.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction, a
shareholder has the privilege of combining concurrent purchases of Class A
shares of two or more of the Deutsche Funds, the purchase price of which
includes a sales charge. For example, if a shareholder concurrently invested
$30,000 in Class A shares of one of the Deutsche Funds with a sales charge, and
$20,000 in another Fund, the sales charge would be reduced to reflect a $50,000
purchase.
To receive this sales charge reduction, the Distributor must be
notified by the shareholder in writing or by his Financial Intermediary at the
time the concurrent purchases are made. A Fund will reduce the sales charge
after the purchases are confirmed.
LETTER OF INTENT. If a shareholder intends to purchase at least $50,000 of Class
A shares of the Deutsche Funds (excluding the Deutsche U.S. Money Market Fund)
over the next 13 months, the sales charge may be reduced by signing a letter of
intent to that effect. This letter of intent includes a provision for a sales
charge adjustment depending on the amount actually purchased within the 13-month
period and a provision for the Custodian to hold up to the maximum sales charge
of the total amount intended to be purchased in escrow (in shares) until such
purchase is completed.
The shares held in escrow in the shareholder's account will be released
upon fulfillment of the letter of intent or the end of the 13-month period,
whichever comes first. If the amount specified in the letter of intent is not
purchased, an appropriate number of escrowed shares may be redeemed in order to
realize the difference in the sales charge.
While this letter of intent will not obligate the shareholder to
purchase shares, each purchase during the period will be at the sales charge
applicable to the total amount intended to be purchased. At the time a letter of
intent is established, current balances in accounts in any shares of any
Deutsche Fund, excluding the Deutsche U.S. Money Market Fund, will be aggregated
to provide a purchase credit towards fulfillment of the letter of intent. Prior
trade prices will not be adjusted.
REINVESTMENT PRIVILEGE. If Class A shares in a Fund have been redeemed, the
shareholder has the privilege, within 120 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales charge. The
Distributor must be notified by the shareholder in writing or by his Financial
Intermediary of the reinvestment in order to eliminate a sales charge. If the
shareholder redeems his Class A shares in a Fund, there may be tax consequences.
See "Tax Treatment of Reinvestments" below.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES.
Investors may purchase Class A shares at net asset value, without a sales
charge,
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with the proceeds from the redemption of shares of an unaffiliated
investment company that were purchased or sold with a sales charge or commission
and were not distributed by the Distributor. The purchase must be made within 60
days of the redemption, and the Distributor must be notified by the investor in
writing, or by his Financial Intermediary, at the time the purchase is made.
From time to time, the Distributor may offer dealers compensation for shares
purchased under this program. If shares are purchased in this manner,
redemptions of these shares will be subject to a contingent deferred sales
charge for one year from the date of purchase. Shareholders will be notified
prior to the implementation of any special offering as described above.
TAX TREATMENT OF REINVESTMENTS. Generally, a reinvestment of the proceeds of a
redemption of shares in a Fund or an unaffiliated investment company will not
alter the federal income tax status of any capital gain realized on the
redemption of the shares. However, any loss on the disposition of the shares in
a Fund will be disallowed to the extent shares of the same Fund are purchased
within a 61-day period beginning 30 days before and ending 30 days after the
disposition of shares. Further, if the proceeds are reinvested within 90 days
after the redeemed shares were acquired, the sales charge imposed on the
original acquisition, to the extent of the reduction in the sales charge on the
reinvestment, will not be taken into account in determining gain or loss on the
disposition of the original shares, but will be treated instead as incurred in
connection with the acquisition of the replacement shares.
INVESTING IN CLASS B SHARES. Class B shares are sold at their net asset
value next determined after an order is received. While Class B shares are sold
without an initial sales charge, under certain circumstances described under
"Contingent Deferred Sales Charge-Class B Shares," a contingent deferred sales
charge may be applied by the Distributor at the time Class B shares are
redeemed.
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, except as noted below. Such conversion will be on the
basis of the relative net asset values per share, without the imposition of any
sales charge, fee, or other charge. Class B shares acquired by exchange from
Class B shares of another Deutsche Fund will convert into Class A shares based
on the time of the initial purchase. For purposes of conversion to Class A
shares, shares purchased through the reinvestment of dividends and distributions
paid on Class B shares will be considered to be held in a separate sub-account.
Each time any Class B shares in the shareholder's account (other than those in
the sub-account) convert to Class A shares, an equal pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
conversion of Class B shares to Class A shares is subject to the continuing
availability of a ruling from the Internal Revenue Service or an opinion of
counsel that such conversions will not constitute taxable events for federal tax
purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B shares to Class A shares will not occur
if such ruling or opinion is not available. In such event, Class B shares would
continue to be subject to higher expenses than Class A shares for an indefinite
period.
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<PAGE>
PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY. An investor may call his
Financial Intermediary (such as a bank or an investment dealer) 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 will
not be issued in respect of such orders until payment is converted into federal
funds. Purchase orders through a registered broker/dealer must be received by
the broker before 4:00 p.m. (Eastern time) and must be transmitted by the broker
to the Fund before 5:00 p.m. (Eastern time) in order for shares to be purchased
at that day's price. Purchase orders through other Financial Intermediaries must
be received by the Financial Intermediary and transmitted to the Fund before
4:00 p.m. (Eastern time) in order for shares to be purchased at that day's
price. 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 a 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"). In addition, advance payments made to
Financial Intermediaries may be subject to reclaim by the Distributor for
accounts transferred to Financial Intermediaries which do not maintain investor
accounts on a fully disclosed basis and do not account for share ownership
periods.
PURCHASING SHARES BY WIRE. Once an account has been established, shares may
be purchased by Federal Reserve wire by calling the Transfer Agent. 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 Fund); Account
Number; Trade Date and Order Number; Group Number or Dealer Number; and Nominee
or Institution Name. Shares cannot be purchased by wire on holidays when wire
transfers are restricted.
PURCHASING SHARES BY CHECK. Once a Fund 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 a Fund account has been opened with the
minimum initial investment, shareholders 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 a Fund at the net
asset value next determined after an order is received by the Fund, plus the
sales charge, if applicable. Shareholders should contact their Financial
Intermediary or the Funds directly to participate in this program.
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RETIREMENT PLANS. 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.
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. None of
the Deutsche Funds imposes any additional fees on exchanges. Shareholders in
certain other Deutsche Funds may exchange all or some of their shares for Class
A shares.
CLASS B SHARES. Class B shareholders may exchange all or some of their
shares for Class B shares of the 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."
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 a 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
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<PAGE>
sent by overnight mail to: Deutsche Funds, Inc., c/o Federated Shareholder
Services Company, 1099 Hingham Street, Rockland, MA 02370-3317.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with a Fund. If the instructions are given by a broker, a telephone
authorization form completed by the broker must be on file with the Fund. 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 4:00 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 a 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 the Funds compute their
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 a Fund 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. Redemption requests made through a
registered broker/dealer must be received by the broker before 4:00 p.m.
(Eastern time) and must be transmitted by the broker to a Fund before 5:00 p.m.
(Eastern time) in order for shares to be redeemed at that day's net asset value.
Redemption requests through other Financial Intermediaries (such as banks) must
be received by the Financial Intermediary and transmitted to a Fund before 4:00
p.m. (Eastern time) in order for shares to be redeemed at that day's net asset
value. 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.
REDEEMING SHARES BY TELEPHONE. Shares may be redeemed in any amount by calling a
Fund provided that Fund has received a properly completed authorization form.
These forms can be obtained from the Distributor. Proceeds will be mailed in the
form of a check, to the shareholder's address of record or by wire transfer to
the shareholder's account at a domestic commercial bank that is a member of the
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<PAGE>
Federal Reserve System. 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., 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 the 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.
Each Fund and the Transfer Agent have adopted standards for accepting
signature guarantees from the above institutions. A Fund may elect in the future
to limit eligible signature guarantors to institutions that are members of a
signature guarantee program. Each Fund 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 shareholder to request withdrawal of a specified dollar amount (minimum
$100) on either a monthly or quarterly basis 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.
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<PAGE>
Depending upon the amount of the withdrawal payments, the amount of
dividends paid and capital gains distributions with respect to shares, and the
fluctuation of the net asset value of shares redeemed under this program,
redemptions may reduce, and eventually deplete, the shareholder's investment in
a Fund. In addition, shareholder accounts are subject to minimum balances. See
"Account and Share Information." For this reason, payments under this program
should not be considered as yield or income on the shareholder's investment in a
Fund. To be eligible to participate in this program, a shareholder must have an
account value of at least $10,000. A shareholder may apply for participation in
this program through his Financial Intermediary. Due to the fact that Class A
shares are sold with a sales charge, it is not advisable for shareholders to
continue to purchase Class A shares while participating in this program. A
contingent deferred sales charge may be imposed on Class B shares.
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 on investments of $1 million or
more, but a contingent deferred sales charge of 1% is imposed on certain
redemptions within one year of purchase.
Any applicable contingent deferred sales charge will be imposed on the lesser
of the net asset value of the redeemed shares 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 those shares 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 redeemed shares at the time of purchase (or, if such redeemed shares were
acquired in an exchange of Class B shares of another Fund, at the time of
purchase of the Class B shares of the exchanged-from Fund) or (ii) the net asset
value of the redeemed shares at the time of redemption.
CLASS A SHARES AND CLASS B SHARES. The contingent deferred sales charge
will be deducted from the redemption proceeds otherwise payable to the
shareholder and will be retained by the Distributor. The contingent deferred
sales charge will not be imposed with respect to: (1) shares acquired through
the reinvestment of dividends or distributions of long-term capital gains; and
(2) shares held for more than six full years from the date of purchase with
respect to Class B shares and one full year from the date of purchase with
respect to applicable Class A shares. Redemptions will be processed in a manner
intended to maximize the amount of redemption which will not be subject to a
contingent deferred sales charge. In computing the amount of the applicable
contingent deferred sales charge, redemptions are deemed to have occurred in the
following order: (1) shares acquired through the reinvestment of dividends and
long-term capital gains; (2) shares held for more than six full years from the
date of purchase with respect to Class B shares and one full year from the date
of purchase with respect to applicable Class A shares; (3) shares held for fewer
than six years with respect to Class B shares and one full year from the date of
purchase with
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<PAGE>
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 in 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 Fund. 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 a 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 Funds, the distributor, or affiliates of the Funds or
distributor; employees of any Financial Intermediary that sells shares of the
Funds pursuant to a sales agreement with the Distributor; and spouses and
children under the age of 21 of the aforementioned persons. Finally, no
contingent deferred sales charge will be imposed on the redemption of shares
originally purchased through a bank trust department, an investment adviser
registered under the Investment Advisers Act of 1940, or retirement plans where
the third party administrator has entered into certain arrangements with the
Distributor or its affiliates, or any other Financial Intermediary, to the
extent that no payments were advanced for purchases made through such entities.
The Trustees reserve the right to discontinue elimination of the contingent
deferred sales charge. Shareholders will be notified of such elimination. Any
shares purchased prior to the termination of such waiver would have the
contingent deferred sales charge eliminated as provided in the 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. Annual statements are sent to report dividends paid during the year
for the Equity Funds and monthly confirmations are sent to report dividends paid
during that month for the Bond Funds.
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<PAGE>
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
Dividends consisting of substantially all of a Fund's net investment
income, if any, are declared and paid annually with respect to the Equity Funds
and monthly with respect to the Bond Funds. A Fund may also declare an
additional dividend of net investment income in a given year to the extent
necessary to avoid the imposition of federal excise tax on the Fund.
Substantially all the realized net capital gains, if any, of each Fund
are declared and paid on an annual basis, except that an additional capital
gains distribution may be made in a given year to the extent necessary to avoid
the imposition of federal excise tax on the Fund. All shareholders on the record
date are entitled to dividends and capital gains 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. Each Fund reserves the right to discontinue, alter or
limit the automatic reinvestment privilege at any time.
U.S. federal Regulations require that a shareholder provide a certified
taxpayer identification number ("TIN") upon opening an account. A TIN is either
the Social Security number or employer identification number of the record owner
of the account. Failure to furnish a certified TIN to a Fund could subject a
shareholder to a $50 penalty which will be imposed by the Internal Revenue
Service ("IRS") on the Fund and passed on by the Fund to the shareholder. With
respect to individual investors and certain non-qualified retirement plans, U.S.
federal Regulations generally require the Funds to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of any dividends and
distributions (including the proceeds of any redemption) payable to a
shareholder if such shareholder fails to certify either that the TIN furnished
in connection with opening an account is correct, or that such shareholder has
not received notice from the IRS of being subject to backup withholding as a
result of a failure to properly report taxable dividend or interest income on a
federal income tax return. Furthermore, the IRS may notify the Funds to
institute backup withholding if the IRS determines a shareholder's TIN is
incorrect.
NET ASSET VALUE
A Fund's net asset value per Share fluctuates. The net asset value for
shares of each class is determined by adding the interest of such class of
shares
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in the market value of a Fund's total assets (i.e., the value of its
investment in the Portfolio and other assets), subtracting the interest of such
class of shares in the liabilities of such Fund and those attributable to such
class of shares, and dividing the remainder by the total number of such class of
shares outstanding. The net asset value for each class of shares may differ due
to the variance in daily net income realized by each class. Such variance will
reflect only accrued net income to which the shareholders of a particular class
are entitled. Values of assets in each Portfolio are determined on the basis of
their market value or where market quotations are not determinable, at fair
value as determined by the Trustees of the Portfolio Trust. See "Net Asset
Value" in the Statement of Additional Information for information on valuation
of portfolio securities.
Each Fund computes its net asset value once daily at 4:00 p.m. (Eastern
time) on Monday through Friday, except on the holidays listed under "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
toll-free telephone number is 888-4-DEUTSCHE.
The Articles of Incorporation currently permit the Corporation to issue
2,500,000,000 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 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 that Fund or Class with respect to the assets of the Corporation
pertaining to that 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 a 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.
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<PAGE>
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.
Each 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 a Fund and other entities investing in a
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 a Fund in its corresponding Portfolio.
Each investor in a Portfolio, including its corresponding Fund, may add to
or reduce its investment in the Portfolio on each day the New York Stock
Exchange is open for regular trading. At 4:00 p.m. (Eastern time) on each such
business day, the value of each investor's beneficial interest in a Portfolio is
determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day that represents that investor's share of the
aggregate beneficial interests in the Portfolio. Any additions or withdrawals,
which are to be effected on that day, are then effected. The investor's
percentage of the aggregate beneficial interests in the Portfolio is then
recomputed as the percentage equal to the fraction (i) the numerator of which is
the value of such investor's investment in the Portfolio as of 4:00 p.m.
(Eastern time) on such day plus or minus, as the case may be, the amount of any
additions to or withdrawals from the investor's investment in the Portfolio
effected on such day, and (ii) the denominator of which is the aggregate net
asset value of the Portfolio as of 4:00 p.m. (Eastern time) on such day plus or
minus, as the case may be, the amount of the net additions to or withdrawals
from the aggregate investments in the Portfolio by all investors in the
Portfolio. The percentage so determined is then applied to determine the value
of the investor's interest in the Portfolio as of 4:00 p.m. (Eastern time) on
the following business day of the Portfolio.
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Whenever the Corporation is requested to vote on a matter pertaining to a
Portfolio, the Corporation will vote its shares without a meeting of
shareholders of its corresponding Fund if the proposal is one that, if made with
respect to the Fund, would not require the vote of shareholders of the Fund, 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 Fund and, at the meeting of investors in its
corresponding Portfolio, the Corporation will cast all of its votes in the same
proportion as the votes of the Fund's shareholders even if all Fund shareholders
did not vote. Even if the Corporation votes all its shares at the Portfolio
Trust meeting, other investors with a greater pro rata ownership in the
Portfolio could have effective voting control of the operations of the
Portfolio.
TAXES
The Corporation intends that each Fund will qualify as a separate
"regulated investment company" under Subchapter M of the Code. As a regulated
investment company, a 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 annually 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. Each Portfolio intends to elect to be treated as a
partnership for U.S. federal income tax purposes. As such, each 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. Distributions of net 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. Dividends and distributions paid by a Fund
will not qualify for the deduction for dividends received by corporations.
While each Fund intends to distribute all of its net capital gains
annually, each Fund reserves the right to elect to retain some or all of its net
capital gains and treat such undistributed gains as having been paid to
shareholders. If a Fund makes this election, a shareholder would include the
amount of undistributed gains in income as long-term capital gain and would be
treated as having paid the tax on such undistributed gains (which tax will
instead be paid by the Fund) and the shareholder's basis in the shares of the
Fund will be increased by 65% of the amount of undistributed gains included in
income.
If the net asset value of shares in any Fund is reduced below a
shareholder's cost as a result of a distribution by the Fund, such distribution
- -42-
<PAGE>
will be taxable even though it represents a return of invested capital.
Investors should consider the tax implications of buying shares just prior to a
distribution when the price of the shares may reflect the amount of the
forthcoming distribution. Annual statements as to the current federal tax status
of distributions will be mailed to shareholders at the end of each taxable year.
Any gain or loss realized on the redemption or exchange of a Fund's
shares by a shareholder who is not a dealer in securities generally will be
treated as long-term capital gain or loss if the shares have been held for more
than one year, and otherwise as short-term capital gain or loss. However, any
loss realized by a shareholder upon the redemption or exchange of shares in a
Fund held for six months or less will be treated as a long-term capital loss to
the extent of any long-term capital gain distributions received by the
shareholder with respect to such shares. In addition, no loss will be allowed on
the sale or other disposition of shares of a Fund if, within a period beginning
30 days before the date of such sale or disposition and ending 30 days after
such date, the holder acquires (such as through dividend reinvestment)
securities that are substantially identical to the shares of such Fund. For
additional information regarding the tax consequences of the reinvestment of the
proceeds of a redemption see "Tax Treatment of Reinvestments" above.
It is anticipated that certain income of the Funds will be subject to
foreign withholding or other taxes and that each Fund will be eligible to elect
to "pass through" to its shareholders the amount of foreign income taxes
(including withholding taxes) paid by such Fund. If a Fund makes this election,
a shareholder would include in gross income his pro rata share of the foreign
income taxes passed through and would be entitled either to deduct such taxes in
computing his taxable income (if the shareholder itemizes deductions) or to
claim a credit (which would be subject to certain limitations) for such taxes
against his U.S. federal income tax liability. A Fund will make such an election
only if it deems it to be in the best interests of its shareholders and will
notify each shareholder in writing each year that it makes the election of the
amount of foreign taxes, if any, to be treated as paid by the shareholder.
A 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.
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<PAGE>
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 its corresponding Fund,
a Portfolio may sell beneficial interests to other mutual funds or institutional
investors. Such investors will invest in a 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 corresponding Fund. 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.
A Fund may withdraw its investment from its corresponding 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.
Certain changes in a Portfolio's investment objective, policies or
restrictions, or a failure by a Fund's shareholders to approve a change in its
corresponding Portfolio's investment objective or restrictions, may require
withdrawal of the Fund's interest in the Portfolio. Any such withdrawal could
result in a distribution in kind of portfolio securities (as opposed to a cash
distribution) from the Portfolio which may or may not be readily marketable. The
distribution in kind may result in the Fund having a less diversified portfolio
of investments or adversely affect the Fund's liquidity, and the Fund could
incur brokerage, tax or other charges in converting the securities to cash.
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<PAGE>
APPENDIX A
MEMBER STATES OF THE EUROPEAN UNION
Austria Belgium Denmark
Finland France Germany
Greece Italy Ireland
Luxembourg Netherlands Norway
Portugal Sweden Spain
United Kingdom
ORGANISATION FOR ECONOMIC COOPERATION AND DEVELOPMENT MEMBERS
Australia Austria Belgium
Canada Czech Republic Denmark
Finland France Greece
Germany Hungary Iceland
Ireland Italy Japan
Liechtenstein Luxembourg Mexico
Netherlands New Zealand Norway
Poland Portugal South Korea
Spain Sweden Switzerland
Turkey United Kingdom United States
STATES PARTY TO THE CONVENTION ON THE EUROPEAN ECONOMIC AREA
Austria Belgium Denmark
Finland France Greece
Germany Iceland Ireland
Italy Liechtenstein Luxembourg
Netherlands Norway Portugal
Spain Sweden Switzerland
United Kingdom
EXCHANGES IN EUROPEAN COUNTRIES WHICH ARE NOT MEMBER STATES OF
THE EUROPEAN UNION AND NOT STATES PARTY TO THE CONVENTION ON THE
EUROPEAN ECONOMIC AREA
SWITZERLAND SLOVAKIA* CZECH REPUBLIC* HUNGARY*
Zurich Bratislavia Prague Budapest
Geneva
Basel
<PAGE>
EXCHANGES IN NON-EUROPEAN COUNTRIES**
ARGENTINA* CANADA* SINGAPORE*
Buenos Aires Toronto Singapore Stock Exchange
Vancouver
AUSTRALIA* Montreal SOUTH AFRICA*
ASX (Sydney, Johannesburg
Hobart, Melbourne,
Perth) THAILAND*
Bangkok
BRAZIL* SOUTH KOREA*
Sao Paulo Seoul USA
Rio de Janiero American Stock Exchange (AMEX)
Boston*
CHILE* MALAYSIA* Chicago*
Santiago Kuala Lumpur Cincinnati*
Los Angeles Pacific Stock Exchange*
HONG KONG* MEXICO* New York
Hongkong Stock Mexico City New York Stock Exchange (NYSE)
Exchange Philadelphia*
San Francisco Pacific Stock
Exchange*
INDONESIA* NEW ZEALAND*
Jakarta Stock Wellington
Exchange Christchurch/Invercargill
Auckland
JAPAN
Tokyo
PERU*
Osaka Lima
Nagoya
Kyoto
PHILIPPINES*
Fukuoto Manilla
Niigata
Sapporo
Hiroshima
<PAGE>
REGULATED MARKETS IN COUNTRIES WHICH ARE NOT MEMBERS ON THE
EUROPEAN UNION AND NOT CONTRACTING STATES OF THE TREATY ON THE
EUROPEAN ECONOMIC AREA
JAPAN* **
Over-the-Counter Market
CANADA* **
Over-the-Counter Market
SOUTH KOREA* **
Over-the Counter Market
SWITZERLAND
Free Trading Zurich
Free Trading Geneva
Exchange Bern
Over the Counter Market of the members of the International
Securities Market Association (ISMA), Zurich
UNITED STATES**
NASDAQ-System
Over-the-Counter Market (organized markets by the National
Association of Securities Dealers, Inc.)
* NOT APPLICABLE TO THE DEUTSCHE EUROPEAN BOND FUND
** NOT APPLICABLE TO THE DEUTSCHE EUROPEAN MID-CAP FUND
DEUT016Q
<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.
DEUT016Q
<PAGE>
PROSPECTUS
DEUTSCHE TOP 50 WORLD DEUTSCHE TOP 50 EUROPE DEUTSCHE TOP 50 ASIA DEUTSCHE TOP
50 US CLASS A AND CLASS B SHARES FEDERATED INVESTORS TOWER PITTSBURGH, PA
15222-3779
FOR INFORMATION CALL TOLL-FREE 888-4-DEUTSCHE
(888-438-7243)
This prospectus relates to the Deutsche Top 50 World ("Top 50 World"),
Deutsche Top 50 Europe ("Top 50 Europe"), Deutsche Top 50 Asia ("Top 50 Asia")
and Deutsche Top 50 US ("Top 50 US") (each, a "Fund" and collectively, the
"Funds"). Each Fund is a non-diversified series of the Deutsche Funds, Inc., an
open-end management investment company organized as a Maryland corporation (the
"Corporation"). The investment objective of each Fund is primarily to achieve
high capital appreciation, and as a secondary objective, reasonable dividend
income.
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 A CORRESPONDING NON-DIVERSIFIED
OPEN-END MANAGEMENT INVESTMENT COMPANY (EACH, A "PORTFOLIO" AND COLLECTIVELY,
THE "PORTFOLIOS").
EACH PORTFOLIO IS A SERIES OF THE DEUTSCHE PORTFOLIOS (THE "PORTFOLIO TRUST")
AND HAS THE SAME INVESTMENT OBJECTIVE AS ITS CORRESPONDING FUND. EACH FUND
INVESTS IN ITS CORRESPONDING 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.
Each Portfolio is managed by Deutsche Fund Management, Inc. ("DFM" or the
"Manager"), 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 upon written
request from the Funds' transfer agent, Federated Shareholder Services Company,
or by calling toll-free 888-4-DEUTSCHE.
INVESTMENTS IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, DEUTSCHE BANK AG OR ANY OTHER BANK.
SHARES OF THE FUNDS ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
<PAGE>
OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN CLASS A SHARES OR CLASS B SHARES IS
SUBJECT TO RISKS THAT MAY CAUSE THE VALUE OF THE INVESTMENT TO FLUCTUATE, AND
WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE HIGHER OR LOWER THAN THE
AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
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.
DEUT012M
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<PAGE>
TABLE OF CONTENTS
PAGE
Expense Summary............................................................
The Funds..................................................................
Investment Objectives, 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 Class A and Class B shares of each Fund and the allocable
operating expenses of its corresponding Portfolio. The Directors of the
Corporation believe that the aggregate per share expenses of each Fund and the
allocable operating expenses of its corresponding 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 its corresponding Portfolio, see
"Management of the Corporation and the Portfolio Trust."
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.50% None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) 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 year
declining to
1.00% in the
sixth year
and 0%
thereafter
<PAGE>
Redemption Fees (as a percentage of amount redeemed,
if applicable) None None
Exchange Fees None None
1 Class A shares purchased without an initial sales charge (i) based on an
initial investment of $1,000,000 or more or (ii) with proceeds of a redemption
of shares of an unaffiliated investment company purchased or redeemed with a
sales charge and not distributed by Edgewood may be charged a contingent
deferred sales charge of 1.00% for redemptions made within one full year of
purchase. See "Contingent Deferred Sales Charge."
EXPENSE TABLE
ANNUAL OPERATING EXPENSES (AFTER EXPENSE REIMBURSEMENT)
(As a percentage of projected average net assets)
TOP 50 WORLD
TOP 50 EUROPE
TOP 50 ASIA
TOP 50 US
CLASS A CLASS B CLASS A CLASS B
Advisory Fees 1.00% 1.00% 0.85% 0.85%
12b-1 Fees
Service 0.25% 0.25% 0.25% 0.25%
Distribution 0.00% 0.75% 0.00% 0.75%
Other Expenses (after expense
reimbursement) 0.35% 0.35% 0.40% 0.40%
---- ---- ---- ----
Total Operating Expenses (after
expense reimbursement) 1.60% 2.35% 1.50% 2.25%
==== ==== === ===
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
TOP 50 WORLD
TOP 50 EUROPE
TOP 50 ASIA TOP 50 US
CLASS A CLASS B CLASS A CLASS B
1 Year $ 70 $ 73 $ 69 $ 72
3 Years $103 $ 103 $100 $100
DEUT012M
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<PAGE>
You would pay the following expenses on the same investment assuming no
redemption:
DEUT012M
-3-
<PAGE>
1 Year $ 74 $ 24 $ 69 $ 23
3 Years $103 $ 73 $100 $ 70
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 herein), (ii) amortization
of organizational expenses, and (iii) other usual and customary expenses of each
Fund and each Portfolio. DFM has agreed that it will reimburse each Fund through
at least August 31, 1998 to the extent necessary to maintain such Fund's ratio
of total operating expenses to average annual net assets at the level indicated
above. Assuming no reimbursement of expenses , estimated "Other Expenses" for
the first fiscal year of Top 50 World, Top 50 Europe, Top 50 Asia and Top 50 US
would be 0.96%, 0.96%, 0.96% and 0.95%, respectively, and "Total Operating
Expenses" would be 2.21%, 2.21%, 2.21% and 2.20%, respectively, of the Fund's
average daily net assets attributed to Class A shares and 2.96%, 2.96%, 2.96%
and 2.95%, respectively, of the Fund's average daily net assets attributed to
Class B shares. For a more detailed description of contractual fee arrangements,
including expense reimbursements, see "Management of the Corporation and the
Portfolio Trust." In connection with the above example, investors should note
that $1,000 is less than the minimum investment requirement for each Class of
each Fund. See "Purchase of Shares." 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 non-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 primarily to achieve high capital appreciation and as
a secondary objective reasonable dividend income.
Each Fund seeks to achieve its investment objective by investing all of
its investable assets in a corresponding Portfolio that has the same investment
objective as the Fund. The Top 50 World invests all of its investable assets in
the Top 50 World Portfolio (US Dollar) ("Top 50 World Portfolio"); the Top 50
Europe invests all of its investable assets in the Top 50 Europe Portfolio (US
Dollar) ("Top 50 Europe Portfolio"); the Top 50 Asia invests all of its
investable assets in the Top 50 Asia Portfolio (US Dollar) ("Top 50 Asia
Portfolio"); and the Top 50 US invests all of its investable assets in the Top
50 US
DEUT012M
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<PAGE>
Portfolio (US Dollar) ("Top 50 US Portfolio"). Each 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 Funds' distributor,
Edgewood Services, Inc. ("Edgewood" or the "Distributor"). The Funds require a
minimum initial investment of $5,000. The minimum subsequent investment is $500
(see "Purchase of Shares"). If a shareholder reduces his or her investment in a
Fund to less than the applicable minimum investment, the investment is subject
to mandatory redemption. See "Account and Share Information - Accounts with Low
Balances."
Proceeds from the sale of shares of each Fund are invested in its
corresponding Portfolio, which then invests its assets in accordance with its
investment objective and policies. DWS International Portfolio Management GmbH
is the investment adviser of the Portfolios other than Top 50 US Portfolio (the
"DWS Adviser"). Deutsche Morgan Grenfell Investment Management Inc. is the
investment adviser of the Top 50 US Portfolio (the "DMGIM Adviser"); and
together with the DWS Adviser or severally as the context may require, the
"Adviser". The Advisers are indirect subsidiaries of Deutsche Bank AG. Federated
Services Company is the administrator of the Funds (the "Administrator") and the
operations agent of the Portfolios ("Operations Agent"). IBT Fund Services
(Canada) Inc. ("IBT (Canada)") is the fund accounting agent of the Funds and the
Portfolios ("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 Portfolios ("Administrative Agent"). Investors Bank & Trust Company
("IBT") is the custodian of the Funds and the Portfolios ("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
Portfolios, respectively. The Directors who are not "interested persons" of the
Corporation as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")(the "Independent Directors"), are the same as the Trustees who are
not "interested persons" of the Portfolio Trust as defined in the 1940 Act (the
"Independent Trustees"). A majority of the Corporation's Directors and the
Portfolio Trust's Trustees are not affiliated with the Manager, the Adviser or
the Distributor. For further information about the Directors of the Corporation
and the Trustees of the Portfolio Trust, see "Management of the Corporation and
the Portfolio Trust" herein and in the Statement of Additional Information.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The investment objective of each Fund is primarily to achieve high capital
appreciation, and as a secondary objective, reasonable dividend income. No Fund
represents a complete investment program, nor is each Fund suitable for all
investors.
DEUT012M
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<PAGE>
Each Fund seeks to achieve its investment objective by investing all its
investable assets in a corresponding Portfolio, an open end management company
that has the same investment objective and investment policies as the Fund.
Since the investment characteristics and experience of each Fund will correspond
directly with those of its corresponding Portfolio, the discussion in this
Prospectus focuses on the investments and investment policies of the Portfolios.
The number of issuers of equity securities held in each Portfolio is
generally fifty. Each of the Portfolios generally invests only in those
companies that the portfolio managers consider to be of outstanding quality in
their particular field. In selecting the fifty issuers, the Adviser will
emphasize some or all of the following attributes:
o strong market position within its respective market
o profitability, predictability and duration of earnings
growth, reflected in sound balance sheet ratios and financial
statements
o high quality of management with an orientation toward
strong, long-term earnings
o long-range strategic plans in place
o generally publicly-held with broad distribution of financial
information related to the company's operations
Companies selected for each Portfolio will be monitored on a consistent
basis to detect risk in the form of possible changes in their earnings outlook
and/or financial condition. The Adviser will monitor the annual and interim
financial statements of a broad universe of companies, conduct sector and
industry analysis and maintain company contact, including company visits and
attendance at company meetings and analyst presentations. In addition, the
Adviser will assess macroeconomic and stock market conditions in the various
countries in which the companies held in each Portfolio are domiciled or have
their primary stock market listings.
The Adviser will consider the geographic market focus of each Portfolio in
considering companies proposed for investment, which may cause modest
differences in style or investment approach among the respective Portfolios.
Because each Portfolio is classified as "non-diversified" under the 1940
Act, the performance of each Portfolio may be subject to greater fluctuation
than that of a diversified investment company. See " - Fundamental Investment
Restrictions" below.
The TOP 50 WORLD PORTFOLIO (US DOLLAR) pursues its (and the Top 50
World's) investment objective by investing at least 65% of its total assets in
equity securities. In selecting securities for the Portfolio, emphasis will be
placed on international diversification. While there are no specific percentage
limitations on investments in any single country, the Portfolio generally
expects to maintain a significant investment in at
DEUT012M
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<PAGE>
least three regions around the world - e.g., Europe, North America, Asia, etc.
The Portfolio invests in companies with a strong market position, which
are globally competitive, have outstanding growth potential and offer
above-average opportunities to take advantage of one or more of the following
global future trends ("megatrends"):
1. Strong population growth in emerging markets
2. Aging population in industrialized nations, leading to
growing demands for the products and services of healthcare
and related industries
3. Transition to an information and communications society
4. Growing demand for brand names
5. Growing oil/energy consumption worldwide
The TOP 50 EUROPE PORTFOLIO (US DOLLAR) pursues its (and the Top 50
Europe's) investment objective by investing at least 65% of its total assets in
the equity securities of issuers located in European countries, including those
which are member states of the European Union, those which are party to the
Convention on the European Economic Area ("CEEA"), Switzerland, Slovakia, Czech
Republic, and Hungary.
The Portfolio invests primarily in European companies with above-average
potential for capital gain. The Adviser places strong emphasis on companies that
have clear strategic goals, that concentrate on their core businesses, and whose
management gives appropriate consideration to return on investment.
The TOP 50 ASIA PORTFOLIO (US DOLLAR) pursues its (and the Top 50 Asia's)
investment objective by investing at least 65% of its total assets in the equity
securities of issuers with a domicile or business focus in Asian countries,
including China, Hong Kong, India, Indonesia, Japan, South Korea, Malaysia,
Philippines, Singapore, Taiwan, Thailand. A company has its business focus in
Asia when the majority of its profits or sales are made there.
In selecting securities for the Portfolio, the Adviser will seek companies
with some or all of the following attributes: strong prospects for medium-term
growth, solid market position, with favorable financial performance and
indicators, and high quality management whose aim is toward longer-term
earnings, with a strategic view of their companies and markets.
The TOP 50 US PORTFOLIO (US DOLLAR) pursues its (and the Top 50 US's)
investment objective by investing at least 65% of its total assets in the equity
securities of issuers domiciled or headquartered in the United States. These
companies may also conduct a substantial part of their business outside the
United States.
The Portfolio will invest primarily in companies that dominate their
markets and maintain a leadership position through the combination of management
talent, product or service differentiation, economies of scale and financial
strength. These companies, in the opinion of the Adviser, are aggressive
DEUT012M
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<PAGE>
and tenacious companies, generally referred to as "Bulldogs," that are
leading-edge U.S. corporations and have a "no holds barred" attitude geared
toward market share dominance.
The investment style of the Portfolio will also place great emphasis on
the market valuation of a company's earnings (i.e. P/E ratio), as well as the
predictability and durability of its earnings growth. The analysis of industry
trends will also play an important part in the portfolio management process.
Although the assets of the Portfolio are invested primarily in common
stocks, other securities with equity characteristics may be purchased, including
securities convertible into common stock, and warrants. The Portfolio may
participate in initial public offerings from time to time and may only invest in
publicly traded securities.
ALL FUNDS
LISTED SECURITIES. Each Portfolio will invest primarily in listed securities
("Listed Securities"). For purposes of this prospectus, Listed Securities are
defined as securities meeting at least one of the following requirements: (a)
they are listed on a stock exchange in a member state of the European Union
("Member State") or in another state which is a party to the CEEA, or are
included on another regulated market in a Member State or in another state party
to the CEEA which market is recognized, open to the public and operates
regularly; (b) they are admitted to the official listing on one of the stock
exchanges listed in Appendix A or included on one of the regulated markets
listed in Appendix A; or (c) application is to be made for admission to official
listing on one of the aforementioned stock exchanges or inclusion in one of the
aforementioned regulated markets and such admission or inclusion is to take
place within 12 months of their issue.
UNLISTED SECURITIES AND NOTES. Up to a total of 10% of the net
assets of each Portfolio may be invested in:
(a) securities that are consistent with the Portfolio's investment objective
and policies, which are not admitted to official listing on one of the
stock exchanges or included on one of the regulated markets, described
above;
(b) interests in loans which are portions of an overall loan granted by a
third party and for which a note has been issued ("Notes"), provided these
Notes can be assigned at least twice after purchase by the Portfolio, and
the Note was issued by:
o the Federal Republic of Germany, a special purpose fund of the Federal
Republic of Germany, a state of the Federal Republic of Germany, the
European Union or a member state of the Organisation for Economic
Cooperation and Development (an "OECD Member"),
o another German domestic authority, or a regional government or local
authority of another Member State or another state
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party to the CEEA for which a zero weighting was notified
according to Article 7 of the Council Directive 89/647/EEC
of 18 December 1989 on a solvency ratio for credit
institutions (Official Journal EC No. L386, p. 14),
o other corporate bodies or institutions organized under public law and
registered domestically in Germany or in another Member State or
another state party to the CEEA,
o other debtors, if guaranteed as to the payment of interest
and repayment of principal by one of the aforementioned
bodies, or
o companies which have issued securities which are admitted to official
listing on a German or other foreign stock exchange.
Investments in Notes are subject to each Portfolio's overall
20% limitation on fixed income securities. See "Fixed Income
Securities" below.
The current Member States and the states party to the CEEA and OECD
Members are listed in Appendix A.
FIXED INCOME SECURITIES. Each Portfolio is permitted to invest in fixed income
securities, although it intends to remain invested in equity securities to the
extent practical in light of its objective. Each Portfolio's investment in fixed
income securities (excluding bank deposits and money market instruments) will
not exceed 20% of the Portfolio's net assets. For purposes of each Portfolio's
investments, convertible bonds and bonds with warrants would be considered
equities, not fixed income securities.
The fixed income securities in which each Portfolio may invest will be
rated on the date of investment, within the four highest ratings of Moody's
Investors Service, Inc. ("Moody's"), currently Aaa, Aa, A and Baa, or of
Standard & Poor's Rating Services ("S&P"), currently AAA, AA, A and BBB or, if
unrated, will be, in the opinion of the Adviser, of comparable quality to such
rated securities discussed above. See Appendix B to the Statement of Additional
Information for a description of these ratings.
BANK DEPOSITS AND MONEY MARKET INSTRUMENTS. Each Portfolio may temporarily
invest in bank deposits and money market instruments maturing in less than 12
months. These instruments include credit balances and bank certificates of
deposit, discounted treasury notes and bills issued by the Federal Republic of
Germany ("FRG"), the states of the FRG, the European Union, OECD Members or
quasi-governmental entities of any of the foregoing.
Under normal circumstances each Portfolio will purchase bank deposits and
money market instruments to invest temporary cash balances or to maintain
liquidity to meet redemptions. However, each Portfolio may temporarily invest in
bank deposits and money market instruments, up to 49% of its net assets, as a
measure taken in the Adviser's judgment during, or in anticipation of, adverse
market conditions. For each Portfolio, except the Top 50 US Portfolio,
certificates of deposit from the same credit
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institution may not account for more than 10% of a Portfolio's total assets. See
"Investment Objectives and Policies" in the Statement of Additional Information.
OPTIONS TRANSACTIONS ON SECURITIES. Options transactions may be carried out for
each Portfolio if the securities options are admitted to official listing on a
recognized futures or securities exchange and the securities underlying the
options are within the applicable investment objective and policies of the
Portfolio. Each of these instruments is a derivative instrument as its value
derives from the underlying asset. Each Portfolio may use options for hedging
and risk management purposes and may purchase call options and sell put options
for speculation. See "Risk Factors".
By purchasing a put option, a Portfolio obtains the right (but not the
obligation) to sell the instrument underlying the option at a fixed strike
price. In return for this right, the Portfolio pays the current market price for
the option (known as the option premium). The purchaser of a call option obtains
the right to purchase, rather than sell, the instrument underlying the option at
the option's strike price. Put options on securities may be purchased only if
the securities underlying the option transaction are held by a Portfolio at the
time of the purchase of the put option.
When a Portfolio writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of the premium,
the Portfolio assumes the obligation to pay the strike price for the instrument
underlying the option if the other party to the option chooses to exercise it.
Writing a call option obligates a Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option.
Call options on securities may be sold only if the securities underlying
the option transaction are held by a Portfolio at the time of the sale. These
securities may not be sold during the maturity of the call option and may not be
the subject of a securities loan.
There is no limitation on the value of the options that may be purchased
or written by a Portfolio. However, the strike prices of the securities options,
together with the strike prices of the securities that underlie other securities
options already purchased or granted for the account of each Portfolio, may not
exceed 20% of net assets of the Portfolio. See "Risk Factors." Options on
securities may only be purchased or granted to a third party to the extent that
the strike prices of such options, together with the strike prices of options on
securities of the same issuer already purchased by or granted for the account of
a Portfolio, do not exceed 10% of the net assets of the Portfolio. Options on
securities may only be written (sold) to the extent that the strike prices of
such options, together with the strike prices of options on securities of the
same issuer already written for the account of a Portfolio, do not exceed 2% of
the net assets of the Portfolio. When an option transaction is offset by a
back-to-back transaction (e.g., where a Portfolio writes a put option on a
security and purchases a put option on
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the same security having the same expiration date), these two transactions will
not be counted for purposes of the limits set forth in this paragraph.
FUTURES CONTRACTS, OPTIONS ON FUTURES AND SECURITIES INDICES AND WARRANTS. Each
Portfolio may purchase and sell stock index futures contracts and interest rate
futures contracts and may purchase options on interest rate futures contracts,
options on securities indices and warrants on futures contracts and stock
indices. A Portfolio will engage in transactions in such instruments only if
they are admitted to official listing on a recognized futures or securities
exchange and meet certain other requirements stated below. A Portfolio may use
these techniques for hedging or risk management purposes or, subject to certain
limitations, for the purposes of obtaining desired exposure to certain
securities or markets.
For the purpose of hedging a Portfolio's assets, the Portfolio may sell
(but not purchase) stock index or interest rate futures contracts and may
purchase put or call options on futures contracts, options on securities indices
and any of the warrants described above. Any such transaction will be considered
a hedging transaction, and not subject to the limitations on non-hedging
transactions stated below, to the extent that (1) in the case of stock index
futures, options on securities indices and warrants thereon, the contract value
does not exceed the market value of the shares held by the Portfolio for which
the hedge is intended and such shares are admitted to official listing on a
stock exchange in the country in which the relevant futures or securities
exchange is based or (2) in the case of interest rate futures and options on
securities indices and warrants thereon, the contract value does not exceed the
interest rate exposure associated with the assets held in the applicable
currency by the Portfolio. In carrying out a particular hedging strategy, a
Portfolio may sell futures contracts and purchase options or warrants based on
securities, financial instruments or indices that have issuers, maturities or
other characteristics that do not precisely match those of the Portfolio's
assets for which such hedge is intended, thereby creating a risk that the
futures, options or warrants position will not mirror the performance of such
assets. A Portfolio may also enter into transactions in futures contracts,
options on futures, options on indices and warrants for non-hedging purposes, as
described below.
Each Portfolio, except the Top 50 US Portfolio, may purchase or sell stock
index or interest rate futures contracts, put or call options on futures,
options on securities indices and warrants other than for hedging purposes.
Transactions for non-hedging purposes may be entered into only to the extent
that (1) the underlying contract values, together with the contract values of
any instrument then held by the Portfolio for non-hedging purposes, do not
exceed in the aggregate 20% of the net assets of the Portfolio and (2) such
instruments relate to categories of assets which the Portfolio is permitted to
hold. The Top 50 US Portfolio does not limit its purchase or sale of stock index
or interest rate futures contracts, put or call options on futures, options on
securities indices and warrants for other than for
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hedging purposes.
CURRENCY FORWARD CONTRACTS, OPTION RIGHTS AND WARRANTS ON CURRENCIES AND
CURRENCY FUTURES CONTRACTS (EACH PORTFOLIO EXCEPT TOP 50 US PORTFOLIO). Each
Portfolio, except Top 50 US Portfolio may enter into foreign currency
transactions to hedge currency risks associated with the assets of each
Portfolio, except the Top 50 US Portfolio, denominated in foreign currencies. A
Portfolio may purchase or sell foreign currency contracts for forward delivery,
purchase option rights for the purchase or sale of currencies or currency
futures contracts or warrants which entitle the holder to the right to purchase
or sell currencies or currency futures contracts or to receive payment of a
difference, which is measured by the performance of currencies or currency
futures contracts, provided that these option rights and warrants are admitted
to official listing on an exchange.
Each Portfolio (except Top 50 US Portfolio) does not currently intend to
engage in foreign exchange transactions as an investment strategy. However, each
Portfolio may enter into forward contracts to hedge against changes in foreign
currency exchange rates that would affect the value of existing investments
denominated or principally traded in a foreign currency.
SECURITIES LOANS. Subject to applicable investment restrictions, each Portfolio
is permitted to lend its securities. These loans may not exceed 33 1/3% of each
Portfolio's total assets. The Portfolios may pay reasonable administrative and
custodial fees in connection with the loan of securities. The following
conditions will be met whenever portfolio securities of a Portfolio are loaned:
(1) the Portfolio must receive at least 100% collateral from the borrower; (2)
the borrower must increase such collateral whenever the market value of the
securities loaned rises above the level of the collateral; (3) the Portfolio
must be able to terminate the loan at any time; (4) the Portfolio must receive
reasonable interest on the loan, as well as payments in respect of any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (5) the Portfolio may pay only reasonable custodian
and finder's fees in connection with the loan; and (6) while voting rights on
the loaned securities may pass to the borrower, the Portfolio must terminate the
loan and regain the right to vote the securities if a material event conferring
voting rights and adversely affecting the investment occurs. In addition, a
Portfolio will consider all facts and circumstances, including the
creditworthiness of the borrowing financial institution. No Portfolio will lend
its securities to any officer, Trustee, Director, employee or other affiliate of
the Corporation or the Portfolio Trust, the Manager, the Adviser or the
Distributor, unless otherwise permitted by applicable law.
Each Portfolio may lend its securities on a demand basis provided the
market value of the assets transferred in securities loans together with the
market value of the securities already transferred as a securities loan for the
Portfolio's account to the same borrower does not exceed 10% of the total assets
of the Portfolio.
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BORROWING. Each Portfolio may borrow money from banks for temporary or
short-term purposes and then only in amounts not to exceed 10% of each
Portfolio's, except the Top 50 US Portfolio's, total assets at the time of such
borrowing. The Top 50 US Portfolio may take up short-term loans up to a limit of
1/3 of the Portfolio's total assets.
WARRANTS. Each Portfolio may purchase warrants in value of up to 10% of the
Portfolio's net assets. The warrants in which the Portfolios invest are a type
of security that entitles the holder to buy a fixed amount of securities of such
issuer at a specified price at a fixed date or for a fixed period of time (which
may be in perpetuity) or to demand settlement in cash based on the price
performance of the underlying security. If the market price of the underlying
security is below the exercise price set forth in the warrant on the expiration
date, the warrant will expire worthless.
Warrants do not entitle the holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also the value of the warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date.
CONVERTIBLE SECURITIES. The convertible securities in which the Portfolios may
invest include any debt securities or preferred stock which may be converted
into common stock or which carry the right to purchase common stock. Convertible
securities entitle the holder to exchange the securities for a specified number
of shares of common stock, usually of the same company, at specified prices
within a certain period of time.
SHORT-TERM TRADING. Each Portfolio intends to manage its portfolio actively in
pursuit of its investment objective. A Portfolio may take advantage of
short-term trading opportunities that are consistent with its objective. To the
extent a Portfolio engages in short-term trading, it may realize short-term
capital gains or losses and incur increased transaction costs. See "Taxes"
below.
INVESTMENT RESTRICTIONS. The investment objective of each Fund and each
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 a Fund and its
corresponding Portfolio. Each Fund has the same investment restrictions as its
corresponding Portfolio, except that each Fund may invest all of its investable
assets in the corresponding Portfolio. References below to the Portfolios'
investment restrictions also include the Funds' investment restrictions. Any
other investment policies of the Portfolios and the Funds described herein or in
the Statement of Additional Information are not fundamental and may be changed
without shareholder approval.
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FUNDAMENTAL INVESTMENT RESTRICTIONS.
Each Portfolio is classified as "non-diversified" under the 1940 Act,
which means that each corresponding Fund is not limited by the 1940 Act with
respect to the portion of its assets which may be invested in securities of a
single company (although certain diversification requirements are imposed by the
Internal Revenue Code of 1986, as amended (the "Code")). The possible assumption
of large positions in the securities of a small number of companies may cause
the performance of a Fund to fluctuate to a greater extent than that of a
diversified investment company as a result of changes in the financial condition
or in the market's assessment of the companies.
Top 50 World Portfolio will invest at least 65% of its total assets in
equity securities. Top 50 Europe Portfolio will invest at least 65% of its total
assets in the equity securities of issuers located in European countries. Top 50
Asia Portfolio will invest at least 65% of its total assets in the equity
securities of issuers with a domicile or business focus in Asian countries. Top
50 US Portfolio will invest at least 65% of its total assets in the equity
securities of issuers located in the United States.
No Portfolio may 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, provided that the foregoing limitation shall not apply
to investments in securities issued by the U.S. Government or its agencies or
instrumentalities.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Portfolio generally will not borrow money. Each Portfolio may not
issue senior securities except as permitted by the 1940 Act or any rule, order
or interpretation thereunder. Each Portfolio, except the Top 50 US Portfolio,
may not invest more than 10% of its net assets in the securities of any one
issuer or invest more than 40% of its net assets in the aggregate in the
securities of those issuers in which the Portfolio has invested in excess of 5%
but not more than 10% of its net assets.
For 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.
RISK FACTORS
EQUITY INVESTMENTS. Because the assets of each Portfolio are invested primarily
in equity securities, the Portfolios are subject to market risk and the risks
associated with the individual companies in which the Portfolios invest, meaning
that stock prices in general may decline over short or extended periods of time.
As with any equity-based investment company, the investor should be aware that
unfavorable economic conditions can adversely affect corporate earnings and
cause declines in stock prices.
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FOREIGN INVESTMENTS (EACH PORTFOLIO EXCEPT TOP 50 US PORTFOLIO). Each Portfolio,
except the Top 50 US Portfolio, invests primarily in foreign securities.
Investment in securities of foreign issuers involves somewhat different
investment risks from those affecting securities of U.S. domestic issuers. There
may be limited publicly available information with respect to foreign issuers,
and foreign issuers are not generally subject to uniform accounting, auditing
and financial standards and requirements comparable to those applicable to U.S.
domestic companies. Dividends and interest paid by foreign issuers may be
subject to withholding and other foreign taxes (such as capital gain taxes)
which may decrease the net return on foreign investments as compared to
dividends and interest paid to a Portfolio by U.S.
domestic companies.
Investors should realize that the value of a Portfolio's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) currency exchange control or tax regulations in those foreign
countries. In addition, changes in government administrations or economic or
monetary policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect a
Portfolio's operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, whether favorably or unfavorably, in areas
such as growth of gross domestic product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Portfolios must be made in
compliance with foreign currency restrictions and tax laws restricting the
amounts and types of foreign investments.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic securities exchanges. Accordingly, the Portfolios'
foreign investments may be less liquid and their prices may be more volatile
than comparable investments in securities of U.S. companies. Moreover, the
settlement periods for foreign securities, which are often longer than those for
securities of U.S. issuers, may affect portfolio liquidity. In buying and
selling securities on foreign exchanges, purchasers normally pay fixed
commissions that are generally higher than the negotiated commissions charged in
the United States. In addition, there is generally less government supervision
and regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.
Since each Portfolio's investments in foreign securities
involve foreign currencies, the value of the Portfolio's assets
as measured in U.S. dollars may be affected favorably or
unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. See "Foreign Currency
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Exchange Transactions" in the Statement of Additional Information.
EMERGING MARKETS (EACH PORTFOLIO EXCEPT TOP 50 US PORTFOLIO). Investments in
securities of issuers in emerging markets countries may involve a high degree of
risk and many may be considered speculative. Investments in developing and
emerging markets may be subject to potentially greater risks than those of other
foreign issuers. These risks include: (i) the small current size of the markets
for such securities and the low volume of trading, which result in less
liquidity and in greater price volatility; (ii) certain national policies which
may restrict the Portfolio's investment opportunities, including restrictions on
investment in issuers or industries deemed sensitive to national interests;
(iii) foreign taxation; (iv) the absence, until recently, of a capital market
structure or market oriented economy as well as issuers without a long period of
successful operations; (v) the possibility that recent favorable economic
developments may be slowed or reversed by unanticipated political or social
events in such countries or their neighboring countries; and (vi) greater risks
of expropriation, confiscatory taxation, nationalization, and less social,
political and economic stability.
FUTURES, OPTIONS AND WARRANTS. Each Portfolio's successful use of futures,
options and warrants depends on the ability of the Adviser to predict the
direction of the market or, in the case of hedging transactions, the correlation
between market movements and movements in the value of the Portfolio's assets,
and is subject to various additional risks. The investment techniques and skills
required to use futures, options and warrants successfully are different from
those required to select equity securities for investment. The correlation
between movements in the price of the futures contract, option or warrant and
the price of the securities or financial instruments being hedged is imperfect
and the risk from imperfect correlation increases, with respect to stock index
futures, options and warrants, as the composition of a Portfolio's portfolio
diverges from the composition of the index underlying such stock index futures,
options or warrants. If a Portfolio has hedged portfolio securities by
purchasing put options or selling futures contracts, the Portfolio could suffer
a loss which is only partially offset or not offset at all by an increase in the
value of the Portfolio's securities. As noted, a Portfolio may also enter into
transactions in future contracts, options and warrants for other than hedging
purposes (subject to applicable law), including speculative transactions, which
involve greater risk. In particular, in entering into such transactions, a
Portfolio may experience losses which are not offset by gains on other portfolio
positions, thereby reducing its gross income. In addition, the markets for such
instruments may be volatile from time to time, which could increase the risk
incurred by a Portfolio in entering into such transactions. The ability of a
Portfolio to close out a futures, options or warrants position depends on a
liquid secondary market.
The use of futures contracts potentially exposes the Portfolios to the
effects of "leveraging," which occurs when futures are
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used so a Portfolio's exposure to the market is greater than it would have been
if the Portfolio had invested directly in the underlying instruments. Leveraging
increases a Portfolio's potential for both gain and loss. As noted above, the
Portfolios intend to adhere to certain policies relating to the use of futures
contracts, which should have the effect of limiting the amount of leverage by
the Portfolios. See "Futures and Option Contracts" in the Statement of
Additional Information.
LOCAL SECURITIES MARKETS
THE GERMAN SECURITIES MARKETS. Equity securities trade on the country's
eight regional stock exchanges of which Frankfurt accounted for approximately
79.5% of the total volume in 1996.
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Share prices of companies traded on German stock exchanges declined in
1991 and 1992 as the German economy entered a recessionary period following
unification of eastern and western Germany in 1990. The DM total return of the
CDAX German Composite Index of stocks was -6.39% in 1992, 44.56% in 1993, -5.83%
in 1994, 4.75% in 1995, 22.14% in 1996 and 29.96% for the first half of 1997.
Trading volume tends to concentrate on the relatively few companies
having both large market capitalization and a broad distribution of their stock
with few or no large holders. The five companies having the largest annual
trading volume of their stock in 1996 represented 46.8% of total trading volume
on the German stock exchanges: Daimler-Benz Ag with DM 261.9 billion, Siemens AG
with DM 256.1 billion, Deutsche Bank AG with DM 216.8 billion, Bayer AG with DM
186.4 billion and Volkswagen AG with DM 162.2 billion.Siemens Aktiengesellschaft
with DM 178.1 billion, Daimler Benz AG with DM 176.3 billion, Deutsche Bank AG
with DM 150.9 billion, Bayer AG with DM 135.3 billion and Volkswagen
Aktiengesellschaft with DM 110.2 billion.
JAPANESE EQUITY SECURITIES MARKETS. Listed securities in Japan trade on three
Main Japanese Exchanges (including the Tokyo Stock Exchange) and five regional
stock exchanges, although the Tokyo Stock Exchange ("TSE") has generally
represented over 75% of annual trade of volume. In 1996, three industrial groups
(banks, electric appliances and transportation equipment) accounted for
approximately 40% of the total market value of TSE stocks. Share prices of
companies traded on Japanese stock exchanges reached historical peaks in 1989
and 1990. Afterwards stock prices decreased significantly, reaching their lowest
levels in 1992. For example, the Nikkei index of 225 stocks fell from 38916 at
year-end 1989 to a low in 1992 of 14309, a drop of 63%. The index was 19161 at
the end of 1996, and 18701 at June 30, 1997. The decline in stock prices after
1989 has raised the cost of capital for industry and has reduced the value of
stock holdings by banks and corporations. These effects have, in turn,
contributed to the recent weakness in Japan's economy and could continue to have
an adverse impact in the future.
MANAGEMENT OF THE CORPORATION AND THE PORTFOLIO TRUST
The Board of Directors of the Corporation and the Board of
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Trustees of the Portfolio Trust provide broad supervision over the affairs of
each Fund and each 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 its corresponding Portfolio. Each 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 DWS
International Portfolio Management GmbH as investment adviser of each Portfolio
except the Top 50 US Portfolio. DFM has retained the services of DMGIM as
investment adviser of the Top 50 US Portfolio.
MANAGER. The Portfolio Trust has retained the services of DFM as investment
manager to each 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
year-end 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 Standard & Poor's Corporation,
New York. Deutsche Bank and its affiliates may have commercial lending
relationships with companies whose securities may be held by a Portfolio.
DFH subsidiaries include German-based DWS Deutsche Gesellschaft fuer
Wertpapiersparen mbH ("DWS") and others based in Luxembourg, Austria,
Switzerland, Singapore, France and Italy. Together, DFH subsidiaries serve as
manager and/or investment adviser to more than 150 mutual funds outside the
United States, having aggregate assets under management of more than the
equivalent of $68 billion as of August 1997. DFH and its subsidiaries employ
approximately 500 professionals and is the largest mutual fund operator in
Europe based on assets under management.
The primary subsidiary of DFH is DWS. Founded in 1956, it is the largest
mutual fund company in Germany, holding a 25% share of the German mutual fund
market based on assets under management as of August 1997. DFH and its
subsidiaries are known in the financial market as "DWS Group, Investmentgroup of
Deutsche Bank."
DFH subsidiaries have received widespread industry recognition
in Europe. For example, Micropal, Europe's leading fund rating
organization, has accorded DWS the following awards: 1994: best
fund manager for 1, 3 and 5 year periods; 1995: best fund
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manager for 1, 3 and 5 year periods; 1996: best fund manager for 3 and 5 year
periods. These awards were given to fund managers having 10 or more funds
registered for sale in Germany, based on the manager with the highest number of
funds ranked first within various categories of investment objective defined by
Micropal. Fund rankings are based on above-average performance in Deutsche Mark
("DM") terms and below-average volatility.
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 each 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 each Portfolio. DFM has delegated this responsibility
to the Adviser. DFM retains overall responsibility, however, for supervision of
the investment management program for each 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 each
Portfolio, DFM receives a fee from each Portfolio, which is computed daily and
paid monthly, equal to 1.00% of the average daily net assets of each Portfolio
except Top 50 US Portfolio and equal to 0.85% of the average daily net assets of
Top 50 US Portfolio on an annualized basis for the Portfolio's then-current
fiscal year. See also "Expenses."
ADVISER. Pursuant to an investment advisory agreement ("Advisory Agreement")
between DFM and the relevant Adviser, the Adviser provides investment advice and
portfolio management services to each Portfolio. Subject to the overall
supervision of DFM, the Adviser conducts the day-to-day investment decisions of
each Portfolio, arranges for the execution of portfolio transactions and
furnishes a continuous investment program for each Portfolio.
Each Adviser is an SEC-registered investment adviser and an indirect
subsidiary of Deutsche Bank AG. The offices of the DWS Adviser are located at
Grueneburgweg 113-115, 60323 Frankfurt am Main, Germany. The offices of the
DMGIM Adviser are located at 31 West 52nd Street, New York, New York 10019.
For these services, the Adviser receives from DFM a fee, which is computed
daily and may be paid monthly, equal to 0.75% of the average daily net assets of
each Portfolio except Top 50 US Portfolio and equal to 0.60% of the average
daily net assets of Top 50 US Portfolio on an annualized basis for the
Portfolio's then-current fiscal year.
PORTFOLIO MANAGEMENT
Klaus Kaldemorgen is the senior portfolio manager for the Top
50 Asia Portfolio and Deutsche Top 50 World Portfolio. Mr.
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Kaldemorgen also serves as senior portfolio manager for the Top 50 Asien and Top
50 Welt, German registered mutual funds with the same investment objective,
policies and restrictions as the respective Portfolio. He has held this position
since the inception of these funds in April, 1996, and January 1997,
respectively. Mr. Kaldemorgen has 15 years experience as an investment manager,
joining the DWS Group in 1982. Mr. Kaldemorgen is Senior Investment Officer,
head of the global equity team, DWS Group, Investmentgroup of Deutsche Bank,
supervising funds holding assets under management of DM 10.8 billion ($6.3
billion) as of March 31, 1997.
Klaus Martini and Elisabeth Weisenhorn are the co-senior portfolio
managers for the Top 50 Europe Portfolio. Mr. Martini joined the DWS Group in
1984, where he has managed European stock funds since 1988. Mr. Martini also
serves as senior portfolio manager for Europa , a German registered mutual fund
with the same investment objective, policies and restrictions as the Top 50
Europe Portfolio. He is Senior Investment Officer, head of the European equity
team, supervising funds holding assets under management of DM 4.8 billion ($2.8
billion) as of March 31, 1997. Ms. Weisenhorn also serves as the senior
portfolio manager for the Investa Portfolio and the Provesta Portfolio,
additional series of the Portfolio Trust. Ms. Weisenhorn has 12 years of
experience as an investment manager and joined the DWS Group in 1985. She is
Senior Investment Officer, head of the German equity team, supervising funds
holding assets under management of DM 8 billion ($4.7 billion) as of March 31,
1997. Mr. Martini and Ms. Weisenhorn are based at DWS Group's office in
Frankfurt, Germany.
James E. Moltz, the chief investment officer of Deutsche Morgan
Grenfell Inc., is the senior portfolio manager of the Top 50 US Portfolio. Mr.
Moltz is also the chief investment strategist of Deutsche Morgan Grenfell Inc.,
and previously served as chief investment strategist for 20 years with an
acquired firm, C.J. Lawrence Inc. He was also chairman and president of C.J.
Lawrence Inc. from 1973 to 1994. Mr. Moltz is a former Director of both the New
York Stock Exchange and the Securities Industry Association. He is a member of
the New York Society of Security Analysts and a Chartered Financial Analyst.
ADMINISTRATOR. Under a master agreement for administration services with the
Corporation, Federated Services Company serves as Administrator to the Funds. In
connection with its responsibilities as Administrator , Federated Services
Company, among other things, (i) prepares, files and maintains the Funds'
governing documents, registration statements and regulatory documents; (ii)
prepares and coordinates the printing of publicly disseminated documents; (iii)
monitors declaration and payment of dividends and distributions; (iv) projects
and reviews the Funds' expenses; (v) performs internal audit examinations; (vi)
prepares and distributes materials to the Directors of the Corporation, (vii)
coordinates the activities of all service providers; (viii) monitors and
supervises collection of tax reclaims; and (ix) prepares shareholder meeting
materials.
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As Administrator, Federated Services Company receives a fee from each
Fund, which is computed daily and may be paid monthly, at the annual rate of
0.065% of the average daily net assets of each Fund up to $200 million and
0.0525% of the average daily net assets of each Fund greater than $200 million
for the Fund's then-current fiscal year. The Administrator will receive a
minimum fee of $75,000 per Fund annually after the second full year.
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 Portfolios, Federated Services Company receives
a fee from each Portfolio, which is computed daily and paid monthly, at the
annual rate of 0.035% of the average daily net assets of each Portfolio for the
Portfolio's then-current fiscal year. The Operations Agent of the Portfolios
will receive a minimum fee of $60,000 per Portfolio annually and a minimum
aggregate fee for each Portfolio, corresponding Fund and any other fund
investing in the Portfolio, taken together, of $75,000 for the first year of the
Portfolio's operation and $125,000 for the second year, in each case payable to
the Operations Agent, the Administrator and Transfer Agent combined.
ADMINISTRATIVE AGENT. Under an administration agreement with the Portfolio
Trust, IBT (Cayman) provides certain services to the Portfolios, including (i)
filing and maintaining the governing documents, registration statements and
other regulatory filings; (ii) maintaining a telephone line; (iii) approving
annual expense budgets; (iv) authorizing expenses; (v) distributing materials to
the Trustees of the Portfolio Trust; (vi) authorizing dividend distributions;
(vii) maintaining books and records; (viii) filing tax returns; and (ix)
maintaining the investor register.
As Administrative Agent of the Portfolios, IBT (Cayman) receives a fee
from each Portfolio, which may be paid monthly, at the annual rate of $5,000.
DISTRIBUTOR. Edgewood serves as principal distributor for
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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.
Securities laws may require certain Financial Intermediaries (as defined
below) such as depository institutions to register as dealers. The Distributor
may pay dealers an amount up to 5.0% of the net asset value of Class B shares
purchased by their clients or customers as an advance payment. These payments
will be made directly by the Distributor from its assets, and will not be made
from the assets of a Fund. Dealers may voluntarily waive receipt of all or any
portion of these advance payments. The Distributor may pay all or a portion of
the distribution fee discussed below to Financial Intermediaries (as defined
below) that waive all or any portion of the advance payments.
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 of each Fund will pay a fee to
the Distributor in an amount computed at an annual rate of 0.75% of the average
daily net assets of the Fund represented by Class B shares to finance any
activity which is principally intended to result in the sale of Class B shares
of the Fund subject to the Distribution Plan. 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, a Fund makes
no payments to the Distributor except as described above. Therefore, a Fund does
not pay for unreimbursed expenses of the Distributor, including amounts expended
by the Distributor in excess of amounts received by it from a 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 payments made by shares under the
Distribution Plan.
Under the Service Plan, each 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
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("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.
DFM may pay Financial Intermediaries a shareholder services fee of up to
0.25% of the amount invested in Class A 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 series of the
Corporation (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 a 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 each Fund. IBT, 200
Clarendon Street, Boston, MA 02116 acts as the custodian of each Fund's and each
Portfolio's assets. Securities held for a Portfolio may be held by a
sub-custodian bank approved by the Trustees or the Custodian of the Portfolio
Trust. IBT (Canada) provides fund accounting services to the Funds and the
Portfolios, including (i) calculation of the daily net asset value for the Funds
and the Portfolios; (ii) monitoring compliance with investment portfolio
restrictions, including all applicable federal securities and other regulatory
requirements; and (iii) monitoring each Fund's and Portfolio's compliance with
the requirements applicable to a regulated investment company under the Code.
EXPENSES. In addition to the fees payable under the various
agreements discussed above, each Fund and each Portfolio is
responsible for usual and customary expenses associated with its
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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 each
Portfolio, such expenses also include brokerage expenses.
DFM has agreed that it will reimburse each Fund through at least August
31, 1998 to the extent necessary to maintain each Fund's total operating
expenses (which includes expenses of the Fund and its corresponding Portfolio
but does not cover extraordinary expenses during the period) at not more than
1.60% and 2.35% of the average annual net assets of Class A and Class B shares,
respectively, of the Top 50 World, Top 50 Europe and Top 50 Asia and not more
that 1.80% and 2.25% of the average annual net assets of Class A shares and
Class B shares, respectively, of Top 50 US. There is no assurance that DFM will
continue this reimbursement beyond the specified period.
EXPENSES OF CLASS A SHARES AND CLASS B SHARES. Holders of Class A shares and
Class B shares bear their allocable portion of a Fund's expenses along with
their allocable share of the corresponding 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 or Class B shares; and Directors' fees incurred as a result of
issues related solely to Class A shares or Class B shares.
PORTFOLIO BROKERAGE. The estimated annual portfolio turnover rate for the Top 50
World Portfolio, Top 50 Europe Portfolio, Top 50 Asia Portfolio and Top 50 US
Portfolio is generally not expected to exceed 80%, 80%, 100% and 80%,
respectively. A 100% annual turnover rate would occur, for example, if all
portfolio securities (excluding short-term obligations) were replaced once in a
period of one year, or if 10% of the portfolio securities were replaced ten
times in one year. The amount of brokerage
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commissions and taxes on realized capital gains to be borne by the shareholders
of a Fund tend to increase as the level of portfolio activity increases.
In effecting securities transactions, the Adviser seeks to obtain the best
price and execution of orders. In selecting a broker, the Adviser considers a
number of factors including: the broker's ability to execute orders without
disturbing the market price; the broker's reliability for prompt, accurate
confirmations and on-time delivery of securities; the broker's financial
condition and responsibility; the research and other investment information
provided to the Adviser by the broker; and the commissions charged. Accordingly,
the commissions charged by any such broker may be greater than the amount
another firm might charge if the Adviser determines in good faith that the
amount of such commissions is reasonable in relation to the value of the
brokerage services and research information provided by such broker.
The Adviser may direct a portion of a Portfolio's securities transactions
to certain unaffiliated brokers which in turn use a portion of the commissions
they receive from a Portfolio to pay other unaffiliated service providers on
behalf of that Portfolio for services provided for which the Portfolio would
otherwise be obligated to pay. Such commissions paid by a Portfolio are at the
same rate paid to other brokers for effecting similar transactions in listed
equity securities.
Deutsche Bank AG or one of its subsidiaries or affiliates may act as one
of the agents of the Portfolios 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 Portfolios, Deutsche Bank AG receives brokerage
commissions from each Portfolio.
On those occasions when the Adviser deems the purchase or sale of a
security to be in the best interests of a 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 for a
Portfolio 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 a Portfolio.
INVESTING IN THE FUNDS
Each Fund offers investors two classes of shares that carry sales charges
and contingent deferred sales charges in different forms and amounts and which
bear different levels of expenses.
CLASS A SHARES. An investor who purchases Class A shares
of a Fund pays a maximum sales charge of 5.50% at the time of
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purchase. Certain purchases of Class A shares are not subject to a sales charge.
See "Purchase of Shares -Investing in Class A Shares." As a result, Class A
shares are not subject to any charges when they are redeemed (except for special
programs offered under "Purchase of Shares - Purchases with Proceeds From
Redemptions of Unaffiliated Investment Companies.")
Certain purchases of Class A shares qualify for reduced sales charges. See
"Purchase of Shares - Reducing or Eliminating the Sales Charge." Class A shares
have no conversion feature.
CLASS B SHARES. Class B shares of each Fund are sold without an initial sales
charge, but are subject to a contingent deferred sales charge in accordance with
the following schedule:
Contingent
Year of Redemption Deferred
AFTER PURCHASE SALES CHARGE
First 5.00%
Second 4.00%
Third 3.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
Class B shares also bear a fee pursuant to a Distribution Plan, adopted in
accordance with Rule 12b-1 of the 1940 Act, while Class A shares do not bear
such a fee. Both Class A shares and Class B shares will bear shareholder
services fees. Class B shares will automatically convert into Class A shares,
based on relative net asset value, on or about the fifteenth of the month eight
full years after the purchase date. Class B shares provide an investor the
benefit of putting all of the investor's dollars to work from the time the
investment is made, but (until conversion) will have a higher expense ratio and
pay lower dividends than Class A shares due to the higher 12b-1 fees.
PURCHASE OF SHARES
Shares of each Fund are sold on days on which the New York Stock Exchange
is open. Shares of a 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 the
Fund, with a minimum initial investment of $5,000 for Class A shares and Class B
shares. Additional investments can be made for as little as $500. The minimum
initial investment for retirement plan participants is $1,000. The minimum
subsequent investment for retirement plan participants is $100. (Financial
Intermediaries may impose different minimum investment requirements on their
customers.)
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 reserve
the right to reject any purchase
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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.
INVESTING IN CLASS A SHARES
Class A shares of each Fund are sold at their net asset value next
determined after an order is received, plus a sales charge as follows:
Sales Charge Dealer
Sales Charge as as a Percentage Concession
a Percentage of Net As a Percentage
Amount of Offering Amount of Public
TRANSACTION PRICE INVESTED OFFERING PRICE
- ----------- ----- -------- --------------
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less
than $100,000 4.50 4.71% 3.75%
$100,000 but less
than $250,000 3.50% 3.63% 2.75%
$250,000 but less
than $500,000 2.50% 2.56% 2.00%
$500,000 but less
than $1 million 2.00% 2.04% 1.75%
$1 million or
greater None None up to 1.00%*
* See "Dealer Concession" below.
DEALER CONCESSION. The dealer concession may be changed from time to time but
will remain the same for all dealers. Dealer concession will be paid to dealers
who initiate and are responsible for purchases of $1 million or more. Any
portion of the sales charge which is not paid to a dealer will be retained by
the Distributor. The Distributor, at its expense, may provide additional
promotional incentives to dealers. In some instances, these incentives may be
offered only to certain dealers who have sold or may sell significant numbers of
shares of the Fund or other Deutsche Funds.
The sales charge for shares sold other than through registered
broker/dealers will be retained by the Distributor. The Distributor may pay fees
to banks out of the sales charge in exchange for sales and/or administrative
services performed on behalf of the bank's customers in connection with the
initiation of customer accounts and purchases of shares.
REDUCING OR ELIMINATING THE SALES CHARGE. The sales charge can be reduced or
eliminated on the purchase of Class A shares through:
o sales charge waiver;
o quantity discounts and accumulated purchases; o concurrent
purchases; o signing a 13-month letter of intent; o using the
reinvestment privilege; or o purchases with proceeds from
redemptions of unaffiliated investment company shares.
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SALES CHARGE WAIVER. Sales charges may be waived on Class A shares of the Fund
(subject to appropriate documentation furnished to the Distributor as it may
request from time to time in order to verify eligibility for this privilege) if
purchased by:
1. Full-time employees of National Association of Securities Dealers, Inc.
("NASD") member firms and full-time employees of other Financial Institutions
which have entered into a supplemental agreement with the Distributor pertaining
to the sale of Fund shares, either for themselves directly or pursuant to an
employee benefit plan or other program, or for their spouses or minor children.
This privilege also applies to full-time employees of Financial Institutions
affiliated with NASD member firms whose full-time employees are eligible to
purchase Class A shares at net asset value;
2. Current full-time, part-time or retired employees of Deutsche Bank AG and its
affiliates or subsidiaries, current or former directors or trustees of Deutsche
Bank AG and its affiliates or subsidiaries, current or former Board members of a
fund advised by Deutsche Bank AG or any of its affiliates or subsidiaries,
including the Directors of the Corporation, or the spouse or minor child of the
foregoing, including an employee of Deutsche Bank AG or any of its affiliates or
subsidiaries who act as custodian for a minor child;
3. Registered representatives, bank trust officers, certified
financial planners and other employees (and their immediate
families) of investment professionals who have entered into a
supplemental agreement with the Distributor;
4. IRA Rollover accounts sponsored by Deutsche Morgan Grenfell, Inc., Deutsche
Bank Trust Company, Deutsche Bank AG or any of its affiliates as administrator,
trustee or custodian, provided that the distribution proceeds are made from a
qualified retirement plan or from a 403(b)(7) plan that is sponsored,
administered or custodied by Deutsche Bank Trust Company or any of its
affiliates, and provided that, at the time of such distribution, such qualified
retirement plan or 403(b)(7) plan met the requirements of an Eligible Benefit
Plan and all or a portion of such plan's assets were invested in the Deutsche
Funds or certain other products made available by the Distributor to such plans;
5. As part of an Eligible Benefit Plan having a minimum of 250
eligible employees or a minimum of $1,000,000, or such lesser
amount as may be determined by the Distributor, invested in
Deutsche Funds;
6. Investor accounts through certain broker-dealers and other Financial
Intermediaries that have entered into supplemental agreements with the
Distributor, which include a requirement that such shares be sold for the
benefit of clients participating in a "wrap account" or similar program under
which such clients pay a fee to the broker-dealer or other Financial
Intermediary, or such other accounts to which the broker-dealer or other
Financial Intermediary charges an asset management fee;
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7. Qualified separate accounts maintained by an insurance
company pursuant to the laws of any State or territory of the
United States;
8. Trust companies and bank trust departments, including Deutsche Bank Trust
Company and its affiliates, initially investing at least $100,000 of assets held
in a fiduciary, agency, advisory, custodial or similar capacity on behalf of any
one of their investor clients;
9. Accounts investing $100,000 or more of (1) a State or territory of the United
States, county, city or instrumentality thereof, (2) charitable organizations as
defined under Section 501(c)(3) of the Code, and (3) charitable remainder trusts
or life income pools as defined under Section 501(c)(3) of the Code;
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. Larger purchases reduce the sales
charge paid. A Fund will combine purchases of Class A shares made on the same
day by the investor, the investor's spouse, and the investor's children under
age 21 when it calculates the sales charge. In addition, the sales charge, if
applicable, is reduced for purchases made at one time by a trustee or fiduciary
for a single trust estate or a single fiduciary account.
If an additional purchase of Class A shares is made in a Fund, the Fund will
consider the previous purchases still invested in the Fund. For example, if a
shareholder already owns Class A shares having a current value at the public
offering price of $30,000 and he purchases $20,000 more at the current public
offering price, the sales charge on the additional purchase according to the
schedule now in effect would be 4.50%, not 5.50%.
To receive the sales charge reduction, the Distributor must be notified by the
shareholder in writing or by his Financial Intermediary at the time the purchase
is made that Class A shares are already owned or that purchases are being
combined. A Fund will reduce the sales charge after it confirms the purchases.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction, a
shareholder has the privilege of combining concurrent purchases of Class A
shares of two or more of the Deutsche Funds, the purchase price of which
includes a sales charge. For example, if a shareholder concurrently invested
$30,000 in Class A shares of one of the Deutsche Funds with a sales charge, and
$20,000 in another Fund, the sales charge would be reduced to reflect a $50,000
purchase.
To receive this sales charge reduction, the Distributor must be notified by the
shareholder in writing or by his Financial Intermediary at the time the
concurrent purchases are made. A Fund will reduce the sales charge after the
purchases are confirmed.
LETTER OF INTENT. If a shareholder intends to purchase at least
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$50,000 of Class A shares of the Deutsche Funds (excluding the Deutsche U.S.
Money Market Fund) over the next 13 months, the sales charge may be reduced by
signing a letter of intent to that effect. This letter of intent includes a
provision for a sales charge adjustment depending on the amount actually
purchased within the 13-month period and a provision for the Custodian to hold
up to the maximum sales charge of the total amount intended to be purchased in
escrow (in shares) until such purchase is completed.
The shares held in escrow in the shareholder's account will be released upon
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed shares may be redeemed in order to realize the
difference in the sales charge.
While this letter of intent will not obligate the shareholder to purchase
shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any shares of any Deutsche Fund,
excluding the Deutsche U.S. Money Market Fund, will be aggregated to provide a
purchase credit towards fulfillment of the letter of intent. Prior trade prices
will not be adjusted.
REINVESTMENT PRIVILEGE. If Class A shares in a Fund have been redeemed, the
shareholder has the privilege, within 120 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales charge. The
Distributor must be notified by the shareholder in writing or by his Financial
Intermediary of the reinvestment in order to eliminate a sales charge. If the
shareholder redeems his Class A shares in a Fund, there may be tax consequences.
See "Tax Treatment of Reinvestments" below.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES.
Investors may purchase Class A shares at net asset value, without a sales
charge, with the proceeds from the redemption of shares of an unaffiliated
investment company that were purchased or sold with a sales charge or commission
and were not distributed by the Distributor.
The purchase must be made within 60 days of the redemption, and the Distributor
must be notified by the investor in writing, or by his Financial Intermediary,
at the time the purchase is made. From time to time, the Distributor may offer
dealers compensation for shares purchased under this program. If shares are
purchased in this manner, redemptions of these shares will be subject to a
contingent deferred sales charge for one year from the date of purchase.
Shareholders will be notified prior to the implementation of any special
offering as described above.
TAX TREATMENT OF REINVESTMENTS. Generally, a reinvestment of the proceeds of a
redemption of shares in a Fund or an unaffiliated investment company will not
alter the federal income tax status of any capital gain realized on the
redemption of the shares. However, any loss on the disposition of the shares in
a Fund will be disallowed to the extent shares of the same Fund are purchased
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within a 61-day period beginning 30 days before and ending 30 days after the
disposition of shares. Further, if the proceeds are reinvested within 90 days
after the redeemed shares were acquired, the sales charge imposed on the
original acquisition, to the extent of the reduction in the sales charge on the
reinvestment, will not be taken into account in determining gain or loss on the
disposition of the original shares, but will be treated instead as incurred in
connection with the acquisition of the replacement shares.
INVESTING IN CLASS B SHARES. Class B shares are sold at their net asset value
next determined after an order is received.
While Class B shares are sold without an initial sales charge, under certain
circumstances described under "Contingent Deferred Sales Charge-Class B Shares,"
a contingent deferred sales charge may be applied by the Distributor at the time
Class B shares are redeemed.
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, except as noted below. Such conversion will be on the basis of
the relative net asset values per share, without the imposition of any sales
charge, fee, or other charge. Class B shares acquired by exchange from Class B
shares of another Deutsche Fund will convert into Class A shares based on the
time of the initial purchase. For purposes of conversion to Class A shares,
shares purchased through the reinvestment of dividends and distributions paid on
Class B shares will be considered to be held in a separate sub-account. Each
time any Class B shares in the shareholder's account (other than those in the
sub-account) convert to Class A shares, an equal pro rata portion of the Class B
shares in the sub-account will also convert to Class A shares. The conversion of
Class B shares to Class A shares is subject to the continuing availability of a
ruling from the Internal Revenue Service or an opinion of counsel that such
conversions will not constitute taxable events for federal tax purposes. There
can be no assurance that such ruling or opinion will be available, and the
conversion of Class B shares to Class A shares will not occur if such ruling or
opinion is not available. In such event, Class B shares would continue to be
subject to higher expenses than Class A shares for an indefinite period.
PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY. An investor may call his
Financial Intermediary (such as a bank or an investment dealer) 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 will
not be issued in respect of such orders until payment is converted into federal
funds. Purchase orders through a registered broker/dealer must be received by
the broker before 4:00 p.m. (Eastern time) and must be transmitted by the broker
to the Fund before 5:00 p.m. (Eastern time) in order for shares to be purchased
at that day's price. Purchase orders through other Financial Intermediaries must
be received by the
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Financial Intermediary and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for shares to be purchased at that day's price. 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 a 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"). In addition, advance payments made to
Financial Intermediaries may be subject to reclaim by the Distributor for
accounts transferred to Financial Intermediaries which do not maintain investor
accounts on a fully disclosed basis and do not account for share ownership
periods.
PURCHASING SHARES BY WIRE. Once an account has been established, shares may be
purchased by Federal Reserve wire by calling the Transfer Agent. 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 Fund); Account Number; Trade Date
and Order Number; Group Number or Dealer Number; and Nominee or Institution
Name. Shares cannot be purchased by wire on holidays when wire transfers are
restricted.
PURCHASING SHARES BY CHECK. Once a Fund 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 a Fund account has been opened with the
minimum initial investment, shareholders 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 a Fund at the net
asset value next determined after an order is received by the Fund, plus the
sales charge, if applicable. Shareholders should contact their Financial
Intermediary or the Funds directly to participate in this program.
RETIREMENT PLANS. 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.
EXCHANGE PRIVILEGE
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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. None of
the Deutsche Funds imposes any additional fees on exchanges. Shareholders in
certain other Deutsche Funds may exchange all or some of their shares for Class
A shares.
CLASS B SHARES. Class B shareholders may exchange all or some of their shares
for Class B shares of the 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."
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 a 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
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to: Deutsche Funds, Inc., c/o Federated Shareholder
Services Company,
1099 Hingham Street, Rockland, MA 02370-3317.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with a Fund. If the instructions are given by a broker, a telephone
authorization form completed by the broker must be on file with the Fund. 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 4:00 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
a 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 the Funds compute their 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 a Fund 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. Redemption requests made through a
registered broker/dealer must be received by the broker before 4:00 p.m.
(Eastern time) and must be transmitted by the broker to a Fund before 5:00 p.m.
(Eastern time) in order for shares to be redeemed at that day's net asset value.
Redemption requests through other Financial Intermediaries (such as banks) must
be received by the Financial Intermediary and transmitted to a Fund before 4:00
p.m. (Eastern time) in order for shares to be redeemed at that day's net asset
value. 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.
REDEEMING SHARES BY TELEPHONE. Shares may be redeemed in any
amount by calling a Fund provided that Fund has received a
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properly completed authorization form. These forms can be obtained from the
Distributor. Proceeds will be mailed in the form of a check, to the
shareholder's address of record or by wire transfer to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System.
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., 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 the 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.
Each Fund and the Transfer Agent have adopted standards for accepting signature
guarantees from the above institutions. A Fund may elect in the future to limit
eligible signature guarantors to institutions that are members of a signature
guarantee program. Each Fund and the Transfer Agent reserve the right to amend
these standards at any time without notice.
SPECIAL REDEMPTION FEATURES
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SYSTEMATIC WITHDRAWAL PROGRAM. The Systematic Withdrawal Program permits the
shareholder to request withdrawal of a specified dollar amount (minimum $100) on
either a monthly or quarterly basis from accounts with 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, the amount of dividends
paid and capital gains distributions with respect to shares, and the fluctuation
of the net asset value of shares redeemed under this program, redemptions may
reduce, and eventually deplete, the shareholder's investment in a Fund. In
addition, shareholder accounts are subject to minimum balances. See "Account and
Share Information." For this reason, payments under this program should not be
considered as yield or income on the shareholder's investment in a Fund. To be
eligible to participate in this program, a shareholder must have an account
value of at least $10,000. A shareholder may apply for participation in this
program through his Financial Intermediary. Due to the fact that Class A shares
are sold with a sales charge, it is not advisable for shareholders to continue
to purchase Class A shares while participating in this program. A contingent
deferred sales charge may be imposed on Class B shares.
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 on investments of $1 million or
more, but a contingent deferred sales charge of 1% is imposed on certain
redemptions within one year of purchase.
Any applicable contingent deferred sales charge will be imposed on the lesser
of the net asset value of the redeemed shares 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 those shares 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 redeemed shares at the time of purchase (or, if such redeemed shares were
acquired in an exchange of Class B shares of another Fund, at the time of
purchase of the Class B shares of the exchanged-from Fund) 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
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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 in 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 shares 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 Fund. 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 a 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 Funds, the distributor, or affiliates of the Funds or
distributor; employees of any Financial Intermediary that sells shares of the
Funds pursuant to a sales agreement with the Distributor; and spouses and
children under the age of 21 of the aforementioned persons. Finally, no
contingent deferred sales charge will be imposed on the redemption of shares
originally purchased through a bank trust department, an investment adviser
registered under the Investment Advisers Act of 1940, or retirement plans where
the third party administrator has entered into certain arrangements with the
Distributor or its affiliates, or any other Financial Intermediary, to the
extent that no payments were advanced for purchases made through such entities.
The Trustees reserve the right to discontinue elimination of the contingent
deferred sales charge. Shareholders will be notified of such elimination. Any
shares purchased prior to the
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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. Annual statements are sent to report dividends paid during the
year.
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
Dividends consisting of substantially all of a Fund's net investment income, if
any, are declared and paid annually. A Fund may also declare an additional
dividend of net investment income in a given year to the extent necessary to
avoid the imposition of federal excise tax on the Fund.
Substantially all the realized net capital gains, if any, of each Fund are
declared and paid on an annual basis, except that an additional capital gains
distribution may be made in a given year to the extent necessary to avoid the
imposition of federal excise tax on the Fund. All shareholders on the record
date are entitled to dividends and capital gains 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. Each Fund reserves 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
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identification number of the record owner of the account. Failure to furnish a
certified TIN to a Fund could subject a shareholder to a $50 penalty which will
be imposed by the Internal Revenue Service ("IRS") on the Fund and passed on by
the Fund to the shareholder. With respect to individual investors and certain
non-qualified retirement plans, U.S. federal Regulations generally require the
Funds to withhold ("backup withholding") and remit to the U.S. Treasury 31% of
any dividends and distributions (including the proceeds of any redemption)
payable to a shareholder if such shareholder fails to certify either that the
TIN furnished in connection with opening an account is correct, or that such
shareholder has not received notice from the IRS of being subject to backup
withholding as a result of a failure to properly report taxable dividend or
interest income on a federal income tax return. Furthermore, the IRS may notify
the Funds to institute backup withholding if the IRS determines a shareholder's
TIN is incorrect.
NET ASSET VALUE
A Fund's net asset value per Share fluctuates. The net asset value for shares
of each class is determined by adding the interest of such class of shares in
the market value of a Fund's total assets (i.e., the value of its investment in
the Portfolio and other assets), subtracting the interest of such class of
shares in the liabilities of such Fund and those attributable to such class of
shares, and dividing the remainder by the total number of such class of shares
outstanding. The net asset value for each class of shares may differ due to the
variance in daily net income realized by each class. Such variance will reflect
only accrued net income to which the shareholders of a particular class are
entitled. Values of assets in each Portfolio are determined on the basis of
their market value or where market quotations are not determinable, at fair
value as determined by the Trustees of the Portfolio Trust. See "Net Asset
Value" in the Statement of Additional Information for information on valuation
of portfolio securities.
Each Fund computes its net asset value once daily at 4:00 p.m. (Eastern time)
on Monday through Friday, except on the holidays listed under "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
toll-free telephone number is 888-4-DEUTSCHE.
The Articles of Incorporation currently permit the
Corporation to issue 2,500,000,000 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
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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 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
that Fund or Class with respect to the assets of the Corporation pertaining to
that 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 a 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.
Each 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 a Fund and other entities investing in a 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
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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 a Fund in
its corresponding Portfolio.
Each investor in a Portfolio, including its corresponding Fund, may add to or
reduce its investment in the Portfolio on each day the New York Stock Exchange
is open for regular trading.
At 4:00 p.m. (Eastern time) on each such business day, the value of each
investor's beneficial interest in a Portfolio is determined by multiplying the
net asset value of the Portfolio by the percentage, effective for that day that
represents that investor's share of the aggregate beneficial interests in the
Portfolio. Any additions or withdrawals, which are to be effected on that day,
are then effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio is then recomputed as the percentage equal to the
fraction (i) the numerator of which is the value of such investor's investment
in the Portfolio as of 4:00 p.m. (Eastern time) on such day plus or minus, as
the case may be, the amount of any additions to or withdrawals from the
investor's investment in the Portfolio effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
4:00 p.m. (Eastern time) on such day plus or minus, as the case may be, the
amount of the net additions to or withdrawals from the aggregate investments in
the Portfolio by all investors in the Portfolio. The percentage so determined is
then applied to determine the value of the investor's interest in the Portfolio
as of 4:00 p.m. (Eastern time) on the following business day of the Portfolio.
Whenever the Corporation is requested to vote on a matter pertaining to a
Portfolio, the Corporation will vote its shares without a meeting of
shareholders of its corresponding Fund if the proposal is one that, if made with
respect to the Fund, would not require the vote of shareholders of the Fund, 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 Fund and, at the meeting of investors in its
corresponding Portfolio, the Corporation will cast all of its votes in the same
proportion as the votes of the Fund's shareholders even if all Fund shareholders
did not vote. Even if the Corporation votes all its shares at the Portfolio
Trust meeting, other investors with a greater pro rata ownership in the
Portfolio could have effective voting control of the operations of the
Portfolio.
TAXES
The Corporation intends that each Fund will qualify as a separate "regulated
investment company" under Subchapter M of the Code. As a regulated investment
company, a 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 annually
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
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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. Each Portfolio
intends to elect to be treated as a partnership for U.S. federal
income tax purposes. As such, each 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. Distributions of net 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. Dividends of net investment income paid by
the Top 50 US or the Top 50 World which are designated as derived from such
Fund's dividend income from U.S. corporations will be eligible, subject to
certain restrictions, for the deduction for dividends received by corporations.
Distributions of net capital gains and dividends and distributions paid by Top
50 Europe or Top 50 Asia will not be eligible for the dividends-received
deduction. However, Congress has passed legislation under which the restrictions
on the eligibility of the dividends-received deduction would be modified such
that a shareholder would not be entitled to the dividends-received deduction if
the shareholder did not satisfy the holding period requirement during a period
overlapping the day on which the shareholder becomes entitled to receive the
dividend. There can be no assurances as to whether such legislation will be
enacted into law and, if so, what its effective date might be.
While each Fund intends to distribute all of its net capital gains annually,
each Fund reserves the right to elect to retain some or all of its net capital
gains and treat such undistributed gains as having been paid to shareholders. If
a Fund makes this election, a shareholder would include the amount of
undistributed gains in income as long-term capital gain and would be treated as
having paid the tax on such undistributed gains (which tax will instead be paid
by the Fund) and the shareholder's basis in the shares of the Fund will be
increased by 65% of the amount of undistributed gains included in income.
If the net asset value of shares in any Fund is reduced below a shareholder's
cost as a result of a distribution by the Fund, such distribution will be
taxable even though it represents a return of invested capital. Investors should
consider the tax implications of buying shares just prior to a distribution when
the price of the shares may reflect the amount of the forthcoming distribution.
Annual statements as to the current federal tax status of distributions will be
mailed to shareholders at the end of each taxable year.
Any gain or loss realized on the redemption or exchange of a Fund's shares by a
shareholder who is not a dealer in securities generally will be treated as
long-term capital gain or loss if the shares have been held for more than one
year, and otherwise as short-term capital gain or loss. However, any loss
DEUT012M
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realized by a shareholder upon the redemption or exchange of shares in a Fund
held for six months or less will be treated as a long-term capital loss to the
extent of any long-term capital gain distributions received by the shareholder
with respect to such shares. In addition, no loss will be allowed on the sale or
other disposition of shares of a Fund if, within a period beginning 30 days
before the date of such sale or disposition and ending 30 days after such date,
the holder acquires (such as through dividend reinvestment) securities that are
substantially identical to the shares of such Fund. For additional information
regarding the tax consequences of the reinvestment of the proceeds of a
redemption see "Tax Treatment of Reinvestments" above.
It is anticipated that certain income of the Funds will be subject to foreign
withholding or other taxes and that each Fund (except Top 50 US) will be
eligible to elect to "pass through" to its shareholders the amount of foreign
income taxes (including withholding taxes) paid by such Fund. If a Fund makes
this election, a shareholder would include in gross income his pro rata share of
the foreign income taxes passed through and would be entitled either to deduct
such taxes in computing his taxable income (if the shareholder itemizes
deductions) or to claim a credit (which would be subject to certain limitations)
for such taxes against his U.S. federal income tax liability. A Fund will make
such an election only if it deems it to be in the best interests of its
shareholders and will notify each shareholder in writing each year that it makes
the election of the amount of foreign taxes, if any, to be treated as paid by
the shareholder.
A Fund may be required to backup withhold for U.S. federal income tax purposes
of 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 its corresponding Fund, a
Portfolio may sell beneficial interests to other mutual funds or institutional
investors. Such investors will invest in a Portfolio on the same terms and
conditions and will pay a proportionate share of the Portfolio's expenses.
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However, the other investors investing in the Portfolio may sell shares of their
own fund using a different pricing structure than the corresponding Fund. 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.
A Fund may withdraw its investment from its corresponding 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.
Certain changes in a Portfolio's investment objective, policies or
restrictions, or a failure by a Fund's shareholders to approve a change in its
corresponding Portfolio's investment objective or restrictions, may require
withdrawal of the Fund's interest in the Portfolio. Any such withdrawal could
result in a distribution in kind of portfolio securities (as opposed to a cash
distribution) from the Portfolio which may or may not be readily marketable. The
distribution in kind may result in the Fund having a less diversified portfolio
of investments or adversely affect the Fund's liquidity, and the Fund could
incur brokerage, tax or other charges in converting the securities to cash.
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APPENDIX A
MEMBER STATES OF THE EUROPEAN UNION
Austria Belgium Denmark
Finland France Germany
Greece Italy Ireland
Luxembourg Netherlands Norway
Portugal Sweden Spain
United Kingdom
ORGANISATION FOR ECONOMIC COOPERATION AND DEVELOPMENT MEMBERS
Australia Austria Belgium
Canada Czech Republic Denmark
Finland France Greece
Germany Hungary Iceland
Ireland Italy Japan
Liechtenstein Luxembourg Mexico
Netherlands New Zealand Norway
Poland Portugal South Korea
Spain Sweden Switzerland
Turkey United Kingdom United States
STATES PARTY TO THE CONVENTION ON THE EUROPEAN ECONOMIC AREA
Austria Belgium Denmark
Finland France Greece
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Germany Iceland Ireland
Italy Liechtenstein Luxembourg
Netherlands Norway Portugal
Spain Sweden Switzerland
United Kingdom
EXCHANGES IN EUROPEAN COUNTRIES WHICH ARE NOT MEMBER STATES OF THE EUROPEAN
UNION AND NOT STATES PARTY TO THE CONVENTION ON THE EUROPEAN ECONOMIC AREA.
SWITZERLAND SLOVAKIA CZECH REPUBLIC HUNGARY*
Zurich Bratislavia Prague Budapest
Geneva
Basel
EXCHANGES IN NON-EUROPEAN COUNTRIES
ARGENTINA CANADA SINGAPORE
Buenos Aires Toronto Singapore Stock Exchange
Vancouver
AUSTRALIA Montreal SOUTH AFRICA
ASX (Sydney, Johannesburg
Hobart, Melbourne,
Perth) THAILAND
Bangkok
BRAZIL SOUTH KOREA
Sao Paulo Seoul USA
Rio de Janiero American Stock Exchange (AMEX)
Boston
CHILE MALAYSIA Chicago
Santiago Kuala Lumpur Cincinnati
Los Angeles Pacific Stock Exchange
HONG KONG MEXICO New York
Hongkong Stock Mexico City New York Stock Exchange (NYSE)
Exchange Philadelphia
San Francisco Pacific Stock Exchange
INDONESIA NEW ZEALAND
Jakarta Stock Exchange Wellington
Christchurch/Invercargill
JAPAN Auckland
Tokyo
Osaka PERU
Nagoya Lima
Kyoto
Fukuoto PHILIPPINES
Niigata Manilla
Sapporo
Hiroshima
REGULATED MARKETS IN COUNTRIES WHICH ARE NOT MEMBERS ON THE EUROPEAN UNION AND
NOT CONTRACTING STATES OF THE TREATY ON THE EUROPEAN ECONOMIC AREA
JAPAN
Over-the-Counter Market
CANADA
Over-the-Counter Market
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SOUTH KOREA
Over-the Counter Market
SWITZERLAND
Free Trading Zurich
Free Trading Geneva
Exchange Bern
Over the Counter Market of the members of the International
Securities Market Association (ISMA), Zurich
UNITED STATES
NASDAQ-System
Over-the-Counter Market (organized markets by the National
Association of Securities Dealers, Inc.)
* TOP 50 WORLD ONLY
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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.
DEUT012M
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DEUTSCHE TOP 50 WORLD
DEUTSCHE TOP 50 EUROPE
DEUTSCHE TOP 50 ASIA
DEUTSCHE TOP 50 US
DEUTSCHE EUROPEAN MID-CAP FUND
DEUTSCHE GERMAN EQUITY FUND
DEUTSCHE JAPANESE EQUITY FUND
DEUTSCHE GLOBAL BOND FUND
DEUTSCHE EUROPEAN BOND FUND
Federated Investors Tower, Pittsburgh, PA 15222-3779
==============================================================================
The Deutsche Top 50 World (the "Top 50 World"), Deutsche Top 50 Europe (the "Top
50 Europe"), Deutsche Top 50 Asia (the "Top 50 Asia"), Deutsche Top 50 US (the
"Top 50 US"), Deutsche European Mid-Cap Fund (the "European Mid-Cap Fund"),
Deutsche German Equity Fund (the "German Equity Fund"), Deutsche Japanese Equity
Fund (the "Japanese Equity Fund"), Deutsche Global Bond Fund (the "Global Bond
Fund") and Deutsche European Bond Fund (the "European Bond Fund") (each, a
"Fund" and collectively, the "Funds") are each a series of the Deutsche Family
of Funds, Inc. (the "Corporation"), a management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). Each Fund
has its own investment objective.
The Corporation seeks to achieve the investment objective of each Fund
by investing all of the Fund's investable assets in a corresponding
non-diversified, open-end management investment company (each, a "Portfolio" and
collectively the "Portfolios") listed in Appendix A.
Each Portfolio is a series of the Deutsche Portfolios (the "Portfolio
Trust"), an open-end investment company organized as a trust under the laws of
the State of New York. Each Portfolio has the same investment objective as its
corresponding Fund. There can be no assurance that any Fund or any Portfolio
will achieve its investment objective.
Shares of each Fund are offered in two classes known as Class A Shares
and Class B Shares (individually and collectively referred to as "Shares" as the
context may require). This Statement of Additional Information relates to both
classes of the above-mentioned Shares.
Deutsche Fund Management, Inc. ("DFM"), a registered investment adviser
and an indirect subsidiary of Deutsche Bank AG, a major global financial
institution, is the investment manager (the "Manager") of each Portfolio. DWS
International Portfolio Management GmbH is the investment adviser (the "DWS
Adviser") of each Portfolio except Top 50 US Portfolio. Deutsche Asset Morgan
Grenfell Investment Management North America Inc. is the investment adviser of
the Top 50 US Portfolio (the "DAMNA "DMGIM Adviser"; and together with the DWS
Adviser or severally as the context may require, the "Adviser"). This Statement
of Additional Information is not a prospectus and should be read in conjunction
with the relevant Fund's Prospectus dated [DATE] 1997, a copy of which may be
obtained from the Corporation at the address noted, above.
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The date of this Statement of Additional Information is
[DATE,] 1997.
DEUT001R
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Table of Contents
Cross-Reference to
Page Page in Prospectus
Investment Objective and Policies
Investment Restrictions
Directors, Trustees and Officers
Manager
Adviser
Administrator
Operations Agent
Administrative Agent
Distributor
Transfer Agent, Custodian and Fund Accountant
Independent Accountants
Purchase of Shares
Redemption of Shares
Net Asset Value; Redemption in Kind
Computation of Performance
Portfolio Transactions
Federal Taxes
Description of Shares
Additional Information
Financial Statements
DEUT001R
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<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following supplements the information contained in each Fund's
Prospectus concerning the investment objectives, policies and techniques of the
Portfolios. The descriptions are general and may not be applicable in certain
countries in which the Portfolios invest.
Equity Investments
As discussed in each Fund's Prospectus, each Portfolio may invest in
the equity securities of domestic and foreign issuers to the extent consistent
with its investment objectives and policies. Equity investments may or may not
pay dividends and may or may not carry voting rights. Common stock occupies the
most junior position in a company's capital structure. Preferred stock generally
carries preferential rights to dividends and amounts payable upon liquidation of
the issuer, but may have no voting rights. Convertible securities entitle the
holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time and to receive interest or dividends until the holder elects to convert.
The provisions of any convertible security determine its ranking in a company's
capital structure. In the case of subordinated convertible securities, the
holder's claims on assets and earnings are subordinated to the claims of other
creditors, and are senior to the claims of common shareholders.
Investment Companies
Up to 5% of the total assets of each Portfolio except the Top 50 US
Portfolio may be invested in shares of investment companies, provided these
shares are offered to the public without limitation on the number of shares, the
shareholders have the right to redeem their shares, and have investment policies
consistent with those of the Portfolio. The Top 50 US Portfolio may invest up to
5% of its total assets in the securities of any one investment company and
invest in the aggregate up to 10% of its total assets in the securities of
investment companies as a group. However, the Top 50 US Portfolio intends that
less than 5% of the Portfolio's total assets will be invested in investment
company securities during its first year of operations. Each Portfolio may not
own more than 3% of the total outstanding voting stock of any other investment
company. As a shareholder of another investment company, a Portfolio would bear,
along with other shareholders, its pro rata portion of the other investment
company's expenses, including advisory fees.
Subject to the foregoing limitations, shares of another securities
investment fund managed by the Manager or the Adviser or by another investment
adviser affiliated with the Manager or the Adviser through a substantial direct
or indirect interest may be purchased, subject to certain limitations, if the
other investment fund according to its investment policies is specialized in a
specific geographic area or economic sector. A Portfolio would not, however, pay
a sales charge when investing in an investment company managed by the Manager,
the Adviser or their affiliates. In addition, no management or advisory fees
DEUT001R
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<PAGE>
would be paid by a Portfolio with respect to its assets which are invested in
investment companies managed by the Manager, the Adviser or their affiliates.
Participation Certificates
Certain companies have issued participation certificates, which entitle
the holder to participate only in dividend distributions, generally at rates
above those declared on the issuers' common stock, but not to vote, nor usually
to any claim for assets in liquidation. Participation certificates trade like
common stock on their respective stock exchanges. Such securities may have
higher yields; however, they may be less liquid than common stock. The Adviser
believes that certain participation certificates have potential for long-term
appreciation, depending on their price relative to that of the issuer's equity
securities, if publicly traded, and other criteria.
Short-Term Instruments
Although it is intended that the assets of each Portfolio stay invested
in the securities described above and in each Fund's Prospectus to the extent
practical in light of each Portfolio's investment objective and long-term
investment perspective, assets of each Portfolio may be invested in bank
deposits and money market instruments maturing in less than 12 months to meet
anticipated expenses or for day-to-day operating purposes and when, in the
Adviser's opinion, it is advisable to adopt a temporary defensive position
because of unusual and adverse conditions affecting the equity or fixed income
markets. In addition, when a Portfolio experiences large cash inflows through
additional investments by its investors or the sale of portfolio securities, and
desirable securities that are consistent with its investment objective are
unavailable in sufficient quantities, assets may be held in short-term
investments for a limited time pending availability of such securities. Bank
deposits and money market instruments include credit balances and bank
certificates of deposit, discounted treasury notes and bills issued by the
Federal Republic of Germany ("FRG"), the states of the FRG, the European Union,
other member states of the OECD or quasi-government entities of any of the
foregoing.
Zero Coupon Obligations
Each Portfolio may also invest in zero coupon obligations, such as zero
coupon bonds. Zero coupon obligations pay no current interest, and as a result
their prices tend to be more volatile than those of securities that offer
regular payments of interest. In order to pay cash distributions representing
income on zero coupon obligations, a Portfolio may have to sell other securities
on unfavorable terms, and these sales may generate taxable gains for investors
in the corresponding Fund.
Options
Each Portfolio may write call and put options and purchase call and put
options on securities. A Portfolio will write options on securities for the
DEUT001R
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<PAGE>
purpose of increasing its return on such securities and/or to protect the values
of its portfolio.
The buyer of a typical put option can expect to realize a gain if the
price of the underlying instrument falls substantially. However, if the price of
the instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs). A call buyer
typically attempts to participate in potential price increases of the instrument
underlying the option with risk limited to the cost of the option if security
prices fall. At the same time, the buyer can expect to suffer a loss if security
prices do not rise sufficiently to offset the cost of the option (limited to the
amount of the premium paid, plus related transaction costs). A Portfolio may
seek to terminate its position in a put option it writes before exercise by
purchasing an offsetting option in the market at its current price. If the
market is not liquid for a put option the Portfolio has written, however, the
Portfolio must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to post margin as
discussed below.
If the price of the underlying instrument rises, a put writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received. If security prices remain the same over time, it is
likely that the writer will also profit, because it should be able to close out
the option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from purchasing
and holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline. The
characteristics of writing call options are similar to those of writing put
options, except that writing calls generally is a profitable strategy if prices
remain the same or fall. Through receipt of the option premium a call writer
offsets part of the effect of a price decline. At the same time, because a call
writer must be prepared to deliver the underlying instrument in return for the
strike price, even if its current value is greater, a call writer gives up some
ability to participate in security price increases.
Transaction in options, futures contracts, options on futures contracts
and forward contracts entered into for non-hedging purposes involve greater risk
and could result in losses which are not offset by gains on other portfolio
assets.
All options purchased or sold by a Portfolio will be traded on a
securities exchange or, in the case of Top 50 US Portfolio (US Dollar), will be
purchased or sold by securities dealers (in the case of over-the-counter, or
"OTC," options) that meet creditworthiness standards approved by the Portfolio
Trust's Board of Trustees. In the case of OTC options, the Top 50 US Portfolio
relies on the dealer from which it purchased the option to perform if the option
is exercised. Thus, when the Portfolio purchases an OTC option, it relies on the
dealer from which it purchased the option to make or take delivery of the
underlying securities. Failure by the dealer to do so would result in the loss
of the premium paid by the Portfolio as well as loss of the expected benefit of
the transaction.
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The staff of the SEC Securities and Exchange Commission ("SEC") has
taken the position that, in general, purchased OTC options and the underlying
securities used to cover written OTC options are illiquid securities. However,
the Top 50 US Portfolio may treat as liquid the underlying securities used to
cover written OTC options, provided it has arrangements with certain qualified
dealers who agree that such Portfolio may repurchase any option it writes for a
maximum price to be calculated by a predetermined formula. In these cases, the
OTC option itself would only be considered illiquid to the extent that the
maximum repurchase price under the formula exceeds the intrinsic value of the
option.
Foreign Currency Exchange Transactions
Each Portfolio (except the Top 50 US Portfolio(US Dollar))) may enter
into foreign currency exchange transactions in an attempt to protect against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or anticipated securities
transactions. The Japanese Equity Portfolio may enter into foreign exchange
transactions in order to hedge the U.S. dollar value of all or any part of the
assets denominated in foreign currencies then held or expected to be acquired by
the Portfolio. The Global Bond Portfolio and the European Bond Portfolio may
enter into foreign exchange transactions to hedge the value of its assets
against currencies other than the U.S. Dollar. Each other Portfolio may also
enter into forward contracts foreign currency transactions to hedge against a
change in foreign currency exchange rates that would affect the U.S. Dollar
value of existing investments denominated or principally traded in a foreign
currency. In the case of Each Portfolio other than the Provesta Portfolio and
the Investa Portfolio, such hedging activity will be limited to those may also,
in circumstances in which where the Adviser believes that one or more currencies
in which such Portfolio's assets are denominated may suffer a substantial
decline considers it appropriate, enter into foreign currency exchange
transactions for the purpose of hedging the value of such Portfolios against
currencies other than the U.S. dollar. To conduct the hedging discussed above,
the a Portfolio would generally enter into a forward contract to sell the
foreign currency in which the investment is denominated in exchange for the U.S.
dollars or other currency in which the Adviser desires to protect the value of
the Portfolio.
At such time as the Adviser believes that one or more currencies in which a
Portfolio's securities are denominated might suffer a substantial decline
against the U.S. dollar, a Portfolio may, in order to hedge the value of the
Portfolio, enter into forward contracts to sell fixed amounts of such currencies
for fixed amounts of U.S. dollars. The Provesta Portfolio, Top 50 Europe
Portfolio and Japan Portfolio may also, in circumstances where the Adviser
considers it appropriate, enter into foreign currency exchange transactions for
the purpose of hedging the value in Deutsche Marks ("DMs") of such Portfolios'
non-DM assets.
Although these transactions are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
limit any potential gain that might be realized should the value of the hedged
currency
DEUT001R
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<PAGE>
increase. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of such securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is difficult, and the successful execution of a hedging strategy is
highly uncertain.
Futures Contracts and Options on Futures Contracts
Each Portfolio may purchase or sell futures contracts and purchase put
and call options, including put and call options on futures contracts. In
addition, each Portfolio may purchase put and call options on futures. Futures
contracts obligate the buyer to take and the seller to make delivery at a future
date of a specified quantity of a financial instrument or an amount of cash
based on the value of a securities index.
Futures contracts and options on futures contracts may be entered into
on foreign exchanges. Investors should recognize that transactions involving
foreign securities or foreign currencies, and transactions entered into in
foreign countries may involve considerations and risks not typically associated
with investing in U.S. markets.
Futures Contracts. When a Portfolio purchases a futures contract, it
agrees to purchase a specified quantity of an underlying instrument at a
specified future date and price or to make or receive a cash payment based on
the value of a securities index or a financial instrument. When a Portfolio
sells a futures contract, it agrees to sell a specified quantity of the
underlying instrument at a specified future date and price or to receive or make
a cash payment based on the value of a securities index or a financial
instrument. When a Portfolio purchases or sells a futures contract, the value of
the futures contract tends to increase and decrease in tandem with the value of
its underlying instrument or index. The price at which the purchase and sale
will take place is fixed when a Portfolio enters into the contract. Futures can
be held until their delivery dates or the positions can be (and normally are)
closed out, by entering into an opposing contract, before then.
When a Portfolio purchases or sells a futures contract, it is required
to make an initial margin deposit. Although the amount may vary, initial margin
can be as low as 1% or less of the notional amount of the contract. Additional
margin may be required as the contract fluctuates in value. Since the amount of
margin is relatively small compared to the value of the securities covered by a
futures contract, the potential for gain or loss on a futures contract is much
greater than the amount of the Portfolio's initial margin deposit.
Options on Futures. Put and call options on futures contracts may be
purchased by each Portfolio in order to protect against declines in values of
portfolio securities or against increases in the cost of securities to be
acquired. Unlike a futures contract, which requires parties to buy or sell the
underlying financial instrument or make a cash settlement payment based on
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changes in the price of the financial instrument on an agreed date, an option on
a futures contract entitles its holder to decide on or before a future date
whether to enter into such a contract. If the holder decides not to exercise its
option, the holder may close out the option position by entering into an
offsetting transaction or may decide to let the option expire and forfeit the
premium thereon. The purchaser of an option on a futures contract pays a premium
for the option but makes no initial margin payments or daily payments of cash in
the nature of "variation" margin payments to reflect the change in the value of
the underlying contract as does a purchaser or seller of a futures contract. The
seller of an option on a futures contract receives the premium paid by the
purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by a Portfolio are paid by that Portfolio into a segregated
account as required by the 1940 Act and the SEC's interpretations thereunder.
Purchase of options on futures contracts may present less risk in
hedging a Portfolio than the purchase or sale of the underlying futures
contracts since the potential loss is limited to the amount of the premium plus
related transaction costs.
Combined Positions. Each Portfolio may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, a Portfolio may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
Options on Securities Indices. Each Portfolio is also permitted to
purchase call and put options on any securities index based on securities in
which the Portfolio may invest. Options on securities indices are similar to
options on securities, except that the exercise of securities index options is
settled by cash payment and does not involve the actual purchase or sale of
securities. In addition, these options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. A Portfolio, in purchasing index
options for hedging purposes, is subject to the risk that the value of its
portfolio securities may not change as much as that of an index because the
Portfolio's investments generally will not match the composition of an index.
Warrants. Each Portfolio may purchase warrants which, like options on
futures contracts and options on securities indices, entitle the holder to
purchase or sell a futures contract or to a cash payment reflecting the price
fluctuation in an index of securities. A Portfolio may also purchase warrants
that entitle the holder to a cash payment reflecting the fluctuation in the
value of certain financial futures contracts. Warrants on futures contracts and
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warrants on securities indices differ from the equivalent options in that: (1)
they are securities issued by a financial institution/special purpose issuer
rather than contracts entered into with a futures exchange and (2) they are
traded on a securities exchange rather than on a futures exchange. The use of
warrants will generally entail the same risks that are associated with a
Portfolio's positions in options on futures and options on securities indices.
Other Limitations. The Commodity Exchange Act prohibits U.S. persons,
such as a Portfolio, from buying or selling certain foreign futures contracts or
options on such contracts. Accordingly, each Portfolio will not engage in
foreign futures or options transactions unless the contracts in question may
lawfully be purchased and sold by U.S. persons in accordance with applicable
Commodity Futures Trading Commission ("CFTC") regulations or CFTC staff
advisories, interpretations and no action letters. In addition, in order to
assure that a Portfolio will not be considered a "commodity pool" for purposes
of CFTC rules, the Portfolio will enter into transactions in futures contracts
or options on futures contracts only if (1) such transactions constitute bona
fide hedging transactions, as defined under CFTC rules or (2) no more than 5% of
the Portfolio's net assets are committed as initial margin or premiums to
positions that do not constitute bona fide hedging transactions.
Correlation of Price Changes. Because there are a limited number of types of
exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match a
Portfolio's current or anticipated investments exactly. Each Portfolio may
invest in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures position
will not track the performance of a Portfolio's other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match a
Portfolio's investments well. Options and futures contracts prices are affected
by such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A Portfolio may purchase or sell options
and futures contracts with a greater or lesser value than the securities it
wishes to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in a Portfolio's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
DEUT001R
10
<PAGE>
Liquidity of Options and Futures Contracts. There is no assurance a liquid
market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for a
Portfolio to enter into new positions or close out existing positions. If the
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions, and
could potentially require a Portfolio to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, a
Portfolio's access to other assets held to cover its options or futures
positions could also be impaired. (See "Exchange Traded and Over-the-Counter
Options" above for a discussion of the liquidity of options not traded on an
exchange.)
Position Limits. Futures exchanges can limit the number of futures and options
on futures contracts that can be held or controlled by an entity. If an adequate
exemption cannot be obtained, a Portfolio or its Adviser may be required to
reduce the size of its futures and options positions or may not be able to trade
a certain futures or options contract in order to avoid exceeding such limits.
Asset Coverage for Futures Contracts and Options Positions. Each Portfolio
intends to comply with Section 4.5 of the regulations under the Commodity
Exchange Act, which limits the extent to which a Portfolio can commit assets to
initial margin deposits and option premiums. In addition, each Portfolio will
comply with guidelines established by the SEC with respect to coverage of
options and futures contracts by mutual funds, and if the guidelines so require,
will set aside appropriate liquid assets in a segregated custodial account in
the amount prescribed. Securities held in a segregated account cannot be sold
while the futures contract or option is outstanding, unless they are replaced
with other suitable assets. As a result, there is a possibility that segregation
of a large percentage of a Portfolio's assets could impede portfolio management
or a Portfolio's ability to meet redemption requests or other current
obligations.
Risk Management
Each Portfolio may employ non-hedging risk management techniques.
Examples of such strategies include synthetically altering the duration of a
portfolio or the mix of securities in a portfolio. For example, if the Adviser
wishes to extend maturities in a fixed income portfolio in order to take
advantage of an anticipated decline in interest rates, but does not wish to
purchase the underlying long term securities, it might cause the Portfolio to
purchase futures contracts on long term debt securities. Similarly, if the
Adviser wishes to decrease fixed income securities or purchase equities, it
could cause a Portfolio to sell futures contracts on debt securities and
purchase futures contracts on a stock index. Because these risk management
techniques involve leverage, they include, as do all leveraged transactions, the
possibility of losses as well as gains that are greater than if these techniques
involved the purchase and sale of the securities themselves rather than their
synthetic derivatives.
DEUT001R
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<PAGE>
THE GERMAN SECURITIES MARKETS
Equity Markets. Equity securities trade on the country's eight regional
stock exchanges (Frankfurt, Dusseldorf, Munich, Hamburg, Berlin, Stuttgart,
Hanover and Bremen), of which Frankfurt accounted for approximately 77% of the
total volume in 1996. While trading in listed securities is not legally or
otherwise confined to the exchanges, they are believed to handle the largest
part of trading volume in equity transactions.
<TABLE>
<CAPTION>
Market Capitalization and Trading Volume
of Equity Securities on German Stock Exchanges(1)
(in billions)
<S> <C>
Market Trading Volume for
Capitalization as the year ended
of December 31(2) December 31(2)
1992....................................... $359.77 DM561.89 $876.8 DM1,415.2
1993....................................... 483.59 800.10 1,150.3 1,985.8
1994....................................... 499.25 773.88 1,302.9 2,017.9
1995....................................... 544 .89 781.10 1,146.8 1,643.9
1996....................................... 635.95 988.77 1,487.6 2,312.9
<FN>
- ---------------
(1) Excluding stocks of foreign-domiciled companies and investment companies.
(2) US Dollar equivalents calculated at year-end exchange rates.
The figures for 1992 through 1994 include warrants.
Sources: Deutsche Borse AG and the Deutsche Bundesbank.
</FN>
</TABLE>
German stock exchanges offer three different market segments within
which stocks are traded:
(i) The official market (Amtlicher Handel) comprises trading
in shares which have been formally admitted to official listing by the
admissions committee of the stock exchange concerned, based upon
disclosure in the listing application or "prospectus".
(ii) The regulated, unlisted market (Geregelter Market)
comprises trading in shares not admitted to official listing. Companies
admitted to this market segment are exempt from publishing a full
listing prospectus, but are required to submit an offering memorandum.
Admission is granted by a special committee which is also responsible
for the supervision of the establishment of prices.
(iii) The unofficial, unregulated telephone, or over-the-counter, market
(Freiverkehr) comprises trading in securities that have not followed any special
listing procedure. It includes trading in securities
DEUT001R
12
<PAGE>
by telephone or on the stock exchange premises, between banks or
through floor brokers prior to or after official trading hours.
For an official listing, the German stock exchanges and pertinent
legislation require public disclosure of all information about an issuer
considered material to an evaluation of the securities to be listed.
Applications must further provide the latest annual financial statements of the
issuer with explanatory notes, including disclosure of any liabilities not shown
therein. They must also furnish details of the issuer to be listed. Generally,
DM 0.5 million par value (i.e., 10,000 shares of DM 50 par value) is considered
to be the minimum amount suitable for full listing. Applications for admission
to regulated unlisted trading must contain essentially similar information as
that required for full listing, but in a condensed form that may be submitted as
a memorandum. However, the document, in lieu of being published, may be
deposited with paying agents so long as reference is made in one of the official
stock exchange publications.
Markets in listed securities are generally of the auction type, but a
substantial amount of listed securities also changes hands in inter-bank dealer
markets both on and off the stock exchanges. Prices for active stocks, including
those of larger companies, are quoted continuously during stock exchange hours.
Less active listed and stocks admitted to trading in the regulated unlisted
market are quoted only once a day.
Options on both domestic and foreign stocks have been traded since 1970
although trading activity is relatively low. There is also active trading in
share warrants, generally issued in conjunction with bonds.
As set forth below under "Role of Banks in German Capital Markets",
German banks, brokers and selected domestic investment trusts are regular
members of the stock exchanges. Banks may deal on a net basis for their own
account, as well as for accounts of domestic and foreign institutional customers
during or after regular stock exchange hours.
Stock Indices. Two principal stock indices in Germany are the DAX Index
(Deutscher Aktienindex; i.e., German Stock Index) and the CDAX German Composite
Index (Composite Deutscher Aktienindex). The DAX Index is composed of the 30
most actively traded German blue-chip stocks. It represents over 69% of the
total equity capital of German exchange-listed companies. Trading in these
shares accounts for approximately 75% of the stock volume traded on the German
exchanges. The CDAX German Composite Index comprises all German stocks listed in
the official market at the Frankfurt Stock Exchange.
Set forth in the table below is information concerning the total return
of the DAX Index and CDAX Index for each of the periods indicated.
DEUT001R
13
<PAGE>
<TABLE>
<CAPTION>
Annual Total Return(1)
<S> <C> <C> <C> <C> <C> <C>
First
half
1992 1993 1994 1995 1996 1997(2)
DAX.............................. (2.09)% 46.71% (7.06)% 6.99% 28.17% 31.05%
CDAX............................. (6.39)% 44.56% 4.75% 22.14% 29.96%
(5.83)%
Dollar-adjusted DAX.............. (8.33)% 36.85% 4.12% 18.17% 16.83%
15.60%
Dollar-adjusted CDAX............. (12.36)% 34.85% 5.50% 13.17% 15.85%
12.61%
<FN>
- ----------------
(1) Based on U.S. dollar returns.
(2) Return as of June 30, 1997 (not annualized).
</FN>
</TABLE>
Trading volume tends to concentrate on the relatively few companies
having both large market capitalization and a broad distribution of their stock
with few or no large holders. The five companies having the largest annual
trading volume of their stock in 1996 represented 46.8% of total trading volume
on the German stock exchanges: Saimler-Benz Ag with DM 261.9 billion, Siemens AG
with DM 256.1 billion, Deutsche Bank AG with DM 216.8 billion, Bayer AG with DM
186.4 billion and Volkswagen AG with DM 162.2 billion.
The actual float available for public trading is significantly smaller
than the aggregate market value cited above because of the large extent of
long-term holdings by non-financial corporations, family groups and banks.
However, the number of publicly traded shares has been increasing in recent
years due to a reduction in such holdings on the part of certain insurance
companies and public authorities. In addition, the continuing public offerings
of equity securities previously controlled by the federal government have
contributed to the growing size of the float.
Domestic institutional ownership of German equities, while large
relative to that by individuals, is less than that in certain other industrial
countries. The German Government is encouraging the expansion of private
participation in the equity markets, and has contributed to this process both
directly, through public sale of government-owned enterprises, as well as
indirectly through fiscal measures.
Set forth in the table below is information concerning the industry
composition of the DAX Index and CDAX Index.
DEUT001R
14
<PAGE>
Industry Composition of DAX(1) and CDAX(2) Index -- as of December 31, 1996
DAX CDAX
Banks and Insurance................ 28.0% 28.0%
Chemical Concerns/Pharmaceutical.... 20.9% 20.1%
Auto Industry and Supply.... 13.7% 10.2%
Utilities and Energy........... -- --
Electronics Industry............ 5.3% 5.7%
Mechanical Engineering............ 2.0% 2.7%
Steel and Raw Materials.............. 3.5% 4.1%
Consumer Goods....................... 4.5% 6.0%
Other................................... 4.5% 6.0%
Total....................100.0% 100.0%
- -----------------
(1) The DAX Index is comprised of 30 stocks representing approximately 69%
of the market capitalization of the German stock exchange.
(2) The CDAX Index is comprised of 374 stocks (subject to adjustments).
Primary Markets. The amount of funds raised in equity financings in
1996 increased by DM 17,862 to DM 24,807 while the number of financings
decreased by 6 to 14. The total value of primary offerings for each of the
previous five years of listed equity issues is shown in the table below.
Primary Offerings of Listed Equity Securities by
Domestic Issuers
(millions of DM)
1992 1993 1994 1995 1996
Value.............................. 804 833 1,246 6,495 24,807
- --------------
Source: Deutsche Borse AG.
Role of Banks in German Capital Markets. As is the case in other
continental European developed countries, German commercial and banking laws
permit commercial banks to act, either directly or indirectly, as investment
bankers/underwriters, managers of mutual and other investment funds and
investment advisers, as well as securities broker/dealers. Many German banks,
including Deutsche Bank AG ("Deutsche Bank"), are members of stock exchanges in
their respective countries. Moreover, they may, directly or indirectly, also
provide other financial services such as life insurance, mortgage lending and
installment financing. Lastly, they may, and frequently do, maintain long-term
DEUT001R
15
<PAGE>
equity participations in industrial, commercial or financial enterprises,
including enterprises whose voting and other equity securities may be publicly
traded and/or listed on national securities exchanges. Recent legislation
requires notification of the newly established Securities Trading Supervisory
Office and publication if certain thresholds of participating in the voting
capital of a stock exchange listed corporation are passed.
Deutsche Bank, the parent of the Manager and the Investment Adviser,
holds significant participation in five listed German companies. The term
"significant" denotes direct ownership of over 25% of the voting equity which,
under German law, provides the holder with veto power in policy decisions, such
as a change of business objectives or major acquisitions. Deutsche Bank owns
equity interests ranging from 25% to 50% in holding companies that own
participations of 25% or more in an additional four listed German companies,
most of which are publicly owned. In addition, Deutsche Bank may maintain
trading positions in the securities of these and other (domestic and foreign)
companies, and may make trading markets in some of them, subject to limitations
imposed by applicable law, including the limitations of the German Stock
Exchange Law (Borsengesetz) of 1896, as amended. Deutsche Bank directors or
officers may, by virtue of such ownership or otherwise, be elected to the
Supervisory Boards of these and other companies. Deutsche Bank and its
affiliates may also have commercial lending relationships with companies whose
securities the Fund may acquire.
In their capacity as underwriters, German banks originate and manage
new issues of domestic and international fixed income and equity securities both
in their respective domestic primary market and in the Euromarket. Deutsche Bank
frequently acts as lead manager for domestic underwritten offerings of both debt
and equity securities. Under an SEC securities in offerings in which Deutsche
Bank or one of its affiliates is the principal underwriter. Directly and through
its various wholly-owned affiliates abroad, Deutsche Bank is a major factor in
the Eurobond market. Although the Fund will not purchase securities from or sell
securities to Deutsche Bank, the trading activities of Deutsche Bank as well as
the investment positions and underwriting activities in such securities could
have either an adverse or beneficial effect on the price of those securities
already held in the Portfolio or contemplated for purchase and, depending on the
size of Deutsche Bank's position, may or may not affect the availability of the
securities for investment of the Portfolio.
JAPANESE EQUITY SECURITIES MARKETS
Listed securities in Japan trade on three Main Japanese Exchanges (the
Nagoya Stock Exchange, the Osaka Securities Exchange and the Tokyo Stock
Exchange (the "TSE")) and five regional stock exchanges (the Fukuoka Stock
Exchange, the Hiroshima Stock Exchange, the Kyoto Stock Exchange, the Niigata
Stock Exchange and the Sapporo Stock Exchange). The TSE is the largest and most
prestigious of the exchanges and is widely regarded as the central marketplace
for all of Japan.
There are two widely followed price indices in Japan for listed
securities. The Nikkei Stock Average ("NSA") is the arithmetic average of 225
selected stocks
DEUT001R
16
<PAGE>
computed by a private corporation. The Tokyo Stock Price Index ("TOPIX"),
published by the TSE, is the composite index of all common stock listed on the
First Section of the TSE. TOPIX reflects the change in the aggregate market
value of the common stocks as compared to the aggregate market value of those
stocks as of the close on January 4, 1968.
The following table sets forth the year-end NSA and TOPIX for 1987
through 1996 and yen and dollar-adjusted total return information for those
years.
<TABLE>
<CAPTION>
NSA TOPIX
-------------------------------------------------- --------------------------------------------
Total Return(1) Total Return(1)
--------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Dollar Dollar
Index* (Y) Adjusted Index* (Y) Adjusted
-------------- ----------- -------------------- ------------- ------------ --------------
1987 21,564.00 15.31% 50.54% 1,725.83 10.89% 44.77%
1988 30,159.00 39.86% 35.61% 2,357.03 36.57% 32.42%
1989 29.04% 12.21% 2,881.37 22.25% 6.31%
38,915.87
1990 23,848.71 -35.08% 1,733.83 -39.83% -36.26%
-38.72%
1991 22,983.77 -3.63% 4.75% -1.10% 7.49%
1,714.68
1992 16,924.95 -26.36% -26.33% 1,307.66 -23.74% -23.71%
1993 17,417.24 2.91% 15.02% 1,439.31 10.07% 23.03%
1994 13.24% 27.00% 1,559.09 8.32% 21.48%
19,723.06
1995 19,868.15 0.74% -2.85% 1,577.70 1.19% -2.41%
1996 19,361.35 -2.55% -13.06% -6.77% -16.83%
1,470.94
<FN>
(1) Total return is the percent change in the index from the start of
the year to the end.
Sources: Tokyo Stock Exchange, Annual Securities Statistics (1996); Monthly
Statistics Report (Dec. 1987, 1988, 1989, 1990, 1991, 1992, 1993,
1994, 1995).
</FN>
</TABLE>
The Japanese stock and real estate markets of the late 1980s have been
dubbed "bubble" markets because they were characterized by dramatic increases in
the volume of trading and transactions as well as in prices of stock and land.
Such increases were driven by investors' expectations that stock and land prices
would rise even further for the foreseeable future, thereby justifying (in their
DEUT001R
17
<PAGE>
minds) their over-priced investments in Japanese stock and real estate. Many of
such investments were financed with secured loans from Japan's banks and
so-called "non-bank banks" (i.e., companies that are not licensed by the
Minister of Finance to engage in the business of commercial banking but that are
primarily engaged in the business of commercial lending).
The collapse of the "bubble" stock market in 1990 had a material
adverse impact on the financial situation of various participants therein. Such
collapse also led to various problems involving irregular practices in the
securities business, such as compensation to favored customers by securities
companies for trading and other losses. The decline in stock prices has raised
the cost of capital for industry and has reduced the value of stock holdings by
banks and corporations. These effects have, in turn, contributed to the recent
weakness in Japan's economy and could continue to have an adverse impact in the
future.
The following table sets forth the aggregate trading volume and the
value of Japanese stocks on the eight Japanese stock exchanges for the years
1989 through 1996. Trading on the TSE represented over 76% of trading volume in
each year.
Volume Value
Year (millions of shares) ((Y) bils.)
1989 256,296 (Y)386,395
1990 145,837 231,837
1991 107,844 134,160
1992 82,563 80,456
1993 101,172 106,123
1994 105,936 114,622
1995 120,148 115,840
1996 126,496 136,170
Source: Tokyo Stock Exchange, Fact Book 1997.
The Main Japanese Exchanges divide listed companies into First and
Second Sections. Generally, larger, established companies are assigned to the
First Section. Such companies meet more stringent listing criteria relating to
the size and business condition of the issuing company, the liquidity of its
securities and other factors pertinent to investor protection. At the end of
1996, 1,293 Japanese companies were listed on the First Section of the TSE.
Newly listed and smaller companies are assigned to the Second Section. At the
end of 1996, 473 Japanese companies were listed on the Second Section of the
TSE. In an effort to increase the number of companies listed on the Second
Section, the Second Section listing requirements prescribed by each of the Main
Japanese Exchanges were lowered in 1996.
DEUT001R
18
<PAGE>
The 20 leading Japanese companies on the TSE, by market value,
represented 25.6% of the total market value of the TSE at year-end 1996. In
1996, three industrial groups accounted for approximately 40% of the total
market value of the TSE: banks, 19.3%; electric appliances, 12.4%; and
transportation equipment, 9.4%. The following table sets forth the number of
companies listed on the TSE and market value by industrial group for year-end
1996.
DEUT001R
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Market Values
Companies ((Y) bils.)
Fishery, Agriculture & Forestry............................ 7 497
Mining..................................................... 9 670
Construction.............................................. 145 12,981
Foods...................................................... 91 9,837
Textiles & Apparels........................................ 64 5,198
Pulp & Paper............................................... 22 2,272
Chemicals.................................................. 131 15,983
Pharmaceutical............................................. 39 10,516
Oil & Coal Products....................................... 13 3,484
Rubber Products............................................ 15 2,680
Glass & Ceramics Products.................................. 40 4,693
Iron & Steel............................................... 51 9,038
Nonferrous Metals.......................................... 34 4,837
Metal Products............................................. 45 2,906
Machinery.................................................. 149 12,196
Electric Appliances........................................ 181 43,190
Transportation Equipment................................... 85 32,599
Precision Instruments...................................... 26 2,462
Other Products............................................. 48 7,725
Electric Power & Gas....................................... 17 14,282
Land Transportation........................................ 37 12,376
Marine Transportation..................................... 22 1,506
Air Transportation......................................... 5 2,460
Warehousing & Harbor Transportation
Services................................................... 24 1,028
Communication.............................................. 4 8,086
Wholesale Trade............................................ 120 12,565
Retail Trade............................................... 88 15,571
Banks...................................................... 100 67,109
Securities................................................. 25 8,255
Insurance.................................................. 14 4,885
Other Financing Businesses................................. 20 4,043
Real Estate................................................ 26 4,126
Services................................................... 68 7,505
Total...................................................... 1,765 347,578
Manufacturing.............................................. 1,034 169,525
Non-Manufacturing......................................... 732 177,952
Total...................................................... 1,765 347,578
</TABLE>
DEUT001R
20
<PAGE>
Source: Tokyo Stock Exchange, Fact Book 1997.
The amount of funds raised in equity financings by all the companies
listed on the TSE in 1996 increased by 946 billion yen to 1,534 billion yen
while the number of financings increased by 96 to 253. The following table sets
forth the number of equity financings by companies listed on the TSE and the
amount raised for each of 1992 through 1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Rights Offerings Public Offerings Private Placements Exercise of Warrants Total
Amount Amount Amount Amount Amount
No. of Raised No. of Raised No. of Raised No. of Raised Raised
Financings ((Y)bils.) Financings ((Y)bils.) Financings ((Y)bils.) Financings ((Y)bils.) ((Y)bils.)
1992 20 111 3 4 22 102 127 203 419
93 9 48 4 7 14 150 184 617 822
1994 2 10 18 237 8 239 180 451 935
1995 12 96 8 33 19 160 118 299 588
1996 9 337 36 305 20 218 187 673 1,533
Source: Tokyo Stock Exchange, Fact Book 1997.
</TABLE>
INVESTMENT RESTRICTIONS
The investment restrictions of each Fund and its corresponding
Portfolio are identical, unless otherwise specified. Accordingly, references
below to a Fund also include its corresponding Portfolio unless the context
requires otherwise; similarly, references to a Portfolio also include its
corresponding Fund unless the context requires otherwise.
The investment restrictions below have been adopted by the Corporation
with respect to each Fund as indicated and by the Portfolio Trust with respect
to each Portfolio as indicated. Except where otherwise noted, these investment
restrictions are "fundamental" policies which, under the 1940 Act, may not be
changed without the vote of a "majority of the outstanding voting securities"
(as defined in the 1940 Act) of a Fund or a Portfolio, as the case may be. The
percentage limitations contained in the restrictions below apply at the time of
the purchase of securities except as otherwise noted. Whenever a Fund is
requested to vote on a change in the fundamental investment restrictions of its
corresponding Portfolio, the Corporation will hold a meeting of Fund
shareholders and will cast its votes as instructed by such Fund's shareholders.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC
staff interpretations thereof are amended or modified and except that the
Corporation may invest all of each Fund's assets in its corresponding Portfolio,
each of the Funds and its corresponding Portfolio may not:
1. Purchase any security if, as a result, 25% or more of its total assets would
be invested in securities of issuers in any single industry, except that the
European Bond Fund and the Global Bond Fund will each invest more than 25% of
its total assets in the securities issued by foreign governments and their
agencies and instrumentalities. This limitation shall not apply to securities
DEUT001R
21
<PAGE>
issued or guaranteed as to principal or interest by the U.S. Government or
instrumentalities.
2. Issue senior securities. For purposes of this restriction, borrowing money in
accordance with paragraph 3 below, making loans in accordance with paragraph 7
below, the issuance of shares in multiple classes or series, the purchase or
sale of options, futures contracts, forward commitments, swaps and transactions
in repurchase agreements are not deemed to be senior securities.
3. Borrow money, except in amounts not to exceed one third of the Fund's total
assets (including the amount borrowed) (i) from banks for temporary or
short-term purposes or for the clearance of transactions, (ii) in connection
with the redemption of Fund shares or to finance failed settlements of portfolio
trades without immediately liquidating portfolio securities or other assets,
(iii) in order to fulfill commitments or plans to purchase additional securities
pending the anticipated sale of other portfolio securities or assets and (iv)
pursuant to reverse repurchase agreements entered into by the Fund.
4. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Fund may be deemed
to be an underwriter under the Securities Act of 1933, as amended (the "1933
Act").
5. Purchase or sell real estate except that the Fund may (i) acquire or lease
office space for its own use, (ii) invest in securities of issuers that invest
in real estate or interests therein, (iii) invest in securities that are secured
by real estate or interests therein, (iv) purchase and sell mortgage-related
securities and (v) hold and sell real estate acquired by the Fund as a result of
the ownership of securities.
6. Purchase or sell commodities or commodity contracts, except the Fund may
purchase and sell financial futures contracts, options on financial futures
contracts and warrants and may enter into swap and forward commitment
transactions.
7. Make loans, except that the Fund (1) may lend portfolio securities with a
value not exceeding one-third of the Fund's total assets, (2) enter into
repurchase agreements, and (3) purchase all or a portion of an issue of debt
securities (including privately issued debt securities), bank loan participation
interests, bank certificates of deposit, bankers' acceptances, debentures or
other securities, whether or not the purchase is made upon the original issuance
of the securities.
Non-Fundamental Investment Restrictions. The investment restrictions described
below are not fundamental policies of the Funds and their corresponding
Portfolios and may be changed by their respective Directors or Trustees. These
non-fundamental investment policies require that, each Fund and its
corresponding Portfolio may not (except that the Corporation may invest all of
each Fund's assets in its corresponding Portfolio):
DEUT001R
22
<PAGE>
(i) Acquire securities of other investment companies, except as permitted by the
1940 Act or any rule, order or interpretation thereunder, or in connection with
a merger, consolidation, reorganization, acquisition of assets or an offer of
exchange, provided that Provesta Portfolio and Investa Portfolio shall each be
limited to 5% in the amount of its total assets that may be invested in the
aggregate in securities of investment companies as a group. Currently the 1940
Act prohibits a Fund from acquiring securities of other investment companies if
as a result (i) more than 5% of the value of a Fund's total assets will be
invested in the securities of any one investment company, (ii) more than 10% of
the value of its total assets will be invested in the aggregate in securities of
investment companies as a group, or (iii) more than 3% of the outstanding voting
stock of any one investment company will be owned by a Fund or Portfolio;
(ii) Acquire any illiquid investments, such as repurchase agreements with more
than seven days to maturity, if as a result thereof, more than 15% of the market
value of the Fund's net assets would be in investments that are illiquid;
(iii) invest more than 10% of its net assets in unlisted securities and Notes
(as defined in the Fund's prospectus);
(iv) Sell any security short, except to the extent permitted by the 1940 Act.
Transactions in futures contracts and options shall not constitute selling
securities short; or
(v) Purchase securities on margin, but the Fund may obtain such short term
credits as may be necessary for the clearance of transactions;.
The DWS Funds are subject to regulation under the German Investment
Companies Act, therefore, in addition to the investment policies discussed
herein and in the Prospectus, each Fund, except Top 50 US and its corresponding
Portfolio, has adopted additional non-fundamental investment policies. These
non-fundamental investment policies require that each such Fund and its
corresponding Portfolio may not (except that the Corporation may invest all of
each Fund's assets in its corresponding Portfolio):
(i) invest more than 10% of its net assets in the securities of any one issuer
or invest more than 40% of its net assets in the aggregate in the securities of
those issuers in which the Portfolio has invested in excess of 5% but not more
than 10% of its net assets. For purposes of this restriction, mortgage bonds and
municipal bonds as well as bonds and Notes issued by the FRG, the states of the
FRG, a member state of the European Union ("EU"), a state party to the
Convention on the European Economic Area ("CEEA"), a member state of the
Organization for Economic Cooperation and Development ("OECD") or the EU shall
be valued at half of their value. Bonds of credit institutions situated in a
member state of the EU or state party to the CEEA shall be valued at half their
value provided that the credit institutions are by law subject to a special
public supervision to protect the holders of such bonds and provided the funds
raised through the issue of such bonds are invested in accordance with the legal
provisions in assets, which provide sufficient coverage for the ensuing
liabilities throughout the entire life of the bonds and which in case of
deficiency of the issuer are earmarked for prior redemption of principal and
payment of interest. Securities
DEUT001R
23
<PAGE>
and Notes issued by companies in the same affiliated group shall be considered
securities of the same issuer (borrower);
(ii) purchase bonds of the same issuer to the extent that their total value
exceeds 10% of the total value of the bonds outstanding of the same issuer. This
restriction does not apply to bonds issued by a national government, a local
authority of a member state of the EU, a state party to the CEEA or by the EU,
or if one of these bodies guarantees the payment of interest or the repayment of
principal. For purchases, the above limit need not be complied with if the total
value of the outstanding bonds of the same issuer cannot be determined;
(iii) purchase non-voting shares of the same issuer to the extent that the total
value exceeds 10% of the total value of non-voting shares of the issuer; and
(iv) borrow money, except in amounts not to exceed 10% of the Fund's total
assets (including the amount borrowed).
The European Bond Fund is subject to an additional non-fundamental
investment restriction: no more than 10% of the value of its total assets will
be invested in equity securities (including warrants).
All Funds. There will be no violation of any investment restriction if
that restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, the Adviser may classify issuers by industry in accordance with
based on classifications used by Datastream, a provider of financial information
databases and related services, or other sources Micropal, a leading company
offering a comprehensive and accurate performance measurement service
specializing in collective investment vehicles. Micropal monitors all the
world's major fund markets and has a range of clients from financial
institutions to individual investors. In the absence of such classification or
if the Adviser determines in good faith based on its own information that the
economic characteristics affecting a particular issuer make it more
appropriately considered to be engaged in a different industry, the Adviser may
classify an issuer accordingly. For instance, personal credit finance companies
and business credit finance companies are deemed to be separate industries and
wholly owned finance companies are considered to be in the industry of their
parents if their activities are primarily related to financing the activities of
their parents. The Adviser expects that the European Bond Portfolio and Global
Bond Portfolio each will remain concentrated in the securities of foreign
government and their agencies and instrumentalities.
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:
DEUT001R
24
<PAGE>
DIRECTORS OF THE CORPORATION AND TRUSTEES OF THE PORTFOLIO TRUST
Edward C. Schmults - Member of the Board of Directors of Green Point Financial
Corp. Chairman of the Board of Trustees of The Edna McConnell Clark Foundation.
Director of The Germany Fund, Inc. and The Central European Equity Fund, Inc.
Senior Vice President-External Affairs and General Counsel of GTE Corporation
(prior to 1994). Mr. Schmults' address is Rural Route One, Box 788,
Cuttingsville, Vermont 05738.
Robert H. Wadsworth - President of The Wadsworth Group, First Fund Distributors,
Inc. and Guinness Flight Investment Funds, Inc. Director of The Germany Fund,
Inc., The New Germany Fund, Inc. and The Central European Equity Fund, Inc. Vice
President of Professionally Managed Portfolios and Advisors Series Trust. Mr.
Wadsworth's address is Investment Company Administration Corp., 479 West 22nd
Street, New York, NY 10011.
Werner Walbroel - President and Chief Executive of the German American Chamber
of Commerce, Inc. Member of the United States German Youth Exchange Council.
Director of TUV Rheinland of North America, Inc. President and Director of
German American Partnership Program. Director of The Germany Fund, Inc., DB New
World Fund, Limited and LDC, and The Central European Equity Fund, Inc. Mr.
Walbroel's address is German American Chamber of Commerce, Inc., 40 West 57th
Street, New York, NY 10019.
G. Richard Stamberger* **- Managing Director of Deutsche Morgan Grenfell Inc.
President, Deutsche Asset Management North America 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 Asset
Management North America Inc, 31 West 52nd Street, New York, NY 10019.
Christian Strenger* ** - Managing Director of DWS Deutsche Gesellschaft fuer
Wertpapiersparen mbH (since 1991). Director of The Germany Fund, Inc., The New
Germany Fund, Inc. and The Central European Equity Fund, Inc. Managing Director
of Deutsche Bank Securities Corp. (prior to 1991). Mr. Strenger's address is DWS
Deutsche Gesellschaft fuer Wertpapiersparen mbH, Gruneburgweg 113-115, 60323
Frankfurt am Main, Germany.
OFFICERS OF THE CORPORATION
Brian A. Lee* **- President. President and Managing Director of DFM (since
January 1997). Director of Deutsche Bank Trust Company (since 1994). President
and Chief Operating Officer of Deutsche Bank Trust Company (1994 - 1997).
Director of Deutsche Bank Securities Corp. (1993-1994). Director of Value Line
Securities, Inc. (1992-1993). National Director and Head of Retail Sales and
Service Division, The Dreyfus Corporation (prior to 1992). Director, Boggy Creek
Hole in the Wall Gang Camp for Children. Trustee, Valley Hospital. Director,
Capital Sources Board, State of New Jersey.
Joseph Cheung* - Treasurer. Vice President (since 1996), Assistant Vice
President (1994-1996) and Associate (1991-1994) of Deutsche Morgan Grenfell Inc.
DEUT001R
25
<PAGE>
Treasurer of the CountryBaskets Index Fund, Inc. (1996-1997). Assistant
Secretary and Assistant Treasurer of The Germany Fund, Inc., The Central
European Equity Fund, Inc. and the New Germany Fund, Inc. (since 1993).
Robert R. Gambee* - Secretary. Director of Deutsche Morgan Grenfell, Inc. (since
1992). First Vice President of Deutsche Morgan Grenfell, Inc. (1987 -1991).
1991).Treasurer and Secretary of The Germany Fund, Inc., The Central European
Equity Fund, Inc. and the New Germany Fund, Inc.
Laura Weber* - Assistant Secretary and Assistant Treasurer. Associate of
Deutsche Morgan Grenfell Inc. (since June, 1997). Manager of Raymond James
Financial (1996-1997). Portfolio Accountant of Oppenheimer Capital (1995-1996).
Supervisor (1994-1995) and Mutual Fund Accountant (1993-1994) of Alliance
Capital Management.
* is an "interested person" of the Corporation or the Portfolio Trust as that
term is defined in the 1940 Act.
** Mr. Lee, Mr. Strenger and Mr. Stamberger own less than 1% of the shares of
Deutsche Bank AG, of which the Manager and Adviser are indirect subsidiaries.
The address of each officer of the Corporation is 31 West 52nd Street,
New York, NY 10019.
The Portfolio Trust does not have officers, but instead acts
exclusively through its Trustees and agent agents of the Portfolio Trust
authorized by the Trustees.
DEUT001R
26
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
DIRECTORS OF THE CORPORATION
PENSION OR ESTIMATED
RETIREMENT TOTAL
<S> <C> <C> <C> <C>
AGGREGATE BENEFITS ESTIMATED COMPENSATION
COMPENSATION ACCRUED AS ANNUAL FROM THE
FROM PART OF FUND BENEFITS UPON CORPORATION
THE CORPORATION EXPENSES RETIREMENT AND FUND
COMPLEX*
Edward C. $7,000 None None $44,750
Schmults,
Director
Robert H. $7,000 None None $62,000
Wadsworth,
Director
Werner $7,000 None None $46,250
Walbroel,
Director
G. Richard None None None None
Stamberger*,
Director
Christian None None None None
Strenger,
Director
</TABLE>
DEUT001R
27
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
TRUSTEES OF THE PORTFOLIO TRUST
<S> <C> <C> <C> <C>
PENSION OR
RETIREMENT ESTIMATED
AGGREGATE BENEFITS ESTIMATED TOTAL
COMPENSATION ACCRUED AS ANNUAL COMPENSATION
FROM THE PART OF FUND BENEFITS UPON FROM THE
PORTFOLIO TRUST EXPENSES RETIREMENT CORPORATION
PORTFOLIO
TRUST AND
FUND COMPLEX*
Edward C. $7,000 None None $44,750
Schmults,
Trustee
Robert H. $7,000 None None $62,000
Wadsworth,
Trustee
Trustee
Werner $7,000 None None $46,250
Walbroel,
Trustee
G. Richard None None None None
Stamberger*,
Trustee
Christian None None None None
Strenger,
Trustee
</TABLE>
* The Fund Complex consists of the Corporation, the Portfolio Trust, The New
Germany Fund, Inc., The Central European Equity Fund, Inc. and The Germany Fund,
Inc.
The non-interested Directors of the Corporation receive a base annual
fee of $5,000 and $500 per meeting attended, plus expenses which is are paid
jointly by all series of the Corporation and allocated among the series based
upon their respective net assets.
The non-interested Trustees of the Portfolio Trust receive a base
annual fee of $5,000 and $500 per meeting attended plus expenses which is paid
jointly by all series of the Portfolio Trust and allocated among the series
based upon their respective net assets.
DEUT001R
28
<PAGE>
Neither the Corporation nor the Portfolio Trust requires employees and
none of the Corporation's officers devote full time to the affairs of the
Corporation or receive any compensation from a Fund or a Portfolio.
Fund Ownership. On the date of this Statement of Additional Information, the
Directors of the Corporation, Trustees of the Portfolio Trust and officers of
the Corporation as a group beneficially owned no outstanding shares of the
Corporation and none of the beneficial interests in any Portfolio of the
Portfolio Trust. As of the same date, no person owned 5% or more of the
outstanding voting stock of a Fund or a any series of the Corporation or any
Portfolio except the Corporation owned 100% of the outstanding beneficial
interests in each Portfolio and Edgewood Services, Inc. owned 100% of the
outstanding voting shares of each Fund.
MANAGER
The investment manager to each Portfolio is DFM, an indirect subsidiary
of Deutsche Bank AG, a major global banking institution headquartered in
Germany. DFM, with principal offices at 31 West 52nd Street, New York, New York
10019, is a Delaware corporation and registered investment adviser under the
Investment Advisers Act of 1940.
Pursuant to an investment management agreement with the Portfolio Trust
with respect to each Portfolio (the "Management Agreement"), DFM acts as
investment manager to each Portfolio and, subject to the supervision of the
Board of Trustees of the Portfolio Trust, is responsible for, but may and has
delegated as described below, under "Adviser," the management of the investment
operations of each Portfolio's investments in accordance with its investment
objective, policies and restrictions. DFM also provides each Portfolio with
overall supervisory services over the other service providers and certain other
services. The investment management services DFM provides to each Portfolio are
not exclusive under the terms of the Management Agreement. DFM is free to render
similar investment management services to others.
The Management Agreement is dated July 28, 1997 and will remain in
effect until July 28, 1999 and from year to year thereafter, but only so long as
the agreement is specifically approved at least annually (i) by a vote of the
holders of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the related Portfolio, or by the Portfolio Trust's Trustees, and
(ii) by a vote of a majority of the Trustees of the Portfolio Trust who are not
parties to such Management Agreement or "interested persons" (as defined in the
1940 Act) of the Portfolio Trust, cast in person at a meeting called for the
purpose of voting on such approval. The Management Agreement was initially
approved at a meeting held on July 28, 1997. The Management Agreement will
terminate automatically if assigned and is terminable at any time without
penalty by a vote of a majority of the Portfolio Trust's Trustees, or by a vote
of the holders of a majority of the related Portfolio's outstanding voting
securities, on 60 days' written notice to the Manager and by the Manager on 90
days' written notice to the Portfolio Trust. The Management Agreement provides
that neither DFM nor its personnel shall be liable for any error of judgment or
mistake of law or for any
DEUT001R
29
<PAGE>
loss or expense in connection with the matters in which the agreement relates,
except a loss resulting from willful wilful misfeasance, bad faith or gross
negligence on its part in the performance of its obligations and duties under
the agreement. See "Additional Information."
As compensation for the services rendered and related expenses borne by
DFM under the Management Agreement with the Portfolio Trust with respect to each
Portfolio, DFM receives a fee from each of Top 50 World, Top 50 Europe and Top
50 Asia Portfolio, each Equity Portfolio (except the foregoing three Top 50
Portfolios) and each Bond Portfolio, which is computed daily and may be paid
monthly, equal to 1.00%, 0.85% and 0.75%, respectively, of the average daily net
assets of such Portfolio on an annualized basis for the Portfolio's then-current
fiscal year.
The Glass-Steagall Act and other applicable laws generally prohibit
banks (including foreign banks having U.S. operations, such as Deutsche Bank AG)
from engaging in the business of underwriting or distributing securities in the
United States, and the Board of Governors of the Federal Reserve System has
issued an interpretation to the effect that under these laws a bank holding
company registered under the Federal Bank Holding Company Act (or a foreign bank
subject to such Act's provisions) or certain subsidiaries thereof may not
sponsor, organize, or control a registered open-end investment company
continuously engaged in the issuance of its shares, such as the Corporation. The
interpretation does not prohibit a holding company (or such a foreign bank) or a
subsidiary thereof from acting as investment manager and custodian to such an
investment company. Deutsche Bank AG believes that DFM may perform the services
for the Portfolio Trust and the Corporation contemplated by the Management
Agreement without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. It is possible that future changes in federal
statutes and regulations concerning the permissible activities of banks or trust
companies, as well as further judicial or administrative decisions and
interpretations of present and future statutes and regulations, might prevent
DFM from continuing to perform such services for each Portfolio.
ADVISER
DFM has entered into an investment advisory agreement (the "Advisory
Agreement") dated July 28, 1997 on behalf of the Portfolio Trust with respect to
each Portfolio except Top 50 US Portfolio with DWS International Portfolio
Management GmbH and with respect to Top 50 US Portfolio with Deutsche Asset
Morgan Grenfell Investment Management North America Inc. ("DAMNA") ("DMGIM"). It
is the Adviser's responsibility, under the overall supervision of DFM, to
conduct the day-to-day investment decisions of its respective Portfolio(s),
arrange for the execution of portfolio transactions and generally manage each
Portfolio's investments in accordance with its investment objective, policies
and restrictions.
The DWS Adviser and DAMNA DMGIM Adviser are each an indirect subsidiary
of Deutsche Bank AG. For these services, the respective Adviser receives from
DFM a fee, which is computed daily and may be paid monthly, equal to 0.75%,
0.60% and 0.50% of the average daily net assets of each of Top 50 World, Top 50
Europe and
DEUT001R
30
<PAGE>
Top 50 Asia Portfolio, each Equity Portfolio (except the foregoing Top 50
Portfolios) and each Bond Portfolio, respectively, on an annualized basis for
the Portfolio's then-current fiscal year.
The Advisory Agreement is dated July 28, 1997 and will remain in effect
until July 28, 1999 and from year to year thereafter, but only so long as the
agreement is specifically approved at least annually (i) by a vote of the
holders of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the related Portfolio, or by the Portfolio Trust's Trustees, and
(ii) by a vote of a majority of the Trustees of the Portfolio Trust who are not
parties to such Advisory Agreement or "interested persons" (as defined in the
1940 Act) of the Portfolio Trust, cast in person at a meeting called for the
purpose of voting on such approval. The Advisory Agreement was initially
approved at a meeting held on July 28, 1997. The Advisory Agreement will
terminate automatically if assigned or if its corresponding 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 related Portfolio's outstanding voting securities, on 60 days'
written notice to the relevant Adviser and by each Adviser on 90 days' written
notice to the Manager and the Portfolio Trust. The Advisory Agreement provides
that neither the Adviser nor its personnel shall be liable for any error of
judgment or mistake of law or for any loss or expense in connection with the
matters in which the agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
obligations and duties under the agreement. See "Additional Information."
ADMINISTRATOR
Under the master agreement for administration services with the
Corporation ("Administration Agreement"), Federated Services Company serves as
administrator to the Funds ("Administrator"). In connection with its
responsibilities as Administrator of the Funds, Federated Services Company,
among other things (i) prepares, files and maintains the Funds' governing
documents, registration statements and regulatory filings; (ii) prepares and
coordinates the printing of publicly disseminated documents; (iii) monitors
declaration and payment of dividends and distributions; (iv) projects and
reviews the Funds' expenses; (v) performs internal audit examinations; (vi)
prepares and distributes materials to the Directors of the Corporation, (vii)
coordinates the activities of all service providers; (viii) monitors and
supervises collection of tax reclaims; and (ix) prepares shareholder meeting
materials.
The Administration Agreement between the Corporation and Federated
Services Company (dated July 28, 1997) with respect to each Fund has an initial
term of three years. Thereafter, the Administration Agreement will remain in
effect until terminated by either party thereto. The agreement is terminable by
the Corporation at any time after the initial term without penalty by a vote of
a majority of the Directors of the Corporation, or by a vote of the holders of a
"majority of the outstanding voting securities" (as defined in the 1940 Act) of
the Corporation (see "Additional Information"). The Administration Agreement is
terminable by the Directors of the Corporation or shareholders of the Fund on 60
days' written notice to Federated Services Company. The agreement is terminable
DEUT001R
31
<PAGE>
by the Administrator on 90 days' written notice to the Corporation. The
Administration Agreement provides that neither Federated Services Company nor
its personnel shall be liable for any error of judgment or mistake of law or for
any loss arising out of any investment or for any act or omission in its
services, except for wilful misfeasance, bad faith or gross negligence or
reckless disregard of its obligations and duties under the Agreement. See
"Additional Information."
As Administrator of the Funds, Federated Services Company receives a
fee from each Fund, which is computed daily and may be paid monthly, at the
annual rate of 0.065% of the average daily net assets of each Fund up to $200
million and 0.0525% of the average daily net assets of each Fund greater than
$200 million for the Fund's then-current fiscal year. The Administrator of the
Funds will receive a minimum fee of $75,000 per Fund annually.
OPERATIONS AGENT
Under an operations agency agreement with the Portfolio Trust
("Operations Agent Agency Agreement"), Federated Services Company serves as
operations agent to the Portfolios ("Operations Agent"). In connection with its
responsibilities as Operations Agent of the Portfolios, Federated Services
Company, among other things, (i) prepares governing documents, registration
statements and regulatory filings; (ii) prepares performs internal audit
examinations (iii) prepare prepares expense projections; (iv) prepares materials
to for the Trustees of the Portfolio Trust, (v) coordinates the activities of
all service providers; (vi) conducts compliance training for the Adviser; (vii)
prepares investor meeting materials and (viii) monitors and supervises
collection of tax reclaims.
The Operations Agent Agency Agreement between the Portfolio Trust and
Federated Services Company (dated July 28, 1997) with respect to each Portfolio
has a minimum an initial term of three years. Thereafter, the Operations Agent
Agency Agreement will remain in effect until terminated by either party thereto.
The agreement is terminable by the Portfolio Trust at any time after the initial
term without penalty by a vote of a majority of the Trustees of the Portfolio
Trust, or by a vote of the holders of a "majority of the outstanding voting
securities" (as defined in the 1940 Act) of the Portfolio Trust (see "Additional
Information"). The Operations Agent Agency Agreement is terminable by the
Trustees of the Portfolio Trust or investors of the Portfolio on 60 days'
written notice to Federated Services Company. The agreement is terminable by
Federated Services Company on 90 days' written notice to the Portfolio Trust.
The Operations Agent Agreement provides that neither Federated Services Company
nor its personnel shall be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in its
services, except for wilful misfeasance, bad faith or gross negligence or
reckless disregard of its obligations and duties under the Agreement.
As Operations Agent of the Portfolios, Federated Services Company
receives a fee from each Portfolio, which is computed daily and paid monthly, at
the annual rate of 0.035% of the average daily net assets of each Portfolio for
the Portfolio's then-current fiscal year. The Operations Agent of the Portfolios
will receive a minimum fee of $60,000 per Portfolio annually and a minimum
DEUT001R
32
<PAGE>
aggregate fee for each Portfolio, corresponding Fund and any other fund
investing in the Portfolio, taken together, of $75,000 for the first year of the
Portfolio's operation and $125,000 for the second year, in each case payable to
the Operations Agent.
ADMINISTRATIVE AGENT
Under an administration agreement with the Portfolio Trust
("Administrative Agent("Administration Agreement"), IBT Trust Company (Cayman)
Ltd. ("IBT (Cayman)") serves as administrative agent to the Portfolios
("Administrative Agent"). In connection with its responsibilities as
Administrative Agent of the Portfolios, IBT (Cayman) (i) files and maintains
governing documents, registration statements and regulatory filings; (ii)
maintains a telephone line; (iii) approves annual expense budget; (iv)
authorizes expenses; (v) distributes materials to the Trustees of the Portfolio
Trust; (vi) authorizes dividend distributions; (vii) maintains books and
records; (viii) filing files tax returns and (ix) maintains an investor
register.
The Administration Agreement between the Portfolio Trust and IBT
(Cayman) (dated July 28, 1997) with respect to each Portfolio has a minimum an
initial term of three years. Thereafter, the Administration Agreement will
remain in effect until terminated by either party thereto. The agreement is
terminable by the Portfolio Trust at any time after the initial term without
penalty by a vote of a majority of the Trustees of the Portfolio Trust, or by a
vote of the holders of a "majority of the outstanding voting securities" (as
defined in the 1940 Act) of the Portfolio Trust (see "Additional Information").
The Administrative Agent Administration Agreement is terminable by the Trustees
of the Portfolio Trust or investors of the Portfolio on 60 days' written notice
to IBT (Cayman). The agreement is terminable by IBT (Cayman) on 90 days' written
notice to the Portfolio. The Administrative Agent Administration Agreement
provides that neither IBT (Cayman) nor its personnel shall be liable for any
error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in its services, except for wilful
misfeasance, bad faith or gross negligence or reckless disregard of its
obligations and duties under the Agreement.
As Administrative Agent of the Portfolios, IBT (Cayman) receives a fee
from each Portfolio, which is computed daily and may be paid monthly, at the
annual rate of 0.025% of the average daily net assets of each Portfolio up to
$200 million, 0.02% of the average daily net assets of each Portfolio greater
than $200 million and less than $800 million, and 0.01% of the average daily net
assets of each Portfolio greater than $1 billion for the Portfolio's
then-current fiscal year. The Administrative Agent will receive a minimum fee of
$40,000 per Portfolio for the first full year of operation, $45,000 for the
second year of operation, and $50,000 for the third year of operation. $5,000.
DISTRIBUTOR
The distribution agreement (the "Distribution Agreement")(dated July
28, 1997) between the Corporation and Edgewood Services, Inc. (the
"Distributor") remains in effect indefinitely, but only so long as such
agreement is
DEUT001R
33
<PAGE>
specifically approved at least annually (i) by a vote of the holders of a
"majority of the outstanding voting securities" (as defined in the 1940 Act) of
the related Fund, or by the Corporation's Directors, and (ii) by a vote of a
majority of the Directors of the Corporation who are not parties to such
Distribution Agreement or "interested persons" (as defined in the 1940 Act) of
the Corporation, cast in person at a meeting called for the purpose of voting on
such approval. The Distribution Agreement terminates automatically if assigned
by either party thereto and is terminable with respect to each Fund at any time
without penalty by a vote of a majority of the Directors of the Corporation or
by a vote of the holders of a "majority of the outstanding voting securities"
(as defined in the 1940 Act) of the Fund (see "Additional Information"). The
Distribution Agreement is terminable with respect to each Fund by the
Corporation's Directors or shareholders of a Fund on 60 days' written notice to
Edgewood. The Agreement is terminable by the Distributor on 90 days' written
notice to the Corporation.
The Distributor is not obligated to sell any specific number of shares.
Under a plan adopted in accordance with Rule 12b-1 of the 1940 Act on July 28,
1997, Class B Shares are subject to a distribution plan (the "Distribution
Plan") and Class A Shares and Class B Shares are subject to a service plan (the
"Service Plan").
Under the Distribution Plan, Class B Shares of each Fund will pay a fee
to the Distributor in an amount computed at an annual rate of 0.75% of the
average daily net assets of the Fund represented by Class B Shares to finance
any activity which is principally intended to result in the sale of Class B
Shares of the Fund subject to the Distribution Plan. A report of the amounts
expended pursuant to the Distribution Plan, and the purposes for which such
expenditures were incurred, must be made to the Directors of the Corporation for
review at least quarterly.
The Distribution Plan provides that it may not be amended to increase
materially the costs which a Fund may bear pursuant to the Distribution Plan
without shareholder approval and that other material amendments of the
Distribution Plan must be approved by the Directors of the Corporation, and by
the Directors who have no direct or indirect financial interest in the operation
of the Distribution Plan or any related agreement and are not "interested
persons" (as defined in the 1940 Act) of the Corporation ("Qualifying
Directors"), by vote cast in person at a meeting called for the purpose of
considering such amendments. While the Distribution Plan is in effect, the
selection and nomination of the Directors of the Corporation has been committed
to the discretion of the Qualifying Directors. The Distribution Plan has been
approved, and is subject to annual approval, by the Directors of the Corporation
and the Qualifying Directors, by vote cast in person at a meeting called for the
purpose of voting on the Distribution Plan. The Qualifying Directors voted to
approve the Distribution Plan at a meeting held on July 28, 1997. The
Distribution Plan is terminable with respect to the Class B Shares of a Fund at
any time by a vote of a majority of the Qualifying Directors or by vote of the
holders of a majority of the Class B Shares of that Fund.
TRANSFER AGENT, CUSTODIAN AND FUND ACCOUNTANT
DEUT001R
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<PAGE>
Federated Shareholder Services Company, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779, serves as the transfer agent and dividend
disbursing agent for each Fund. As Transfer Agent and Dividend Disbursing Agent,
Federated Shareholder Services Company is responsible for maintaining account
records detailing the ownership of Fund shares and for crediting income, capital
gains and other changes in share ownership to shareholder accounts. Investors
Bank & Trust Company, 200 Clarendon Street, Boston, MA 02116 acts as the
custodian of each Fund's and each Portfolio's assets. Pursuant to the Custodian
Contract with the Portfolio Trust, IBT is responsible for maintaining the books
and records of portfolio transactions and holding portfolio securities and cash.
In the case of foreign assets held outside the United States, IBT employs
various subcustodians who were approved in accordance with the regulations of
the SEC. The Custodian maintains portfolio transaction records. IBT Fund
Services (Canada) Inc., One First Canadian Place, King Street West, Suite 2800,
P.O. Box 231, Toronto, Ontario M5X1C8, provides fund accounting services to the
Funds and the Portfolios including (i) calculation of the daily net asset value
for the Funds and the Portfolios; (ii) monitoring compliance with investment
portfolio restrictions, including all applicable federal and state securities
and other regulatory requirements; and (iii) monitoring each Fund's and
Portfolio's compliance with the requirements applicable to a regulated
investment company under the Code.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Corporation are Price Waterhouse
LLP, 1177 Avenue of the Americas, New York, NY 10036. The independent
accountants of the Portfolio Trust are Price Waterhouse, [ADDRESS] First Home
Tower, British- American Center, Dr. Roy's Drive, George Town, Grand Cayman,
BWI. The independent accountants conduct annual audits of financial statements,
assist in the preparation and/or review of federal and state income tax returns
and provide consulting as to matters of accounting and federal and state income
taxation for each Fund or Portfolio, as the case may be.
PURCHASE OF SHARES
Except under certain circumstances described in a Fund's Prospectus,
Shares are sold at their net asset value (plus a sales charge on Class A Shares
only) on days the New York Stock Exchange is open for business. The procedure
for purchasing Shares is explained in each Prospectus under "Purchase of
Shares."
Conversion to Federal Funds. It is each Fund's policy to be as fully invested as
possible so that maximum interest may be earned. To this end, all payments from
shareholders must be in federal funds or be converted into federal funds before
shareholders begin to earn dividends. Federated Shareholder Services Company
acts as the shareholder's agent in depositing checks and converting them to
federal funds.
REDEMPTION OF SHARES
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Each Fund redeems Shares at the next computed net asset value, less any
applicable contingent deferred sales charge, after a Fund receives the
redemption request. Redemption procedures are explained in each Fund's
Prospectus under "Redemption of Shares." Although the transfer agent does not
charge for telephone redemptions, it reserves the right to charge a fee for the
cost of wire-transferred redemptions of less than $5,000.
Class B Shares redeemed within six years of purchase and applicable
Class A Shares redeemed within one year of purchase may be subject to a
contingent deferred sales charge. The amount of the contingent deferred sales
charge is based upon the amount of the administrative fee paid at the time of
purchase by the Distributor to the financial institution for services rendered,
and the length of time the investor remains a shareholder in a Fund. Should
Financial Intermediaries elect to receive an amount less than the fee that is
stated in a Fund's Prospectus for servicing a particular shareholder, the
contingent deferred sales charge and/or holding period for that particular
shareholder will be reduced accordingly.
Since portfolio securities of each Portfolio may be traded on foreign
exchanges which trade on Saturdays or on holidays on which a Fund will not make
redemptions, the net asset value of each class of Shares of a Fund may be
significantly affected on days when shareholders do not have an opportunity to
redeem their Shares.
Redemption in Kind. Although the Corporation intends to redeem Shares in cash,
it reserves the right under certain circumstances to pay the redemption price in
whole or in part by a distribution of securities from the respective Fund's
portfolio. In such a case, the portfolio instruments to be distributed as
redemption proceeds would be, valued in the same way as the Portfolio determines
net asset value. The portfolio instruments will be selected in a manner that the
Directors of the Corporation and Trustees of the Portfolio deem fair and
equitable. To the extent available, such securities will be readily marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption
is made in kind, shareholders receiving their securities and selling them before
their maturity could receive less than the redemption value of their securities
and could incur certain transaction costs.
Elimination of the Contingent Deferred Sales Charge. The Systematic Withdrawal
Program permits the shareholder to request withdrawal of a specified dollar
amount (minimum $100) on either a monthly or quarterly basis from accounts with
$10,000 minimum at the time the shareholder elects to participate in the
Systematic Withdrawal Program. The amounts that a shareholder may withdraw under
a Systematic Withdrawal Program that qualify for elimination of the contingent
deferred sales charge may not exceed 12% annually with reference initially to
the value of the Class B Shares upon establishment of the Systematic Withdrawal
Program and then as calculated at the fiscal year end. Amounts that exceed the
12% annual limit for redemption, as described, will be subject to the contingent
deferred sales charge. In determining the applicability of the contingent
deferred sales charge, the 12 month holding requirement for any new Class B
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Shares received through an exchange will include the period for which the
exchanged Class B Shares were held. However, for purposes of meeting the $10,000
minimum account value requirement, Class B Share account values will not be
aggregated.
EXCHANGE OF SHARES
An investor may exchange shares from any series of the Deutsche Family
of Funds, Inc. (a "Deutsche Fund") into any other Deutsche Fund, as described
under "Exchange of Shares" in each Fund's Prospectus. For complete information,
the prospectus as it relates to each Fund into which a transfer is being made
should be read prior to the transfer. Requests for exchange are made in the same
manner as requests for redemptions. See "Redemption of Shares." Shares of a Fund
to be acquired are purchased for settlement when the proceeds from redemption
become available. The Corporation reserves the right to discontinue, alter or
limit the exchange privilege at any time.
NET ASSET VALUE
Each Fund computes its net asset value once daily on Monday through
Friday as described under "Net Asset Value" in the Prospectus. The net asset
value will not be computed on the day the following legal holidays are observed:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
On days when U.S. trading markets close early in observance of these holidays,
each Fund and its corresponding Portfolio would expect to close for purchases
and redemptions at the same time. The days on which net asset value is
determined are the Fund's business days.
The net asset value of a Fund is equal to the value of such Fund's
investment in its corresponding Portfolio (which is equal to that Fund's pro
rata share of the total investment of the Fund and of any other investors in the
Portfolio less the Fund's pro rata share of the Portfolio's liabilities) less
the Fund's liabilities.
Fixed Income Securities. The fixed income portion of the Portfolios and
portfolio securities with a maturity of 60 days or more, including securities
that are listed on an exchange or traded over the counter, are valued using
prices supplied daily by an independent pricing service or services that (i) are
based on the last sale price on a national securities exchange or, in the
absence of recorded sales, at the average of readily available closing bid and
asked prices on such exchange or at the average of readily available closing bid
and asked prices in the over-the-counter market, if such exchange or market
constitutes the broadest and most representative market for the security and
(ii) in other cases, take into account various factors affecting market value,
including yields and prices of comparable securities, indication as to value
from dealers and general market conditions. If such prices are not supplied by a
Portfolio's independent pricing service, such securities are priced in
accordance with procedures adopted by the Trustees of the Portfolio Trust. All
portfolio
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securities with a remaining maturity of less than 60 days are valued by the
amortized cost method.
Other Securities. The value of investments listed on a U.S. securities exchange,
other than options on stock indexes, is based on the last sale prices on the New
York Stock Exchange at 4:00 P.M. or, in the absence of recorded sales, at the
average of readily available closing bid and asked prices on such exchange.
Securities listed on a foreign exchange considered by the Adviser to be a
primary market for the securities are valued at the last quoted sale price
available before the time when net assets are valued. Unlisted securities, and
securities for which the Adviser determines the listing exchange is not a
primary market, are valued at the average of the quoted bid and asked prices in
the over-the-counter market. The value of each security for which readily
available market quotations exist is based on a decision as to the broadest and
most representative market for such security. For purposes of calculating net
asset value, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. dollars at the prevailing market rates
available at the time of valuation.
Options on stock indexes traded on U.S. national securities exchanges
are valued at the close of options trading on such exchanges which is currently
4:10 P.M., New York time. Stock index futures and related options, which are
traded on U.S. futures exchanges, are valued at their last sales price as of the
close of such futures exchanges which is currently 4:15 P.M., New York time.
Options, futures contracts and warrants traded on a foreign stock exchange or on
a foreign futures exchange are valued at the last price available before the
time when the net assets are valued. Securities or other assets for which market
quotations are not readily available (including certain restricted and illiquid
securities) are valued at fair value in accordance with procedures established
by and under the general supervision and responsibility of the Trustees of the
Portfolio Trust. Such procedures include the use of independent pricing services
that use prices based upon yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers; and general
market conditions.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the New York Stock Exchange
and may also take place on days on which the New York Stock Exchange is closed.
If events materially affecting the value of securities occur between the time
when the exchange on which they are traded closes and the time when a
Portfolio's net asset value is calculated, such securities will be valued at
fair value in accordance with procedures established by and under the general
supervision of the Trustees.
PERFORMANCE DATA
From time to time, a Fund may quote performance in reports, sales
literature and advertisements published by the Corporation. Current performance
information for a Fund may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See also "Management of
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the Corporation and the Portfolio Trust - Performance Information" in the
Prospectus.
Total Return Quotations. As required by regulations of the SEC, the
annualized total return of a Fund for a period is computed by assuming a
hypothetical initial payment of $1,000. It is then assumed that all of the
dividends and distributions by a Fund over the period are reinvested. It is then
assumed that at the end of the period, the entire amount is redeemed. The
annualized total return is then calculated by determining the annual rate
required for the initial payment to grow to the amount which would have been
received upon redemption.
Average annual total return for each class of Shares of the Funds is
the average compounded rate of return for a given period that would equate a
$1,000 initial investment to the ending redeemable value of that investment. The
ending redeemable value is computed by multiplying the number of Shares owned at
the end of the period by the net asset value per share at the end of the period.
The number of Shares owned at the end of the period is based on the number of
Shares purchased at the beginning of the period with $1,000, less any applicable
sales charge, adjusted over the period by any additional Shares, assuming the
annual reinvestment of all dividends and distributions.
Any applicable contingent deferred sales charge is deducted from the
ending value of the investment based on the lesser of the original purchase
price or the net asset value of Shares redeemed.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
Yield. The yield for each class of Shares of the Funds is determined by
dividing the net investment income per share (as defined by the SEC) earned by
any class of Shares over a 30-day period by the maximum offering price per share
of the respective class on the last day of the period. This value is annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by a Fund because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to the shareholders.
To the extent that Financial Intermediaries and broker-dealers charge
fees in connection with services provided in conjunction with an investment in
any class of Shares, the performance will be reduced for those shareholders
paying those fees.
General. The performance of each of the classes of Shares will vary
from time to time depending upon market conditions, the composition of a
Portfolio, and its operating expenses. Consequently, any given performance
quotation should not be considered representative of a Fund's performance for
any specified period in the future. In addition, because performance will
fluctuate, it may not
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provide a basis for comparing an investment in a Fund with certain bank deposits
or other investments that pay a fixed yield or return for a stated period of
time.
Comparative performance information may be used from time to time in
advertising a Fund's shares, including appropriate market indices or data from
Lipper Analytical Services, Inc., Micropal, Inc., Ibbotson Associates,
Morningstar Inc., the Dow Jones Industrial Average and other industry
publications.
Information and Comparisons Relating to the Funds, Secondary Market
Trading, Net Asset Size, Performance And Tax Treatment. Information regarding
various aspects of each Fund, including the net asset size thereof, as well as
the performance and the tax treatment of Fund shares, may be included from time
to time in advertisements, sales literature and other communications as well as
in reports to current or prospective investors.
Information may be provided to prospective investors to help such
investors assess their specific investment goals and to aid in their
understanding of various financial strategies. Such information may present
current economic and political trends and conditions and may describe general
principles of investing such as asset allocation, diversification and risk
tolerance, as well as specific investment techniques.
Information regarding the net asset size of a Fund may be stated in
communications to prospective or current investors for one or more time periods,
including annual, year-to-date or daily periods. Such information may also be
expressed in terms of the total number of Fund Shares outstanding as of one or
more time periods. Factors integral to the size of a Fund's net assets, such as
the volume and activity of purchases and redemptions of Fund Shares, may also be
discussed, and may be specified from time to time or with respect to various
periods of time. Comparisons of such information during various periods may also
be made and may be expressed by means of percentages.
Information may be provided to investors regarding capital gains
distributions by the Funds, including historical information relating to such
distributions. Comparisons between the Funds and other investment vehicles such
as mutual funds may be made regarding such capital gains distributions,
including the expected effects of differing levels of portfolio adjustments on
such distributions and the potential tax consequences thereof.
Information may also be provided in communications to prospective or
current investors comparing and contrasting the relative advantages of investing
in Fund Shares as compared to other investment vehicles, such as mutual funds,
both on an individual and a group basis (e.g., stock index mutual funds). Such
information may include comparisons of costs, expense ratios, expressed either
in dollars or basis points, stock lending activities, permitted investments and
hedging activities (e.g., engaging in options or futures transactions), price
volatility and portfolio turnover data and analyses. In addition, such
information may quote, reprint or include portions of financial, scholarly or
DEUT001R
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business publications or periodicals, including model allocation schedules or
portfolios as the foregoing relate to the comparison of Fund Shares to other
investment vehicles, current economic financial and political conditions,
investment philosophy or techniques or the desirability of owning Fund Shares.
Such information may be provided both before and after deduction of sales
charges.
Information on the performance of a Fund on the basis of changes in net
asset value per fund share, with or without reinvesting all dividends and/or any
distributions of capital in additional Fund Shares, may be included from time to
time in a Fund's performance reporting. The performance of a Fund may also be
compared to the performance of money managers as reported in market surveys such
as SEI Fund Evaluation Survey (a leading data base of tax-exempt fund) or mutual
funds such as those reported by Lipper Analytical Services, Morningstar,
Micropal, Money Magazine's Fund Watch or Wiesenberger Investment Companies
Service, each of which measures performance following their own specific and
well-defined calculation measures, or of the NYSE Composite Index, the American
Stock Exchange Index (indices of stocks traded on the New York and American
Stock Exchanges, respectively), the Dow Jones Industrial Average (an index of 30
widely traded industrial common stocks), any widely recognized foreign stock and
bond index or similar measurement standards during the same period of time.
Information relating to the relative net asset value performance of
Fund Shares may be compared against a wide variety of investment categories and
asset classes, including common stocks, small capitalization stocks, ADRs, long
and intermediate term corporate and government bonds, Treasury bills, futures
contracts, the rate of inflation in the United States (based on the Consumer
Price Index ("CPI") or other recognized indices) and other capital markets and
combinations thereof. Historical returns of the capital markets relating to a
Fund may be provided by independent statistical studies and sources, such as
those provided to Ibbotson Associates. The performance of these capital markets
is based on the returns of different indices. Information may be presented using
the performance of these and other capital markets to demonstrate general
investment strategies. So, for example, performance of Fund Shares may be
compared to the performance of selected asset classes such as short-term U.S.
Treasury bills, long-term U.S. Treasury bonds, long-term corporate bonds, mid-
capitalization stocks, small capitalization stocks and various classes of
foreign stocks and may also be measured against the rate of inflation as set
forth in well-known indices (such as the CPI). Performance comparisons may also
include the value of a hypothetical investment in any of these capital markets.
Performance of Fund Shares may also be compared to that of other indices or
compilations that may be developed and made available to the investing public in
the future. Of course, such comparisons will only reflect past performance of
Fund Shares and the investment categories, indices or compilations chosen and no
guarantees can be made of future results regarding the performance of either
Fund Shares or the asset classes chosen for such comparisons.
Comparative performance information may be used from time to time in
advertising each Fund's shares. The performance of the
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o European Mid-Cap Fund may be compared to [] the DAX Composite Index ("CDAX"),
Financial Times ("FT")/Standard & Poor's Medium-Small Cap Europe Index,
Deutscher Aktien Index ("DAX"), DAX Mid-Cap, and Morgan Stanley Capital Index
("MSCI")-Europe Index o German Equity Fund may be compared to [] DAX, CDAX,
MSCI-Europe Index, and FT-Europe Index o Japanese Equity Fund may be compared to
[] Tokyo Price Index ("TOPIX"), Nikkei-225 Index, and MSCI Japan Index o Global
Bond Fund may be compared to [] JPM Global Government Bond Index, and Salomom
Brothers World Government Bond Index o European Bond Fund may be compared to []
JPM European Government Bond Index, Salomon Brothers European World Government
Bond Index, and EFFAS Government Bond Index o Top 50 World may be compared to []
MSCI-World Index o Top 50 Europe may be compared to [] MSCI-Europe Index o Top
50 Asia may be compared to [] MSCI Combined Far East Index and MSCI Combined Far
East ex Japan Index o Top 50 US may be compared to [] Standard & Poor's 500
Index
Each index is an unmanaged index of common security prices, converted
into U.S. dollars where appropriate. Any index selected by a Fund for
information purposes may not compute total return in the same manner as the
Funds and may exclude, for example, dividends paid, brokerage and other fees.
Information comparing the portfolio holdings relating to a particular
Fund, with those of relevant stock indices or other investment vehicles, such as
mutual funds or futures contracts, may be advertised or reported by the Fund.
Equity analytic measures, such as price/earnings ratio, price/book value and
price/cash flow and market capitalizations, may be calculated for the portfolio
holdings and may be reported on an historical basis or on the basis of
independent forecasts.
Information may be provided by a Fund on the total return for various
composites of the different Funds. These composite returns might be compared to
other securities or indices utilizing any of the comparative measures that might
be used for the individual Fund, including correlations, standard deviation, and
tracking error analysis.
Past results may not be indicative of future performance. The
investment return and net asset value of shares of each Fund will fluctuate so
that the shares, when redeemed, may be worth more or less than their original
cost.
PORTFOLIO TRANSACTIONS
The Portfolio Trust trades securities for a Portfolio if it believes that a
transaction net of costs (including custodian charges) will help achieve the
Portfolio's investment objective. Changes in a Portfolio's investments are made
without regard to the length of time a security has been held, or whether a sale
would result in the recognition of a profit or loss. Therefore, the rate of
turnover is not a limiting factor when changes are appropriate. Specific
decisions to purchase or sell securities for a Portfolio are made by its
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portfolio manager who is an employee of the Adviser. The portfolio manager may
serve other clients of the Adviser in a similar capacity.
The primary consideration in placing portfolio securities transactions with
broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. The Adviser attempts to achieve this result by selecting
broker-dealers to execute transactions on behalf of the Portfolios and other
clients of the Adviser on the basis of their professional capability, the value
and quality of their brokerage services, and the level of their brokerage
commissions. In the case of securities traded in the over-the-counter market
(where no stated commissions are paid but the prices include a dealer's markup
or markdown), the Adviser normally seeks to deal directly with the primary
market makers, unless in its opinion, best execution is available elsewhere. In
the case of securities purchased from underwriters, the cost of such securities
generally includes a fixed underwriting commission or concession. From time to
time, soliciting dealer fees are available to the Adviser on the tender of a
Portfolio's securities in so-called tender or exchange offers.
In connection with the selection of such brokers or dealers and the placing
of such orders, the Adviser seeks for each Portfolio in its best judgment,
prompt execution in an effective manner at the most favorable price. Subject to
this requirement of seeking the most favorable price, securities may be bought
from or sold to broker-dealers who have furnished statistical, research and
other information or services to the Adviser or the Portfolio, subject to any
applicable laws, rules and regulations.
The investment advisory fee that each Portfolio pays to the Adviser will
not be reduced as a consequence of the Adviser's receipt of brokerage and
research services. While such services are not expected to reduce the expenses
of the Adviser, the Adviser would, through the use of the services, avoid the
additional expenses which would be incurred if it should attempt to develop
comparable information through its own staff or obtain such services
independently.
In certain instances there may be securities that are suitable as an
investment for a Portfolio as well as for one or more of the Adviser's other
clients. Investment decisions for the Portfolios and for the Adviser's other
clients are made with a view to achieving their respective investment
objectives. It may develop that a particular security is bought or sold for only
one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more clients are selling the same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable for
the investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could adversely affect the
price of or the size of the position obtainable in a security for a Portfolio.
When purchases or sales of the same security for a Portfolio and for other
portfolios managed by the Adviser occur contemporaneously, the purchase or sale
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orders may be aggregated in order to obtain any price advantages available to
large volume purchases or sales.
TAXES
The following information supplements and should be read in conjunction
with the sections in the Prospectus entitled "The Fund -- Dividends and
Distributions" and "-- Taxes".
United States Taxation
General. Each Fund intends to qualify and intends to remain qualified
as a regulated investment company (a "RIC") under Subchapter M of the Code. As a
RIC, a Fund must, among other things: (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities or
foreign currency and other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency; (b) derive less than
30% of its gross income from the sale or other disposition of stock, securities,
options, futures or forward contracts (other than options, futures or forward
contracts on foreign currencies) held less than three months; and (c) diversify
its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
value of the Fund's total assets is represented by cash, U.S. Government
securities, investments in other RICs and other securities limited in respect of
any one issuer, to an amount not greater than 5% of the Fund's Fund's total
assets, and 10% of the outstanding voting securities of such issuer and (ii) not
more than 25% of the value of its total assets is invested in the securities of
any one issuer (other than U.S. Government securities or the securities of other
RICs). As a RIC, a Fund (as opposed to its shareholders) will not be subject to
federal income taxes on the net investment income and capital gains that it
distributes to its shareholders, provided that at least 90% of its net
investment income and realized net short-term capital gains in excess of net
long-term capital losses for the taxable year is distributed. Legislation
recently passed by Congress would, if enacted, eliminate the short-short rule
described above in clause (b). There can be no assurance that such legislation
will be enacted or, if enacted, what the effective date of such legislation will
be.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specific percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses) for each calendar year. Each Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable income
and any capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Any dividend declared by a Fund in October, November or December of any
calendar year and payable to shareholders of record on a specified date in such
a month shall be deemed to have been received by each shareholder on December 31
of such calendar year and to have been paid by the Fund not later than such
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December 31 so long as the dividend is actually paid by the Fund during January
of the following calendar year.
If a Portfolio purchases shares in certain foreign investment entities,
referred to as "passive foreign investment companies," the Fund may be subject
to U.S. federal income tax, and an additional charge in the nature of interest,
on a portion of any "excess distribution" from such company or gain from the
disposition of such shares, even if the distribution or gain is paid by the Fund
as a dividend to its shareholders. If the Fund were able and elected to treat a
passive foreign investment company as a "qualified electing fund," in lieu of
the treatment described above, the Fund would be required each year to include
in income, and distribute to shareholders in accordance with the distribution
requirement set forth above, the Fund's pro rata share of the ordinary earnings
and net capital gains of the company, whether or not distributed to the Fund.
Under proposed Regulations, if finalized, or proposed legislation, if enacted,
the Fund could instead elect to mark-to-market the shares annually, in which
case the treatment provided in the first sentence above also would not apply.
Gains or losses attributable to disposition of foreign currency or to
foreign currency contracts, or to fluctuations in exchange rates between the
time a Portfolio accrues income or receivables or expenses or other liabilities
denominated in a foreign currency and the time a Portfolio actually collects
such income or pays such liabilities, are generally treated as ordinary income
or ordinary loss. Similarly, gains or losses, if any, on the disposition of debt
securities held by a Portfolio and denominated in foreign currency are also
treated as ordinary income or loss to the extent such gains or losses are
attributable to fluctuations in exchange rates between the acquisition and
disposition dates. These gains and losses increase or decrease the amount of the
Fund's net investment income available for distribution rather than its net
capital gains.
Forward currency contracts, options and futures contracts entered into
by a Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by a
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities. "Straddles" may also result in the loss of the holding
period of underlying securities for purposes of the 30% gross income test
described above, and therefore, a Portfolio's ability to enter into forward
currency contracts, options and futures contracts may be limited.
Dividends paid from net investment income will generally be taxable to
a shareholder as ordinary income. Regardless of the length of time a shareholder
has held his shares, distributions designated as being from a Fund's net
long-term capital gains (i.e., the excess of net long-term capital gains over
net short-term capital losses) will be taxable as such. Distributions in excess
of a Fund's current and accumulated earnings and profits will be treated as a
tax-free return of capital to the extent of the shareholder's basis in his
shares and as a capital gain thereafter.
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Foreign Taxes. As set forth in the Prospectus under "Taxation," the
Funds are expected to be subject to foreign withholding and other taxes with
respect to income received from sources within certain foreign countries. Each
Fund (except the Top 50 US) that is liable for foreign income taxes, including
such withholding taxes, expects to meet the requirements of the Code for
"passing through" to its shareholders the foreign taxes paid, but there can be
no assurance that it will be able to do so. Under the Code, if more than 50% of
the value of a Portfolio's total assets at the close of any taxable year
consists of stock or securities of foreign corporations, its corresponding Fund
may elect to treat the proportionate share of foreign income taxes paid by the
Fund as paid directly by the Fund's shareholders. If the Fund elects to pass
through foreign taxes to the shareholders, no deduction for such foreign taxes
may be claimed by a shareholder who does not itemize deductions and no deduction
is available in computing an individual shareholder's shareholder's alternative
minimum tax liability. A shareholder who is a nonresident alien individual or a
foreign corporation may be subject to U.S. withholding tax on the income
resulting from the election described in this paragraph, but may not be able to
claim a credit or deduction against such U.S. tax for the foreign taxes treated
as having been paid by such shareholder. A tax-exempt shareholder will not
ordinarily benefit from this election. Shareholders who choose to utilize a
credit (rather than a deduction) for foreign taxes will be subject to the
limitation that the credit may not exceed the shareholder's U.S. tax (determined
without regard to the availability of the credit) attributable to his or her
total foreign source taxable income. For this purpose, the portion of dividends
and distributions paid by a Fund from its foreign source net investment income
will be treated as foreign source income. A Portfolio's gains and losses from
the sale of securities will generally be treated as derived from U.S. sources ,
however, and certain foreign currency gains and losses likewise will be treated
as derived from U.S. sources. The limitation on the foreign tax credit is
applied separately to foreign source "passive income," such as the portion of
dividends received from a Portfolio that qualifies as foreign source income. In
addition, the foreign tax credit is allowed to offset only 90% of the
alternative minimum tax imposed on corporations and individuals. Because of
these limitations, a shareholder may be unable to claim a credit for the full
amount of his proportionate share of the foreign income taxes paid by a
Portfolio.
Additionally, Congress has passed legislation under which the foreign
tax credit for taxes withheld with respect to dividends received by a Portfolio
would be disallowed if the Portfolio has not held the shares of the foreign
corporation for a 16-day period (or 46-day period in the case of preferred
shares) overlapping the dividend payment date and during which the Portfolio is
not protected from risk of loss. If the Fund elects to pass through foreign
taxes to the shareholders, the proposed legislation would also deny such credit
where the shareholder of the Fund does not satisfy the above holding requirement
with respect to its shares in the Fund. There can be no assurances as to whether
such legislation will be enacted into law, and, if so, what its effective date
might be.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
DEUT001R
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<PAGE>
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
State and Local Taxes. Each Fund may be subject to state or local taxes
in jurisdictions in which that Fund is deemed to be doing business. In addition,
the treatment of a Fund and its shareholders in those states that have income
tax laws might differ from treatment under the federal income tax laws. For
example, a portion of the dividends received by shareholders may be subject to
state income tax. Shareholders should consult their own tax advisors with
respect to any state or local taxes.
Foreign Shareholders. Distributions of net investment income and
realized net short-term capital gains in excess of net long-term capital losses
to a shareholder who, as to the United States, is a non-resident alien
individual, fiduciary of a foreign trust or estate, foreign corporation or
foreign partnership (a "foreign shareholder") will be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate) unless the dividends
are effectively connected with a U.S. trade or business of the shareholder, in
which case the dividends will be subject to tax on a net income basis at the
graduated rates applicable to U.S. individuals or domestic corporations.
Distributions of net long-term capital gains to foreign shareholders will not be
subject to U.S. tax unless the distributions are effectively connected with the
shareholder's trade or business in the United States or, in the case of a
shareholder who is a non-resident alien individual, the shareholder was present
in the United States for more than 182 days during the taxable year and certain
other conditions are met.
In the case of a foreign shareholder who is a nonresident alien
individual and who is not otherwise subject to withholding as described above, a
Fund may be required to withhold U.S. federal income tax at the rate of 31%
unless IRS Form W-8 is provided. See "Taxation" in the Prospectus. Transfers by
gift of shares of a Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of the Fund held by such a shareholder at his or her death will be includible in
his or her gross estate for U.S. federal estate tax purposes.
Reports to Shareholders. The Fund will make annual reports of the
federal income tax status of distributions to owners of shares. Such reports
will set forth the dollar amounts of dividends from net investment income and
long-term capital gains and, if the Fund elects to pass through foreign taxes,
the shareholder's portion of the foreign income taxes paid to each country and
the portion of the dividends that represents income derived from sources within
each country.
The foregoing discussion is based on U.S. federal tax laws in effect on
the date hereof. These laws are subject to change by legislative or
administrative action, possibly with retroactive effect.
The foregoing discussion is a summary only and is not intended as a
substitute for careful tax planning. Prospective investors in shares of a Fund
DEUT001R
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<PAGE>
should consult their own tax advisers as to the tax consequences of investing in
such shares, including the consequences under state, local and other tax laws.
DESCRIPTION OF SHARES
The Corporation is an open-end management investment company organized
as a Maryland corporation on May 22, 1997. The Articles of Incorporation
currently permit the Corporation to issue 2,500,000,000 17,500,000,000 shares of
common stock, par value $0.001 per share, of which 10,000,000 shares have been
classified as shares of each Fund. The Corporation currently consists of nine
eleven such series and two classes of shares for each Fund known as Class A
Shares and Class B Shares. In addition, a tenth series has four classes known as
DB Class, Institutional Class, Class A and Class B.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Corporation do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Corporation may elect all of the Directors of the
Corporation if they choose to do so and in such event the other shareholders in
the Corporation would not be able to elect any Director. The Corporation is not
required and has no current intention to hold meetings of shareholders annually,
but the Corporation will hold special meetings of shareholders when in the
judgment of the Corporation's Directors it is necessary or desirable to submit
matters for a shareholder vote. Shareholders have under certain circumstances
(e.g., upon application and submission of certain specified documents to the
Directors by a specified number of shareholders) the right to communicate with
other shareholders in connection with requesting a meeting of shareholders for
the purpose of removing one or more Directors. Shareholders also have the right
to remove one or more Directors without a meeting by a declaration in writing by
a specified number of shareholders. Shares have no preference, pre-emptive,
conversion or similar rights (except the automatic conversion of Class B Shares
into Class A Shares as discussed in the Prospectus under "Purchase of Shares").
Shares, when issued, are fully paid and non-assessable.
Stock certificates are not issued by the Corporation except upon
written request. No certificates will be issued for fractional shares.
The Articles of Incorporation of the Corporation contain a provision
permitted under Maryland Corporation Law which under certain circumstances
eliminates the personal liability of the Corporation's Directors to the
Corporation or its shareholders.
The Articles of Incorporation and the By-Laws of the Corporation
provide that the Corporation indemnify the Directors and officers of the
Corporation to the full extent permitted by the Maryland Corporation Law, which
permits indemnification of such persons against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Corporation. However, nothing in the Articles of
Incorporation or the By-Laws of the Corporation protects or indemnifies a
Director or officer of the Corporation against any liability to the Corporation
or its shareholders to which
DEUT001R
48
<PAGE>
he would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Interests in a Portfolio have no preference, preemptive, conversion or
similar rights and are fully paid and non-assessable. The Portfolio Trust is not
required to hold annual meetings of investors, but will hold special meetings of
investors when, in the judgment of its Trustees, it is necessary or desirable to
submit matters for an investor vote. Each investor is entitled to a vote in
proportion to the share of its investment in a Portfolio.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" (as defined in the 1940
Act) currently means the vote of (i) 67% or more of the outstanding voting
securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities are present in person or represented by proxy; or
(ii) more than 50% of the outstanding voting securities, whichever is less.
Fund shareholders receive semi-annual reports containing unaudited
financial statements and annual reports containing financial statements audited
by independent auditors.
A shareholder's right to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed: (i) during
periods when the New York Stock Exchange or foreign stock exchange is closed for
other than weekends and holidays or when regular trading on such Exchange is
restricted as determined by the Securities and Exchange Commission by rule or
regulation, (ii) during periods in which an emergency exists which causes
disposal of, or evaluation of the net asset value of, portfolio securities to be
unreasonable or impracticable, or (iii) for such other periods as the SEC may
permit.
Telephone calls to any Fund, the Transfer Agent, the Distributor, or
Financial Intermediaries with respect to shareholder servicing may be tape
recorded. With respect to the securities offered hereby, this Statement of
Additional Information and the Prospectus do not contain all the information
included in the Corporation's Registration Statement filed with the SEC under
the 1933 Act and the Corporation's and the Portfolio Trust's Registration
Statement filed under the 1940 Act. Pursuant to the rules and regulations of the
SEC, certain portions have been omitted. The Registration Statements Statement
including the exhibits filed therewith may be examined at the office of the SEC
in Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
DEUT001R
49
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by the
Corporation or the Distributor. The Prospectus and this Statement of Additional
Information do not constitute an offer by any Fund or by the Distributor to sell
or solicit any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Funds or the
Distributor to make such offer in such jurisdictions.
DEUT001R
50
<PAGE>
APPENDIX A
FUNDS AND CORRESPONDING PORTFOLIOS
The Corporation seeks to achieve the investment objective of each Fund
by investing all of the Fund's investable assets in the corresponding
non-diversified, open-end management investment company (each, a "Portfolio" and
collectively the "Portfolios") listed below:
Top 50 World Top 50 World Portfolio (US Dollar)
("Top 50 World Portfolio")
Top 50 Europe Top 50 Europe Portfolio (US Dollar)
("Top 50 Europe Portfolio")
Top 50 Asia Top 50 Asia Portfolio (US Dollar)
("Top 50 Asia Portfolio")
Top 50 US Top 50 US Portfolio (US Dollar)
("Top 50 US Portfolio")
(collectively, the "Top 50 Funds") (collectively, the "Top 50 Portfolios")
European Mid-Cap Fund Provesta Portfolio (US Dollar)
("Provesta Portfolio")
German Equity Fund Investa Portfolio (US Dollar)
("Investa Portfolio")
Japanese Equity Fund Japanese Equity Portfolio (US Dollar)
("Japanese Equity Portfolio")
(collectively with the Top 50 (collectively with the Top 50 Portfolios,
Funds, the "Equity Funds") the "Equity Portfolios")
Global Bond Fund Global Bond Portfolio (US Dollar)
("Global Bond Portfolio")
European Bond Fund European Bond Portfolio (US Dollar)
("European Bond Portfolio")
(collectively, the Bond Funds)(collectively, the Bond Portfolios)
DEUT001R
1
<PAGE>
APPENDIX B - Description of Security Ratings
STANDARD & POOR'S
Corporate and Municipal Bonds
AAA - Debt rated AAA has the highest ratings assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
MOODY'S
Corporate and Municipal Bonds
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
DEUT001R
A-1
<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.
(b) Articles of Amendment.
2 -- By-Laws of the Registrant.(1)
3 -- Not Applicable.
4 -- (a) Class A Specimen certificate.(3)
(b) Class B Specimen certificate.(3)
(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.
6 -- (a) Distribution Agreement.
(b) Mutual Funds Sales and Service Agreement.
7 -- Not Applicable.
8 -- (i) Custodian Agreement between Investors Bank and Trust
Company and the Registrant.
(ii) Custodian Agreement between Deutsche Portfolios and
Investors Bank and Trust Company.
9 -- (a) (i) Master Agreement for Administration Services
between Federated Services Company and the
Registrant.
(a)(ii) Administration Agreement between Deutsche
Portfolios and IBT Trust Company (Cayman) Ltd.
(b) (i) Fund Accounting Agreement between IBT Fund Services
(Canada) Inc. and the Registrant.
(b)(ii) Fund Accounting Agreement between Deutsche
Porfolios and IBT Funds Services (Canada) Inc.
(c) Services Agreement.
(d) Operations Agency Agreement.(3)
10 -- Opinion of Counsel (including consent).(3)
11 -- Independent auditors' consent.(3)
12 -- Not Applicable.
13 -- Copies of investment representation letters from initial
shareholders.(3)
14 -- Not Applicable.
15 -- Distribution and Services Plan.
16 -- Not Applicable.
17 -- Financial Data Schedule.(3)
18 -- Multiple Class (Rule 18f-3) Plan.
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 the Registrant's
registration statement on Form N-1A as filed with the Commission on August
1, 1997.
(3) To be filed by amendment.
C-1
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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 9, 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. are
indirect subsidiaries of Deutsche Bank AG.
Deutsche Fonds Holding GmbH ("DFH"), sole shareholder, DFM (since 1/97); sole
shareholder of DWS-IPM (since 5/97). [ADD INFO RE: BUSINESS/OTHER FUNDS OWNED]
Deutsche Bank AG (a publicly held company trading on the Frankfurt Stock
Exchange), shareholder of DFH (since 9/94), indirect shareholder DAMNA (since
10/94). [ADD INFO RE: BUSINESS/OTHER FUNDS OWNED]
Allianz Holding AG, shareholder DFH (since 12/95). [ADD INFO RE: BUSINESS/OTHER
FUNDS OWNED]
Deutsche Bank North America Holding Corp., indirect shareholder, DAMNA (since
10/94). [ADD INFO RE: BUSINESS/OTHER FUNDS OWNED]
Deutsche Bank U.S. Financial Markets Holding Corporation, shareholder, DAMNA
(since 10/94).
Brian A. Lee, President and Managing Director of DFM (since 1/97); President and
COO, Deutsche Bank Trust Company ("DBTC")(prior to 12/96).
Christian Strenger, Chairman of the Board of Directors of DFM (since 1/97);
Managing Director, DWS-IPM (since 5/97); Managing Director/Spokesman, DWS
Deutsche Gesellschaft fuer Wertpapiersparen mbH ("DWS-DGW)(since 8/91).
Udo Behrenwaldt, Director of DFM (since (5/97); Managing Director, DWS-IPM
(since 5/97); Executive Director, DB Investment Management, S.A. (since 7/87);
Managing Director, DWS-DGW (since 11/75).
Holger Naumann, Director of DFM (since 1/97); Head of Participations, DWS-DGW
(since 12/95); Group Strategy Department, Deutsche Bank AG (prior to 11/95).
Bernd von Maltzan, Director of DFM (since 5/97); Divisional Board Member,
Deutsche Bank AG (since 7/93).
Michael C. Lowengrub, Treasurer of DFM (since 1/97); Treasurer, DBTC (since
4/95); Controller - Private Bank, Deutsche Bank AG (since 10/92).
Thomas A. Curtis, Secretary of DFM (since 1/97); Secretary, CB Management Corp.
(since 2/96); Director and Counsel, Deutsche Bank AG (since 7/95).
Axel-Guenter Benkner, Managing Director, DWS-IPM (since 5/97); Managing
Director, Deutsche Vermoegensbildungsgesellschaft mbH (since 12/90); Managing
Director, DWS-DGW (since 2/91).
Heinz-Wilheim Fesser, Senior Portfolio Manager, ; Head of Fixed Income - Global,
DWS-DGW (since 3/87).
Klaus Kaldmorgen, Senior Portfolio Manager, DWS-IPM (since 6/97); Head of
Equities -Global, DWS-DGW (since 12/88).
C-3
<PAGE>
Klaus Martini, Senior Portfolio Manager, DWS-IPM (since 6/97); Head of Equities
- - Europe, DWS-DGW (since 7/84).
Elisabeth Weisenhorn, Senior Portfolio Manager, DWS-IPM (since 6/97); Head of
Equities - Germany, DWS-dgw (since 11/85).
Reinhold Volk, Chief Financial Officer, DWS-IPM (since 6/97); Head of
Controlling DWS-DGW (sincec 10/86).
Mathias Geuckler, Chief Compliance Officer, DWS-IPM (since 6/97), Chief
Compliance Officer, DWS-DGW (since 11/92).
Gerhard Seifried, COO, DWS-IPM (since 6/97); Head of Fund Administration,
DWS-DGW (since 10/85).
Guy Richard Stamberger, President, CEO and Director, DAMNA (since 10/94);
Managing Director, Deutsche Bank Securities Corporation (since 1/90).
David Alan Zornitsky, Secretary and Treasurer, DAMNA (since 10/94); Assistant
Vice President, Deutsche Bank Securities Corporation (since 4/92).
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 17th 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 17th 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
1(a). Articles of Amendment and Restatement.
1(b). Articles of Amendment.
5. Investment Advisory Agreement.
6(a). Distribution Agreement.
6(b). Mutual Funds Sales and Service Agreement.
8(i). Custodian Agreement between Investors Bank and Trust Company and the
Registrant.
8(ii). Custodian Agreement between Deutsche Portfolios and Investors Bank and
Trust Company.
9(a)(i). Master Agreement for Administration Services between Federated
Services Company and the Registrant
9(a)(ii) Administration Agreement between Deutsche Porfolios and IBT Trust
Company (Cayman) Ltd.
9(b)(i). Fund Accounting Agreement between IBT Fund Services (Canada) Inc. and
the Registrant.
9(b)(ii).Fund Accounting Agreement between Deutsche Portfolios and IBT Funds
Services (Canada) Inc.
9(c). Services Agreement.
15. Distribution and Services Plan.
18. Multiple Class Plan.
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
DEUTSCHE FAMILY OF FUNDS, INC.
Pursuant to Section 2-609 of the General Corporation Law of the State
of Maryland, Deutsche Family of Funds, Inc., a Maryland corporation (the
"Corporation"), hereby certifies that:
FIRST: The name of the Corporation is Deutsche Family of Funds, Inc.
The Corporation's original charter was filed with the State Department of
Assessments and Taxation on May 22, 1997.
SECOND: The current address of the principal office of the Corporation
in this State is c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202.
THIRD: The Corporation's current resident agent in the State of
Maryland is The Corporation Trust Incorporated and the agent's current address
is 32 South Street, Baltimore, Maryland 21202.
FOURTH: The Corporation has five directors. The directors of the
Corporation are: Edward C. Schmults Robert A. Wadsworth Werner Walbroel G.
Richard Stamberger Christian Strenger.
FIFTH: The Corporation desires to restate its charter as currently in
effect and to integrate the amendments made hereby. SIXTH: The charter of the
Corporation is hereby amended to change the names of eight Series of Common
Stock of the Corporation authorized for issuance; and to classify shares of each
Series of the Corporation and establish certain rights, preferences, limitations
and other characteristics thereof, all as set forth in these Articles of
Amendment and Restatement. SEVENTH: The provisions set forth in these Articles
of Amendment and Restatement are all the provisions of the charter currently in
effect, as so amended and incorporating the provisions of previously filed
Articles of Amendment. EIGHTH: The charter of the Corporation is restated in its
entirety as follows:
<PAGE>
FIRST: INCORPORATOR. ROBERT D. MANCUSO, whose post office address
is 89 South Street, Boston, MA 02111, being at least twenty-one years of
age, do under and by virtue of the General Laws of the State of Maryland
authorizing the formation of corporations, associate myself as
incorporator with the intention of forming a corporation (hereinafter
called the "Corporation").
SECOND: NAME. The name of the Corporation is Deutsche Family of
Funds, Inc.
THIRD: PURPOSES AND POWERS. The purpose for which the Corporation
is formed is to act as an open-end management investment company under
the Investment Company Act of 1940, as currently in effect or as
hereafter may be amended and the Rules and Regulations from time to time
promulgated and effective thereunder (referred to herein collectively as
the "Investment Company Act of 1940") and to exercise and enjoy all of
the powers, rights and privileges granted to, or conferred upon,
corporations by the General Laws of the State of Maryland now or
hereafter in force.
FOURTH: PRINCIPAL OFFICE. The post office address of the
principal office of the Corporation in this State is c/o The Corporation
Trust Incorporated, 32 South Street, Baltimore, MD 21202. The name of
the Corporation's resident agent is The Corporation Trust Incorporated,
and its post office address is 32 South Street, Baltimore, MD 21202.
Said resident agent is a corporation of the State of Maryland.
FIFTH: CAPITAL STOCK.
1. The total number of shares of capital stock of all series and
classes that the Corporation initially shall have authority to issue is
2,500,000,000, with a par value of one-tenth of one cent ($0.001) per
share, to be known and designated as Common Stock, such shares of Common
Stock having an aggregate par value of two million five hundred thousand
dollars ($2,500,000). The Board of Directors shall have power and
authority to increase or decrease, from time to time, the aggregate
number of shares of stock, or of any series or class of stock, that the
Corporation shall have the authority to issue.
2. Subject to the provisions of the Corporation's charter, the
Board of Directors shall have the power to issue shares of Common Stock
of the Corporation from time to time, at prices not less than the net
asset value or par value thereof, whichever is greater, for such
consideration (which may consist of, among other things, cash and/or
securities) as may be fixed from time to time pursuant to the direction
of the Board of Directors. All stock, upon issuance against receipt of
the consideration specified by the Board of Directors, shall be fully
paid and nonassessable.
3. Pursuant to Section 2-105 of the Maryland General Corporation
Law, the Board of Directors of the Corporation shall have the power to
designate one or more series of shares of Common Stock, to fix the
number of shares in any such series and to classify or reclassify any
unissued shares with respect to such series. Any
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series of Common Stock shall be referred to herein individually
as a "Series" and collectively, together with any further series from
time to time established, as the "Series". Any such Series (subject to
any applicable rule, regulation or order of the Securities and Exchange
Commission or other applicable law or regulation) shall have such
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, terms and conditions of
redemption and other characteristics as the Board of Directors may
determine in the absence of a contrary provision set forth herein. The
aforesaid power shall include the power to create, by classifying or
reclassifying unissued shares in the aforesaid manner, one or more
Series in addition to those initially designated as named below and to
increase the aggregate number of shares of a Series. Subject to such
aforesaid power, the Board of Directors has initially designated ten
Series of shares of Common Stock of the Corporation. The names of such
Series and the number of shares of Common Stock initially classified and
allocated to these Series are as follows:
NUMBER OF SHARES OF COMMON STOCK
NAME OF SERIES INITIALLY CLASSIFIED AND ALLOCATED
Deutsche German Equity Fund 10,000,000
Deutsche European Mid-Cap Fund 10,000,000
Deutsche Japanese Equity Fund 10,000,000
Deutsche European Bond Fund 10,000,000
Deutsche Global Bond Fund 10,000,000
Deutsche Top 50 Europe 10,000,000
Deutsche Top 50 World 10,000,000
Deutsche Top 50 Asia 10,000,000
Deutsche Top 50 US 10,000,000
Deutsche US Money Market Fund 10,000,000
4. The Board of Directors may, from time to time and without
stockholder action, classify shares of a particular Series into one or
more additional classes of that Series, the voting, dividend,
liquidation and other rights of which shall differ from the other
classes of Common Stock of that Series to the extent provided in
Articles Supplementary for such additional class, such Articles
Supplementary to be filed for record with the appropriate authorities of
the State of Maryland. Any class of a Series of Common Stock shall be
referred to herein individually as a "Class" and collectively, together
with any further class or classes of such Series from time to time
established, as the "Classes".
5. (a) The Common Stock of each of the Deutsche German Equity
Fund, Deutsche Mid-Cap Fund, Deutsche Japanese Equity Fund, Deutsche
Global Bond Fund, Deutsche European Bond Fund, Deutsche Top 50 Europe,
Deutsche Top 50 World, Deutsche Top 50 Asia and Deutsche Top 50 US shall
have two Classes of shares, which shall be designated Class A and Class
B. The Common Stock of the Deutsche US Money Market Fund shall have four
Classes of shares, which shall be designated Class A, Class B, the
Institutional Class and the DB
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Class. The number of authorized shares of each Class of Common
Stock of each such Series shall consist of the sum of x and y where: x
equals the issued and outstanding shares of such Class; and y equals the
authorized but unissued shares of Common Stock of all classes of such
Series divided by the number of classes of Common Stock of each such
Series then authorized; provided that at all times the aggregate
authorized, issued and outstanding shares of each Class of Common Stock
of each Series shall not exceed the authorized number of shares of
Common Stock of such Series; and, in the event application of the
formula above would result, at any time, in fractional shares, the
applicable number of authorized shares of each Class shall be rounded
down to the nearest whole number of shares of such Class.
(b) All Classes of a particular Series of Common Stock of
the Corporation shall represent the same interest in the
Corporation and have identical voting, dividend, liquidation and
other rights with any other shares of Common Stock of that
Series; PROVIDED, however, that notwithstanding anything in the
charter of the Corporation to the contrary:
(i) Class A shares may be subject to such front-end sales
loads and contingent deferred sales charges, and such waivers of
such loads or charges, as may be established by the Board of
Directors from time to time in accordance with the Investment
Company Act of 1940 and applicable rules and regulations of the
National Association of Securities Dealers, Inc. (the "NASD");
(ii) Class B shares may be subject to such contingent
deferred sales charges as may be established from time to time by
the Board of Directors in accordance with the Investment Company
Act and applicable rules and regulations of the NASD. Subject to
subsection (vi) below, each Class B share shall convert
automatically into Class A shares on [or about] the fifteenth day
of the month eight full years after the date of issuance of such
Class B shares; such conversion shall be effected on the basis of
the relative net asset values of Class B shares and Class A
shares as determined by the Corporation on the date of conversion
and on such other terms as may be established from time to time
by the Board of Directors of the Corporation;
(iii) any Class of shares may be subject to such sales
loads, contingent deferred sales charges, Rule 12b-1 fees,
administrative fees, service fees or other fees, however
designated, in such amounts as may be established by the Board of
Directors from time to time in accordance with the Investment
Company Act of 1940 and the applicable rules and regulations of
the National Association of Securities Dealers, Inc;
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(iv) expenses related solely to a particular Class of a
Series (including, without limitation, distribution expenses
under a Rule 12b-1 plan) shall be borne by that Class and
appropriately reflected (in the manner determined by the Board of
Directors) in the net asset value, dividends, distributions and
liquidation rights of the shares of that Class;
(v) as to any matter with respect to which a separate vote
of any Class of a Series is required by the Investment Company
Act of 1940 or by the Maryland General Corporation Law
(including, without limitation, approval of any plan, agreement
or other arrangement referred to in subsection (ii) above), such
requirement as to a separate vote by that Class shall apply in
lieu of single class voting (as defined in Section 7 of this
Article), and if permitted by the Investment Company Act of 1940
or the Maryland General Corporation Law, the Classes of more than
one Series shall vote together as a single class on any such
matter that shall have the same effect on each such Class. As to
any matter that does not affect the interest of a particular
Class of a Series, only the holders of shares of the affected
Class or Classes of that Series shall be entitled to vote; and
(vi) shares of one Class may be convertible into shares of
another Class, at the option of the holder, of the Corporation or
automatically, in each case to the extent provided herein or in
the Articles Supplementary for such first Class; provided,
however, that such conversion shall be subject to the continuing
availability of a ruling from the Internal Revenue Service or an
opinion of counsel to the effect that such conversion does not
constitute a taxable event under federal income tax law. The
Board of Directors, in its sole discretion, may suspend any
conversion rights if such ruling or opinion is no longer
available.
6. Subject to the foregoing, each share of a Series or Class
shall have equal rights with each other share of that Series or Class
with respect to the assets of the Corporation belonging to that Series
or Class. The dividends payable to the holders of any Series or Class
(subject to any applicable rule, regulation or order of the Securities
and Exchange Commission or any other applicable law or regulation) shall
be determined by the Board of Directors and need not be individually
declared, but may be declared and paid in accordance with a formula
adopted by the Board of Directors (whether or not the amount of dividend
or distribution so declared can be calculated at the time of such
declaration).
7. The holder of each share of Common Stock of the Corporation
shall be entitled to one vote for each full share, and a fractional vote
for each fractional share, irrespective of the Series or Class, then
standing in his or her name in the books of the Corporation. On any
matter submitted to a vote of stockholders, all shares of Common Stock
of the Corporation then issued and outstanding and
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entitled to vote, irrespective of the Series or Class, shall be
voted in the aggregate and not by Series or Class ("single class
voting") except (1) when otherwise expressly provided by the Maryland
General Corporation Law or when required by the Investment Company Act
of 1940, shares shall be voted by individual Series or Class, and (2)
when the matter does not affect any interest of a particular Series or
Class, then only stockholders of such other Series or Class or Series or
Classes whose interests may be affected shall be entitled to vote
thereon. Holders of shares of Common Stock of the Corporation shall not
be entitled to cumulative voting in the election of Directors or on any
other matter.
8. All consideration received by the Corporation for the issue or
sale of stock of a particular Series or Class, together with all assets
in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever form
the same may be, shall belong to that Series or Class for all purposes,
subject only to the rights of creditors, and shall be so recorded upon
the books of account of the Corporation. Such consideration, assets,
income, earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds, in
whatever form the same may be, together with any General Asset Items (as
hereinafter defined) allocated to that Series or Class as provided in
the following sentence, are herein referred to as "assets belonging to"
that Series or Class. In the event that there are any assets, income,
earnings, profits or proceeds thereof, funds or payments which are not
readily identifiable as belonging to any particular Series or Class
(collectively "General Asset Items"), the Board of Directors shall
allocate such General Asset Items to and among any one or more of the
Series or Classes created from time to time in such manner and on such
basis as the Board of Directors, in its sole discretion, deems fair and
equitable; and any General Asset Items so allocated to a particular
Series or Class shall belong to that Series or Class. Each such
allocation by the Board of Directors shall be conclusive and binding
upon the stockholders of all Series and Classes for all purposes.
9. The assets belonging to each particular Series or Class shall
be charged with the liabilities in respect to that Series or Class and
all expenses, costs, charges, and reserves attributable to that Series
or Class, and shall be so recorded (in the manner determined by the
Board of Directors) upon the books of account of the Corporation. Such
liabilities, expenses, costs, charges and reserves, together with any
General Liability Items (as hereinafter defined) allocated and charged
to that Series or Class as provided in the following sentence, are
herein referred to as "liabilities belonging to" that Series or Class.
In the event there are any general liabilities, expenses, costs, charges
or reserves of the Corporation which are not identified as belonging to
a particular
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Series or Class (collectively "General Liability Items"), such
identification to be determined by or under the authority of the Board
of Directors, the Board of Directors shall allocate and charge such
General Liability Items to and among any one or more of the Series or
Classes created from time to time in such manner and on such basis as
the Board of Directors, in its sole discretion, deems fair and
equitable; and any General Liability Items so allocated and charged to a
particular Series or Class shall belong to that Series or Class. Each
such allocation and charge by the Board of Directors shall be conclusive
and binding upon the stockholders of all Series and Classes for all
purposes.
10. The Board of Directors may from time to time declare and pay
dividends or distributions in stock, property (including securities) or
in cash on any or all Series or Classes of stock and to the stockholders
of record as of such date as the Board of Directors may determine;
PROVIDED that such dividends or distributions on shares of any Series or
Class of stock shall be paid only out of earnings, surplus or other
lawfully available assets belonging to such Series or Class. Subject to
the foregoing proviso, the amount of any dividends or distributions and
the payment thereof shall be wholly in the discretion of the Board of
Directors.
11. In the event of the liquidation or dissolution of the
Corporation, stockholders of each Series and Class therein shall be
entitled to receive, as a Series or Class, out of the assets of the
Corporation available for distribution to stockholders, the excess of
the assets belonging to such Series or Class over the liabilities
belonging to such Series or Class and the assets so distributable to the
stockholders of any Series or Class shall be distributed among such
stockholders in proportion to the number of shares of such Series or
Class held by them and recorded on the books of the Corporation.
12. The Board of Directors may provide for a holder of any Series
or Class of stock of the Corporation, who surrenders his certificate in
good form for transfer to the Corporation or, if the shares in question
are not represented by certificates, who delivers to the Corporation a
written request in good order signed by the stockholder, to convert the
shares in question on such basis as the Board may provide into shares of
stock of any other Series or Class of the Corporation.
13. Subject to Section 14 below, the net asset value per share of
the Corporation's Common Stock of a particular Series or Class shall be
determined by adding the value of all securities, cash and other assets
of the Corporation belonging to that Series or Class, subtracting the
liabilities belonging to that Series or Class, and dividing the net
result by the number of shares of that Series or Class outstanding.
Subject to Section 14 below, the value of the securities, cash and other
assets, and the amount and nature of liabilities, and the allocation
thereof to any particular Series or Class, shall be determined pursuant
to the direction of, or
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procedures or methods prescribed or approved by, the Board of
Directors in its sole discretion and shall be so determined at the time
or times prescribed or approved by the Board of Directors in its sole
discretion.
14. The net asset value per share of a Series or Class of the
Corporation's Common Stock for the purpose of issuance, redemption or
repurchase of shares, shall be determined in accordance with the
Investment Company Act of 1940 and any other applicable Federal
securities law, rule or regulation.
15. All shares of Common Stock now or hereafter authorized shall
be subject to redemption and redeemable at the option of the
stockholder, in the sense used in the General Corporation Law of the
State of Maryland. Each holder of a share, upon request to the
Corporation accompanied by surrender of the appropriate stock
certificate or certificates in proper form for transfer if certificates
have been issued to such holder, or in accordance with such other
procedures as may from time to time be in effect if certificates have
not been issued, shall be entitled to require the Corporation to redeem
all or any number of the shares of Common Stock standing in the name of
such holder on the books of the Corporation at a redemption price per
share equal to an amount determined by the Board of Directors in
accordance with any applicable laws and regulations; PROVIDED that (i)
such amount shall not exceed the net asset value per share determined in
accordance with this Article, and (ii) if so authorized by the Board of
Directors, the Corporation may, at any time from time to time, charge
fees for effecting such redemption or repurchase, at such rates as the
Board of Directors may establish, as and to the extent permitted under
the Investment Company Act of 1940. The redemption price may be paid in
cash, securities or a combination thereof, as determined by or pursuant
to the direction of the Board of Directors from time to time.
16. Notwithstanding Section 15 above (or any other provision of
the Corporation's charter), the Board of Directors of the Corporation
may suspend the right of the holders of shares of any Series to require
the Corporation to redeem such shares (or may suspend any voluntary
purchase of shares pursuant to the provisions of the Corporation's
charter) or postpone the date of payment or satisfaction upon redemption
of such shares during any financial emergency.
For the purpose of the Corporation's charter, a "financial
emergency" is defined as the whole or part of any period during which
(i) the New York Stock Exchange is closed, other than customary weekend
and holiday closings, (ii) trading on the New York Stock Exchange is
restricted, (iii) an emergency exists as a result of which disposal by
the Corporation of securities owned by such Series is not reasonably
practicable or it is not reasonably practicable for the Corporation
fairly to determine the value of the net assets of such Series or (iv)
the Securities and Exchange
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Commission (or any succeeding governmental authority) may for the
protection of security holders of the Corporation by order permit
suspension of the right of redemption or postponement of the date of
payment on redemption.
17. The Board of Directors may by resolution from time to time
authorize the repurchase by the Corporation, either directly or through
an agent, of shares upon such terms and conditions and for such
consideration as the Board of Directors shall deem advisable, out of
funds legally available therefor and at prices per share not in excess
of the current net asset value per share determined in accordance with
this Article and to take all other steps deemed necessary or advisable
in connection therewith.
18. Except as otherwise permitted by the Investment Company Act
of 1940 or any other applicable rule, regulation or order of the
Securities and Exchange Commission, payment of the redemption or
repurchase price of shares surrendered to the Corporation for redemption
pursuant to the provisions of Section 15 or 20 of this Article or for
repurchase by the Corporation pursuant to the provisions of Section 17
of this Article shall be made by the Corporation within seven (7) days
after surrender of such shares to the Corporation for such purpose. Any
such payment may be made in whole or in part in portfolio securities or
in cash, as the Board of Directors shall deem advisable, and no
stockholder shall have the right, other than as determined by the Board
of Directors, to have shares redeemed or repurchased in portfolio
securities or in cash or in any particular combination thereof.
19. In the absence of any specification of the purpose for which
the Corporation redeems or repurchases any shares of its Common Stock,
all redeemed or repurchased shares shall be deemed to be acquired for
retirement in the sense contemplated by the General Corporation Law of
the State of Maryland. Shares of any Series retired by redemption or
repurchase shall thereafter have the status of authorized but unissued
shares of such Series.
20. All shares now or hereafter authorized shall be subject to
redemption and redeemable at the option of the Corporation. From time to
time the Board of Directors may by resolution, without the vote or
consent of stockholders, authorize the redemption of all or any part of
any outstanding shares (including through the establishment of uniform
standards with respect to the minimum net asset value of a stockholder
account) upon the sending of written notice thereof to each stockholder
any of whose shares are to be so redeemed and upon such terms and
conditions as the Board of Directors shall deem advisable, out of funds
legally available therefore, at the net asset value per share determined
in accordance with the provisions of this Article and may take all other
steps deemed necessary or advisable in connection therewith. The Board
of Directors may authorize the closing and redemption of all shares of
any accounts not meeting the specified minimum standards of net asset
value.
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21. The holders of shares of Common Stock or other securities of
the Corporation shall have no preemptive rights to subscribe for new or
additional shares of its Common Stock or other securities.
SIXTH: DIRECTORS. The initial number of directors of the
Corporation shall be one (1), which shall be the minimum number of
directors for so long as there is only one or no stockholder. The name
of the director who shall act until the first annual meeting or until
his successor is duly chosen and qualified is Robert D. Mancuso. Upon
such time as the Corporation has two or more stockholders, the minimum
number of directors shall be increased in accordance with the provisions
of Section 2-402 of the Maryland General Corporation Law. The number of
directors may be changed from time to time in such lawful manner as is
provided in the Bylaws of the Corporation. Unless otherwise provided by
the Corporation's Bylaws, directors of the Corporation need not be
stockholders.
SEVENTH: LIABILITIES OF DIRECTORS AND OFFICERS. To the fullest
extent permitted by Maryland statutory and decisional law, as amended
and interpreted, and the Investment Company Act of 1940, no director or
officer of the Corporation shall be liable to the Corporation or its
stockholders for money damages; provided, however, that nothing herein
shall be construed to protect any director or officer of the Corporation
against any liability to the Corporation or its security holders to
which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such person's office. No amendment of
the Corporation's charter or repeal of any of its provisions shall limit
or eliminate the limitation of liability provided to directors and
officers hereunder with respect to any act or omission occurring prior
to such amendment or repeal.
EIGHTH: INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
AGENTS. The Corporation shall indemnity (i) its directors and officers,
whether serving the Corporation or at its request any other entity, to
the full extent required or permitted by Maryland statutory and
decisional law, now or hereafter in force, including the advance of
expenses under the procedures and to the full extent permitted by law,
and (ii) other employees and agents to such extent as shall be
authorized by the Board of Directors or the Bylaws and as permitted by
law. Nothing contained herein shall be construed to protect any
director, officer, employee or agent of the Corporation against any
liability to the Corporation or its security holders to which such
person would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in
the conduct of such persons's office. The foregoing rights of
indemnification shall not be exclusive of any other rights to which
those seeking indemnification may be entitled. The Board of Directors
may take such action as is necessary to carry out these indemnification
provisions and is expressly empowered to adopt, approve and amend from
time to time such Bylaws, resolutions or contracts implementing such
provisions or such further indemnification arrangements as may be
permitted by law. No amendment of the Corporation's charter or repeal of
any of its provisions shall limit or eliminate the right of
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indemnification provided hereunder with respect to acts or omissions
occurring prior to such amendment or repeal.
NINTH: MANAGEMENT OF THE AFFAIRS OF THE CORPORATION. The Board of
Directors shall manage and control the property, business and affairs of
the Corporation and is hereby vested with all the powers possessed by
the Corporation itself so far as is not inconsistent with law or the
Corporation's charter. In furtherance and without limitation of the
foregoing provisions, it is expressly declared that, subject to the
Corporation's charter. the Board of Directors shall have the power:
(i) to make, alter, amend or repeal from time to time the
Bylaws of the Corporation except as such power may otherwise
be limited in the Bylaws;
(ii) from time to time to determine whether, to what extent,
at what times and places and under what conditions and
regulations the books and accounts of the Corporation, or
any of them other than the stock ledger, shall be open to
the inspection of the stockholders, and no stockholder shall
have any right to inspect any account or book or document of
the Corporation, except as conferred by law or authorized by
resolution of the Board of Directors or of the stockholders;
and
(iii) in addition to the powers and authorities granted
herein and by statute expressly conferred upon it, the Board
of Directors is authorized to exercise all such powers and
do all acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the provisions of
Maryland law and the Corporation's charter and Bylaws.
TENTH: CORPORATE BOOKS. The books of the Corporation may be kept
(subject to any provisions contained in applicable statutes) outside the
State of Maryland at such place or places as may be designated from time
to time by the Board of Directors or in the Bylaws of the Corporation.
Election of directors need not be by ballot unless the Bylaws of the
Corporation shall so provide.
ELEVENTH: AMENDMENTS. The Corporation reserves the right from
time to time to amend, alter or repeal any of the provisions of the
Corporation's charter (including any amendment that changes the terms of
any of the outstanding shares by classification, reclassification or
otherwise), and any contract rights, as expressly set forth in the
Corporation's charter, of any outstanding shares, and to add or insert
any other provisions that may, under the statutes of the State of
Maryland at the time in force, be lawfully contained in a corporation's
charter, and all rights at any time conferred upon the stockholders of
the Corporation by this charter are subject to the provisions of this
Article ELEVENTH.
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TWELFTH: QUORUM, MAJORITY VOTE.
1. The presence in person or by proxy of the holders of record of
one-third of the shares issued and outstanding and entitled to vote
thereat shall constitute a quorum for the transaction of any business at
all meetings of the stockholders except as otherwise provided by law
(including the Investment Company Act of 1940) or in the Corporation's
charter.
At any meeting of stockholders of the Corporation or of
stockholders of any Class or Series, a Financial Intermediary (as such
term may from time to time be defined in the applicable then-current
prospectus of the Corporation for the shares to which the meeting
relates or by the Board of Directors) may vote any shares as to which
such Financial Intermediary is the agent of record and which are not
otherwise 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 such Financial Intermediary is the agent of record. Any shares so
voted by a Financial Intermediary will be deemed represented at the
meeting for all purposes, including quorum purposes.
2. On any given matter, the presence at any meeting, in person or
by proxy, of holders of record of less than one-third of the shares
issued and outstanding and entitled to vote thereat shall not prevent
action at such meeting upon any other matter or matters which may
properly come before the meeting, if there shall be present thereat, in
person or by proxy, holders of record of the number of shares required
for action in respect of such other matter or matters.
Notwithstanding any provision of Maryland law requiring more than
a majority vote of the Common Stock, or any Series or Class thereof, in
connection with any corporate action (including, but not limited to, the
amendment of the Corporation's charter), unless otherwise provided in
the Corporation's charter, the Corporation may take or authorize such
action upon the favorable vote of the holders of a majority of the
outstanding shares of Common Stock entitled to vote thereon.
THIRTEENTH: ACQUISITION SUBJECT TO THE CORPORATION'S CHARTER. All
persons who shall acquire shares in the Corporation shall acquire the
same subject to the provisions of the Corporation's charter.
FOURTEENTH: DURATION. The duration of the Corporation shall be
perpetual.
* * * * * *
NINTH: This Amendment and Restatement of the charter of the Corporation
as hereinabove set forth was approved by the unanimous vote of the
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Corporation's directors and no stock entitled to be voted on the matter was
outstanding or subscribed for at the time of approval.
IN WITNESS WHEREOF, DEUTSCHE FAMILY OF FUNDS, INC., has caused these
Articles of Amendment and Restatement to be signed in its name and on its behalf
by its President and attested to by its Secretary, and each said officer of the
Corporation has also acknowledged these Articles of Amendment and Restatement to
be the act of the Corporation and has stated under penalty of perjury that to
the best of his knowledge, information and belief the matters and facts set
forth herein are true in all material respects, all on July 28, 1997.
DEUTSCHE FAMILY OF FUNDS, INC.
By:
Brian A. Lee
President
Attest:
Robert R. Gambee
Secretary
DEUTSCHE FAMILY OF FUNDS, INC.
ARTICLES OF AMENDMENT
THIS IS TO CERTIFY THAT:
FIRST: The charter of Deutsche Family of Funds, Inc., a Maryland
corporation (the "Corporation"), is hereby amended as follows:
1. Article SECOND is amended to change the name of the
Corporation from "Deutsche Family of Funds, Inc." to "Deutsche
Funds, Inc."
2. Article FIFTH, Section 1, is amended to increase the total
number of shares of Common Stock, par value of one-tenth of
one cent ($0.001) per share, of all Series and Classes that
the Corporation shall have authority to issue from
2,500,000,000 to 17,500,000,000. The aggregate par value of
all Series and Classes of such Common Stock is increased from
$2,500,000 to $17,500,000.
3. Article FIFTH, Section 3, is amended (a) to designate an
additional Series of Common Stock of the Corporation having
the name "Deutsche Institutional US Money Market Fund" and to
classify and allocate to such additional Series
10,000,000,000 shares of Common Stock of the Corporation and
(b) to increase the number of shares of Common Stock
classified and allocated to the Deutsche US Money Market Fund
from 10,000,000 to 5,000,000,000.
4. Article FIFTH, Section 5, is amended (a) to replace the word
"and" immediately preceding the words "Deutsche Top 50 US" in
the first sentence of subsection (a) with a comma and to
insert after the words "Deutsche Top 50 US" the words "and
Deutsche Institutional US Money Market Fund"; (b) to delete
the second sentence of subsection (a); and (c) to add at the
end of subsection (a) the following sentence: "The Common
Stock of the Deutsche Institutional US Money Market Fund
shall consist of a single class of shares of Common Stock
until otherwise classified in accordance with Article FIFTH,
Section 3."
NY12533: 62443.1
<PAGE>
SECOND: The number of shares of Common Stock allocated to each Series
after giving effect to this Amendment is as follows:
NUMBER OF SHARES OF COMMON STOCK
NAME OF SERIES CLASSIFIED AND ALLOCATED
As Immediately
BEFORE AMENDMENT AS AMENDED
Deutsche German Equity Fund 10,000,000 10,000,000
Deutsche European Mid-Cap 10,000,000 10,000,000
Fund
Deutsche Japanese Equity Fund 10,000,000 10,000,000
Deutsche European Bond Fund 10,000,000 10,000,000
Deutsche Global Bond Fund 10,000,000 10,000,000
Deutsche Top 50 Europe 10,000,000 10,000,000
Deutsche Top 50 World 10,000,000 10,000,000
Deutsche Top 50 Asia 10,000,000 10,000,000
Deutsche Top 50 US 10,000,000 10,000,000
Deutsche US Money Market 10,000,000 5,000,000,000
Fund
Deutsche Institutional US Money None 10,000,000,000
Market Fund
THIRD: Both as of immediately before this Amendment and as amended, the
par value of the shares of Common Stock of all Series and Classes is one- tenth
of one cent ($0.001) per share.
FOURTH: The information required by subsection (b)(2)(i) of Section
2-607 of Maryland General Corporation Law has not been changed by this
Amendment.
FIFTH: The amendment to the charter of the Corporation as set forth
above has been approved by a majority of the entire Board of Directors and no
stock
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NY12533: 62443.1
<PAGE>
entitled to vote on the matter was subscribed for or outstanding at the time of
approval of such amendment.
IN WITNESS WHEREOF, the Corporation has caused these Articles to be
signed in its name and on its behalf by its President and attested to by its
Secretary on this 11th day of September, 1997.
ATTEST: DEUTSCHE FAMILY OF FUNDS, INC.
/S/ ROBERT R. GAMBEE By: /S/ BRIAN A. LEE
Robert R. Gambee, Secretary Brian A. Lee, President
VERIFICATION
The undersigned President acknowledges these Articles of
Amendment to be the corporate act of the Corporation and as to all matters or
facts required to be verified under oath, the undersigned President acknowledges
that to the best of his knowledge, information and belief, these matters and
facts are true in all material respects and that this statement is made under
the penalties for perjury.
/S/ BRIAN A. LEE
Brian A. Lee
-3-
NY12533: 62443.1
THE DEUTSCHE PORTFOLIOS
INVESTMENT ADVISORY AGREEMENT
Agreement made as of _________, 1997 by and among Deutsche
Fund Management, Inc., a Delaware corporation (the "Investment Manager"), DWS
Portfolio Management GmbH, a company organized under the laws of the Federal
Republic of Germany (hereinafter called the "DWS Adviser"), and Deutsche Asset
Management North America, Inc., a Delaware corporation (hereinafter called the
"DAMNA Adviser").
W I T N E S S E T H:
WHEREAS, the Investment Manager has entered into an Investment
Management Agreement dated __________, 1997 (the "Investment Management
Agreement") with the Deutsche Portfolios, an open-end management investment
company registered under the Investment Company Act of 1940 (the "1940 Act") and
organized as a trust under the laws of the State of New York (the "Trust") on
behalf of its ten non-diversified sub-trusts named herein (each such sub-trust,
together with each sub-trust hereafter established by the Trustees of the Trust
and made subject to this Agreement in accordance with Section 11 hereof,
individually a "Portfolio" and, collectively, the "Portfolios"), pursuant to
which the Investment Manager will act as investment manager to the sub-trusts
named in the Investment Management Agreement;
WHEREAS, the Investment Management Agreement contemplates that
the Investment Manager may appoint an adviser to perform certain services
relating to the management of the investment operations of the sub-trusts of the
Trust, and the each of the DWS Adviser and the DAMNA Adviser is willing to
render such investment advisory services to the respective Portfolios designated
herein; and
WHEREAS, each of the DWS Adviser and the DAMNA Adviser is
registered as an investment adviser under the Investment Advisers Act of 1940.
NOW, THEREFORE, in consideration of the premises and mutual
promises hereinafter set forth, the parties hereto agree as follows:
NY12525: 165237.2
<PAGE>
The Investment Manager hereby appoints (a) the DWS Adviser to act as
adviser to the Portfolios set forth under its name on Schedule A and (b) the
DAMNA Adviser to act as adviser to the Portfolios set forth under its name on
Schedule A, in each case for the period and on the terms set forth in this
Agreement. Each of the DWS Adviser and the DAMNA Adviser accepts such
appointment and agrees to render the services herein set forth, for the
compensation herein provided. In this Agreement, the term "Adviser" shall
hereinafter refer to the DWS Adviser, with respect to the Portfolios for which
it is appointed to act as adviser under this Section 1, and to the DAMNA
Adviser, with respect to the Portfolios for which it is appointed to act as
adviser under this Section 1.
Subject to the general supervision of the Trustees of the Trust and the
Investment Manager, the Adviser shall manage the investment operations of each
Portfolio and the composition of each Portfolio's holdings of securities and
other investments, including cash, the purchase, retention and disposition
thereof and agreements relating thereto, in accordance with such Portfolio's
investment objective and policies as stated in the Registration Statement (as
defined in paragraph 3(d) of this Agreement) and subject to the following
understandings:
The Adviser, in the performance of its duties and obligations under
this Agreement, shall act in conformity with the Declaration of Trust and
By-Laws of the Trust and the Registration Statement and with the instructions
and directions of the Trustees of the Trust and will conform to and comply with
the requirements of the 1940 Act and all other applicable federal and state laws
and regulations;
The Adviser shall furnish a continuous investment program for each
Portfolio and determine from time to time what securities, instruments and other
investments including future contracts will be purchased, retained, sold or lent
by such Portfolio, and what portion of the assets will be invested or held
uninvested as cash;
The Adviser shall use the same skill and care in the management of each
Portfolio's investments as it uses in the administration of other accounts for
which it has investment responsibility as agent;
The Adviser shall determine the securities or other investments to be
purchased, sold or lent by the Portfolio and as agent for each Portfolio will
effect portfolio transactions pursuant to its determinations either directly
with the issuer
-2-
NY12525: 165237.2
<PAGE>
or with any broker and/or dealer in such securities, including a broker
affiliated with the Adviser; in placing orders with brokers and/or dealers the
Adviser intends to seek best price and execution for purchases and sales; the
Adviser shall also determine whether or not a Portfolio shall enter into
repurchase or reverse repurchase agreements;
On occasions when the Adviser deems the purchase or sale of a security
or other investment to be in the best interest of a Portfolio as well as other
customers of the Adviser, the Adviser may, to the extent permitted by applicable
laws and regulations, but shall not be obligated to, aggregate the securities to
be so sold or purchased on behalf of such Portfolio and such other customer of
the Adviser in order to obtain best execution, including lower brokerage
commissions, if applicable. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction, will be
made by the Adviser in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to a Portfolio;
The Adviser shall maintain a set of books and records with respect to
each Portfolio's securities transactions as required by the Advisers Act and
other applicable laws and regulations and shall render to the Trustees of the
Trust such periodic and special reports as the Trustees may reasonably request;
and
The services of the Adviser to the Trust under this Agreement are not
to be deemed exclusive, and the Adviser shall be free to render similar services
to others.
Notwithstanding the foregoing, the Adviser is not authorized, and shall not be
deemed to have assumed any duties under this Agreement, to make any business,
operational or management decisions on behalf of the Trust or any Portfolio
other than with respect to the investment operations and composition of a
Portfolio's holdings of securities and other investments as set forth herein.
The Investment Manager has delivered copies of each of the following
documents to the Adviser and will promptly notify and deliver to it all future
amendments and supplements, if any:
(a) Declaration of Trust of the Trust (such Declaration of Trust, as
presently in effect and as
-3-
NY12525: 165237.2
<PAGE>
amended from time to time, is herein called the "Declaration of Trust");
(b) By-laws of the Trust (such By-laws, as presently in effect and as
amended from time to time, are herein called the "By-laws");
(c) Certified resolutions of the Trustees of the Trust authorizing the
appointment of the Adviser and approving the form of this Agreement;
(d) The Trust's Notification of Registration on Form N-8A under the
1940 Act, its Registration Statement on Form N-1A under the 1940 Act (No.
_______) and the Registration Statement on Form N-1A of Deutsche Family of
Funds, Inc. (No. 333-27709) under the Securities Act of 1933, as amended, and
the 1940 Act, as filed with the Securities and Exchange Commission (the
"Commission") on May 23, 1997, including all amendments thereto (together with
the Registration Statement of the Trust, the "Registration Statement").
The Adviser shall keep the books and records required to be maintained
by it pursuant to paragraph 2(e) of this Agreement. The Adviser agrees that all
records that it maintains for the Trust are the property of the Trust and it
will promptly surrender any of such records to the Trust or to the Investment
Manager upon request. The Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 of the Commission under the 1940 Act any such records
as are required to be maintained by the Adviser with respect to the Portfolios
by Rule 31a-2 of the Commission under the 1940 Act.
During the term of this Agreement, the Adviser will pay all expenses,
including personnel costs and overhead, incurred by it in connection with its
activities under this Agreement, other than the cost of securities and
investments purchased or sold for the Portfolios (including taxes and brokerage
commissions, if any) and extraordinary expenses.
The Investment Manager shall continue to have responsibility for all
services to be provided to the Portfolios pursuant to the Investment Management
Agreement and shall oversee and review the Adviser's performance of its duties
under this Agreement.
For the services provided and the expenses borne pursuant to this
Agreement, the Investment Manager will pay to the Adviser, as full compensation
therefor a fee, calculated daily and payable monthly in arrears, at an
-4-
NY12525: 165237.2
<PAGE>
annual rate equal to the percentage of the average daily net assets of each
Portfolio specified in Schedule A hereto.
The Adviser shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Investment Manager, the Trust or any
Portfolio 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.
This Agreement shall continue in effect until the date two years after
the date of its execution and shall continue in effect from year to year
thereafter with respect to each Portfolio if such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated with respect to the
Trust in its entirety or with respect to any Portfolio, at any time, without the
payment of any penalty,(a) by the Investment Manager or (b) by the Trust, by
vote of a majority of all the Trustees of the Trust or by vote of a majority of
the outstanding voting securities (as defined in the 1940 Act) of the Trust or
such Portfolio, as the case may be, in each case on 60 days' written notice to
the Adviser, or by the Adviser with respect to its respective Portfolios, at any
time, without the payment of any penalty, on 90 days' written notice to the
Investment Manager and to the Trust. This Agreement will automatically and
immediately terminate in the event of its "assignment" (as defined in the 1940
Act) or upon termination of the Investment Management Agreement.
The Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise expressly provided herein or
authorized by the Trustees of the Trust and the Investment Manager from time to
time, have no authority to act for or represent the Trust or any Portfolio in
any way or otherwise be deemed an agent of the Trust or any Portfolio.
This Agreement may be amended by the mutual consent of the parties. Any
such amendment shall also require the consent of the Trust, which must be
approved (a) by vote of a majority of those Trustees of the Trust who are not
parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such amendment, and (b)
by vote of a majority of the outstanding voting securities of the Trust or, in
the case of any such amendment affecting only one or several Portfolios, a
majority of the outstanding voting securities of each such Portfolio. In the
event that the
-5-
NY12525: 165237.2
<PAGE>
Trustees of the Trust establish one or more additional sub- trusts with respect
to which they retain the Investment Manager to act as investment manager, the
Investment Manager and the DWS Adviser or the DAMNA Adviser, as the case may be,
may amend Schedule A hereto to add each such sub-trust and specify the fee
payable to such Adviser in respect thereof, in which event such sub-trust shall
become subject to the provisions of this Agreement and be deemed a "Portfolio"
hereunder to the same extent as the existing Portfolios, except to the extent
that such provisions may be modified with respect to any additional Portfolio in
writing by the Investment Manager and such Adviser at the time of the addition
of the Portfolio.
Notices of any kind to be given hereunder shall be in writing and shall
be duly given if mailed or delivered as follows: (a) to the Adviser at
Grueneburgweg 113-115, Frankfurt am Main 60323, Germany, Attention:
____________________, with a copy to _________________ [____________]; (b) to
the Investment Manager at 31 West 52nd Street, New York, New York 10019,
Attention: President and Managing Director; (c) to the Trust at Cardinal Avenue,
George Town, Grand Cayman, Cayman Islands, BWI; or (d) at such other address or
to such other individual as any of the foregoing shall designate by notice to
the others.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original.
-6-
NY12525: 165237.2
<PAGE>
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the ___ day of __________,
1997.
DEUTSCHE FUND MANAGEMENT, INC.
By: ________________________________
President and Managing Director
DWS PORTFOLIO MANAGEMENT GmbH
By: _________________________________
DEUTSCHE ASSET MANAGEMENT NORTH AMERICA,
INC.
By: ________________________________
Acknowledged and Confirmed.
DEUTSCHE PORTFOLIOS
By:________________________
-7-
NY12525: 165237.2
<PAGE>
SCHEDULE A
Fee (annualized
% of average
PORTFOLIO DAILY NET ASSETS)
DWS ADVISER
Top 50 World Portfolio 0.75%
Top 50 Europe Portfolio 0.75
Top 50 Asia Portfolio 0.75
Provesta Portfolio 0.60
Investa Portfolio 0.60
DWS Japan Portfolio 0.60
Inter-Renta Portfolio 0.50
German Bond Portfolio 0.50
DAMNA ADVISER
Top 50 US Portfolio 0.75%
US Money Market Portfolio
-8-
DEUTSCHE FAMILY OF FUNDS, INC.
DISTRIBUTOR'S CONTRACT
AGREEMENT made this ____ DAY OF __________, 19___, by and between
DEUTSCHE FAMILY OF FUNDS, INC. (the "CORPORATION"), a MARYLAND CORPORATION, and
Edgewood Services, Inc. ("Edgewood"), a New York Corporation.
In consideration of the mutual covenants hereinafter contained, it
is hereby agreed by and between the parties hereto as follows:
1. The CORPORATION hereby appoints EDGEWOOD as its agent to sell and
distribute shares of the CORPORATION which may be offered in one or more series
(the "Funds") consisting of one or more classes (the "Classes") of shares (the
"Shares"), as described and set forth on one or more exhibits to this Agreement,
at the current offering price thereof as described and set forth in the current
Prospectuses (as defined herein) of the CORPORATION. EDGEWOOD hereby accepts
such appointment and agrees to provide such other services for the CORPORATION,
if any, and accept such compensation from the CORPORATION, if any, as set forth
in the applicable exhibits to this Agreement.
2. As used herein, the term "Registration Statement" shall mean the
registration statement most recently filed from time to time by the Corporation
with the Securities and Exchange commission (the "Commission") and effective
under the Securities Act of 1933, as amended (the "1933 Act"), and the
Investmetn Company Act of 1940, as amended (the "1940 Act"), as such
registration statement is amended by any amendments thereto at the time in
effect. The term "Prospectus" shall mean each prospectus included as part of the
Corporation's Registration Statement, as such prospectus may be amended or
supplemented from time to time. The term "SAI" shall mean each Statement of
Additional Information included as part of the Corporation's Registration
Statement, as such Statement of Additional Information may be amended or
supplemented from time to time.
3. The sale of any Shares may be suspended without prior notice
whenever in the judgment of the CORPORATION it is in its best interest to do so.
4. Neither EDGEWOOD nor any other person is authorized by the
CORPORATION to give any information or to make any representation relative to
any Shares other than those contained in the Registration Statement, any
Prospectus, or any SAI, or in any supplemental information to said Prospectuses
or SAIs approved by the CORPORATION. EDGEWOOD agrees that any other information
or representations other than those specified above which it or any dealer or
other person who purchases Shares through EDGEWOOD may make in connection with
the offer or sale of Shares, shall be made entirely without liability on the
part of the CORPORATION. No person or dealer, other than EDGEWOOD, is authorized
to act as agent for the CORPORATION for the purpose of the sale and distribution
of Shares. EDGEWOOD agrees that in performing its duties hereunder, it will act
in conformity with the Articles of Incorporation and the By-laws of the
Corporation, the Registration Statement and each Prospectus and SAI relating to
Shares and with the instructions and directions of the Board of Directors of the
Corporation, and will comply with and conform in all material respects to the
requirements of applicable state and federal laws and the rules and regulations
of the National Association of Securities Dealers, Inc. ("NASD"), including its
Rules of Fair Practice.
5. This Agreement is effective with respect to each Class as of the
date of execution of the applicable exhibit and shall continue in effect with
respect to each Class
INVESTMENT COMPANY NAME VERSION#/DATE
<PAGE>
presently set forth on an exhibit and any subsequent Classes added pursuant to
an exhibit during the initial term of this Agreement for one year from the date
hereof, and thereafter for successive periods of one year if such continuance is
approved at least annually with respect to each Fund and Class as to which it is
to continue in effect by the DIRECTORS of the CORPORATION, including a majority
of the members of the Board of DIRECTORS of the CORPORATION who are not
"interested persons"(as defined in the 1940 Act) of either party hereto cast in
person at a meeting called for that purpose and, if applicable, as provided in
Section 10(a). If a Class is added after the first annual approval by the
DIRECTORS as described above, this Agreement will be effective as to that Class
upon execution of the applicable exhibit and will continue in effect until the
next annual approval of this Agreement by the DIRECTORS and thereafter for
successive periods of one year, subject to approval as described above.
6. This Agreement may be terminated with regard to a particular Fund or
Class at any time, without the payment of any penalty, by the vote of a majority
of the DisinterestedDIRECTORS or by a majority of the outstanding voting
securities of the particular Fund or Class, on not more than sixty (60) days'
written notice to the Distributor. This Agreement may be terminated with regard
to a particular Fund or Class by EDGEWOOD on sixty (60) days' written notice to
the CORPORATION.
7. This Agreement may not be assigned by EDGEWOOD and shall
automatically terminate in the event of an assignment by EDGEWOOD (as defined in
the 1940 Act), provided, however, that EDGEWOOD may, with the prior written
consent of the Corporation, employ such other person, persons, corporation or
corporations as it shall determine in order to assist it in carrying out its
duties under this Agreement.
8. EDGEWOOD shall not be liable to the CORPORATION for anything done or
omitted by it, except acts or omissions involving willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties imposed by this
Agreement.
9. Subject to Section 10, this Agreement may be amended at any time by
mutual agreement in writing of all the parties hereto, provided that no
provision of this Agreement may be changed, waived, discharged or terminated
except by an instrument in writing signed by the party against which enforcement
of the change, waiver, discharge or termination is sought, and that the
Corporation's consent to any material amendment to the Agreement requires the
approval provided for in Section 5.
10. The Board of Directors of the Corporation has adopted a Plan of
Distribution pursuant to Rule 12b-1 under the 1940 Act with respect to one or
more Funds and Classes (the "12b-1 Plan") and may make payments to Edgewood
pursuant to such 12b-1 Plan, subject to and in accordance with the terms and
conditions thereof and any related agreements. During such period as Edgewood
receives compensation pursuant to the 12b-1 Plan with respect to one or meore
Funds and Classes, as provided in one or more exhibits to this Agreement, and
this Agreement constitutes a 12b-1 related agreement.
(a) This Agreement shall continue in effect with respect to each
Class for which Edgewood receives compensation pursuant to the 12b-1
Plan from and after its effective date with respect to such Class
only if such continuance is specifically approved annually by the
vote of both the Corporation's Board of Directors and by the
directors who are not "interested persons" (as defined in the 1940
Act) of the Corporation and have no direct or indirect financial
interest in the operation of the 12b'1 Plan or in any agreements
related thereto (the "Independent Directors"), cast
INVESTMENT COMPANY NAME VERSION#/DATE
<PAGE>
in person at a meeting called for the purpose of voting on such 12b-1 Plan or
related agreements.
(b) This Agreement may be terminated, without the payment of any
penalty, by the Corporation as to any Fund or Class by vote of a
majority of the Independent Directors or by a vote of a majority of
the outstanding voting securities (as defined in the 1940 Act) of the
affected Fund or Class or by Edgewood, in either case, on sixty days'
prior written notice to the other party.
(c) Any material amendment to this Agreement requires the approval
provided for in Section 10(a) with respect to annual renewals of this
Agreemetn, and any amendment that materially increases the amount to
be spent for distribution services requires the additional approval
of the majority of the Corporation's outstanding voting securities
(as defined in the 1940 Act) of each affected Fund or Class.
(d) The selection and nomination of those directors who are not
"intersted persons" (as defined in the 1940 Act) of the Corporation
shall be committed to the discretion of the Directors of the
Corporation who are not such "interested persons" of the Fund.
11. Edgewood shall clear and file all advertising, sales, marketing and
promotional materials of the Fund provided to Edgewood, or in the preparation of
which it has participated, with the NASD as required by the 1933 Act and the
1940 Act, and the rules promulgated thereunder, and by the rules of the NASD.
Edgewood will ensure that all direct requests for Prospectuses and SAIs are
fulfilled.
12. Edgewood agrees to make available one or more members of its staff
or the staff of an affiliated company to attend all Board meetings of the
Corporation in order to provide informtion with regard to the ongoing
distribution process and for such other purposes as may be requested by the
Board of Directors of the Corporation.
13. Edgewood represents and warrants to the Corporation that (a) it is
duly organized as a New York Corporation, (b) it is a registered broker-dealer
under the Securities Exchange Act of 1934, as amended, and (c) its entering into
this contract or providing the services contemplated thereby does not conflict
with or constitute a default or require a consent under or breach of any
provision of any agreemetn or document to which Edgewood is a party or by which
it is bound.
14. This Agreement shall be construed in accordance with and governed
by the laws of the Commonwealth of Pennsylvania.
15. (a) Subject to the conditions set forth below, the CORPORATION
agrees to indemnify and hold harmless EDGEWOOD and each person, if any, who
controls EDGEWOOD within the meaning of Section_15 of the 1933 Act and
Section_20 of the Securities Act of 1934, as amended, against any and all loss,
liability, claim, damage and expense whatsoever (including but not limited to
any and all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any litigation, commenced or threatened, or any claim
whatsoever) arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectuses or SAIs (as from time to time amended and supplemented) or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading, unless such
statement or omission was made in reliance upon and in conformity with written
information furnished to the CORPORATIONby or on behalf of EDGEWOOD expressly
for use in the
INVESTMENT COMPANY NAME VERSION#/DATE
<PAGE>
Registration Statement, any Prospectuses and SAIs or any amendment or
supplement thereof.
If any action is brought against EDGEWOOD or any controlling person
thereof with respect to which indemnity may be sought against the CORPORATION
pursuant to the foregoing paragraph, EDGEWOOD shall promptly notify the
CORPORATION in writing of the institution of such action and the CORPORATION
shall assume the defense of such action, including the employment of counsel
selected by the CORPORATION and payment of expenses. EDGEWOOD or any such
controlling person thereof shall have the right to employ separate counsel in
any such case, but the fees and expenses of such counsel shall be at the expense
of EDGEWOOD or such controlling person unless the employment of such counsel
shall have been authorized in writing by the CORPORATION in connection with the
defense of such action or the CORPORATION shall not have employed counsel to
have charge of the defense of such action, in any of which events such fees and
expenses shall be borne by the CORPORATION. Anything in this paragraph to the
contrary notwithstanding, the CORPORATION shall not be liable for any settlement
of any such claim of action effected without its written consent. The
CORPORATION agrees promptly to notify EDGEWOOD of the commencement of any
litigation or proceedings against the CORPORATION or any of its officers or
DIRECTORS or controlling persons in connection with the issue and sale of Shares
or in connection with the Registration Statement, Prospectuses, or SAIs.
(b) EDGEWOOD agrees to indemnify and hold harmless the CORPORATION, each of
its DIRECTORS, each of its officers who have signed the Registration Statement
and each other person, if any, who controls the CORPORATION within the meaning
of Section_15 of the 1933 Act, but only with respect to statements or omissions,
if any, made in the Registration Statement or any Prospectus, SAI, or any
amendment or supplement thereof in reliance upon, and in conformity with,
information furnished to the CORPORATION about EDGEWOOD by or on behalf of
EDGEWOOD expressly for use in the Registration Statement or any Prospectus, SAI,
or any amendment or supplement thereof. In case any action shall be brought
against the CORPORATION or any other person so indemnified based on the
Registration Statement or any Prospectus, SAI, or any amendment or supplement
thereof, and with respect to which indemnity may be sought against EDGEWOOD,
EDGEWOOD shall have the rights and duties given to the CORPORATION, and the
CORPORATION and each other person so indemnified shall have the rights and
duties given to EDGEWOOD by the provisions of subsection (a) above.
(c) Nothing herein contained shall be deemed to protect any person against
liability to the CORPORATION or its shareholders to which such person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the duties of such person or by reason of the
reckless disregard by such person of the obligations and duties of such person
under this Agreement.
(d) Insofar as indemnification for liabilities may be permitted pursuant to
Section_17 of the 1940 Act, EDGEWOOD and controlling persons of Edgewood by the
CORPORATION pursuant to this Agreement, the parties hereto are aware of the
position of the Securities and Exchange Commission
INVESTMENT COMPANY NAME VERSION#/DATE
<PAGE>
as set forth in the Investment Company Act Release No._IC-11330. Therefore,
notwithstanding the foregoing paragraphs (a) and (b), the parties agree that (A)
in addition to complying with other applicable provisions of this Agreement, in
the absence of a final decision on the merits by a court or other body before
which the proceeding was brought, that an indemnification payment will not be
made to Edgewood or any controlling person of Edgewood unless in the absence of
such a decision, a reasonable determination based upon factual review has been
made (i) by a majority vote of a quorum of non-party Disinterested DIRECTORS, or
(ii) by independent legal counsel in a written opinion that the indemnitee was
not liable for an act of willful misfeasance, bad faith, gross negligence or
reckless disregard of duties; (B) advancement of expenses incurred in the
defense of a proceeding (upon undertaking for repayment unless it is ultimately
determined that indemnification is appropriate) against Edgewood or controlling
persons of Edgewood will not be made absent the fulfillment of at least one of
the following conditions: (i) the indemnitee provides security for his
undertaking; (ii) the CORPORATION is insured against losses arising by reason of
any lawful advances; or (iii) a majority of a quorum of non-party Disinterested
DIRECTORS or independent legal counsel in a written opinion makes a factual
determination that there is reason to believe the indemnitee will be entitled to
indemnification.
16. If at any time the Shares of any Fund are offered in two or more
Classes, EDGEWOOD agrees to adopt compliance standards as to when a class of
shares may be sold to particular investors.
17. This Agreement will become binding on the parties hereto upon the
execution of the attached exhibits to the Agreement.
INVESTMENT COMPANY NAME VERSION#/DATE
<PAGE>
INVESTMENT COMPANY NAME
Exhibit A
to the
Distributor's Contract
DEUTSCHE FAMILY OF FUNDS, INC
DEUTSCHE EUROPEAN MID-CAP FUND
DEUTSCHE GERMAN BOND FUND
DEUTSCHE GERMAN EQUITY FUND
DEUTSCHE GLOBAL BOND FUND
DEUTSCHE JAPANESE EQUITY FUND
DEUTSCHE TOP 50 ASIA
DEUTSCHE TOP 50 EUROPE
DEUTSCHE TOP 50 US
DEUTSCHE TOP 50 WORLD
CLASS A SHARES
In consideration of the mutual covenants set forth in the Distributor's
Contract dated _________________, 1997 between Deutsche Family of Funds, Inc.
and Edgewood Services, Inc., Deutsche Family of Funds, Inc. executes and
delivers this Exhibit on behalf of Deutsche European Mid- Cap Fund, Deutsche
German Bond Fund, Deutsche German Equity Fund, Deutsche Global Bond Fund,
Deutsche Japanese Equity Fund, Deutsche Top 50 Asia, Deutsche Top 50 Europe,
Deutsche Top 50 US, and Deutsche Top 50 World, with respect to the Class A
shares thereof.
Witness the due execution hereof this _____ day of __________, 1997.
ATTEST: DEUTSCHE FAMILY OF FUNDS, INC.
_________________________________________ By: ________________________
Secretary President
ATTEST: EDGEWOOD SERVICES, INC.
- ----------------------------------------- By: -------------------------
Secretary Executive Vice President
INVESTMENT COMPANY NAME VERSION#/DATE
<PAGE>
INVESTMENT COMPANY NAME VERSION#/DATE
<PAGE>
Exhibit B
to the
Distributor's Contract
DEUTSCHE FAMILY OF FUNDS, INC.
DEUTSCHE EUROPEAN MID-CAP FUND CLASS B SHARES
DEUTSCHE GERMAN BOND FUND CLASS B SHARES
DEUTSCHE GERMAN EQUITY FUND CLASS B SHARES
DEUTSCHE GLOBAL BOND FUND CLASS B SHARES
DEUTSCHE JAPANESE EQUITY FUND CLASS B SHARES
DEUTSCHE TOP 50 ASIA CLASS B SHARES
DEUTSCHE TOP 50 EUROPE CLASS B SHARES
DEUTSCHE TOP 50 WORLD CLASS B SHARES
DEUTSCHE TOP 50 US CLASS B SHARES
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated ____________, between DEUTSCHE FAMILY OF FUNDS,
INC. and Edgewood Services, Inc. with respect to the classes of shares set forth
above.
1. The CORPORATION hereby appoints EDGEWOOD to engage in activities
principally intended to result in the sale of shares of the above-listed Class
("Shares"). Pursuant to this appointment, EDGEWOOD is authorized to select a
group of financial intermediaries ("Financial Intermediaries") to sell Shares at
the current offering price thereof as described and set forth in the respective
prospectuses of the CORPORATION.
2. During the term of this Agreement, the CORPORATION will pay EDGEWOOD for
services pursuant to this Agreement, a monthly fee computed at the annual rate
of 0.75% of the average aggregate net asset value of the Shares held during the
month. For the month in which this Agreement becomes effective or terminates,
there shall be an appropriate proration of any fee payable on the basis of the
number of days that the Agreement is in effect during the month.
3. EDGEWOOD may from time-to-time and for such periods as it deems
appropriate reduce its compensation to the extent any Class' expenses exceed
such lower expense limitation as EDGEWOOD may, by notice to the CORPORATION,
voluntarily declare to be effective.
4. EDGEWOOD will enter into separate written agreements, in the form
approved by the Board of Directors of the Corporation, with various firms to
provide certain distribution, marketing and shareholder services. EDGEWOOD, in
its sole discretion, may pay Financial Intermediaries a periodic fee in respect
of Shares owned from time to time by their clients or customers. The schedules
of such fees and the basis upon which such fees will be paid shall be determined
from time to time by each Fund and EDGEWOOD. Each such agreement that provides
for payments thereunder to be made pursuant to the 12b-1 Plan shall be subject
to annual approval by the Board of Directors of the Corporation and shall comply
with the terms and conditions of the 12b- 1 Plan.
5. EDGEWOOD will prepare reports to the Board of directors of the
CORPORATION on a quarterly basis showing amounts expended hereunder including
amounts paid to Financial Intermediaries and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the Distributor's
Contract dated ___________________ between DEUTSCHE FAMILY OF FUNDS, INC. and
Edgewood Services, Inc.
INVESTMENT COMPANY NAME VERSION#/DATE
<PAGE>
DEUTSCHE FAMILY OF FUNDS, INC. executes and delivers this Exhibit on behalf of
the REFERENCED FUNDS, and with respect to the REFERENCED CLASSES OF SHARES
thereof, first set forth in this Exhibit.
Witness the due execution hereof this ___ DAY OF ___________, 19___.
ATTEST: DEUTSCHE FAMILY OF FUNDS, INC.
By:
Secretary President
(SEAL)
ATTEST: Edgewood Services, Inc.
By:
Secretary Executive Vice President
(SEAL)
INVESTMENT COMPANY NAME VERSION#/DATE
MUTUAL FUNDS
SALES AND SERVICE
AGREEMENT
This Agreement is entered into among the financial institution executing
this Agreement ("Financial Institution"), Edgewood Services, Inc. ("Edgewood"),
and Deutsche Fund Management, Inc. ("DFM"), with respect to those series or
portfolios listed in Exhibit A hereto (referred to individually as the "Fund"
and collectively as the "Funds") of Deutsche Family of Funds, Inc. (the
"Company") for whose shares of beneficial interest or capital stock ("Shares")
Edgewood serves as Distributor and for whom DFM provides or coordinates
shareholder services.
A. FINANCIAL INSTITUTION.
1. STATUS OF FINANCIAL INSTITUTION AS "BANK" OR REGISTERED BROKER-DEALER.
Financial Institution represents and warrants to Edgewood and DFM:
(a)(i) that it is a broker or dealer as defined in Section 3(a)(4)or
3(a)(5) of the Securities Exchange Act of 1934 ("Exchange Act"); that it is
registered with the Securities and Exchange Commission pursuant to Section 15 of
the Exchange Act; that it is a member of the National Association of Securities
Dealers, Inc.; that its customers' accounts are insured by the Securities
Investors Protection Corporation ("SIPC"); and that, during the term of this
Agreement, it will abide by all of the rules and regulations of the NASD
including, without limitation, the NASD Rules of Fair Practice. Financial
Institution agrees to notify Edgewood immediately in the event of (1) the
termination of its coverage by the SIPC; (2) its expulsion or suspension from
the NASD, or (3) its being found to have violated any applicable federal or
state law, rule or regulation arising out of its activities as a broker- dealer
or in connection with this Agreement, or which may otherwise affect in any
material way its ability to act in accordance with the terms of this Agreement.
Financial Institution's expulsion from the NASD will automatically terminate
this Agreement immediately without notice. Suspension of Financial Institution
from the NASD for violation of any applicable federal or state law, rule or
<PAGE>
regulation will terminate this Agreement effective immediately upon Edgewood's
written notice of termination to Financial Institution; or
(a)(ii) that it is a "bank," as that term is defined in Section 3(a)(6)
of the Exchange Act and that, during the term of this Agreement, it will abide
by the rules and regulations of those state and federal banking authorities with
appropriate jurisdiction over the Financial Institution, especially those
regulations dealing with the activities of the Institution as described under
this Agreement. Financial Institution agrees to notify Edgewood or DFM
immediately of any action by or communication from state or federal banking
authorities, state securities authorities, the Securities and Exchange
Commission, or any other party which may affect its status as a bank, or which
may otherwise affect in any material way its ability to act in accordance with
the terms of this Agreement. Any action or decision of any of the foregoing
regulatory authorities or any court of appropriate jurisdiction which affects
Financial Institution's ability to act in accordance with the terms of this
agreement, including the loss of its exemption from registration as a broker or
dealer, will terminate this Agreement effective upon Edgewood's written notice
of termination to Financial Institution; AND ---
(b) that Financial Institution is registered with the appropriate
securities authorities in all states in which its activities make such
registration necessary.
2. FINANCIAL INSTITUTION ACTS AS AGENT FOR ITS CUSTOMERS.
The parties agree that in each transaction in the Shares of any Fund and
with regard to any services rendered pursuant to this Agreement: (a) Financial
Institution is acting as agent for the customer; (b) each transaction is
initiated solely upon the order of the customer; (c) as between Financial
Institution and its customer, the customer will have full beneficial ownership
of all Shares of the Funds; (d) each transaction shall be for the account of the
customer and not for Financial Institution's account; and (e) each transaction
shall be without recourse to Financial Institution provided that Financial
Institution acts in accordance with the terms of this Agreement. Financial
Institution shall not have any
Deutsche Family of Funds, Inc. 21997
<PAGE>
authority in any transaction to act as Edgewood's agent or as agent for the
Funds.
B. SALES OF FUND SHARES.
3. EXECUTION OF ORDERS FOR PURCHASE AND REDEMPTION OF SHARES.
(a) All orders for the purchase of any Shares shall be executed at the
then- current public offering price per share (i.e., the net asset value per
share plus the applicable initial sales load, if any) and all orders for the
redemption of any Shares shall be executed at the net asset value per share of
the applicable Class, in each case as described in the prospectus of the Fund.
Any applicable redemption fee or deferred sales charge will be deducted by the
Fund prior to the transmission of the redemption proceeds to Financial
Institution or its customer. Edgewood and the Funds reserve the right to reject
any purchase request in their sole discretion . If required by law, each
transaction shall be confirmed in writing on a fully disclosed basis and, if
confirmed by Edgewood, a copy of each confirmation shall be sent simultaneously
to Financial Institution if Financial Institution so requests.
(b) The procedures relating to all orders will be subject to the terms of the
prospectus of each Fund and Edgewood's written instructions to Financial
Institution from time to time.
(c) Payments for Shares shall be made as specified in the applicable Fund
prospectus. If payment for any purchase order is not received in
accordance with the terms of the applicable Fund prospectus, Edgewood
reserves the right, without notice, to cancel the sale and to hold
Financial Institution responsible for any loss sustained as a result
thereof.
4. INITIAL SALES LOADS PAYABLE TO FINANCIAL INSTITUTION.
(a) On each order accepted by Edgewood, in exchange for the performance of
sales and/or distribution services, Financial Institution will be entitled
to receive the applicable dealer concession provided in the then current
Prospectus of the applicable Fund, subject to any adjustment n the rate of
Deutsche Family of Funds, Inc. 31997
<PAGE>
such concession referred to below, from the amount paid by Financial
Institution's customer . The initial sales loads for any Fund shall be those set
forth in its prospectus. The rate of the dealer concession payable to Financial
Institution may be changed at any time at Edgewood's sole discretion upon
written notice to Financial Institution.
(b) Transactions may be settled by Financial Institution: (1) by payment of
the full purchase price less an amount equal to Financial Institution's
applicable percentage of the initial sales load, or (2) by payment of the
full purchase price, in which case Financial Institution shall receive,
not less frequently than monthly, the aggregate fees due it on orders
received and settled.
(c) It shall be the obligation of the Financial Institution either: (i) to
provide Edgewood with all necessary information regarding the
application of the appropriate initial sales load to each transaction,
or (ii) to assess the appropriate initial sales load for each transaction
and to forward the public offering price, net of the amount of the
initial sales load to be reallocated to the Financial Institution, to the
appropriate Fund. Neither the Fund nor Edgewood shall have any
responsibility to correct the payment or assessment of an incorrect
initial sales load due to the failure of the Financial Institution to
fulfill the foregoing obligation.
5. ADVANCE COMMISSIONS PAYABLE TO FINANCIAL INSTITUTION.
Upon the purchase of certain Shares, as described in the applicable
prospectuses, Edgewood will pay Financial Institution an advance commission as
set forth on Exhibit A (or, if more recently published, the Fund's current
prospectus). This amount is not to be considered an initial sales load and
should not be deducted from the public offering price of the Shares which shall
be forwarded to the Fund. Generally, a contingent deferred sales charge ("CDSC")
will be assessed upon the redemption of Shares with regard to which an advance
commission is paid by Edgewood; in the event that Financial Institution notifies
Edgewood in writing that Financial Institution elects to waive such advance
commission, and if the Fund's prospectus permits such a waiver, the CDSC will
not be charged upon the redemption of the relevant Shares. To receive advance
commission from Edgewood on Shares that are subject to a CDSC, Financial
Deutsche Family of Funds, Inc. 41997
<PAGE>
Institution must open investor accounts with the Fund on a fully-disclosed basis
or be able to account for share ownership periods used in calculating the CDSC.
Furthermore, should the custody (or record ownership) of the shares of the
investor account(s) be transferred during the applicable CDSC holding period (as
described in the Fund prospectus) to a financial institution which does not
maintain investor accounts on a fully disclosed basis and does not account for
share ownership periods, the Financial Institution agrees to reimburse Edgewood
prior to such transfer for advance commissions paid to it by Edgewood.
C. DISTRIBUTION SERVICES.
6. AGREEMENT TO PROVIDE DISTRIBUTION SERVICES.
(a) With regard to those Funds which pay asset-based sales charges (pursuant
to Distribution and Service Plans ("Plans") adopted for the Funds under
Investment Company Act Rule 12b-1), as noted on Exhibit A hereto (or, if
more recently published, the Fund's current prospectus), Edgewood hereby
appoints Financial Institution to render or cause to be rendered
distribution and sales services to the Funds and their shareholders.
(b) The services to be provided under this Paragraph (a) may include, but are
not limited to, the following:
(i) reviewing the activity in Fund accounts;
(ii) providing training and supervision of its personnel;
(iii) maintaining and distributing current copies of prospectuses and
shareholder reports;
(iv) advertising the availability of its services and products;
(v) providing assistance and review in designing materials to send to
customers and potential customers and developing methods of making
such materials accessible to customers and potential customers;
and
Deutsche Family of Funds, Inc. 51997
<PAGE>
(vi) responding to customers' and potential customers' questions about
the Funds.
7. ASSET-BASED SALES LOADS PAYABLE TO FINANCIAL INSTITUTION.
During the term of this Agreement, Edgewood will pay Financial Institution
each month asset-based sales charges (also known as "Rule 12b-1 Fees") for each
Class as set forth in Exhibit A to this Agreement (or, if more recently
published, the Fund's current prospectus), subject to the terms and conditions
of the Plans. For the payment period in which this Agreement becomes effective
or terminates, there shall be an appropriate proration of the fee on the basis
of the number of days that this Agreement is in effect during the month.
D. SHAREHOLDER SERVICES.
8. AGREEMENT TO PROVIDE SHAREHOLDER AND ACCOUNT MAINTENANCE SERVICES.
With regard to those Classes which pay a Shareholder Services Fee to
Financial Institutions, as noted on Exhibit A hereto (or, if more recently
published, the Fund's current prospectus), Financial Institution agrees to
render or cause to be rendered personal services to shareholders of the Funds
and/or the maintenance of accounts of shareholders of the Funds ("Shareholder
Services") within the meaning of, and subject to the terms and conditions of,
the Plans. Financial Institution further agrees to provide DFM, upon request, a
written description of the Shareholder Services which Financial Institution is
providing hereunder.
9. SHAREHOLDER SERVICE FEES PAYABLE TO FINANCIAL INSTITUTION.
During the term of this Agreement, DFM will pay Financial Institution
Shareholder Service Fees as set forth in Exhibit A to this Agreement (or, if
more recently published, the Fund's current prospectus), subject to the terms
and conditions of the Plans. For the payment period in which this Agreement
becomes effective or terminates, there shall be an appropriate proration of the
fee on the basis of the number of days that this Agreement is in effect during
the quarter.
Deutsche Family of Funds, Inc. 61997
<PAGE>
E. SUPPLEMENTAL PAYMENTS.
10. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTION.
During the term of this Agreement, Edgewood, DFM, or their affiliates will
make Supplemental Payments to Financial Institution if and as set forth in
Exhibit A to this Agreement (or, if more recently published, the Fund's current
prospectus) as additional compensation for services described in Paragraphs 6 or
8, above; such payments will be made from the assets of Edgewood, DFM, or their
affiliates, and not from assets of the Funds nor from fees payable under
applicable Plans. For the payment period in which this Agreement becomes
effective or terminates, there shall be an appropriate proration of the payments
on the basis of the number of days that this Agreement is in effect during the
quarter.
F. MISCELLANEOUS.
11. DELIVERY OF PROSPECTUSES TO CUSTOMERS.
Financial Institution will deliver or cause to be delivered to each
customer, at or prior to the time of any purchase of Shares, a copy of the
current prospectus of the applicable Fund and, upon request by a customer or
shareholder, a copy of the applicable Fund's current Statement of Additional
Information. Financial Institution shall not make any representations concerning
any Shares other than those contained in the prospectus or Statement of
Additional Information of the Fund or in any promotional materials or sales
literature furnished to Financial Institution by Edgewood or the Fund.
12. ERISA ASSETS.
(a) Financial Institution understands that the Department of Labor
views ERISA as prohibiting fiduciaries of discretionary ERISA assets from
receiving administrative service fees or other compensation from funds in which
the fiduciary's discretionary ERISA assets are invested. To date, the Department
of Labor has not issued any exemptive order or advisory opinion that would
exempt fiduciaries from this interpretation. Without specific authorization from
the Department of Labor, fiduciaries should carefully avoid investing
Deutsche Family of Funds, Inc. 81997
<PAGE>
discretionary assets in any fund pursuant to an arrangement where the fiduciary
is to be compensated by the fund for such investment. Receipt of such
compensation could violate ERISA provisions against fiduciary self-dealing and
conflict of interest and could subject the fiduciary to substantial penalties.
(b) Financial Institution will not perform or provide any duties which
would cause it to be a fiduciary under Section 4975 of the Internal Revenue
Code, as amended. For purposes of that Section, Financial Institution
understands that any person who exercises any discretionary authority or
discretionary control with respect to any individual retirement account or its
assets, or who renders investment advice for a fee, or has any authority or
responsibility to do so, or has any discretionary authority or discretionary
responsibility in the administration of such an account, is a fiduciary.
13. INDEMNIFICATION.
(a) Financial Institution shall indemnify and hold harmless Edgewood,
DFM, each Fund, the transfer agent of the Company, and their respective
subsidiaries, affiliates, officers, directors, agents and employees from all
direct or indirect liabilities, losses or costs (including attorneys fees)
arising from, related to or otherwise connected with: (1) any breach by
Financial Institution of any provision of this Agreement; or (2) any actions or
omissions of Edgewood, DFM, any Fund, the transfer agent, and their
subsidiaries, affiliates, officers, directors, agents and employees in reliance
upon any oral, written or computer or electronically transmitted instructions
believed to be genuine and to have been given by or on behalf of Financial
Institution.
(b) Edgewood agrees to indemnify and hold harmless the Company, each of
its Directors, each of its officers who have signed the Registration Statement
and each other person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act, but only with respect to statements or omissions, if
any, made in the Registration Statement or any Prospectus, SAI, or any amendment
or supplement thereof in reliance upon, and in
Deutsche Family of Funds, Inc. 91997
<PAGE>
conformity with, information furnished to the Company about Edgewood by or on
behalf of Edgewood expressly for the use in the Registration Statement or any
Prospecuts, SAI, or any amendment or supplement thereof. In case any action
shall be brought against the Company or any other person so indemnified basedon
the Registration Staement or any Prospectus, SAI, or any amendment or supplement
thereof, and with respect to which indemnity may be sought against Edgewood,
Edgewood shall have the rights and duties given to the Company, and the Company
and each othr person so indemnified shall have the rights and duties given to
Edgewood by the provisions of subsection (a) above.
(c) DFM shall indemnify and hold harmless Financial Institution and its
subsidiaries, affiliates, officers, directors, agents and employees from and
against any and all direct or indirect liabilities, losses or costs (including
attorneys fees) arising from, related to or otherwise connected with any breach
by DFM of any provision of this Agreement.
(d) The agreement of the parties in this Paragraph to indemnify each
other is conditioned upon the party entitled to indemnification (Indemnified
Party) giving notice to the party required to provide indemnification
(Indemnifying Party) promptly after the summons or other first legal process for
any claim as to which indemnity may be sought is served on the Indemnified
Party. The Indemnified Party shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting from it, provided that
counsel for the Indemnifying Party who shall conduct the defense of such claim
or litigation shall be approved by the Indemnified Party (which approval shall
not unreasonably be withheld), and that the Indemnified Party may participate in
such defense at its expense. The failure of the Indemnified Party to give notice
as provided in this subparagraph (c) shall not relieve the Indemnifying Party
from any liability other than its indemnity obligation under this Paragraph. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
without the consent of the Indemnified Party, consent to entry of any judgment
or enter into any settlement that does not include as an unconditional term the
giving by the claimant or plaintiff to the Indemnified Party of a release from
all liability in respect to such claim or litigation.
Deutsche Family of Funds, Inc. 101997
<PAGE>
(e) The provisions of this Paragraph 13 shall survive the termination
of this Agreement.
14. CUSTOMER NAMES PROPRIETARY TO FINANCIAL INSTITUTION.
(a) The names of Financial Institution's customers are and shall remain
Financial Institution's sole property and shall not be used by Edgewood, DFM, or
their affiliates for any purpose except the performance of their respective
duties and responsibilities under this Agreement and except for servicing and
informational mailings relating to the Funds. Notwithstanding the foregoing,
this Paragraph 14 shall not prohibit Edgewood, DFM, or any of their affiliates
from utilizing the names of Financial Institution's customers for any purpose if
the names are obtained in any manner other than from Financial Institution
pursuant to this Agreement.
(b) Neither party shall use the name of the other party in any manner
without the other party's written consent, except as required by any applicable
federal or state law, rule or regulation, and except pursuant to any mutually
agreed upon promotional programs.
(c) The provisions of this Paragraph 14 shall survive the termination
of this Agreement.
15. SECURITY AGAINST UNAUTHORIZED USE OF FUNDS' RECORDKEEPING SYSTEMS.
Financial Institution agrees to provide such security as is necessary
to prevent any unauthorized use of the Funds' recordkeeping system, accessed via
any computer hardware or software provided to Financial Institution by Edgewood
or DFM.
16. SOLICITATION OF PROXIES.
Financial Institution agrees not to solicit or cause to be solicited
directly, or indirectly, at any time in the future, any proxies from the
shareholders of any or all of the Funds in opposition to proxies solicited by
management of the
Deutsche Family of Funds, Inc. 111997
<PAGE>
Company, unless a court of competent jurisdiction shall have determined that the
conduct of a majority of the Board of Directors of the Company constitutes
willful misfeasance, bad faith, gross negligence or reckless disregard of their
duties. This Paragraph 16 will survive the term of this Agreement.
17. CERTIFICATION OF CUSTOMERS' TAXPAYER IDENTIFICATION NUMBERS.
Financial Institution agrees to obtain any taxpayer identification number
certification from its customers required under Section 3406 of the Internal
Revenue Code, and any applicable Treasury regulations, and to provide Edgewood,
DFM, or their respective designee with timely written notice of any failure to
obtain such taxpayer identification number certification in order to enable the
implementation of any required backup withholding.
18. NOTICES.
Except as otherwise specifically provided in this Agreement, all notices
required or permitted to be given pursuant to this Agreement shall be given in
writing and delivered by personal delivery or by postage prepaid, registered or
certified United States first class mail, return receipt requested, overnight
courier services, or by facsimile or similar electronic means of delivery (with
a confirming copy by mail as provided herein). Unless otherwise notified in
writing, all notices to Edgewood shall be given or sent to its offices located
at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. All notices
to DFM shall be given or sent to its offices located at 31 West 52nd Street,
29th Floor, New York, New York 10019 and all notices to Financial Institution
shall be given or sent to it at its address shown below.
19. TERMINATION AND AMENDMENT.
(a) This Agreement shall become effective in this form as of the date
set forth below or as of the first date thereafter upon which Financial
Institution executes any transaction, performs any service, or receives any
payment pursuant hereto. This Agreement supersedes any prior sales,
distribution,
Deutsche Family of Funds, Inc. 121997
<PAGE>
shareholder service, or administrative service agreements between the
parties with respect to the Funds.
(b) With respect to each Fund, this Agreement shall continue in effect
for one year from the date of its execution, and thereafter for successive
periods of one year if the form of this Agreement is approved with respect to
each such Class at least annually by the Directors of the Fund, including a
majority of the members of the Board of Directors of the Fund who are not
interested persons of the Fund and have no direct or indirect financial interest
in the operation of any Plan or in any related agreements to such Plan
("Independent Directors ") cast in person at a meeting called for that purpose.
(c) This Agreement, including Exhibit A hereto, may be amended by
Edgewood and/or DFM from time to time by the following procedure. Edgewood or
DFM will mail a copy of the amendment to Financial Institution's address, as
shown below. Subject to any requirements imposed by any Plan or Rule 12b- 1
under the Investment Company Act of 1940, if Financial Institution does not
object to the amendment within thirty (30) days after its receipt, the amendment
will become part of the Agreement. Financial Institution's objection must be in
writing and be received by Edgewood or DFM within such thirty days.
(d) Notwithstanding subparagraph 19(b) and in addition to subparagraph
1(a), this Agreement may be terminated with respect to each Class of Shares for
which Financial Institution receives compensation under section 7 or Section 9
hereof as follows:
(i) at any time, without the payment of any penalty, by the vote of a
majority of the Independent Directors of the Fund or by a vote of a
majority of the outstanding voting securities of such Class as
defined in the Investment Company Act of 1940 on not more than sixty
(60) days' written notice to the parties to this Agreement;
(ii) automatically in the event of the Agreement's assignment as defined
in the Investment Company Act of 1940, upon the termination of the
Deutsche Family of Funds, Inc. 131997
<PAGE>
"Distributor's Contract" between the Fund and Edgewood, upon
termination of the "Services Agreement" between the Fund and DFM, or
upon the termination of the Plan relating to such Class to which this
Agreement is related; and
(iii) by any party to the Agreement without cause by giving the other party
at least sixty (60) days' written notice of its intention to
terminate.
(e) The termination of this Agreement with respect to any one Fund will not
cause the Agreement's termination with respect to any other Fund.
20.
Financial Institution acknowledges that this Agreement is a "related
agreement" with respect to the Plan within the meaning of Rule 12b-1 under the
1940 Act and agrees to comply with the terms and conditions applicable to this
Agreement under Rule 12b-1 and the Plan. Financial Institution agrees to furnish
information to Edgewood or DFM as they may require to comply with the Plans.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
Deutsche Family of Funds, Inc. 141997
<PAGE>
21. GOVERNING LAW.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Pennsylvania.
EDGEWOOD SERVICES, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
By: Date:
DEUTSCHE FUND MANAGEMENT, INC.
31 West 52nd Street, 29th Floor
New York, New York 10019
By: Date:
---------------------------------------
Financial Institution Name
(Please Print or Type)
---------------------------------------
Address
---------------------------------------
City State Zip Code
By:______________________________
Authorized Signature
---------------------------------------
Title
---------------------------------------
Print Name or Type Name
Dated:_____________________
Deutsche Family of Funds, Inc. 161997
EXHIBIT A
FEE SCHEDULE FOR MUTUAL FUND
SALES AND SERVICE AGREEMENT
WITH EDGEWOOD SERVICES, INC.
EFFECTIVE AS OF __________, 1997
This Exhibit to the Mutual Fund Sales and Service Agreement among
Edgewood Services, Inc., Deutsche Fund Management, Inc. and the Financial
Institution executing the Agreement sets forth the Funds which are offered
pursuant to the Agreement and the rate of fees which Edgwood Services, Inc. or
DFM will pay pursuant to the Agreement. For purposes of this Exhibit, "Initial
Sales Load" shall be paid subject to the terms of Section 4 of the Agreement;
"Advance Commissions" shall be paid subject to the terms of Section 5 of the
Agreement; "Asset-Based Sales Loads" shall be paid subject to Section 7 of the
Agreement; "Shareholder Service Fees" shall be paid subject to Section 8 of the
Agreement; and "Supplemental Payments" (if payable) shall be paid subject to
Section 10 of the Agreement. Advance Commission shall be paid as a percentage of
the public offering price of the Fund shares next determined after the purchase
order is accepted by Federated Securities Corp. Asset-Based Sales Loads,
Shareholder Service Fees, and Supplemental Payments shall be paid at an annual
rate on the average net asset value of shares held in each of the Funds
attributable to the specified class during the period in accounts for which the
Financial Institution provides services under the Agreement, so long as the
average net asset value of the shares in any such Fund during the period is at
least $100,000.
All fees stated herein are valid as of the date stated above. Fees are
subject to change pursuant to Sections 18 and 19 of the Agreement.
Exhibit A to Mutual Fund Sales and Service Agreement Page 2
Fee Schedule
<PAGE>
Exhibit A to Mutual Fund Sales and Service Agreement Page 3
Fee Schedule
DEUTSCHE FAMILY OF FUNDS, INC.
CLASS A SHARES
INITIAL SALES LOAD: FIXED INCOME FUNDS
A sales concession equal to the following percentage of the net asset
value of shares purchased will be paid to the Financial Institution:
4.5% on purchases up to $50,000
____% on purchases of $50,000 but less than $100,000
____% on purchases of $100,000 but less than $250,000
____% on purchases of $250,000 but less than $500,000
____% on purchases of $500,000 but less than $1 million
____% on purchases of $1 million or greater
EQUITY FUNDS
5.5% on purchases up to $50,000
____% on purchases of $50,000 but less than $100,000
____% on purchases of $100,000 but less than $250,000
____% on purchases of $250,000 but less than $500,000
____% on purchases of $500,000 but less than $1 million
____% on purchases of $1 million or greater
<PAGE>
Exhibit A to Mutual Fund Sales and Service AgreementPage 4
Fee Schedule
<PAGE>
Exhibit A to Mutual Fund Sales and Service AgreementPage 5
Fee Schedule
ASSET BASED SALES LOAD: NONE
Shareholder Service Fee: up to 0.25% of average net assets.
FUND CUSIP
(Portfolio name if series fund; see prospectus for entire fund name.)
Deutsche European Mid-Cap Fund ______
Deutsche German Equity Fund ______
Deutsche Japanese Equity Fund ______
Deutsche Global Bond Fund ______
Deutsche German Bond Fund ______
Deutsche Top 50 World ______
Deutsche Top 50 Europe ______
Deutsche Top 50 Asia ______
Deutsche Top 50 US ______
<PAGE>
Exhibit A to Mutual Fund Sales and Service AgreementPage 6
Fee Schedule
<PAGE>
Exhibit A to Mutual Fund Sales and Service AgreementPage 7
Fee Schedule
CLASS B SHARES
INITIAL SALES LOAD: None
ADVANCE COMMISSION: Up to 5.0% of the net asset value of
Class B Shares purchased by clients
ASSET BASED SALES LOAD: Up to 0.75% of average net assets
- ----------------------
Shareholder Service Fee: Up to 0.25% of average net assets
FUND CUSIP
(Portfolio name if series fund; see prospectus for entire fund name.)
Deutsche European Mid-Cap Fund ______
Deutsche German Equity Fund ______
Deutsche Japanese Equity Fund ______
Deutsche Global Bond Fund ______
Deutsche German Bond Fund ______
Deutsche Top 50 World ______
Deutsche Top 50 Europe ______
Deutsche Top 50 Asia ______
Deutsche Top 50 US ______
<PAGE>
Exhibit A to Mutual Fund Sales and Service AgreementPage 8
Fee Schedule
<PAGE>
Exhibit A to Mutual Fund Sales and Service AgreementPage 9
Fee Schedule
RETAIL CLASS
INITIAL SALES LOAD: None
ADVANCE COMMISSION: None
121
ASSET BASED SALES LOAD: Up to 0.25% of average net assets
- ----------------------
SHAREHOLDER SERVICE FEE: None
FUND CUSIP
Deutsche US Money Market Fund
CUSTODIAN AGREEMENT
BETWEEN
DEUTCHE FAMILY OF FUNDS, INC.
AND
INVESTORS BANK & TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
PAGE
1. Bank Appointed Custodian.......................................... 1
2. Definitions....................................................... 1
2.1 Authorized Person............................... 1
2.2 Board........................................... 1
2.3 Security........................................ 1
2.4 Portfolio Security.............................. 1
2.5 Officers' Certificate........................... 1
2.6 Book-Entry System............................... 2
2.7 Depository...................................... 2
2.8 Proper Instructions............................. 2
3. Separate Accounts................................................. 2
4. Certification as to Authorized Persons............................ 2
5. Custody of Cash................................................... 3
5.1 Purchase of Securities.......................... 3
5.2 Redemptions..................................... 3
5.3 Distributions and Expenses of Fund.............. 3
5.4 Payment in Respect of Securities................ 3
5.5 Repayment of Loans.............................. 3
5.6 Repayment of Cash............................... 3
5.7 Foreign Exchange Transactions................... 4
5.8 Other Authorized Payments....................... 4
5.9 Termination..................................... 4
6. Securities........................................................ 4
6.1 Segregation and Registration.................... 4
6.2 Voting and Proxies.............................. 5
6.3 Corporate Action................................ 5
6.4 Book-Entry System............................... 5
6.5 Use of a Depository............................. 6
6.6 Use of Book-Entry System for Commercial Paper 7
6.7 Use of Immobilization Programs.................. 8
6.8 Eurodollar CDs.................................. 8
6.9 Options and Futures Transactions................ 8
(a)Puts and Calls Traded on Securities Exchanges,
NASDAQ or Over-the-Counter................... 8
(b)Puts, Calls, and Futures Traded
on Commodities Exchanges..................... 9
6.10 Segregated Account.............................. 9
<PAGE>
6.11 Interest Bearing Call or Time Deposits.......... 10
6.12 Transfer of Securities.......................... 11
7. Redemptions....................................................... 12
8. Merger, Dissolution, etc. of Fund................................. 12
9. Actions of Bank Without Prior Authorization....................... 12
10. Collection and Defaults........................................... 13
11. Maintenance of Records............................................ 13
12. [Reserved]
13. Additional Services............................................... 13
14. Duties of the Bank................................................ 14
14.1 Performance of Duties and
Standard of Care................................ 14
14.2 Agents and Subcustodians with Respect to Property
of the Fund Held in the United States........... 14
14.3 Duties of the Bank with Respect to Property
Held Outside of the United States............... 15
14.4 Insurance....................................... 16
14.5 Fees and Expenses of Bank....................... 16
14.6 Advances by Bank............................... 16
14.7 Property of the Fund and Confidentiality........ 17
14.8 Relief.......................................... 18
15. Limitation of Liability........................................... 18
16. Termination....................................................... 19
17. Confidentiality of Bank Information............................... 20
18. Notices........................................................... 20
19. Amendments........................................................ 20
20. Parties........................................................... 20
21. Governing Law..................................................... 21
<PAGE>
PAGE
22. Counterparts.................................................... 21
23. Entire Agreement................................................ 21
24. Limitation of Liability......................................... 21
25. Signature License............................................... 21
APPENDICES
Appendix A........................................... Funds
Appendix B........................................... Fee Schedule
Appendix C........................................... Additional Services
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of this ___ day of __________, 1997, between the
Deutsche Family of Funds, Inc. , a Maryland corporation (the "Fund"), and
Investors Bank & Trust Company, a Massachusetts trust company (the "Bank").
The Fund, an open-end management investment company, desires, on behalf
of the funds listed in APPENDIX A hereto, to place and maintain all of its
portfolio securities and cash in the custody of the Bank. The Bank has at least
the minimum qualifications required by Section 17(f)(1) of the Investment
Company Act of 1940 (the "1940 Act") to act as custodian of the portfolio
securities and cash of the Fund, and has indicated its willingness to so act,
subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. BANK APPOINTED CUSTODIAN. The Fund hereby appoints the Bank as
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth. For the services rendered pursuant to this
Agreement the Fund agrees to pay to the Bank the fees set forth on APPENDIX B
hereto.
2. DEFINITIONS. Whenever used herein, the terms listed below will have
the following meaning:
2.1 AUTHORIZED PERSON. Authorized Person will mean any of the
persons duly authorized to give Proper Instructions or otherwise act on behalf
of the Fund by appropriate resolution of its Board, and set forth in a
certificate as required by Section 4 hereof.
2.2 BOARD. Board will mean the Board of Directors or the Board of
Trustees of the Fund, as the case may be.
2.3 SECURITY. The term security as used herein will have the same
meaning assigned to such term in the Securities Act of 1933, as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
2.4 PORTFOLIO SECURITY. Portfolio Security will mean any security owned
by the Fund.
2.5 OFFICERS' CERTIFICATE. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
<PAGE>
2.6 BOOK-ENTRY SYSTEM. Book-Entry System shall mean the Federal
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.7 DEPOSITORY. Depository shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.8 PROPER INSTRUCTIONS. Proper Instructions shall mean (i)
instructions regarding the purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith, given by an Authorized Person,
such instructions to be given in such form and manner as the Bank and the Fund
shall agree upon from time to time, and (ii) instructions (which may be
continuing instructions) regarding other matters signed or initialed by an
Authorized Person. Oral instructions will be considered Proper Instructions if
the Bank reasonably believes them to have been given by an Authorized Person.
The Fund shall cause all oral instructions to be promptly confirmed in writing.
The Bank shall act upon and comply with any subsequent Proper Instruction which
modifies a prior instruction and the sole obligation of the Bank with respect to
any follow-up or confirmatory instruction shall be to make reasonable efforts to
detect any discrepancy between the original instruction and such confirmation
and to report such discrepancy to the Fund. The Fund shall be responsible, at
the Fund's expense, for taking any action, including any reprocessing, necessary
to correct any such discrepancy or error, and to the extent such action requires
the Bank to act, the Fund shall give the Bank specific Proper Instructions as to
the action required. Upon receipt by the Bank of an Officers' Certificate as to
the authorization by the Board accompanied by a detailed description of
procedures approved by the Fund, Proper Instructions may include communication
effected directly between electro-mechanical or electronic devices provided that
the Board and the Bank agree in writing that such procedures afford adequate
safeguards for the Fund's assets.
3. SEPARATE ACCOUNTS. If the Fund has more than one series or
portfolio, the Bank will segregate the assets of each series or portfolio to
which this Agreement relates into a separate account for each such series or
portfolio containing the assets of such series or portfolio (and all investment
earnings thereon). Unless the context otherwise requires, any reference in this
Agreement to any actions to be taken by the Fund shall be deemed to refer to the
Fund acting on behalf of one or more of its series, any reference in this
Agreement to any assets of the Fund, including, without limitation, any
portfolio securities and cash and earnings thereon, shall be deemed to refer
only to assets of the applicable series, any duty or obligation of the Bank
hereunder to the Fund shall be deemed to refer to duties and obligations with
respect to such individual series and any obligation or liability of the Fund
hereunder shall be binding only with respect to such individual series, and
shall be discharged only out of the assets of such series.
4. CERTIFICATION AS TO AUTHORIZED PERSONS. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the new, additional or omitted names or signatures. The Bank will be
entitled to rely and act upon any
<PAGE>
Officers' Certificate given to it by the Fund which has been signed by
Authorized Persons named in the most recent certification received by the Bank.
5. CUSTODY OF CASH. As custodian for the Fund, the Bank will open and
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Sections 14.2 or 14.3 hereof, including borrowed funds,
delivered to the Bank, subject only to draft or order by the Bank acting
pursuant to the terms of this Agreement. Pursuant to the Bank's internal
policies regarding the management of cash accounts, the Bank may segregate
certain portions of the cash of the Fund into a separate savings deposit account
upon which the Bank reserves the right to require seven (7) days notice prior to
withdrawal of cash from such an account. Upon receipt by the Bank of Proper
Instructions (which may be continuing instructions) or in the case of payments
for redemptions and repurchases of outstanding shares of common stock of the
Fund, notification from the Fund's transfer agent as provided in Section 7,
requesting such payment, designating the payee or the account or accounts to
which the Bank will release funds for deposit, and stating that it is for a
purpose permitted under the terms of this Section 5, specifying the applicable
subsection, the Bank will make payments of cash held for the accounts of the
Fund, insofar as funds are available for that purpose, only as permitted in
subsections 5.1-5.9 below.
5.1 PURCHASE OF SECURITIES. Upon the purchase of securities for the
Fund, against contemporaneous receipt of such securities by the Bank or against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry Paper (as
that term is defined in Section 6.6 hereof)) of purchase of the securities
received by the Bank before such payment is made, as confirmed in the Proper
Instructions received by the Bank before such payment is made.
5.2 REDEMPTIONS. In such amount as may be necessary for the
repurchase or redemption of common shares of the Fund offered for repurchase or
redemption in accordance with Section 7 of this Agreement.
5.3 DISTRIBUTIONS AND EXPENSES OF FUND. For the payment on the
account of the Fund of dividends or other distributions to shareholders as may
from time to time be declared by the Board, interest, taxes, management or
supervisory fees, distribution fees, fees of the Bank for its services hereunder
and reimbursement of the expenses and liabilities of the Bank as provided
hereunder, fees of any transfer agent, fees for legal, accounting, and auditing
services, or other operating expenses of the Fund.
5.4 PAYMENT IN RESPECT OF SECURITIES. For payments in connection
with the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5 REPAYMENT OF LOANS. To repay loans of money made to the Fund,
but, in the case of final payment, only upon redelivery to the Bank of any
Portfolio Securities pledged or hypothecated therefor and upon surrender of
documents evidencing the loan;
<PAGE>
5.6 REPAYMENT OF CASH. To repay the cash delivered to the Fund for
the purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 FOREIGN EXCHANGE TRANSACTIONS.
(a) For payments in connection with foreign exchange contracts
or options to purchase and sell foreign currencies for spot and future delivery
(collectively, "Foreign Exchange Agreements")which may be entered into by the
Bank on behalf of the Fund upon the receipt of Proper Instructions, such Proper
Instructions to specify the currency broker or banking institution (which may be
the Bank, or any other subcustodian or agent hereunder, acting as principal)
with which the contract or option is made, and the Bank shall have no duty with
respect to the selection of such currency brokers or banking institutions with
which the Fund deals or for their failure to comply with the terms of any
contract or option.
(b) In order to secure any payments in connection with Foreign
Exchange Agreements which may be entered into by the Bank pursuant to Proper
Instructions, the Fund agrees that the Bank shall have a continuing lien and
security interest, to the extent of any payment due under any Foreign Exchange
Agreement, in and to any property at any time held by the Bank for the Fund's
benefit or in which the Fund has an interest and which is then in the Bank's
possession or control (or in the possession or control of any third party acting
on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, at any time to charge any such payment due under any Foreign
Exchange Agreement against any balance of account standing to the credit of the
Fund on the Bank's books.
5.8 OTHER AUTHORIZED PAYMENTS. For other authorized transactions of
the Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 TERMINATION: Upon the termination of this Agreement as
hereinafter set forth pursuant to Section 8 and Section 16 of this Agreement.
6. SECURITIES.
6.1 SEGREGATION AND REGISTRATION. Except as otherwise provided
herein, and except for securities to be delivered to any subcustodian appointed
pursuant to Sections 14.2 or 14.3 hereof, the Bank as custodian will receive and
hold pursuant to the provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate), in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, and will execute and deliver all
such certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state.
<PAGE>
The Fund will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Portfolio Securities which
may from time to time be registered in the name of the Fund.
6.2 VOTING AND PROXIES. Neither the Bank nor any nominee of the Bank
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Fund all notices, proxies
and proxy soliciting materials delivered to the Bank with respect to such
Securities, such proxies to be executed by the registered holder of such
Securities (if registered otherwise than in the name of the Fund), but without
indicating the manner in which such proxies are to be voted.
6.3 CORPORATE ACTION. If at any time the Bank is notified that an
issuer of any Portfolio Security has taken or intends to take a corporate action
(a "Corporate Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of a Portfolio Security, including without
limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which Corporate Action requires an affirmative response or action on
the part of the holder of such Portfolio Security (a "Response"), the Bank shall
notify the Fund promptly of the Corporate Action, the Response required in
connection with the Corporate Action and the Bank's deadline for receipt from
the Fund of Proper Instructions regarding the Response (the "Response
Deadline"). If possible, the Response Deadline shall be at least three business
days after such notification to the Fund, provided that in no event shall the
Response Deadline be later than 48 hours prior to the Response expiration time
set by the depository processing such Corporate Action. The Bank shall forward
to the Fund via telecopier and/or overnight courier all notices, information
statements or other materials relating to the Corporate Action within
twenty-four (24) hours of receipt of such materials by the Bank.
(a) The Bank shall act upon a required Response only after
receipt by the Bank of Proper Instructions from the Fund no later than 5:00 p.m.
on the date specified as the Response Deadline and only if the Bank (or its
agent or subcustodian hereunder) has actual possession of all necessary
Securities, consents and other materials no later than 5:00 p.m. on the date
specified as the Response Deadline.
(b) The Bank shall have no duty to act upon a required
Response if Proper Instructions relating to such Response and all necessary
Securities, consents and other materials are not received by and in the
possession of the Bank no later than 5:00 p.m. on the date specified as the
Response Deadline. Notwithstanding, the Bank may, in its sole discretion, use
its best efforts to act upon a Response for which Proper Instructions and/or
necessary Securities, consents or other materials are received by the Bank after
5:00 p.m. on the date specified as the Response Deadline, it being acknowledged
and agreed by the parties that any undertaking by the Bank to use its best
efforts in such circumstances shall in no way create any duty upon the Bank to
complete such Response prior to its expiration.
(c) In the event that the Fund notifies the Bank of a
Corporate Action requiring a Response and the Bank has received no other notice
of such Corporate Action, the Response Deadline shall be 48 hours prior to the
Response expiration time set by the depository processing such Corporate Action.
(d) Section 14.3(g) of this Agreement shall govern any
Corporate Action involving Foreign Portfolio Securities held by a Selected
Foreign Sub-Custodian.
<PAGE>
6.4 BOOK-ENTRY SYSTEM. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving deposits of
Fund assets in the Book-Entry System, and (ii) for any subsequent changes to
such arrangements following such approval, the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the Book-Entry
System provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect
to the Fund's participation in the Book-Entry System through the Bank (or any
such agent) will identify by book entry the Portfolio Securities which are
included with other securities deposited in the Account and shall at all times
during the regular business hours of the Bank (or such agent) be open for
inspection by duly authorized officers, employees or agents of the Fund. Where
securities are transferred to the Fund's account, the Bank shall also, by book
entry or otherwise, identify as belonging to the Fund a quantity of securities
in a fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased
for the account of the Fund or shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund upon (i) receipt of advice from the
Book-Entry System that such Securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its agent) to reflect
such payment and transfer for the account of the Fund. The Bank (or its agent)
shall transfer securities sold or loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System that
payment for securities sold or payment of the initial cash collateral against
the delivery of securities loaned by the Fund has been transferred to the
Account; and
(ii) the making of an entry on the records of the
Bank (or its agent) to reflect such transfer and payment for the account of the
Fund. Copies of all advices from the Book-Entry System of transfers of
securities for the account of the Fund shall identify the Fund, be maintained
for the Fund by the Bank and shall be provided to the Fund at its request. The
Bank shall send the Fund a confirmation, as defined by Rule 17f-4 of the 1940
Act, of any transfers to or from the account of the Fund;
(d) The Bank will promptly provide the Fund with any report
obtained by the Bank or its agent on the Book-Entry System's accounting system,
internal accounting control and procedures for safeguarding securities deposited
in the Book-Entry System;
(e) Anything to the contrary in this Agreement
notwithstanding, the Bank shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the Book-Entry System by reason of any
negligence, willful misfeasance or misconduct of the Bank or of any of its
employees or from any negligent failure by the Bank of its duty to undertake
reasonable efforts to enforce effectively such rights as it may have against the
Book-Entry System; at the election of the Fund, it shall be entitled to be
subrogated to the Bank in any claim against the Book-Entry System or any other
person which the
<PAGE>
Bank may have as a consequence of any such loss or damage if and to the extent
that the Fund has not been made whole for any loss or damage.
6.5 USE OF A DEPOSITORY. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving deposits in
DTC or other such Depository and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities including
stock dividends, rights and other items of like nature, and to receive and remit
to the Bank on behalf of the Fund all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in
the name of any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made
through the clearing medium employed by such Depository for transactions of
participants acting through it. Upon any purchase of Portfolio Securities,
payment will be made only upon delivery of the securities to or for the account
of the Fund and the Fund shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund only upon delivery of the Securities to
or for the account of the Fund; and upon any sale of Portfolio Securities,
delivery of the Securities will be made only against payment therefor or, in the
event Portfolio Securities are loaned, delivery of Securities will be made only
against receipt of the initial cash collateral to or for the account of the
Fund; and
(d) The Bank shall be subject to the same liability and duty
to the Fund and its shareholders with respect to all securities of the Fund, and
all cash, stock dividends, rights and items of like nature to which the Fund is
entitled, held or received by a central securities system as agent for the Bank,
pursuant to the foregoing authorization, as if the same were held or received by
the Bank at its own offices. In this connection, without limiting the foregoing
duty or liability, the Bank shall use its best efforts to provide that:
(i) The Depository obtains replacement of any
certificated Portfolio Security deposited with it in the event such Security is
lost, destroyed, wrongfully taken or otherwise not available to be returned to
the Bank upon its request;
(ii) Proxy materials received by a Depository with
respect to Portfolio Securities deposited with such Depository are forwarded
immediately to the Bank for prompt transmittal to the Fund;
(iii) Such Depository promptly forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the
Bank such records with respect to the performance of the Bank's obligations and
duties hereunder as may be necessary for the Fund to comply with the
recordkeeping requirements of Section 31(a) of the 1940 Act and Rule 31(a)
thereunder; and
<PAGE>
(v) Such Depository delivers to the Bank all internal
accounting control reports, whether or not audited by an independent public
accountant, as well as such other reports as the Fund may reasonably request in
order to verify the Portfolio Securities held by such Depository.
6.6 USE OF BOOK-ENTRY SYSTEM FOR COMMERCIAL PAPER. Provided (i) the
Bank has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of confirmation from an
Issuer (as defined below) that the Fund has purchased such Issuer's Book-Entry
Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund,
commercial paper issued by issuers with whom the Bank has entered into a
book-entry agreement (the "Issuers"). In maintaining procedures for Book-Entry
Paper, the Bank agrees that:
(a) The Bank will maintain all Book-Entry Paper held by
the Fund in an account of the Bank that includes only assets held by it for
customers;
(b) The records of the Bank with respect to the Fund's
purchase of Book-Entry Paper through the Bank will identify, by book-entry,
commercial paper belonging to the Fund which is included in the Book-Entry
System and shall at all times during the regular business hours of the Bank be
open for inspection by duly authorized officers, employees or agents of the
Fund;
(c) The Bank shall pay for Book-Entry Paper purchased for the
account of the Fund upon contemporaneous (i) receipt of advice from the Issuer
that such sale of Book-Entry Paper has been effected, and (ii) the making of an
entry on the records of the Bank to reflect such payment and transfer for the
account of the Fund;
(d) The Bank shall cancel such Book-Entry Paper obligation
upon the maturity thereof upon contemporaneous (i) receipt of advice that
payment for such Book-Entry Paper has been transferred to the Fund, and (ii) the
making of an entry on the records of the Bank to reflect such payment for the
account of the Fund; and
(e) The Bank will send to the Fund such reports on its system
of internal accounting control with respect to the Book-Entry Paper as the Fund
may reasonably request from time to time.
.
6.7 USE OF IMMOBILIZATION PROGRAMS. Provided (i) the Bank has
received a certified copy of a resolution of the Board specifically approving
the maintenance of Portfolio Securities in an immobilization program operated by
a bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and
(ii) for each year following such approval the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
6.8 EURODOLLAR CDS. Any Portfolio Securities which are Eurodollar
CDs may be physically held by the European branch of the U.S. banking
institution that is the issuer of such Eurodollar CD (a "European Branch"),
provided that such Portfolio Securities are identified on the books of the Bank
as belonging to the Fund and that the books of the Bank identify the European
Branch holding such Portfolio Securities. Notwithstanding any other provision of
this Agreement to the contrary, except as stated in the first sentence of this
subsection 6.8, the Bank shall be under no other duty with respect to such
Eurodollar CDs belonging to the Fund.
<PAGE>
6.9 OPTIONS AND FUTURES TRANSACTIONS.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ
or Over-the-Counter.
(i) The Bank shall take action as to put options
("puts") and call options ("calls") purchased or sold (written) by the Fund
regarding escrow or other arrangements (i) in accordance with the provisions of
any agreement entered into upon receipt of Proper Instructions among the Bank,
any broker-dealer registered with the National Association of Securities
Dealers, Inc. (the "NASD"), and, if necessary, the Fund, relating to the
compliance with the rules of the Options Clearing Corporation and of any
registered national securities exchange, or of any similar organization or
organizations.
(ii) Unless another agreement requires it to do so,
the Bank shall be under no duty or obligation to see that the Fund has deposited
or is maintaining adequate margin, if required, with any broker in connection
with any option, nor shall the Bank be under duty or obligation to present such
option to the broker for exercise unless it receives Proper Instructions from
the Fund. The Bank shall have no responsibility for the legality of any put or
call purchased or sold on behalf of the Fund, the propriety of any such purchase
or sale, or the adequacy of any collateral delivered to a broker in connection
with an option or deposited to or withdrawn from a Segregated Account (as
defined in subsection 6.10 below). The Bank specifically, but not by way of
limitation, shall not be under any duty or obligation to: (i) periodically check
or notify the Fund that the amount of such collateral held by a broker or held
in a Segregated Account is sufficient to protect such broker or the Fund against
any loss; (ii) effect the return of any collateral delivered to a broker; or
(iii) advise the Fund that any option it holds, has or is about to expire. Such
duties or obligations shall be the sole responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
(i) The Bank shall take action as to puts, calls and
futures contracts ("Futures") purchased or sold by the Fund in accordance with
the provisions of any agreement entered into upon the receipt of Proper
Instructions among the Fund, the Bank and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations, regarding account deposits in
connection with transactions by the Fund.
(ii) The responsibilities of the Bank as to futures,
puts and calls traded on commodities exchanges, any Futures Commission Merchant
account and the Segregated Account shall be limited as set forth in subparagraph
(a)(2) of this Section 6.8 as if such subparagraph referred to Futures
Commission Merchants rather than brokers, and Futures and puts and calls thereon
instead of options.
6.10 SEGREGATED ACCOUNT. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund.
(a) Cash and/or Portfolio Securities may be transferred into a
Segregated Account upon receipt of Proper Instructions in the following
circumstances:
(i) in accordance with the provisions of any
agreement among the Fund, the Bank and a broker-dealer registered under the
Exchange Act and a member of the NASD or any Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Options Clearing Corporation, the rules, policies and
interpretations of the Securities and
<PAGE>
Exchange Commission, and the rules of any registered national securities
exchange or the Commodity Futures Trading Commission or any registered Contract
Market, or of any similar organizations regarding escrow or other arrangements
in connection with transactions by the Fund;
(ii) for the purpose of segregating cash or
securities in connection with options purchased or written by the Fund or
commodity futures purchased or written by the Fund;
(iii) for the deposit of liquid assets, such as cash,
U.S. Government securities or other high grade debt obligations, having a market
value (marked to market on a daily basis) at all times equal to not less than
the aggregate purchase price due on the settlement dates of all the Fund's then
outstanding forward commitment or "when-issued" agreements relating to the
purchase of Portfolio Securities and all the Fund's then outstanding commitments
under reverse repurchase agreements entered into with broker-dealer firms;
(iv) for the purposes of compliance by the Fund with
the procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of Segregated Accounts by registered investment
companies;
(v) for other proper corporate purposes, but only, in
the case of this clause (e), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Board, or of the executive
committee of the Board signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, setting forth the purpose or purposes of
such Segregated Account and declaring such purposes to be proper corporate
purposes.
(b) Cash and/or Portfolio Securities may be withdrawn from a
Segregated Account pursuant to Proper Instructions in the following
circumstances:
(i) with respect to assets deposited in accordance
with the provisions of any agreements referenced in (a)(i) or (a)(ii) above, in
accordance with the provisions of such agreements;
(ii) with respect to assets deposited pursuant to
(a)(iii) or (a)(iv) above, for sale or delivery to meet the Fund's obligations
under outstanding forward commitment or when-issued agreements for the purchase
of Portfolio Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal
or greater value deposited in the Segregated Account;
(iv) to the extent that the Fund's outstanding
forward commitment or when- issued agreements for the purchase of portfolio
securities or reverse repurchase agreements are sold to other parties or the
Fund's obligations thereunder are met from assets of the Fund other than those
in the Segregated Account;
(v) for delivery upon settlement of a forward
commitment or when-issued agreement for the sale of Portfolio Securities; or
(vi) with respect to assets deposited pursuant to (e)
above, in accordance with the purposes of such account as set forth in Proper
Instructions.
<PAGE>
6.11 INTEREST BEARING CALL OR TIME DEPOSITS. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by the Fund of
interest-bearing fixed-term and call deposits, transfer cash, by wire or
otherwise, in such amounts and to such bank or banks as shall be indicated in
such Proper Instructions. The Bank shall include in its records with respect to
the assets of the Fund appropriate notation as to the amount of each such
deposit, the banking institution with which such deposit is made (the "Deposit
Bank"), and shall retain such forms of advice or receipt evidencing the deposit,
if any, as may be forwarded to the Bank by the Deposit Bank. Such deposits shall
be deemed Portfolio Securities of the Fund and the responsibility of the Bank
therefore shall be the same as and no greater than the Bank's responsibility in
respect of other Portfolio Securities of the Fund.
6.12 TRANSFER OF SECURITIES. The Bank will transfer, exchange,
deliver or release Portfolio Securities held by it hereunder, insofar as such
Securities are available for such purpose, provided that before making any
transfer, exchange, delivery or release under this Section only upon receipt of
Proper Instructions. The Proper Instructions shall state that such transfer,
exchange or delivery is for a purpose permitted under the terms of this Section
6.11, and shall specify the applicable subsection, or describe the purpose of
the transaction with sufficient particularity to permit the Bank to ascertain
the applicable subsection. After receipt of such Proper Instructions, the Bank
will transfer, exchange, deliver or release Portfolio Securities only in the
following circumstances:
(a) Upon sales of Portfolio Securities for the account of the
Fund, against contemporaneous receipt by the Bank of payment therefor in full,
or, unless the Bank has received Proper Instructions providing otherwise for any
specific jurisdiction, against payment to the Bank in accordance with generally
accepted settlement practices and customs in the jurisdiction or market in which
the transaction occurs, each such payment to be in the amount of the sale price
shown in a broker's confirmation of sale received by the Bank before such
payment is made, as confirmed in the Proper Instructions received by the Bank
before such payment is made;
(b) In exchange for or upon conversion into other securities
alone or other securities and cash pursuant to any plan of merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise, upon exercise of subscription,
purchase or sale or other similar rights represented by such Portfolio
Securities, or for the purpose of tendering shares in the
event of a tender offer therefor, provided, however, that in the event of an
offer of exchange, tender offer, or other exercise of rights requiring the
physical tender or delivery of Portfolio Securities, the Bank shall have no
liability for failure to so tender in a timely manner unless such Proper
Instructions are received by the Bank at least two business days prior to the
date required for tender, and unless the Bank (or its agent or subcustodian
hereunder) has actual possession of such Security at least two business days
prior to the date of tender;
(c) Upon conversion of Portfolio Securities pursuant to their
terms into other securities;
(d) For the purpose of redeeming in-kind shares of the Fund
upon authorization from the Fund;
(e) In the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(f) When such Portfolio Securities are called, redeemed or
retired or otherwise become payable;
<PAGE>
(g) For the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to the Fund by
any bank, including the Bank; provided, however, that such Portfolio Securities
will be released only upon payment to the Bank for the account of the Fund of
the moneys borrowed, provided further, however, that in cases where additional
collateral is required to secure a borrowing already made, and such fact is made
to appear in the Proper Instructions, Portfolio Securities may be released for
that purpose without any such payment. In the event that any pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from the lender in accordance with the
normal procedures of the lender and any loan agreement between the Fund and the
lender that an event of deficiency or default on the loan has occurred, the Bank
may deliver such pledged Portfolio Securities to or for the account of the
lender as provided in such loan agreement;
(h) for the purpose of releasing certificates representing
Portfolio Securities, against contemporaneous receipt by the Bank of the fair
market value of such security, as set forth in the Proper Instructions received
by the Bank before such payment is made;
(i) for the purpose of delivering securities lent by the Fund
to a bank or broker dealer, but only against receipt in accordance with street
delivery custom except as otherwise provided herein, of adequate collateral as
agreed upon from time to time by the Fund and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating to such securities
entered into by the Fund;
(j) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
(k) upon termination of this Agreement as hereinafter set
forth pursuant to Section 8 and Section 16 of this Agreement.
As to any deliveries made by the Bank pursuant to this Section 6.12,
securities or cash receivable in exchange therefor shall be delivered to the
Bank.
7. REDEMPTIONS. In the case of payment of assets of the Fund held by
the Bank in connection with redemptions and repurchases by the Fund of
outstanding common shares, the Bank will rely on notification by the Fund's
transfer agent of receipt of a request for redemption and certificates, if
issued, in proper form for redemption before such payment is made. Payment shall
be made in accordance with the Articles of Incorporation or Declaration of Trust
and By-laws of the Fund (the "Articles"), from assets available for said
purpose.
8. MERGER, DISSOLUTION, ETC. OF FUND. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the Portfolio Securities held
by it under this Agreement and disburse cash only upon the order of the Fund set
forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of
<PAGE>
the Board authorizing any of the foregoing transactions. Upon completion of such
delivery and disbursement and the payment of the fees, disbursements and
expenses of the Bank, this Agreement will terminate and the Bank shall be
released from any and all obligations hereunder.
9. ACTIONS OF BANK WITHOUT PRIOR AUTHORIZATION. Notwithstanding
anything herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, the Bank will take the following actions without
prior authorization or instruction of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name
of the Fund all checks, drafts, or other negotiable or transferable instruments
or other orders for the payment of money received by it for the account of the
Fund and hold for the account of the Fund all income, dividends, interest and
other payments or distributions of cash with respect to the Portfolio Securities
held thereunder;
9.2 Present for payment all coupons and other income items held by
it for the account of the Fund which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary ownership
and other certificates and affidavits required by the Internal Revenue Code or
the regulations of the Treasury Department issued thereunder, or by the laws of
any state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. COLLECTIONS AND DEFAULTS. The Bank will use reasonable efforts
to collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Securities. If Portfolio Securities upon which such income is
payable are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to pay within
two business days from the day on which it receives knowledge of such default or
refusal. The Bank shall provide to the Fund a monthly report, in a form agreed
to by the Bank and the Fund, listing, among other things, overdue or uncollected
items.
11. MAINTENANCE OF RECORDS AND ACCOUNTING SERVICES. The Bank will
maintain records with respect to transactions for which the Bank is responsible
pursuant to the terms and conditions of this Agreement, and in compliance with
the applicable rules and regulations of the 1940 Act. The books and records of
the Bank pertaining to its actions under this Agreement and reports by the Bank
or its
<PAGE>
independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the 1940 Act.
12. [Reserved]
13. ADDITIONAL SERVICES. The Bank shall perform the additional services
for the Fund as are set forth on APPENDIX C hereto. APPENDIX C may be amended
from time to time upon agreement of the parties to include further additional
services to be provided by the Bank to the Fund, at which time the fees set
forth in APPENDIX B shall be appropriately increased.
14. DUTIES OF THE BANK.
14.1 PERFORMANCE OF DUTIES AND STANDARD OF CARE. In performing its
duties hereunder and any other duties listed on any Schedule hereto, if any, the
Bank will be entitled to receive and act upon the advice of independent counsel
of its own selection, which may be counsel for the Fund, and will be without
liability for any action taken or thing done or omitted to be done in accordance
with this Agreement in good faith in conformity with such advice.
The Bank will be under no duty or obligation to inquire into and will
not be liable for:
(a) the validity of the issue of any Portfolio Securities
purchased by or for the Fund, the legality of the purchases thereof or the
propriety of the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or
for the Fund or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of
the Fund or the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any common shares of the
Fund or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the
Fund or the legality of the distribution of any Portfolio Securities as payment
in kind of such dividend; and
(f) any property or moneys of the Fund unless and until
received by it, and any such property or moneys delivered or paid by it pursuant
to the terms hereof.
Moreover, the Bank will not be under any duty or obligation to
ascertain whether any Portfolio Securities at any time delivered to or held by
it for the account of the Fund are such as may properly be held by the Fund
under the provisions of its Articles, By-laws, any federal or state statutes or
any rule or regulation of any governmental agency.
14.2 AGENTS AND SUBCUSTODIANS WITH RESPECT TO PROPERTY OF THE FUND
HELD IN THE UNITED STATES. The Bank may employ agents in the performance of its
duties hereunder and shall be responsible for the acts and omissions of such
agents as if performed by the Bank hereunder. Without limiting the foregoing,
certain duties of the Bank hereunder may be performed by one or more affiliates
of the Bank.
<PAGE>
Upon receipt of Proper Instructions, the Bank may employ
subcustodians, provided that any such subcustodian meets at least the minimum
qualifications required by Section 17(f)(1) of the 1940 Act to act as a
custodian of the Fund's assets with respect to property of the Fund held in the
United States. The Bank shall have no liability to the Fund or any other person
by reason of any act or omission of any subcustodian and the Fund shall
indemnify the Bank and hold it harmless from and against any and all actions,
suits and claims, arising directly or indirectly out of the performance of any
subcustodian, provided, however, that this provision shall not protect the Bank
in the event of the Bank's own negligence, willful misfeasance or misconduct or
from any negligent disregard of its own duties hereunder. Upon request of the
Bank, the Fund shall assume the entire defense of any action, suit, or claim
subject to the foregoing indemnity. The Fund shall pay all fees and expenses of
any subcustodian.
14.3 DUTIES OF THE BANK WITH RESPECT TO PROPERTY OF THE FUND HELD
OUTSIDE OF THE UNITED STATES.
-------------------------------------------------------------
(a) APPOINTMENT OF FOREIGN SUB-CUSTODIANS. Pursuant to a
Delegation Agreement of even date herewith by and between the Bank and the Fund
(the "Delegation Agreement"), the Fund has delegated certain responsibilities
concerning the Fund's Portfolio Securities and other assets maintained outside
the United States, including the selection of Eligible Foreign Subcustodians (as
defined in the Delegation Agreement (each, a "Selected Foreign Sub-Custodian").
The terms of the Delegation Agreement shall control as to the items set forth
therein.
(b) SEGREGATION OF SECURITIES. The Bank shall identify on its
books as belonging to the Fund the Foreign Portfolio Securities held by each
Selected Foreign Sub-Custodian. Each agreement pursuant to which the Bank
employs a foreign banking institution shall require that such institution
establish a custody account for the Bank and hold in that account Foreign
Portfolio Securities and other assets of the Fund, and, in the event that such
institution deposits Foreign Portfolio Securities in a foreign securities
depository, that it shall identify on its books as belonging to the Bank the
securities so deposited.
(c) TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. Transactions with
respect to the assets of the Fund held by a Selected Foreign Sub-Custodian shall
be effected pursuant to Proper Instructions from the Fund to the Bank and shall
be effected in accordance with the applicable Foreign Sub-Custodian Agreement.
If at any time any Foreign Portfolio Securities shall be registered in the name
of the nominee of the Selected Foreign Sub-Custodian, the Fund agrees to hold
any such nominee harmless from any liability by reason of the registration of
such securities in the name of such nominee.
Notwithstanding any provision of this Agreement to the
contrary, settlement and payment for Foreign Portfolio Securities received for
the account of the Fund and delivery of Foreign Portfolio Securities maintained
for the account of the Fund may be effected in accordance with the customary
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including, if
applicable, delivering securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such purchaser
or dealer unless the Bank receives Proper Instructions prohibiting delivery
against expectation of later payment in any applicable jurisdiction.
In connection with any action to be taken with respect to the
Foreign Portfolio Securities held hereunder, including, without limitation, the
exercise of any voting rights, subscription rights, redemption rights, exchange
rights, conversion rights or tender rights, or any other action in
<PAGE>
connection with any other right, interest or privilege with respect to such
Securities (collectively, the "Rights"), the Bank shall promptly transmit to the
Fund such information in connection therewith as is made available to the Bank
by the Foreign Sub-Custodian, and shall promptly forward to the applicable
Foreign Sub-Custodian any instructions, forms or certifications with respect to
such Rights, and any instructions relating to the actions to be taken in
connection therewith, as the Bank shall receive from the Fund pursuant to Proper
Instructions. Notwithstanding the foregoing, the Bank shall have no further duty
or obligation with respect to such Rights, including, without limitation, the
determination of whether the Fund is entitled to participate in such Rights
under applicable U.S. and foreign laws, or the determination of whether any
action proposed to be taken with respect to such Rights by the Fund or by the
applicable Foreign Sub-Custodian will comply with all applicable terms and
conditions of any such Rights or any applicable laws or regulations, or market
practices within the market in which such action is to be taken or omitted.
(d) LIABILITY OF SELECTED FOREIGN SUB-CUSTODIANS. Each of the
agreements pursuant to which a foreign banking institution holds assets of the
Fund (each, a "Foreign Sub-Custodian Agreement")shall require the institution to
exercise reasonable care in the performance of its duties and to indemnify, and
hold harmless, the Bank and each Fund from and against certain losses, damages,
costs, expenses, liabilities or claims arising out of or in connection with the
institution's performance of such obligations, all as set forth in the
applicable Foreign Sub-Custodian Agreement. At the election of the Fund, it
shall be entitled to be subrogated to the rights of the Bank with respect to any
claims against a subcustodian as a consequence of any such loss, damage, cost,
expense liability or claim, if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense liability or claim. The Fund
acknowledges that the Bank, as a participant in Euro-clear, is subject to the
Terms and Conditions Governing the Euro-Clear System, a copy of which has been
made available to the Fund. The Fund acknowledges that pursuant to such Terms
and Conditions, Morgan Guaranty Brussels shall have the sole right to exercise
or assert any and all rights or claims in respect of actions or omissions of, or
the bankruptcy or insolvency of, any other depository, clearance system or
custodian utilized by Euro- clear in connection with the Fund's securities and
other assets.
(e) TAX LAW. The Bank shall have no responsibility or
liability for any obligations now or hereafter imposed on the Fund or the Bank
as custodian of the Fund by the tax laws of any jurisdiction, and it shall be
the responsibility of the Fund to notify the Bank of the obligations imposed on
the Fund or the Bank as the custodian of the Fund by the tax law of any non-U.S.
jurisdiction, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting. The Bank shall administer the tax reclaim process and shall work with
the Selected Foreign Sub-custodian to pursue any claim for exemption or refund
under the tax law of jurisdictions for which the Fund has provided information
regarding obligations imposed on the Fund.
14.4 INSURANCE. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Fund held by it as it uses
in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Fund.
14.5. FEES AND EXPENSES OF THE BANK. The Fund will pay or reimburse
the Bank from time to time for any transfer taxes payable upon transfer of
Portfolio Securities made hereunder, and for all necessary proper disbursements,
expenses and charges made or incurred by the Bank in the performance of this
Agreement (including any duties listed on any Schedule hereto, if any) including
any indemnities for any loss, liabilities or expense to the Bank as provided
above. For the services rendered by the Bank hereunder, the Fund will pay to the
Bank such compensation or fees at such rate and at such times as shall be agreed
upon in writing by the parties from time to time. The Bank will also be entitled
to
<PAGE>
reimbursement by the Fund for all reasonable expenses incurred in conjunction
with termination of this Agreement.
14.6 ADVANCES BY THE BANK. The Bank may, in its sole discretion,
advance funds on behalf of the Fund to make any payment permitted by this
Agreement upon receipt of any proper authorization required by this Agreement
for such payments by the Fund. Should such a payment or payments, with advanced
funds, result in an overdraft (due to insufficiencies of the Fund's account with
the Bank, or for any other reason) this Agreement deems any such overdraft or
related indebtedness a loan made by the Bank to the Fund payable on demand. Such
overdraft shall bear interest at the current rate charged by the Bank for such
loans unless the Fund shall provide the Bank with agreed upon compensating
balances. The Fund agrees that the Bank shall have a continuing lien and
security interest to the extent of any overdraft or indebtedness, in and to any
property at any time held by it for the Fund's benefit or in which the Fund has
an interest and which is then in the Bank's possession or control (or in the
possession or control of any third party acting on the Bank's behalf). The Fund
authorizes the Bank, in the Bank's sole discretion, at any time to charge any
overdraft or indebtedness, together with interest due thereon, against any
balance of account standing to the credit of the Fund on the Bank's books.
14.7 PROPERTY OF THE FUND AND CONFIDENTIALITY. The Fund's records,
including all those maintained hereunder by the Bank, whether in magnetic media,
hard copy, film form or other format, shall be the Fund's property for all
purposes, and the Bank shall treat confidentially and as proprietary information
of the fund all such records and other information relative to the Fund which is
not independently available to the Bank or in the public domain, and shall use
such records only in connection with the performance of its duties hereunder and
for no other purpose. In particular, the Bank agrees:
(a) that all information and data so acquired by it or its
employees, agents or contractors under this Agreement, or in contemplation
thereof, shall be and shall remain the Fund's exclusive property;
(b) to inform its employees, agents or contractors engaged in
handling such information and data of the confidential nature of such
information and data;
(c) to limit access to such information and data to authorized
employees, agents or contractors of the Bank and the Fund who have a need to
know and use such information and data in connection with this Agreement and the
services to be supplied herein;
(d) to keep, and have their employees, agents and contractors
keep , any and all such information and data confidential;
(e) not to copy or publish or disclose such information and
data to others or authorize their employees, agents, contractors or anyone else,
to copy or publish or disclose such information and data to others without the
other party's prior written approval, except if required by a state or federal
court or agency, and in such an event prompt written notice of such disclosure
requirement shall be provided to the other party if permitted by law; and
(f) that upon termination of this Agreement, all records and
other confidential information of the Fund in the possession of the Bank shall
be returned to the Fund or its designated successor custodian, offshore agent,
administrator, subadministrator or fund accountant, as provided herein.
<PAGE>
The confidentiality provisions noted above will survive termination of
this Agreement for a period of two years.
The parties further agree that this Agreement will be considered
confidential during the term of its existence, that access to it will be limited
to those employees, agents, contractors or other persons who have a need to know
of or utilize the Agreement (including, without being limited to, the fund's
Board of Directors or Trustees, the auditors and counsel to the Fund, and
Deutsche Fund Management, Inc. or any of its affiliates), and that neither party
will publish or disclose the Agreement to others without the other party's prior
written approval except if required by a state or federal court or agency, and
in such event prompt written notice of such disclosure requirement shall be
provided to the other party if permitted by law.
14.8 RELIEF. The Bank recognizes that the property and proprietary
information of the Fund is unique, and that the Fund cannot be fully compensated
by money damages and would be irreparably harmed by the disclosure of its
confidential information and data in violation of the provisions of Paragraph
14.7. The Bank therefore agrees that the Fund may seek immediate relief at
equity for any failure to comply with Paragraph 14.7 hereof, in addition to any
other remedies the Fund may have in law or in equity.
14.9 REPORTS BY INDEPENDENT PUBLIC ACCOUNTANTS. Upon reasonable
request by the Fund, the Bank shall provide the Fund with copies of any reports
created by independent public accounts relating to the accounting system,
internal accounting control and procedures for safeguarding securities, futures
contracts and options on futures contracts in connection with the services
provided by the Bank to its clients that are the same or similar as the services
provided under this Agreement.
15. LIMITATION OF LIABILITY.
15.1 Notwithstanding anything in this Agreement to the contrary, in
no event shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold the Bank and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including legal fees, (a "Claim") arising as
a result of any act or omission of the Bank or any Indemnified Party under this
Agreement, except for any Claim resulting solely from the negligence, willful
misfeasance or bad faith of the Bank or any Indemnified Party. Without limiting
the foregoing, neither the Bank nor the Indemnified Parties shall be liable for,
and the Bank and the Indemnified Parties shall be indemnified against, any Claim
arising as a result of:
(a) Any act or omission by the Bank or any Indemnified Party
in good faith reliance upon the terms of this Agreement, any Officer's
Certificate, Proper Instructions, resolution of the Board, telegram, telecopier,
notice, request, certificate or other instrument reasonably believed by the Bank
to genuine;
(b) Any act or omission of any subcustodian selected by or at
the direction of the Fund;
(c) Any Corporate Action requiring a Response for which the
Bank has not received Proper Instructions or obtained actual possession of all
necessary Securities, consents or other materials by 5:00 p.m. on the date
specified as the Response Deadline;
<PAGE>
(d) Any act or omission of any European Branch of a U.S.
banking institution that is the issuer of Eurodollar CDs in connection with any
Eurodollar CDs held by such European Branch;
(e) Information relied on in good faith by the Bank and
supplied by any Authorized Person in connection with the calculation of (i) the
net asset value and public offering price of the shares of capital stock of the
Fund or (ii) the Yield Calculation; or
(f) Any acts of God, earthquakes, fires, floods, storms or
other disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, nuclear fusion, fission or radiation, the interruption, loss or
malfunction of utilities, transportation, the unavailability of energy sources
and other similar happenings or events.
15.2 Notwithstanding anything to the contrary in this Agreement, in
no event shall the Bank or the Indemnified Parties be liable to the Fund or any
third party for lost profits or lost revenues or any special, consequential,
punitive or incidental damages of any kind whatsoever in connection with this
Agreement or any activities hereunder.
16. TERMINATION.
16.1 The term of this Agreement shall be three years commencing upon
the effective date of the Fund's registration statement (the "Initial Term"),
unless earlier terminated as provided herein. After the expiration of the
Initial Term, the term of this Agreement shall automatically renew for
successive one-year terms (each a "Renewal Term") unless (i) the Fund delivers a
notice of non-renewal to the Bank no later than six months prior to the
expiration of the Initial Term, or (ii) the Bank delivers a notice of
non-renewal to the Fund no later than one year prior to the expiration of the
Initial Term.
(a) Either party hereto may terminate this Agreement prior to
the expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the non-violating party
gives written notice of such violation to the violating party and the violating
party does not cure such violation within 90 days of receipt of such notice.
(b) The Fund may terminate this Agreement during any Renewal
Term upon six months written notice to the Bank. The Bank may terminate this
Agreement during any Renewal Term upon one year written notice to the Fund. Any
termination pursuant to this paragraph 16.1(b) shall be effective upon
expiration of such notice period.
16.2 In the event of the termination of this Agreement, the Bank
will immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection (16.3), deliver the Portfolio Securities and cash of
the Fund held by the Bank to a bank or trust company of the Bank's own selection
which meets the requirements of Section 17(f)(1) of the 1940 Act and has a
reported capital, surplus and undivided profits aggregating not less than
$10,000,000, to be held as the property of the Fund under terms similar to those
on which they were held by the Bank, whereupon such bank or trust company so
selected by the Bank will become the successor custodian of such assets of the
<PAGE>
Fund with the same effect as though selected by the Board. Thereafter, the Bank
shall be released from any and all obligations under this Agreement.
16.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank. Thereafter,
the Bank shall be released from any and all obligations under this Agreement,
except for the Bank's obligations under Section 14.7 hereof and any liability to
the Fund already accrued and payable.
16.4 The Fund shall reimburse the Bank for any reasonable expenses
incurred by the Bank in connection with the termination of this Agreement.
16.5 At any time after the termination of this Agreement, the Fund
may, upon written request, have reasonable access to the records of the Bank
relating to its performance of its duties as custodian.
17. CONFIDENTIALITY OF BANK INFORMATION. The Fund agrees than any
non-public information obtained hereunder concerning the Bank is confidential
and may not be disclosed without the consent of the Bank, except as may be
required by applicable law or at the request of a governmental agency. The Fund
further agrees that a breach of this provision would irreparably damage the Bank
and accordingly the Fund agrees that the Bank is entitled, in addition to all
other remedies at law or in equity to an injunction or injunctions without bond
or other security to prevent breaches of this provision.
18. NOTICES. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (I) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) hand delivery with signature to such party at its office at
the address set forth below, namely:
(a) In the case of notices sent to the Fund to:
Deutsche Family of Funds, Inc.
c/o Deutsche Fund Management, Inc.
31 W. 52nd Street
New York, NY 10019
Attention: President
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
200 Clarendon Street
P.O. Box 9130
Boston, Massachusetts 02117-9130
Attention: James Keenan, Director, Client Management
With a copy to: John E. Henry, General Counsel
<PAGE>
or at such other place as such party may from time to time designate in writing.
19. AMENDMENTS. This Agreement may not be altered or amended, except by
an instrument in writing, executed by both parties.
20. PARTIES. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 16 hereof will not be deemed to
be an assignment within the meaning of this provision.
21. GOVERNING LAW. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
23. ENTIRE AGREEMENT. This Agreement, together with its Appendices,
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any conflicting
terms or provisions of any other instrument and terminates and supersedes any
and all prior agreements and undertakings between the parties relating to the
subject matter herein.
24. LIMITATION OF LIABILITY. The Bank agrees that the obligations
assumed by the Fund hereunder shall be limited in all cases to the assets of the
Fund and that the Bank shall not seek satisfaction of any such obligation from
the officers, agents, employees, trustees, or shareholders of the Fund.
25. SIGNATURE LICENSE. The Bank shall remain a licensee of Signature
Financial Group, Inc. with respect to the trademarks of Hub(R) and Spoke(R)1 and
related proprietary rights during the term of this Agreement.
-------- 1 "Hub" and "Spoke" and "Hub and Spoke" are registered trademarks of
Signature Financial Group, Inc.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
DEUTSCHE FAMILY OF FUNDS, INC.
By:...........................
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By:..........................
Name:
Title:
<PAGE>
APPENDIX A
FUNDS
Deutsche European Mid-Cap Fund (US Dollar)
Deutsche German Equity Fund (US Dollar)
Deutsche Japanese Equity Fund (US Dollar)
Deutsche Global Bond Fund (US Dollar)
Deutsche European Bond Fund (US Dollar)
Deutsche Top 50 World (US Dollar)
Deutsche Top 50 Europe (US Dollar)
Deutsche Top 50 Asia (US Dollar)
Deutsche Top 50 US (US Dollar)
Deutsche US Money Market Fund (US Dollar)
Deutsche Institutional US Money Market Fund (US Dollar)
CUSTODIAN AGREEMENT
BETWEEN
DEUTCHE PORTFOLIOS
AND
INVESTORS BANK & TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
PAGE
1. Bank Appointed Custodian................................... 1
2. Definitions................................................ 1
2.1 Authorized Person ....................... 1
2.2 Board ................................ 1
2.3 Security ................................ 1
2.4 Portfolio Security ...................... 1
2.5 Officers' Certificate ................... 1
2.6 Book-Entry System ...................... 2
2.7 Depository.............................. 2
2.8 Proper Instructions .................... 2
3. Separate Accounts ............................................. 2
4. Certification as to Authorized Persons .................. 2
5. Custody of Cash ....................................... 3
5.1 Purchase of Securities................. 3
5.2 Redemptions ...................... 3
5.3 Distributions and Expenses of Fund..... 3
5.4 Payment in Respect of Securities....... 3
5.5 Repayment of Loans .................... 3
5.6 Repayment of Cash ..................... 3
5.7 Foreign Exchange Transactions.......... 4
5.8 Other Authorized Payments.............. 4
5.9 Termination............................ 4
6. Securities .............................................. 4
6.1 Segregation and Registration........... 4
6.2 Voting and Proxies .................... 5
6.3 Corporate Action ...................... 5
6.4 Book-Entry System ..................... 5
6.5 Use of a Depository ................... 6
6.6 Use of Book-Entry System for Commercial Paper... 7
6.7 Use of Immobilization Programs.................. 8
6.8 Eurodollar CDs ...................... 8
6.9 Options and Futures Transactions......... 8
(a) Puts and Calls Traded on Securities Exchanges,
NASDAQ or Over-the-Counter.... . 8
(b) Puts, Calls, and Futures Traded
on Commodities Exchanges....... 9
6.10 Segregated Account ..................... 9
<PAGE>
PAGE
6.11 Interest Bearing Call or Time Deposits.............10
6.12 Transfer of Securities.............................11
7. Redemptions ...................................................12
8. Merger, Dissolution, etc. of Fund ................................. 12
9. Actions of Bank Without Prior Authorization....................... 12
10. Collection and Defaults........................................... 13
11. Maintenance of Records..............................................13
12. [Reserved]
13. Additional Services .........................................13
14. Duties of the Bank .........................................14
14.1 Performance of Duties and
Standard of Care .................................14
14.2 Agents and Subcustodians with Respect to Property
of the Fund Held in the United States.............14
14.3 Duties of the Bank with Respect to Property
Held Outside of the United States.................15
14.4 Insurance.........................................16
14.5 Fees and Expenses of Bank.........................16
14.6 Advances by Bank ................................16
14.7 Property of the Fund and Confidentiality..........17
14.8 Relief............................................18
15. Limitation of Liability..................................................18
16. Termination.........................................................19
17. Confidentiality of Bank Information.................................20
18. Notices ...........................................................20
19. Amendments..........................................................20
20. Parties ...........................................................20
21. Governing Law.......................................................21
<PAGE>
PAGE
22. Counterparts........................................................ 21
23. Entire Agreement.................................................... 21
24. Limitation of Liability............................................. 21
25. Signature License................................................... 21
APPENDICES
Appendix A ................................... Portfolios
Appendix B ................................... Fee Schedule
Appendix C ................................... Additional Services
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of this ___ day of __________, 1997, between the
Deutsche Portfolios , a New York business trust (the "Fund"), and Investors Bank
& Trust Company, a Massachusetts trust company (the "Bank").
The Fund, an open-end management investment company, desires, on behalf
of the portfolios listed in APPENDIX A hereto, to place and maintain all of its
portfolio securities and cash in the custody of the Bank. The Bank has at least
the minimum qualifications required by Section 17(f)(1) of the Investment
Company Act of 1940 (the "1940 Act") to act as custodian of the portfolio
securities and cash of the Fund, and has indicated its willingness to so act,
subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. BANK APPOINTED CUSTODIAN. The Fund hereby appoints the Bank as
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth. For the services rendered pursuant to this
Agreement the Fund agrees to pay to the Bank the fees set forth on APPENDIX B
hereto.
2. DEFINITIONS. Whenever used herein, the terms listed below will have
the following meaning:
2.1 AUTHORIZED PERSON. Authorized Person will mean any of the
persons duly authorized to give Proper Instructions or otherwise act on behalf
of the Fund by appropriate resolution of its Board, and set forth in a
certificate as required by Section 4 hereof.
2.2 BOARD. Board will mean the Board of Directors or the Board of
Trustees of the Fund, as the case may be.
2.3 SECURITY. The term security as used herein will have the same
meaning assigned to such term in the Securities Act of 1933, as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
2.4 PORTFOLIO SECURITY. Portfolio Security will mean any security
owned by the Fund.
2.5 OFFICERS' CERTIFICATE. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
<PAGE>
2.6 BOOK-ENTRY SYSTEM. Book-Entry System shall mean the Federal
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.7 DEPOSITORY. Depository shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.8 PROPER INSTRUCTIONS. Proper Instructions shall mean (i)
instructions regarding the purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith, given by an Authorized Person,
such instructions to be given in such form and manner as the Bank and the Fund
shall agree upon from time to time, and (ii) instructions (which may be
continuing instructions) regarding other matters signed or initialed by an
Authorized Person. Oral instructions will be considered Proper Instructions if
the Bank reasonably believes them to have been given by an Authorized Person.
The Fund shall cause all oral instructions to be promptly confirmed in writing.
The Bank shall act upon and comply with any subsequent Proper Instruction which
modifies a prior instruction and the sole obligation of the Bank with respect to
any follow-up or confirmatory instruction shall be to make reasonable efforts to
detect any discrepancy between the original instruction and such confirmation
and to report such discrepancy to the Fund. The Fund shall be responsible, at
the Fund's expense, for taking any action, including any reprocessing, necessary
to correct any such discrepancy or error, and to the extent such action requires
the Bank to act, the Fund shall give the Bank specific Proper Instructions as to
the action required. Upon receipt by the Bank of an Officers' Certificate as to
the authorization by the Board accompanied by a detailed description of
procedures approved by the Fund, Proper Instructions may include communication
effected directly between electro-mechanical or electronic devices provided that
the Board and the Bank agree in writing that such procedures afford adequate
safeguards for the Fund's assets.
3. SEPARATE ACCOUNTS. If the Fund has more than one series or
portfolio, the Bank will segregate the assets of each series or portfolio to
which this Agreement relates into a separate account for each such series or
portfolio containing the assets of such series or portfolio (and all investment
earnings thereon). Unless the context otherwise requires, any reference in this
Agreement to any actions to be taken by the Fund shall be deemed to refer to the
Fund acting on behalf of one or more of its series, any reference in this
Agreement to any assets of the Fund, including, without limitation, any
portfolio securities and cash and earnings thereon, shall be deemed to refer
only to assets of the applicable series, any duty or obligation of the Bank
hereunder to the Fund shall be deemed to refer to duties and obligations with
respect to such individual series and any obligation or liability of the Fund
hereunder shall be binding only with respect to such individual series, and
shall be discharged only out of the assets of such series.
4. CERTIFICATION AS TO AUTHORIZED PERSONS. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the new, additional or omitted names or signatures. The Bank will be
entitled to rely and act upon any Officers' Certificate given to it by the Fund
which has been signed by Authorized Persons named in the most recent
certification received by the Bank.
<PAGE>
5. CUSTODY OF CASH. As custodian for the Fund, the Bank will open and
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Sections 14.2 or 14.3 hereof, including borrowed funds,
delivered to the Bank, subject only to draft or order by the Bank acting
pursuant to the terms of this Agreement. Pursuant to the Bank's internal
policies regarding the management of cash accounts, the Bank may segregate
certain portions of the cash of the Fund into a separate savings deposit account
upon which the Bank reserves the right to require seven (7) days notice prior to
withdrawal of cash from such an account. Upon receipt by the Bank of Proper
Instructions (which may be continuing instructions) or in the case of payments
for redemptions and repurchases of outstanding shares of common stock of the
Fund, notification from the Fund's transfer agent as provided in Section 7,
requesting such payment, designating the payee or the account or accounts to
which the Bank will release funds for deposit, and stating that it is for a
purpose permitted under the terms of this Section 5, specifying the applicable
subsection, the Bank will make payments of cash held for the accounts of the
Fund, insofar as funds are available for that purpose, only as permitted in
subsections 5.1-5.9 below.
5.1 PURCHASE OF SECURITIES. Upon the purchase of securities for the
Fund, against contemporaneous receipt of such securities by the Bank or against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry Paper (as
that term is defined in Section 6.6 hereof)) of purchase of the securities
received by the Bank before such payment is made, as confirmed in the Proper
Instructions received by the Bank before such payment is made.
5.2 REDEMPTIONS. In such amount as may be necessary for the
repurchase or redemption of common shares of the Fund offered for repurchase or
redemption in accordance with Section 7 of this Agreement.
5.3 DISTRIBUTIONS AND EXPENSES OF FUND. For the payment on the
account of the Fund of dividends or other distributions to shareholders as may
from time to time be declared by the Board, interest, taxes, management or
supervisory fees, distribution fees, fees of the Bank for its services hereunder
and reimbursement of the expenses and liabilities of the Bank as provided
hereunder, fees of any transfer agent, fees for legal, accounting, and auditing
services, or other operating expenses of the Fund.
5.4 PAYMENT IN RESPECT OF SECURITIES. For payments in connection
with the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5 REPAYMENT OF LOANS. To repay loans of money made to the Fund,
but, in the case of final payment, only upon redelivery to the Bank of any
Portfolio Securities pledged or hypothecated therefor and upon surrender of
documents evidencing the loan;
5.6 REPAYMENT OF CASH. To repay the cash delivered to the Fund for
the purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
<PAGE>
5.7 FOREIGN EXCHANGE TRANSACTIONS.
(a) For payments in connection with foreign exchange contracts
or options to purchase and sell foreign currencies for spot and future delivery
(collectively, "Foreign Exchange Agreements")which may be entered into by the
Bank on behalf of the Fund upon the receipt of Proper Instructions, such Proper
Instructions to specify the currency broker or banking institution (which may be
the Bank, or any other subcustodian or agent hereunder, acting as principal)
with which the contract or option is made, and the Bank shall have no duty with
respect to the selection of such currency brokers or banking institutions with
which the Fund deals or for their failure to comply with the terms of any
contract or option.
(b) In order to secure any payments in connection with Foreign
Exchange Agreements which may be entered into by the Bank pursuant to Proper
Instructions, the Fund agrees that the Bank shall have a continuing lien and
security interest, to the extent of any payment due under any Foreign Exchange
Agreement, in and to any property at any time held by the Bank for the Fund's
benefit or in which the Fund has an interest and which is then in the Bank's
possession or control (or in the possession or control of any third party acting
on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, at any time to charge any such payment due under any Foreign
Exchange Agreement against any balance of account standing to the credit of the
Fund on the Bank's books.
5.8 OTHER AUTHORIZED PAYMENTS. For other authorized transactions of
the Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 TERMINATION: Upon the termination of this Agreement as
hereinafter set forth pursuant to Section 8 and Section 16 of this Agreement.
6. SECURITIES.
6.1 SEGREGATION AND REGISTRATION. Except as otherwise provided
herein, and except for securities to be delivered to any subcustodian appointed
pursuant to Sections 14.2 or 14.3 hereof, the Bank as custodian will receive and
hold pursuant to the provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate), in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, and will execute and deliver all
such certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state.
The Fund will from time to time furnish to the Bank
appropriate instruments to enable it to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee, any Portfolio
Securities which may from time to time be registered in the name of the Fund.
<PAGE>
6.2 VOTING AND PROXIES. Neither the Bank nor any nominee of the Bank
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Fund all notices, proxies
and proxy soliciting materials delivered to the Bank with respect to such
Securities, such proxies to be executed by the registered holder of such
Securities (if registered otherwise than in the name of the Fund), but without
indicating the manner in which such proxies are to be voted.
6.3 CORPORATE ACTION. If at any time the Bank is notified that an
issuer of any Portfolio Security has taken or intends to take a corporate action
(a "Corporate Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of a Portfolio Security, including without
limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which Corporate Action requires an affirmative response or action on
the part of the holder of such Portfolio Security (a "Response"), the Bank shall
notify the Fund promptly of the Corporate Action, the Response required in
connection with the Corporate Action and the Bank's deadline for receipt from
the Fund of Proper Instructions regarding the Response (the "Response
Deadline"). If possible, the Response Deadline shall be at least three business
days after such notification to the Fund, provided that in no event shall the
Response Deadline be later than 48 hours prior to the Response expiration time
set by the depository processing such Corporate Action. The Bank shall forward
to the Fund via telecopier and/or overnight courier all notices, information
statements or other materials relating to the Corporate Action within
twenty-four (24) hours of receipt of such materials by the Bank.
(a) The Bank shall act upon a required Response only after
receipt by the Bank of Proper Instructions from the Fund no later than 5:00 p.m.
on the date specified as the Response Deadline and only if the Bank (or its
agent or subcustodian hereunder) has actual possession of all necessary
Securities, consents and other materials no later than 5:00 p.m. on the date
specified as the Response Deadline.
(b) The Bank shall have no duty to act upon a required
Response if Proper Instructions relating to such Response and all necessary
Securities, consents and other materials are not received by and in the
possession of the Bank no later than 5:00 p.m. on the date specified as the
Response Deadline. Notwithstanding, the Bank may, in its sole discretion, use
its best efforts to act upon a Response for which Proper Instructions and/or
necessary Securities, consents or other materials are received by the Bank after
5:00 p.m. on the date specified as the Response Deadline, it being acknowledged
and agreed by the parties that any undertaking by the Bank to use its best
efforts in such circumstances shall in no way create any duty upon the Bank to
complete such Response prior to its expiration.
(c) In the event that the Fund notifies the Bank of a
Corporate Action requiring a Response and the Bank has received no other notice
of such Corporate Action, the Response Deadline shall be 48 hours prior to the
Response expiration time set by the depository processing such Corporate Action.
(d) Section 14.3(g) of this Agreement shall govern any
Corporate Action involving Foreign Portfolio Securities held by a Selected
Foreign Sub-Custodian.
6.4 BOOK-ENTRY SYSTEM. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving deposits of
Fund assets in the Book-Entry System, and (ii) for any subsequent changes to
such arrangements following such approval, the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
<PAGE>
(a) The Bank may keep Portfolio Securities in the Book-Entry
System provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect
to the Fund's participation in the Book-Entry System through the Bank (or any
such agent) will identify by book entry the Portfolio Securities which are
included with other securities deposited in the Account and shall at all times
during the regular business hours of the Bank (or such agent) be open for
inspection by duly authorized officers, employees or agents of the Fund. Where
securities are transferred to the Fund's account, the Bank shall also, by book
entry or otherwise, identify as belonging to the Fund a quantity of securities
in a fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased
for the account of the Fund or shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund upon (i) receipt of advice from the
Book-Entry System that such Securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its agent) to reflect
such payment and transfer for the account of the Fund. The Bank (or its agent)
shall transfer securities sold or loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System that
payment for securities sold or payment of the initial cash collateral against
the delivery of securities loaned by the Fund has been transferred to the
Account; and
(ii) the making of an entry on the records of the
Bank (or its agent) to reflect such transfer and payment for the account of the
Fund. Copies of all advices from the Book-Entry System of transfers of
securities for the account of the Fund shall identify the Fund, be maintained
for the Fund by the Bank and shall be provided to the Fund at its request. The
Bank shall send the Fund a confirmation, as defined by Rule 17f-4 of the 1940
Act, of any transfers to or from the account of the Fund;
(d) The Bank will promptly provide the Fund with any report
obtained by the Bank or its agent on the Book-Entry System's accounting system,
internal accounting control and procedures for safeguarding securities deposited
in the Book-Entry System;
(e) Anything to the contrary in this Agreement
notwithstanding, the Bank shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the Book-Entry System by reason of any
negligence, willful misfeasance or misconduct of the Bank or of any of its
employees or from any negligent failure by the Bank of its duty to undertake
reasonable efforts to enforce effectively such rights as it may have against the
Book-Entry System; at the election of the Fund, it shall be entitled to be
subrogated to the Bank in any claim against the Book-Entry System or any other
person which the Bank may have as a consequence of any such loss or damage if
and to the extent that the Fund has not been made whole for any loss or damage.
6.5 USE OF A DEPOSITORY. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving deposits in
DTC or other such Depository and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
<PAGE>
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities including
stock dividends, rights and other items of like nature, and to receive and remit
to the Bank on behalf of the Fund all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the
name of any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made
through the clearing medium employed by such Depository for transactions of
participants acting through it. Upon any purchase of Portfolio Securities,
payment will be made only upon delivery of the securities to or for the account
of the Fund and the Fund shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund only upon delivery of the Securities to
or for the account of the Fund; and upon any sale of Portfolio Securities,
delivery of the Securities will be made only against payment therefor or, in the
event Portfolio Securities are loaned, delivery of Securities will be made only
against receipt of the initial cash collateral to or for the account of the
Fund; and
(d) The Bank shall be subject to the same liability and duty
to the Fund and its shareholders with respect to all securities of the Fund, and
all cash, stock dividends, rights and items of like nature to which the Fund is
entitled, held or received by a central securities system as agent for the Bank,
pursuant to the foregoing authorization, as if the same were held or received by
the Bank at its own offices. In this connection, without limiting the foregoing
duty or liability, the Bank shall use its best efforts to provide that:
(i) The Depository obtains replacement of any
certificated Portfolio Security deposited with it in the event such Security is
lost, destroyed, wrongfully taken or otherwise not available to be returned to
the Bank upon its request;
(ii) Proxy materials received by a Depository with
respect to Portfolio Securities deposited with such Depository are forwarded
immediately to the Bank for prompt transmittal to the Fund;
(iii) Such Depository promptly forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the
Bank such records with respect to the performance of the Bank's obligations and
duties hereunder as may be necessary for the Fund to comply with the
recordkeeping requirements of Section 31(a) of the 1940 Act and Rule 31(a)
thereunder; and
(v) Such Depository delivers to the Bank all internal
accounting control reports, whether or not audited by an independent public
accountant, as well as such other reports as the Fund may reasonably request in
order to verify the Portfolio Securities held by such Depository.
6.6 USE OF BOOK-ENTRY SYSTEM FOR COMMERCIAL PAPER. Provided (i) the
Bank has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of
<PAGE>
Proper Instructions and upon receipt of confirmation from an Issuer (as defined
below) that the Fund has purchased such Issuer's Book-Entry Paper, the Bank
shall issue and hold in book-entry form, on behalf of the Fund, commercial paper
issued by issuers with whom the Bank has entered into a book-entry agreement
(the "Issuers"). In maintaining procedures for Book-Entry Paper, the Bank agrees
that:
(a) The Bank will maintain all Book-Entry Paper held
by the Fund in an account of the Bank that includes only assets held by it for
customers;
(b) The records of the Bank with respect to the Fund's
purchase of Book-Entry Paper through the Bank will identify, by book-entry,
commercial paper belonging to the Fund which is included in the Book-Entry
System and shall at all times during the regular business hours of the Bank be
open for inspection by duly authorized officers, employees or agents of the
Fund;
(c) The Bank shall pay for Book-Entry Paper purchased for the
account of the Fund upon contemporaneous (i) receipt of advice from the Issuer
that such sale of Book-Entry Paper has been effected, and (ii) the making of an
entry on the records of the Bank to reflect such payment and transfer for the
account of the Fund;
(d) The Bank shall cancel such Book-Entry Paper obligation
upon the maturity thereof upon contemporaneous (i) receipt of advice that
payment for such Book-Entry Paper has been transferred to the Fund, and (ii) the
making of an entry on the records of the Bank to reflect such payment for the
account of the Fund; and
(e) The Bank will send to the Fund such reports on its system
of internal accounting control with respect to the Book-Entry Paper as the Fund
may reasonably request from time to time.
.
6.7 USE OF IMMOBILIZATION PROGRAMS. Provided (i) the Bank has
received a certified copy of a resolution of the Board specifically approving
the maintenance of Portfolio Securities in an immobilization program operated by
a bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and
(ii) for each year following such approval the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
6.8 EURODOLLAR CDS. Any Portfolio Securities which are Eurodollar
CDs may be physically held by the European branch of the U.S. banking
institution that is the issuer of such Eurodollar CD (a "European Branch"),
provided that such Portfolio Securities are identified on the books of the Bank
as belonging to the Fund and that the books of the Bank identify the European
Branch holding such Portfolio
Securities. Notwithstanding any other provision of this Agreement to the
contrary, except as stated in the first sentence of this subsection 6.8, the
Bank shall be under no other duty with respect to such Eurodollar CDs belonging
to the Fund.
6.9 OPTIONS AND FUTURES TRANSACTIONS.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ
or Over-the-Counter.
(i) The Bank shall take action as to put options
("puts") and call options ("calls") purchased or sold (written) by the Fund
regarding escrow or other arrangements (i) in accordance with the provisions of
any agreement entered into upon receipt of Proper Instructions among the Bank,
any broker-dealer registered with the National Association of Securities
Dealers, Inc. (the "NASD"), and, if
<PAGE>
necessary, the Fund, relating to the compliance with the rules of the Options
Clearing Corporation and of any registered national securities exchange, or of
any similar organization or organizations.
(ii) Unless another agreement requires it to do so,
the Bank shall be under no duty or obligation to see that the Fund has deposited
or is maintaining adequate margin, if required, with any broker in connection
with any option, nor shall the Bank be under duty or obligation to present such
option to the broker for exercise unless it receives Proper Instructions from
the Fund. The Bank shall have no responsibility for the legality of any put or
call purchased or sold on behalf of the Fund, the propriety of any such purchase
or sale, or the adequacy of any collateral delivered to a broker in connection
with an option or deposited to or withdrawn from a Segregated Account (as
defined in subsection 6.10 below). The Bank specifically, but not by way of
limitation, shall not be under any duty or obligation to: (i) periodically check
or notify the Fund that the amount of such collateral held by a broker or held
in a Segregated Account is sufficient to protect such broker or the Fund against
any loss; (ii) effect the return of any collateral delivered to a broker; or
(iii) advise the Fund that any option it holds, has or is about to expire. Such
duties or obligations shall be the sole responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
(i) The Bank shall take action as to puts, calls and
futures contracts ("Futures") purchased or sold by the Fund in accordance with
the provisions of any agreement entered into upon the receipt of Proper
Instructions among the Fund, the Bank and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations, regarding account deposits in
connection with transactions by the Fund.
(ii) The responsibilities of the Bank as to futures,
puts and calls traded on commodities exchanges, any Futures Commission Merchant
account and the Segregated Account shall be limited as set forth in subparagraph
(a)(2) of this Section 6.8 as if such subparagraph referred to Futures
Commission Merchants rather than brokers, and Futures and puts and calls thereon
instead of options.
6.10 SEGREGATED ACCOUNT. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund.
(a) Cash and/or Portfolio Securities may be transferred into a
Segregated Account upon receipt of Proper Instructions in the following
circumstances:
(i) in accordance with the provisions of any
agreement among the Fund, the Bank and a broker-dealer registered under the
Exchange Act and a member of the NASD or any Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Options Clearing Corporation, the rules, policies and
interpretations of the Securities and Exchange Commission, and the rules of any
registered national securities exchange or the Commodity Futures Trading
Commission or any registered Contract Market, or of any similar organizations
regarding escrow or other arrangements in connection with transactions by the
Fund;
(ii) for the purpose of segregating cash or
securities in connection with options purchased or written by the Fund or
commodity futures purchased or written by the Fund;
(iii) for the deposit of liquid assets, such as cash,
U.S. Government securities or other high grade debt obligations, having a market
value (marked to market on a daily basis) at all times equal to not less than
the aggregate purchase price due on the settlement dates of all the Fund's then
<PAGE>
outstanding forward commitment or "when-issued" agreements relating to the
purchase of Portfolio Securities and all the Fund's then outstanding commitments
under reverse repurchase agreements entered into with broker-dealer firms;
(iv) for the purposes of compliance by the Fund with
the procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of Segregated Accounts by registered investment
companies;
(v) for other proper corporate purposes, but only, in
the case of this clause (e), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Board, or of the executive
committee of the Board signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, setting forth the purpose or purposes of
such Segregated Account and declaring such purposes to be proper corporate
purposes.
(b) Cash and/or Portfolio Securities may be withdrawn from a
Segregated Account pursuant to Proper Instructions in the following
circumstances:
(i) with respect to assets deposited in accordance
with the provisions of any agreements referenced in (a)(i) or (a)(ii) above, in
accordance with the provisions of such agreements;
(ii) with respect to assets deposited pursuant to
(a)(iii) or (a)(iv) above, for sale or delivery to meet the Fund's obligations
under outstanding forward commitment or when-issued agreements for the purchase
of Portfolio Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal
or greater value deposited in the Segregated Account;
(iv) to the extent that the Fund's outstanding
forward commitment or when-issued agreements for the purchase of portfolio
securities or reverse repurchase agreements are sold to other parties or the
Fund's obligations thereunder are met from assets of the Fund other than those
in the Segregated Account;
(v) for delivery upon settlement of a forward
commitment or when-issued agreement for the sale of Portfolio Securities; or
(vi) with respect to assets deposited pursuant to (e)
above, in accordance with the purposes of such account as set forth in Proper
Instructions.
6.11 INTEREST BEARING CALL OR TIME DEPOSITS. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by the Fund of
interest-bearing fixed-term and call deposits, transfer cash, by wire or
otherwise, in such amounts and to such bank or banks as shall be indicated in
such Proper Instructions. The Bank shall include in its records with respect to
the assets of the Fund appropriate notation as to the amount of each such
deposit, the banking institution with which such deposit is made (the "Deposit
Bank"), and shall retain such forms of advice or receipt evidencing the deposit,
if any, as may be forwarded to the Bank by the Deposit Bank. Such deposits shall
be deemed Portfolio Securities of the Fund and the responsibility of the Bank
therefore shall be the same as and no greater than the Bank's responsibility in
respect of other Portfolio Securities of the Fund.
<PAGE>
6.12 TRANSFER OF SECURITIES. The Bank will transfer, exchange,
deliver or release Portfolio Securities held by it hereunder, insofar as such
Securities are available for such purpose, provided that before making any
transfer, exchange, delivery or release under this Section only upon receipt of
Proper Instructions. The Proper Instructions shall state that such transfer,
exchange or delivery is for a purpose permitted under the terms of this Section
6.11, and shall specify the applicable subsection, or describe the purpose of
the transaction with sufficient particularity to permit the Bank to ascertain
the applicable subsection. After receipt of such Proper Instructions, the Bank
will transfer, exchange, deliver or release Portfolio Securities only in the
following circumstances:
(a) Upon sales of Portfolio Securities for the account of the
Fund, against contemporaneous receipt by the Bank of payment therefor in full,
or, unless the Bank has received Proper Instructions providing otherwise for any
specific jurisdiction, against payment to the Bank in accordance with generally
accepted settlement practices and customs in the jurisdiction or market in which
the transaction occurs, each such payment to be in the amount of the sale price
shown in a broker's confirmation of sale received by the Bank before such
payment is made, as confirmed in the Proper Instructions received by the Bank
before such payment is made;
(b) In exchange for or upon conversion into other securities
alone or other securities and cash pursuant to any plan of merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise, upon exercise of subscription,
purchase or sale or other similar rights represented by such Portfolio
Securities, or for the purpose of tendering shares in the event of a tender
offer therefor, provided, however, that in the event of an offer of exchange,
tender offer, or other exercise of rights requiring the physical tender or
delivery of Portfolio Securities, the Bank shall have no liability for failure
to so tender in a timely manner unless such Proper Instructions are received by
the Bank at least two business days prior to the date required for tender, and
unless the Bank (or its agent or subcustodian hereunder) has actual possession
of such Security at least two business days prior to the date of tender;
(c) Upon conversion of Portfolio Securities pursuant to their
terms into other securities;
(d) For the purpose of redeeming in-kind shares of the Fund
upon authorization from the Fund;
(e) In the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(f) When such Portfolio Securities are called, redeemed or
retired or otherwise become payable;
(g) For the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to the Fund by
any bank, including the Bank; provided, however, that such Portfolio Securities
will be released only upon payment to the Bank for the account of the Fund of
the moneys borrowed, provided further, however, that in cases where additional
collateral is required to secure a borrowing already made, and such fact is made
to appear in the Proper Instructions, Portfolio Securities may be released for
that purpose without any such payment. In the event that any pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from the lender in accordance with the
normal procedures of the lender and any loan agreement between the Fund and the
lender that an event of deficiency or default on the loan has occurred, the Bank
<PAGE>
may deliver such pledged Portfolio Securities to or for the
account of the lender as provided in such loan agreement;
(h) for the purpose of releasing certificates representing
Portfolio Securities, against contemporaneous receipt by the Bank of the fair
market value of such security, as set forth in the Proper Instructions received
by the Bank before such payment is made;
(i) for the purpose of delivering securities lent by the Fund
to a bank or broker dealer, but only against receipt in accordance with street
delivery custom except as otherwise provided herein, of adequate collateral as
agreed upon from time to time by the Fund and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating to such securities
entered into by the Fund;
(j) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
(k) upon termination of this Agreement as hereinafter set
forth pursuant to Section 8 and Section 16 of this Agreement.
As to any deliveries made by the Bank pursuant to this Section 6.12,
securities or cash receivable in exchange therefor shall be delivered to the
Bank.
7. REDEMPTIONS. In the case of payment of assets of the Fund held by
the Bank in connection with redemptions and repurchases by the Fund of
outstanding common shares, the Bank will rely on notification by the Fund's
transfer agent of receipt of a request for redemption and certificates, if
issued, in proper form for redemption before such payment is made. Payment shall
be made in accordance with the Articles of Incorporation or Declaration of Trust
and By-laws of the Fund (the "Articles"), from assets available for said
purpose.
8. MERGER, DISSOLUTION, ETC. OF FUND. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the Portfolio Securities held
by it under this Agreement and disburse cash only upon the order of the Fund set
forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the fees,
disbursements and expenses of the Bank, this Agreement will terminate and the
Bank shall be released from any and all obligations hereunder.
9. ACTIONS OF BANK WITHOUT PRIOR AUTHORIZATION. Notwithstanding
anything herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, the Bank will take the following actions without
prior authorization or instruction of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name
of the Fund all checks, drafts, or other negotiable or transferable instruments
or other orders for the payment of money received by it for
<PAGE>
the account of the Fund and hold for the account of the Fund all income,
dividends, interest and other payments or distributions of cash with respect to
the Portfolio Securities held thereunder;
9.2 Present for payment all coupons and other income items held by
it for the account of the Fund which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary ownership
and other certificates and affidavits required by the Internal Revenue Code or
the regulations of the Treasury Department issued thereunder, or by the laws of
any state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. COLLECTIONS AND DEFAULTS. The Bank will use reasonable efforts to
collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Securities. If Portfolio Securities upon which such income is
payable are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to pay within
two business days from the day on which it receives knowledge of such default or
refusal. The Bank shall provide to the Fund a monthly report, in a form agreed
to by the Bank and the Fund, listing, among other things, overdue or uncollected
items.
11. MAINTENANCE OF RECORDS AND ACCOUNTING SERVICES. The Bank will
maintain records with respect to transactions for which the Bank is responsible
pursuant to the terms and conditions of this Agreement, and in compliance with
the applicable rules and regulations of the 1940 Act. The books and records of
the Bank pertaining to its actions under this Agreement and reports by the Bank
or its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the 1940 Act.
12. [Reserved]
13. ADDITIONAL SERVICES. The Bank shall perform the additional
services for the Fund as are set forth on APPENDIX C hereto. APPENDIX C may
be amended from time to time upon agreement of the
<PAGE>
parties to include further additional services to be provided by the Bank to the
Fund, at which time the fees set forth in APPENDIX B shall be appropriately
increased.
14. DUTIES OF THE BANK.
14.1 PERFORMANCE OF DUTIES AND STANDARD OF CARE. In performing its
duties hereunder and any other duties listed on any Schedule hereto, if any, the
Bank will be entitled to receive and act upon the advice of independent counsel
of its own selection, which may be counsel for the Fund, and will be without
liability for any action taken or thing done or omitted to be done in accordance
with this Agreement in good faith in conformity with such advice.
The Bank will be under no duty or obligation to inquire into and will
not be liable for:
(a) the validity of the issue of any Portfolio Securities
purchased by or for the Fund, the legality of the purchases thereof or the
propriety of the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or
for the Fund or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of
the Fund or the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any common shares of the
Fund or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the
Fund or the legality of the distribution of any Portfolio Securities as payment
in kind of such dividend; and
(f) any property or moneys of the Fund unless and until
received by it, and any such property or moneys delivered or paid by it pursuant
to the terms hereof.
Moreover, the Bank will not be under any duty or obligation to
ascertain whether any Portfolio Securities at any time delivered to or held by
it for the account of the Fund are such as may properly be held by the Fund
under the provisions of its Articles, By-laws, any federal or state statutes or
any rule or regulation of any governmental agency.
14.2 AGENTS AND SUBCUSTODIANS WITH RESPECT TO PROPERTY OF THE FUND
HELD IN THE UNITED STATES. The Bank may employ agents in the performance of its
duties hereunder and shall be responsible for the acts and omissions of such
agents as if performed by the Bank hereunder. Without limiting the foregoing,
certain duties of the Bank hereunder may be performed by one or more affiliates
of the Bank.
Upon receipt of Proper Instructions, the Bank may employ
subcustodians, provided that any such subcustodian meets at least the minimum
qualifications required by Section 17(f)(1) of the 1940 Act to act as a
custodian of the Fund's assets with respect to property of the Fund held in the
United States. The Bank shall have no liability to the Fund or any other person
by reason of any act or omission of any subcustodian and the Fund shall
indemnify the Bank and hold it harmless from and against any and all actions,
suits and claims, arising directly or indirectly out of the performance of any
subcustodian, provided, however, that this provision shall not protect the Bank
in the event of the Bank's own negligence, willful misfeasance or misconduct or
from any negligent disregard of its own duties hereunder. Upon request of the
Bank, the
<PAGE>
Fund shall assume the entire defense of any action, suit, or claim subject to
the foregoing indemnity. The Fund shall pay all fees and expenses of any
subcustodian.
14.3 DUTIES OF THE BANK WITH RESPECT TO PROPERTY OF THE FUND HELD
OUTSIDE OF THE UNITED STATES.
(a) APPOINTMENT OF FOREIGN SUB-CUSTODIANS. Pursuant to a
Delegation Agreement of even date herewith by and between the Bank and the Fund
(the "Delegation Agreement"), the Fund has delegated certain responsibilities
concerning the Fund's Portfolio Securities and other assets maintained outside
the United States, including the selection of Eligible Foreign Subcustodians (as
defined in the Delegation Agreement (each, a "Selected Foreign Sub-Custodian").
The terms of the Delegation Agreement shall control as to the items set forth
therein.
(b) SEGREGATION OF SECURITIES. The Bank shall identify on its
books as belonging to the Fund the Foreign Portfolio Securities held by each
Selected Foreign Sub-Custodian. Each agreement pursuant to which the Bank
employs a foreign banking institution shall require that such institution
establish a custody account for the Bank and hold in that account Foreign
Portfolio Securities and other assets of the Fund, and, in the event that such
institution deposits Foreign Portfolio Securities in a foreign securities
depository, that it shall identify on its books as belonging to the Bank the
securities so deposited.
(c) TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. Transactions with
respect to the assets of the Fund held by a Selected Foreign Sub-Custodian shall
be effected pursuant to Proper Instructions from the Fund to the Bank and shall
be effected in accordance with the applicable Foreign Sub-Custodian Agreement.
If at any time any Foreign Portfolio Securities shall be registered in the name
of the nominee of the Selected Foreign Sub-Custodian, the Fund agrees to hold
any such nominee harmless from any liability by reason of the registration of
such securities in the name of such nominee.
Notwithstanding any provision of this Agreement to
the contrary, settlement and payment for Foreign Portfolio Securities received
for the account of the Fund and delivery of Foreign Portfolio Securities
maintained for the account of the Fund may be effected in accordance with the
customary established securities trading or securities processing practices and
procedures in the jurisdiction or market in which the transaction occurs,
including, if applicable, delivering securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such securities from such
purchaser or dealer unless the Bank receives Proper Instructions prohibiting
delivery against expectation of later payment in any applicable jurisdiction.
In connection with any action to be taken with
respect to the Foreign Portfolio Securities held hereunder, including, without
limitation, the exercise of any voting rights, subscription rights, redemption
rights, exchange rights, conversion rights or tender rights, or any other action
in connection with any other right, interest or privilege with respect to such
Securities (collectively, the "Rights"), the Bank shall promptly transmit to the
Fund such information in connection therewith as is made available to the Bank
by the Foreign Sub-Custodian, and shall promptly forward to the applicable
Foreign Sub-Custodian any instructions, forms or certifications with respect to
such Rights, and any instructions relating to the actions to be taken in
connection therewith, as the Bank shall receive from the Fund pursuant to Proper
Instructions. Notwithstanding the foregoing, the Bank shall have no further duty
or obligation with respect to such Rights, including, without limitation, the
determination of whether the Fund is entitled to participate in such Rights
under applicable U.S. and foreign laws, or the determination of whether any
action proposed to be taken with respect to such Rights by the Fund or by the
applicable Foreign Sub-Custodian will comply with all applicable terms and
conditions of any such Rights or any
<PAGE>
applicable laws or regulations, or market practices within the market in which
such action is to be taken or omitted.
(d) LIABILITY OF SELECTED FOREIGN SUB-CUSTODIANS. Each of the
agreements pursuant to which a foreign banking institution holds assets of the
Fund (each, a "Foreign Sub-Custodian Agreement")shall require the institution to
exercise reasonable care in the performance of its duties and to indemnify, and
hold harmless, the Bank and each Fund from and against certain losses, damages,
costs, expenses, liabilities or claims arising out of or in connection with the
institution's performance of such obligations, all as set forth in the
applicable Foreign Sub-Custodian Agreement. At the election of the Fund, it
shall be entitled to be subrogated to the rights of the Bank with respect to any
claims against a subcustodian as a consequence of any such loss, damage, cost,
expense liability or claim, if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense liability or claim. The Fund
acknowledges that the Bank, as a participant in Euro-clear, is subject to the
Terms and Conditions Governing the Euro-Clear System, a copy of which has been
made available to the Fund. The Fund acknowledges that pursuant to such Terms
and Conditions, Morgan Guaranty Brussels shall have the sole right to exercise
or assert any and all rights or claims in respect of actions or omissions of, or
the bankruptcy or insolvency of, any other depository, clearance system or
custodian utilized by Euro-clear in connection with the Fund's securities and
other assets.
(e) TAX LAW. The Bank shall have no responsibility or
liability for any obligations now or hereafter imposed on the Fund or the Bank
as custodian of the Fund by the tax laws of any jurisdiction, and it shall be
the responsibility of the Fund to notify the Bank of the obligations imposed on
the Fund or the Bank as the custodian of the Fund by the tax law of any non-U.S.
jurisdiction, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting. The Bank shall administer the tax reclaim process and shall work with
the Selected Foreign Sub-custodian to pursue any claim for exemption or refund
under the tax law of jurisdictions for which the Fund has provided information
regarding obligations imposed on the Fund.
14.4 INSURANCE. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Fund held by it as it uses
in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Fund.
14.5. FEES AND EXPENSES OF THE BANK. The Fund will pay or reimburse
the Bank from time to time for any transfer taxes payable upon transfer of
Portfolio Securities made hereunder, and for all necessary proper disbursements,
expenses and charges made or incurred by the Bank in the performance of this
Agreement (including any duties listed on any Schedule hereto, if any) including
any indemnities for any loss, liabilities or expense to the Bank as provided
above. For the services rendered by the Bank hereunder, the Fund will pay to the
Bank such compensation or fees at such rate and at such times as shall be agreed
upon in writing by the parties from time to time. The Bank will also be entitled
to reimbursement by the Fund for all reasonable expenses incurred in conjunction
with termination of this Agreement.
14.6 ADVANCES BY THE BANK. The Bank may, in its sole
discretion, advance funds on behalf of the Fund to make any payment permitted by
this Agreement upon receipt of any proper authorization required by this
Agreement for such payments by the Fund. Should such a payment or payments, with
advanced funds, result in an overdraft (due to insufficiencies of the Fund's
account with the Bank, or for any other reason) this Agreement deems any such
overdraft or related indebtedness a loan made by the Bank to the Fund payable on
demand. Such overdraft shall bear interest at the current rate charged by the
Bank for such loans unless the Fund shall provide the Bank with agreed upon
compensating balances. The Fund agrees that the Bank shall have a continuing
lien and security interest to the extent of any overdraft or indebtedness, in
and to any property at any time held by it for the Fund's benefit or in which
the Fund has
<PAGE>
an interest and which is then in the Bank's possession or control (or in the
possession or control of any third party acting on the Bank's behalf). The Fund
authorizes the Bank, in the Bank's sole discretion, at any time to charge any
overdraft or indebtedness, together with interest due thereon, against any
balance of account standing to the credit of the Fund on the Bank's books.
14.7 PROPERTY OF THE FUND AND CONFIDENTIALITY. The Fund's records,
including all those maintained hereunder by the Bank, whether in magnetic media,
hard copy, film form or other format, shall be the Fund's property for all
purposes, and the Bank shall treat confidentially and as proprietary information
of the fund all such records and other information relative to the Fund which is
not independently available to the Bank or in the public domain, and shall use
such records only in connection with the performance of its duties hereunder and
for no other purpose. In particular, the Bank agrees:
(a) that all information and data so acquired by it or its
employees, agents or contractors under this Agreement, or in contemplation
thereof, shall be and shall remain the Fund's exclusive property;
(b) to inform its employees, agents or contractors engaged in
handling such information and data of the confidential nature of such
information and data;
(c) to limit access to such information and data to authorized
employees, agents or contractors of the Bank and the Fund who have a need to
know and use such information and data in connection with this Agreement and the
services to be supplied herein;
(d) to keep, and have their employees, agents and contractors
keep , any and all such information and data confidential;
(e) not to copy or publish or disclose such information and
data to others or authorize their employees, agents, contractors or anyone else,
to copy or publish or disclose such information and data to others without the
other party's prior written approval, except if required by a state or federal
court or agency, and in such an event prompt written notice of such disclosure
requirement shall be provided to the other party if permitted by law; and
(f) that upon termination of this Agreement, all records and
other confidential information of the Fund in the possession of the Bank shall
be returned to the Fund or its designated successor custodian, offshore agent,
administrator, subadministrator or fund accountant, as provided herein.
The confidentiality provisions noted above will survive termination of
this Agreement for a period of two years.
The parties further agree that this Agreement will be considered
confidential during the term of its existence, that access to it will be limited
to those employees, agents, contractors or other persons who have a need to know
of or utilize the Agreement (including, without being limited to, the fund's
Board of Directors or Trustees, the auditors and counsel to the Fund, and
Deutsche Fund Management, Inc. or any of its affiliates), and that neither party
will publish or disclose the Agreement to others without the other party's prior
written approval except if required by a state or federal court or agency, and
in such event prompt written notice of such disclosure requirement shall be
provided to the other party if permitted by law.
<PAGE>
14.8 RELIEF. The Bank recognizes that the property and proprietary
information of the Fund is unique, and that the Fund cannot be fully compensated
by money damages and would be irreparably harmed by the disclosure of its
confidential information and data in violation of the provisions of Paragraph
14.7. The Bank therefore agrees that the Fund may seek immediate relief at
equity for any failure to comply with Paragraph 14.7 hereof, in addition to any
other remedies the Fund may have in law or in equity.
14.9 REPORTS BY INDEPENDENT PUBLIC ACCOUNTANTS. Upon reasonable
request by the Fund, the Bank shall provide the Fund with copies of any reports
created by independent public accounts relating to the accounting system,
internal accounting control and procedures for safeguarding securities, futures
contracts and options on futures contracts in connection with the services
provided by the Bank to its clients that are the same or similar as the services
provided under this Agreement.
15. LIMITATION OF LIABILITY.
15.1 Notwithstanding anything in this Agreement to the contrary, in
no event shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold the Bank and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including legal fees, (a "Claim") arising as
a result of any act or omission of the Bank or any Indemnified Party under this
Agreement, except for any Claim resulting solely from the negligence, willful
misfeasance or bad faith of the Bank or any Indemnified Party. Without limiting
the foregoing, neither the Bank nor the Indemnified Parties shall be liable for,
and the Bank and the Indemnified Parties shall be indemnified against, any Claim
arising as a result of:
(a) Any act or omission by the Bank or any Indemnified Party
in good faith reliance upon the terms of this Agreement, any Officer's
Certificate, Proper Instructions, resolution of the Board, telegram, telecopier,
notice, request, certificate or other instrument reasonably believed by the Bank
to genuine;
(b) Any act or omission of any subcustodian selected by or at
the direction of the Fund;
(c) Any Corporate Action requiring a Response for which the
Bank has not received Proper Instructions or obtained actual possession of all
necessary Securities, consents or other materials by 5:00 p.m. on the date
specified as the Response Deadline;
(d) Any act or omission of any European Branch of a U.S.
banking institution that is the issuer of Eurodollar CDs in connection with any
Eurodollar CDs held by such European Branch;
(e) Information relied on in good faith by the Bank and
supplied by any Authorized Person in connection with the calculation of (i) the
net asset value and public offering price of the shares of capital stock of the
Fund or (ii) the Yield Calculation; or
(f) Any acts of God, earthquakes, fires, floods, storms or
other disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, nuclear fusion, fission or radiation, the interruption, loss or
malfunction of utilities, transportation, the unavailability of energy sources
and other similar happenings or events.
<PAGE>
15.2 Notwithstanding anything to the contrary in this Agreement, in
no event shall the Bank or the Indemnified Parties be liable to the Fund or any
third party for lost profits or lost revenues or any special, consequential,
punitive or incidental damages of any kind whatsoever in connection with this
Agreement or any activities hereunder.
16. TERMINATION.
16.1 The term of this Agreement shall be three years commencing upon
the effective date of the Fund's registration statement (the "Initial Term"),
unless earlier terminated as provided herein. After the expiration of the
Initial Term, the term of this Agreement shall automatically renew for
successive one-year terms (each a "Renewal Term") unless (i) the Fund delivers a
notice of non-renewal to the Bank no later than six months prior to the
expiration of the Initial Term, or (ii) the Bank delivers a notice of
non-renewal to the Fund no later than one year prior to the expiration of the
Initial Term.
(a) Either party hereto may terminate this Agreement prior to
the expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the non-violating party
gives written notice of such violation to the violating party and the violating
party does not cure such violation within 90 days of receipt of such notice.
(b) The Fund may terminate this Agreement during any Renewal
Term upon six months written notice to the Bank. The Bank may terminate this
Agreement during any Renewal Term upon one year written notice to the Fund. Any
termination pursuant to this paragraph 16.1(b) shall be effective upon
expiration of such notice period.
16.2 In the event of the termination of this Agreement, the Bank
will immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection (16.3), deliver the Portfolio Securities and cash of
the Fund held by the Bank to a bank or trust company of the Bank's own selection
which meets the requirements of Section 17(f)(1) of the 1940 Act and has a
reported capital, surplus and undivided profits aggregating not less than
$10,000,000, to be held as the property of the Fund under terms similar to those
on which they were held by the Bank, whereupon such bank or trust company so
selected by the Bank will become the successor custodian of such assets of the
Fund with the same effect as though selected by the Board. Thereafter, the Bank
shall be released from any and all obligations under this Agreement.
16.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank. Thereafter,
the Bank shall be released from any and all obligations under this Agreement,
except for the Bank's obligations under Section 14.7 hereof and any liability to
the Fund already accrued and payable.
<PAGE>
16.4 The Fund shall reimburse the Bank for any reasonable expenses
incurred by the Bank in connection with the termination of this Agreement.
16.5 At any time after the termination of this Agreement, the Fund
may, upon written request, have reasonable access to the records of the Bank
relating to its performance of its duties as custodian.
17. CONFIDENTIALITY OF BANK INFORMATION. The Fund agrees than any
non-public information obtained hereunder concerning the Bank is confidential
and may not be disclosed without the consent of the Bank, except as may be
required by applicable law or at the request of a governmental agency. The Fund
further agrees that a breach of this provision would irreparably damage the Bank
and accordingly the Fund agrees that the Bank is entitled, in addition to all
other remedies at law or in equity to an injunction or injunctions without bond
or other security to prevent breaches of this provision.
18. NOTICES. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (I) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) hand delivery with signature to such party at its office at
the address set forth below, namely:
(a) In the case of notices sent to the Fund to:
Deutsche Portfolios
c/o IBT Trust Company (Cayman) Ltd.
P.O. Box 501
Cardinal Avenue
Georgetown, Grand Cayman
Attention: Carmen Thompson
With a copy to:
Deutsche Fund Management, Inc.
31 W. 52nd Street
New York, NY 10019
Attention: President
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
200 Clarendon Street
P.O. Box 9130
Boston, Massachusetts 02117-9130
Attention: James Keenan, Director, Client Management
With a copy to: John E. Henry, General Counsel
or at such other place as such party may from time to time
designate in writing.
19. AMENDMENTS. This Agreement may not be altered or amended, except
by an instrument in writing, executed by both parties.
20. PARTIES. This Agreement will be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns; provided,
however, that this Agreement will not be
<PAGE>
assignable by the Fund without the written consent of the Bank or by the Bank
without the written consent of the Fund, authorized and approved by its Board;
and provided further that termination proceedings pursuant to Section 16 hereof
will not be deemed to be an assignment within the meaning of this provision.
21. GOVERNING LAW. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
23. ENTIRE AGREEMENT. This Agreement, together with its Appendices,
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any conflicting
terms or provisions of any other instrument and terminates and supersedes any
and all prior agreements and undertakings between the parties relating to the
subject matter herein.
24. LIMITATION OF LIABILITY. The Bank agrees that the obligations
assumed by the Fund hereunder shall be limited in all cases to the assets of the
Fund and that the Bank shall not seek satisfaction of any such obligation from
the officers, agents, employees, trustees, or shareholders of the Fund.
25. SIGNATURE LICENSE. The Bank shall remain a licensee of Signature Financial
Group, Inc. with respect to the trademarks of Hub(R) and Spoke(R)1 and related
proprietary rights during the term of this Agreement. -------- 1 "Hub" and
"Spoke" and "Hub and Spoke" are registered trademarks of Signature Financial
Group, Inc.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
DEUTSCHE PORTFOLIOS
By:..............................
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By:............................
Name:
Title:
<PAGE>
APPENDIX A
PORTFOLIOS
Provesta Portfolio (US Dollar)
Investa Portfolio (US Dollar)
Japanese Equity Portfolio (US Dollar)
Global Bond Portfolio (US Dollar)
European Bond Portfolio (US Dollar)
Top 50 World Portfolio (US Dollar)
Top 50 Europe Portfolio (US Dollar)
Top 50 Asia Portfolio (US Dollar)
Top 50 US Portfolio (US Dollar)
US Money Market Portfolio (US Dollar)
<PAGE>
MASTER AGREEMENT
FOR
ADMINISTRATION SERVICES
AGREEMENT made as of (DATE), by and between the DEUTSCHE FAMILY OF FUNDS,
INC. as may be amended from time to time, having its principal office and place
of business at Federated Investors Tower, Pittsburgh, PA 15222-3779 (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 shares of capital stock or beneficial
interest ("Shares");
WHEREAS, the Fund is a Spoke(R) in a Hub(R) and Spoke(R) investment structure
which requires that the Fund recognize and operate in accordance with complex
operational and regulatory requirements;
WHEREAS, the Investment Company desires that the Company assist the Fund in
addressing these novel, complex issues and hereby desires to appoint the Company
as its agent to perform all of the requisite services for the administration of
the Fund and to compensate the Company for such services in addition to those
out-of-pocket and third party expenses incurred by the Company. Such services
shall include: developmental support , administrative , and transfer agency ,
(all herein defined) ; provided however, that such services shall not include
advisory, shareholder, custody or distribution services; and the Company desires
to accept such appointment.
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: DEVELOPMENTAL SUPPORT SERVICES
ARTICLE 1. APPOINTMENT
The Investment Company hereby appoints the Company to provide, or cause
to be provided, to the Fund(s) those developmental support services that are
necessary to establish and operate the Fund within a Hub and Spoke(R) investment
structure. The Company accepts such appointment and agrees to provide, or cause
to be provided those services set forth in Article 2 of this Agreement in return
for the compensation set forth in Article 12 of this Agreement.
Deutsche Family of Funds Page 1 1997
<PAGE>
ARTICLE 2. THE COMPANY'S DUTIES
Subject to the supervision and control of the Investment Company's
Board of Directors ("Board"), and in furtherance of the Investment Company's
desire to have the Company assist the Fund in adapting to the complexities of
the Hub and Spoke(R) investment structure, the Company undertakes and agrees to
provide, or cause to be provided, to the Fund(s) developmental, organizational,
administrative, and compliance and allied services that are unique to the Hub
and Spoke(R) investment structure, such services to be provided within the scope
of applicable Federal and State regulations.
The foregoing, along with any additional services that the Company
shall from time to time agree to provide for the Investment Company under this
Section One shall hereinafter be referred to as "Developmental Support
Services."
SECTION TWO: ADMINISTRATIVE SERVICES.
ARTICLE 3. APPOINTMENT.
The Investment Company hereby appoints the Company as Administrator 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
4 of this Agreement in return for the compensation set forth in Article 12 of
this Agreement.
ARTICLE 4. THE COMPANY'S DUTIES.
As Administrator, and subject to the supervision and control of the Board,
the Company will provide facilities, equipment, and personnel to carry out the
following administrative services for operation of the business and affairs of
the Investment Company and the Funds and/or their classes:
A. following the organization of the Investment Company, prepare, file,
and maintain the Investment Company's governing documents and any
amendments thereto, including the Articles of Incorporation (which
have already been prepared and filed), the By-laws and minutes of
meetings of the Board and Shareholders;
B. following the Investment Company's effectiveness with the Securities
and Exchange Commission, prepare the registration statements for the
Investment Company and the Investment Company's Shares and all
amendments thereto, submit the registration statements to the Hub
Fund for approval, and file the registration statements with the
Securities and Exchange Commission and the appropriate state
securities authorities;
C. prepare and file reports to regulatory authorities and shareholders,
prospectuses, proxy statements, and such other documents all as may
be necessary to enable the Investment Company to make a continuous
offering of its Shares;
Deutsche Family of Funds Page 2 1997
<PAGE>
D. plan and prepare for meetings of the Investment Company's Board,
including maintaining the Board's agenda, preparing materials for
the Board's review and consideration and disstributing such
materials to the Board in advance of Board meetings;
E. attend in person, and record the minutes of meetings of, the
Investment Company's Board;
F. plan and prepare for meetings of the Investment Company's
shareholders and record the minutes of such meetings;
G. maintain the Investment Company's calendar of reporting and filing
obligations;
H. prepare expense projections for the Funds and provide such
projections to the Fund's portfolio accountant; monitor expenses
incurred by the Funds; forward invoices to the Investment Company's
Treasurer for payment authorization;
I. monitor the declaration and payment of dividends and other
distributions;
J. monitor and supervise the collection of tax reclaims;
K. coordinate the layout and printing of publicly disseminated
prospectuses and reports;
L. perform internal audit examinations;
M. obtain EIN and CUSIP number for each Fund;
N. consult with the Fund and its Board on matters concerning the Fund
and its affairs; and
O. coordinate the activities of all service providers to the Investment
Company. By way of example, the Company will, in conjunction with
item (G) 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 Two, shall hereafter
be referred to as "Administrative Services."
ARTICLE 5. RECORDS.
The Company shall create and maintain 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 Administrative Services performed by it and not otherwise
created and maintained by
Deutsche Family of Funds Page 3 1997
<PAGE>
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 Investment Company. 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 6. 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 of the 1940 Act, the Internal Revenue Code, and any other laws,
rules and regulations of government authorities having jurisdiction.
ARTICLE 7. RESPONSIBILITY OF ADMINISTRATOR.
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 Administrative Services in accordance with the above
standards. In order that the indemnification provisions contained
in this Article 7 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
Deutsche Family of Funds Page 4 1997
<PAGE>
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 option 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.
SECTION THREE: TRANSFER AGENCY SERVICES.
ARTICLE 8. TERMS OF APPOINTMENT.
The Investment Company hereby appoints the Company to act as transfer agent
and dividend disbursing agent for each Fund's Shares, and agent in connection
with any accumulation, open-account or similar plans provided to the
shareholders of any Fund ("Shareholder(s)"), including without limitation any
periodic investment plan or periodic withdrawal program.
ARTICLE 9. DUTIES OF THE COMPANY.
The Company shall perform the following services in accordance with Proper
Instructions (as defined in Article 13) as may be provided from time to time by
the Investment Company as to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the
purchase of shares and promptly deliver payment and
appropriate documentation therefor to the custodian of the
relevant Fund (the "Custodian"). The Company shall notify
the Fund, the Administrator for the Fund and the Custodian
on a daily basis of the total amount of orders and payments
so delivered.
(2) Pursuant to purchase orders and in accordance with the
Fund's current Prospectus, the Company shall compute and
issue the appropriate number of Shares of each Fund and/or
Class and hold such Shares in the appropriate Shareholder
accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or
its agent requests a certificate, the Company, as Transfer
Agent, shall countersign and mail by first class mail, a
certificate to the Shareholder at its address as set forth
on the transfer books of the Funds, and/or Classes, subject
to any Proper Instructions regarding the delivery of
certificates.
Deutsche Family of Funds Page 5 1997
<PAGE>
(4) In the event that any check or other order for the
purchase of Shares of the Fund and/or Class is returned
unpaid for any reason, the Company shall debit the Share
account of the Shareholder by the number of Shares that had
been credited to its account upon receipt of the check or
other order, promptly mail a debit advice to the
Shareholder, and notify the Fund and/or Class of its action.
In the event that the amount paid for such Shares exceeds
proceeds of the redemption of such Shares plus the amount of
any dividends paid with respect to such Shares, the Fund
and/the Class or its distributor will reimburse the Company
on the amount of such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as
Dividend Disbursing Agent for the Funds in accordance with the
provisions of its governing document and the then-current
Prospectus of the Fund. The Company shall prepare and mail or
credit income, capital gain, or any other payments to
Shareholders. As the Dividend Disbursing Agent, the Company
shall, on or before the payment date of any such distribution,
notify the Custodian and the Fund's Administrator of the
estimated amount required to pay any portion of said
distribution which is payable in cash and request the
Custodian to make available sufficient funds for the cash
amount to be paid out. The Company shall reconcile the amounts
so requested and the amounts actually received with the
Custodian and the Fund's Administrator on a daily basis. If a
Shareholder is entitled to receive additional Shares by virtue
of any such distribution or dividend, appropriate credits
shall be made to the Shareholder's account, for certificated
Funds and/or Classes, delivered where requested; and
(2) The Company shall maintain records of account for each Fund
and Class and advise the Investment Company, each Fund and
Class and its Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set
forth in Proper Instructions, deliver the appropriate
instructions therefor to the Custodian. The Company shall
notify the Fund and the Fund's Administrator on a daily basis
of the total amount of redemption requests processed and
monies paid to the Company by the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds
from the Custodian with respect to any redemption, the Company
shall pay or
Deutsche Family of Funds Page 6 1997
<PAGE>
cause to be paid the redemption proceeds in the manner
instructed by the redeeming Shareholders, pursuant to
procedures described in the then-current Prospectus of the
Fund.
(3) If any certificate returned for redemption or other request
for redemption does not comply with the procedures for
redemption approved by the Fund, the Company shall promptly
notify the Shareholder of such fact, together with the
reason therefor, and shall effect such redemption at the
price applicable to the date and time of receipt of
documents complying with said procedures.
(4) The Company shall effect transfers of Shares by the
registered owners thereof.
(5) The Company shall identify and process abandoned accounts
and uncashed checks for state escheat requirements on an
annual basis and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission ("SEC") a record of the
total number of Shares of the Fund and/or Class which are
authorized, based upon data provided to it by the Fund, and
issued and outstanding. The Company shall also provide the Fund
on a regular basis or upon reasonable request with the total
number of Shares which are authorized and issued and
outstanding, but shall have no obligation when recording the
issuance of Shares, except as otherwise set forth herein, to
monitor the issuance of such Shares or to take cognizance of
any laws relating to the issue or sale of such Shares, which
functions shall be the sole responsibility of the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by
the Investment Company or the Fund to include a record for
each Shareholder's account of the following:
(a) name, address and tax identification number (and
whether such number has been certified);
(b) number of Shares held;
(c) historical information regarding the account, including
dividends paid and date and price for all transactions;
(d) any stop or restraining order placed against the
account;
Deutsche Family of Funds Page 7 1997
<PAGE>
(e) information with respect to withholding in the
case of a foreign account or an account for which
withholding is required by the Internal Revenue
Code;
(f) any dividend reinvestment order, plan application,
` dividend address and correspondence relating to the
current maintenance of the account;
(g) certificate numbers and denominations for any
Shareholder holding certificates; and
(h) any information required in order for the Company to
perform the calculations contemplated or required by
this Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such
record retention shall be at the expense of the Company, and
such records may be inspected by the Investment Company the Fund
at reasonable times. The Company may, at its option at any time,
and shall forthwith upon the Fund's demand, turn over to the
Fund and cease to retain in the Company's files, records and
documents created and maintained by the Company pursuant to this
Agreement, which are no longer needed by the Company in
performance of its services or for its protection. If not so
turned over to the Investment Company or the Fund, such records
and documents will be retained by the Company for six years from
the year of creation, during the first two of which such
documents will be in readily accessible form. At the end of the
six year period, such records and documents will either be
turned over to the Investment Company or the Fund or destroyed
in accordance with Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Investment Company or the Fund
periodically the following information:
(a) a copy of the transaction register;
(b) dividend and reinvestment blotters;
(c) the total number of Shares issued and outstanding
in each state for "blue sky" purposes as determined
according to Proper Instructions delivered from
time to time by the Fund to the Company;
(d) Shareholder lists and statistical information;
(e) payments to third parties relating to distribution
agreements, allocations of sales loads, redemption
fees, or other transaction- or sales-related
payments; and
Deutsche Family of Funds Page 8 1997
<PAGE>
(f) such other information as may be agreed upon from
time to time.
(2) The Company shall prepare in the appropriate form, file with
the Internal Revenue Service and appropriate state agencies,
and, if required, mail to Shareholders, such notices for
reporting dividends and distributions paid as are required
to be so filed and mailed and shall withhold such sums as
are required to be withheld under applicable federal and
state income tax laws, rules and regulations.
(3) In addition to and not in lieu of the services set forth
above, the Company shall:
(a) perform all of the customary services of a transfer
agent, dividend disbursing agent and, as relevant,
agent in connection with accumulation, open-account or
similar plans (including without limitation any
periodic investment plan or periodic withdrawal
program), including but not limited to: maintaining all
Shareholder accounts, mailing Shareholder reports and
Prospectuses to current Shareholders, withholding
taxes on accounts subject to back-up or other
withholding (including non-resident alien accounts),
preparing and filing reports on U.S. Treasury
Department Form 1099 and other appropriate forms
required with respect to dividends and distributions
by federal authorities for all Shareholders, preparing
and mailing confirmation forms and statements of
account to Shareholders for all purchases and
redemptions of Shares and other conformable
transactions in Shareholder accounts, preparing and
mailing activity statements for Shareholders, and
providing Shareholder account information; and
(b) provide a system which will enable the Investment
Company to monitor the total number of Shares of each
Fund and/or Class sold in each state ("blue sky
reporting"). The Investment Company shall by Proper
Instructions (i)_identify to the Company those
transactions and assets to be treated as exempt from
the blue sky reporting for each state and (ii) verify
the classification of transactions for each state on
the system prior to activation and thereafter monitor
the daily activity for each state. The responsibility
of the Company for each Fund's and/or Class's state
blue sky registration status is limited solely to the
recording of the initial classification of
transactions or accounts with regard to blue sky
compliance and the reporting of such transactions and
accounts to the Investment Company as provided above.
F. Other Duties
Deutsche Family of Funds Page 9 1997
<PAGE>
(1) The Company shall answer correspondence from
Shareholders relating to their Share accounts and such other
correspondence as may from time to time be addressed to the
Company.
(2) The Company shall prepare Shareholder meeting lists, mail
proxy cards and other material supplied to it by the Fund in
connection with Shareholder Meetings of each Fund; receive,
examine and tabulate returned proxies, and certify the vote
of the Shareholders.
(3) The Company shall establish and maintain facilities and
procedures for safekeeping of stock certificates, check
forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of,
such certificates, forms and devices.
(4) Mail information, such as prospectuses or reports, to
prospective shareholders or third party financial
intermediaries.
All of the foregoing as described in this Article 9, along with any
additional services that the Company shall agree in writing to perform for the
Investment Company under this Section Three, shall hereafter be referred to as
"Transfer Agency Services."
ARTICLE 10. DUTIES OF THE INVESTMENT COMPANY.
A. Compliance
The Investment Company or Fund assume full responsibility for the
preparation, contents and distribution of its own and/or its Classes'
Prospectuses and for complying with all applicable requirements of
the Securities Act of 1933, as amended (the "1933 Act"), the 1940 Act
and any laws, rules and regulations of government authorities having
jurisdiction.
B. Share Certificates
If the Investment Company has authorized the issuance of share
certificates, the Investment Company shall supply the Company with a
sufficient supply of blank Share certificates and from time to time
shall renew such supply upon request of the Company. Such blank Share
certificates shall be properly signed, manually or by facsimile, if
authorized by the Investment Company and shall bear the seal of the
Investment Company or facsimile thereof; and notwithstanding the
death, resignation or removal of any officer of the Investment
Company authorized to sign certificates, the Company may continue to
countersign certificates which bear the manual or facsimile signature
of such officer until otherwise directed by the Investment Company
C. Distributions
The Fund shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's shares.
ARTICLE 11. REPRESENTATIONS.
Deutsche Family of Funds Page 10 1997
<PAGE>
The Company represents and warrants that it has obtained all required approvals
from all government or regulatory authorities necessary to enter into this
arrangement and to provide the services contemplated in Section Three of this
Agreement.
SECTION FOUR: GENERAL PROVISIONS.
ARTICLE 12. COMPENSATION AND EXPENSES.
A. The Funds will compensate the Company for the Developmental Support
Services, Administrative Services, and Transfer Agency Services in
accordance with the fees agreed upon between the parties hereto on
the applicable schedule. Such fees do not include out-of-pocket and
other third party disbursements of the Company for which the Funds
shall reimburse the Company separately. Examples of out-of-pocket
expenses are included as exhibits to this Agreement. The Company
shall be responsible for expenses incurred in providing office
space, equipment, and personnel as may be necessary or convenient to
provide the Administrative Services to the Fund, including the
compensation of the Company employees who serve as officers of the
Investment Company. The Investment Company shall be responsible for
all other reasonable and documented expenses incurred by the Company
on behalf of the Investment Company, 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.
B. The fee for the period from the effective date of this Agreement
with respect to a Fund or a Class to the end of the initial month
shall be prorated according to the proportion that such period
bears to the full month period. Upon any termination of this
Agreement before the end of any month, the fee for such period shall
be prorated according to the proportion which such period bears to
the full month period.
C. The Company, in its sole discretion, may from time to time
subcontract to, employ or associate with itself such person or
persons as the Company may believe to be particularly suited to
assist it in performing any of the services under this Agreement.
Such person or persons may be affiliates of the Company, third-party
service providers, or they may be officers and employees who are
employed by both the Company and the Investment Company; provided,
however, that the Company shall be as fully responsible to each
Fund for the acts and omissions of any such subcontractor as it is
for its own acts and omissions. Except as herein provided, the
compensation of such person or persons shall be paid by the Company
and no obligation shall be incurred on behalf of the Investment
Company, the Funds, or the Classes in such respect.
Deutsche Family of Funds Page 11 1997
<PAGE>
ARTICLE 13. 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 14. 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 Transfer Agency Services, the Company may without
further consent on the part of the Investment Company subcontract for
the performance of Transfer Agency Services with its subsidiary,
Federated Shareholder Service Company, a Delaware business trust,
which is duly registered as a transfer agent pursuant to
Section 17A(c)(1) of the Securities Exchange Act of 1934, as amended,
or any succeeding statute ("Section 17A(c)(1)").
The Company shall be as fully responsible to the Investment Company
for the acts and omissions of any subcontractor as it is for its own
acts and omissions.
C. With regard to Administrative 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. The Company shall
be as fully responsible to the Investment Company for the acts and
omissions of any subcontractor as it is for its own acts and
omissions.
D. 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. and C. above; provided, however, that the Company
shall in no way be responsible to the Investment Company for the
acts and omissions of the Agent.
Deutsche Family of Funds Page 12 1997
<PAGE>
ARTICLE 15. DOCUMENTS.
A. In connection with the appointment of the Company under this
Agreement, the Investment Company shall file with the Company the
following documents:
(1) a copy of the Charter and By-Laws of the Investment Company and
all amendments thereto;
(2) a copy of the resolution of its Board authorizing this
Agreement;
(3) specimens of all forms of outstanding Share certificates of
the Investment Company or the Funds in the forms approved by
the Board of the Investment Company with a certificate of
the Secretary of the Investment Company as to such approval;
(4) all account application forms and other documents relating to
Shareholders' accounts; and
(5) a copy of the current Prospectus for each Fund.
B. The Investment Company will also furnish from time to time the
following documents:
(1) each resolution of the Board authorizing the original issuance
of each Fund's, and/or Class's Shares;
(2) each Registration Statement filed with the SEC and
amendments thereof and orders relating thereto in effect
with respect to the sale of Shares of any Fund, and/or
Class;
(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) specimens of all new Share certificates representing Shares of
any Fund, accompanied by Board resolutions approving such forms;
(6) such other certificates, documents or opinions which the Company
may, in its discretion, deem necessary or appropriate in the
proper performance of its duties; and
(7) revisions to the Prospectus of each Fund.
ARTICLE 16. REPRESENTATIONS AND WARRANTIES.
A. Representations and Warranties of the Company
The Company represents and warrants to the Investment Company that:
(1) it is a corporation duly organized and existing and in good
standing under the laws of the Commonwealth of Pennsylvania;
Deutsche Family of Funds Page 13 1997
<PAGE>
(2) It is duly qualified to carry on its business in each
jurisdiction where the nature of its business requires such
qualification, and in the Commonwealth of Pennsylvania;
(3) it is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement;
(4) all requisite corporate proceedings, including obtaining
necessary licenses, 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; and
(6) it is in compliance with federal securities law requirements and
in good standing as a transfer agent.
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
By-Laws to enter into and perform its obligations under this
Agreement;
(3) all corporate proceedings required by said Charter and
By-Laws have been taken to authorize it to enter into and
perform its obligations under this Agreement;
(4) the Investment Company is an open-end investment company
registered under the 1940 Act; and
(5) a registration statement under the 1933 Act will be
effective, and appropriate state securities law filings have
been made and will continue to be made, with respect to all
Shares of each Fund being offered for sale.
ARTICLE 17. STANDARD OF CARE AND INDEMNIFICATION.
A. Standard of Care
With regard to Sections One and Three, the Company shall be held to a
standard of reasonable care in carrying out the provisions of this
Contract. The Company shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Investment Company) 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 Investment Company
Deutsche Family of Funds Page 14 1997
<PAGE>
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, counsel fees,
and liabilities (collectively, "Losses") 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
or Fund;
(2) the good faith 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, its Shareholders or investors
regarding the purchase, redemption or transfer of
Shares and Shareholder account information;
(b) are received by the Company from independent pricing
services or sources for use in valuing the assets of the
Funds;
(c) are received by the Company or its agents or subcontractors
from Advisers, Sub-advisers or other third parties
contracted by or approved by the Investment Company of 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;
(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 Shares in violation of any requirement
under the federal securities laws or regulations or the
securities laws or regulations of any state that such Shares
be registered in such state or in violation of any stop
order or other determination or ruling by any federal agency
or any state with respect to the offer or sale of such
Shares in such state.
Provided, however, that the Company shall not be protected by this
Article 17.B from liability for any losses resulting from the
Company's willful misfeasance, bad faith, negligence or reckless
disregard of its duties or failure to meet the standard of care set
forth in 17.A above.
C. Reliance
At any time the Company may apply to any officer of the Investment
Company or Fund for instructions, and may consult with legal counsel
with respect to any matter arising in connection with the services to
be performed by the
Deutsche Family of Funds Page 15 1997
<PAGE>
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 or state laws or regulations. The Company, its
agents and subcontractors shall be protected and indemnified in
recognizing stock certificates which are reasonably believed to bear
the proper manual or facsimile signatures of the officers of the
Investment Company or the Fund, and the proper countersignature of
any former transfer agent or registrar, or of a co-transfer agent or
co-registrar.
D. Notification
In order that the indemnification provisions contained in this
Article 19 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 right to assume 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 18. 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. Following 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. 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 reasonable
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 unless such termination is caused by the
Company's willful misfeasance, bad faith, negligence or reckless disregard of
its duties. The provisions of Articles 7 and 17 shall survive the termination of
this Agreement.
Deutsche Family of Funds Page 16 1997
<PAGE>
ARTICLE 19. AMENDMENT.
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by a written agreement executed by both parties.
Deutsche Family of Funds Page 17 1997
<PAGE>
ARTICLE 20. 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 both
parties and shall be annexed hereto, PROVIDED that no such interpretive or
additional provisions shall contravene any applicable federal or state
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 21. 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 22. NOTICES.
Except as otherwise specifically provided herein, Notices and other writings
delivered or mailed postage prepaid to the Investment Company at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, 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.
ARTICLE 23. COUNTERPARTS.
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original.
ARTICLE 24. MERGER OF AGREEMENT.
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.
ARTICLE 25. SUCCESSOR AGENT.
If a successor agent for the Investment Company 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
Investment Company 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 Two and Three, 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,
Deutsche Family of Funds Page 18 1997
<PAGE>
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 26. FORCE MAJEURE.
The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Fund as a result of work stoppage,
natural disaster, governmental action, loss or malfunction of utilities or other
impossibility of performance.
ARTICLE 27. ASSIGNMENT; SUCCESSORS.
This Agreement shall not be assigned by either party without the prior
written consent of the other party. Such consent may not be unreasonably
withheld. However, either party may assign all of or a substantial portion of
its business to a successor, or to a party controlling, controlled by, or under
common control with such party. Nothing in this Article 27 shall prevent the
Company from delegating its responsibilities to another entity to the extent
provided herein.
ARTICLE 28. SEVERABILITY.
In the event any provision of this Agreement or any interpretive additional
provisions described in Article 20 are held illegal, void or unenforceable, the
balance shall remain in effect.
ARTICLE 29. PROPERTY OF THE INVESTMENT COMPANY AND CONFIDENTIALITY.
The Investment Company's records, including all those maintained hereunder
by the Company, whether in magnetic media, hard copy, film form or other format,
shall be the Investment Company's property for all purposes, and the Company
shall treat confidentially and as proprietary information of the Investment
Company all such records and other information relative to the Investment
Company and its shareholders which is not independently available to the Company
or in the public domain and, in the case of a shareholder list, shall have not
interest therein and shall use such records only in connection with the
performance of its duties hereunder and for no other purpose. In particular, the
Company agrees:
(a) that all information and data so acquired by it or its employees,
agents or contractors under this Agreement, or in contemplation thereof, shall
be and shall remain the Investment Company's exclusive property;
(b) to inform its employees, agents or contractors engaged in handling
such information and data of the confidential nature of such information and
data;
(c) to limit access to such information and data to authorized
employees, agents or contractors of the Company and the Investment Company who
have a need to know and use such information and data in connection with this
Agreement and the services to be supplied herein;
Deutsche Family of Funds Page 19 1997
<PAGE>
(d) to keep, and have their employees, agents and contractors keep, any
and all such information and data confidential;
(e) not to copy or publish or disclose such information and data to
others or authorize their employees, agents, contractors or anyone else, to copy
or publish or disclose such information and data to others without the other
party's written approval except if required by a State or Federal court or
agency and in such an event prompt written notice of such disclose requirement
shall be provided to the other party if permitted by law; and
(f) that upon termination of this Agreement, all records and other
confidential information of the Investment Company in the possession of the
Company shall be returned to the Investment Company or its designated successor
transfer agent, administrator, or distributor, as provided in Article 27.
The confidentiality provisions noted above will sruvive termination of
this Agreement for a period of 5 years.
ARTICLE 30. RELIEF.
The Company recognizes that the property and proprietary information of the
Investment Company is unique, and that the Investment Company cannot be fully
compensated by money damages and would be irreparably harmed by the disclosure
of its confidential information and data in violation of the provisions of
Article 29. The Company therefore agrees that the Investment Company may seek
immediate relief at equity for any fialure to company with Article 29 of this
Agreement, in addition to any othere remedies the Investment Company may have in
law or in equity.
ARTICLE 31. SERVICE LEVEL STANDARDS.
Subject to the non-occurrence of an event of force majeure and the performance
of the Investment Company's obligations described in this Agreement, the Company
agrees that the services will be provided in accordance with the service level
standards specified in Schedule A. The Company's fees will be adjusted based
upon performance-based reductions as described in Schedule A, aggregated up to a
maximum of 10% of all fees billed for the period indicated. The Company shall
provide in reasonable detail to the Investment Company's fund accountant and to
Deutsche Fund Management, Inc., the calculation of the performance-based fee
reductions and all amounts reduced thereunder. It will be the Company's sole
responsibility to compile the statistical information necessary to monitor the
performance standards enumerated in Schedule A.
Deutsche Family of Funds Page 20 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 FAMILY OF FUNDS, INC.
By:
President
FEDERATED SERVICES COMPANY
By:
Senior Vice President
Deutsche Family of Funds Page 21 1997
<PAGE>
ADMINISTRATIVE OR OPERATIONAL AGENCY SERVICES
OUT-OF-POCKET EXPENSES SCHEDULE
Cost of preparing, printing and mailing stock certificates, prospectuses, sales
literature, proxies, reports and notices.
Interest on borrowed money
Taxes and fees payable to Federal, state and other governmental agencies
Fees of Trustees of the Funds
Outside auditing and legal expenses
Travel expenses incurred by employees of Federated Services Company and its
affiliates in connection with such employees' attendance at Fund Board meetings
or in performance of Internal Audit Department functions
Insurance premiums
Trade association dues
Other expenses which may be properly payable by a Fund, as
applicable
Deutsche Family of Funds Page 22 1997
ADMINISTRATION AGREEMENT
BETWEEN
DEUTSCHE PORTFOLIOS
AND
IBT TRUST COMPANY (CAYMAN) LTD.
<PAGE>
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT is made as of ____________, 1997 by and
between the Deutsche Portfolios, a New York business trust (the "Fund"), and IBT
Trust Company (Cayman) Ltd.
("IBT").
WHEREAS, the Fund, on behalf of the portfolios listed on APPENDIX 1
hereto, desires to retain IBT to render certain administrative services to the
Fund, with respect to each of its portfolios (the "Portfolios") and IBT is
willing to render such services.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Fund hereby appoints IBT to act as Administrator of
the Fund on the terms set forth in this Agreement. IBT accepts such appointment
and agrees to render the services herein set forth for the compensation herein
provided.
2. DELIVERY OF DOCUMENTS. The Fund has furnished IBT with copies
properly certified or authenticated of each of the following:
(a) Resolutions of the Fund's Trustees authorizing the
appointment of IBT to provide certain administrative services to the Fund and
approving this Agreement;
(b) The Fund's Declaration of Trust and all amendments thereto
(the "Declaration");
(c) The Fund's by-laws and all amendments thereto (the
"By-Laws");
(d) The Fund's agreements with all service providers which
include any investment advisory agreements, sub-investment advisory agreements,
custody agreements, distribution agreements and transfer agency agreements
(collectively, the "Agreements"); and
(e) Such other certificates, documents or opinions as may
mutually be deemed necessary or appropriate for IBT in the proper performance of
its duties hereunder.
The Fund will immediately furnish IBT with copies of all
amendments of or supplements to the foregoing. Furthermore, the Fund will notify
IBT as soon as possible of any matter which may materially affect the
performance by IBT of its services under this Agreement.
3. DUTIES OF ADMINISTRATOR. Subject to the supervision and direction of
the Trustees of the Fund, IBT, as Administrator, will assist in conducting
various aspects of the Fund's administrative operations and undertakes to
perform the services described in APPENDIX 2 hereto. IBT may, from time to time,
perform additional duties and functions which shall be set forth in an amendment
to such APPENDIX 2executed by both parties. At such time, the fee schedule
included in APPENDIX 3 hereto shall be appropriately amended.
In performing all services under this Agreement, IBT shall act
in conformity with the Fund's Declaration and By-Laws, as the same may be
amended from time to time, and the investment objectives, investment policies
and other practices and policies set forth in the Fund's offering documents, as
the same may be amended from time to time. Notwithstanding any item discussed
herein, IBT has no discretion over the Fund's assets or choice of investments
and cannot be held liable for any problem relating to such investments.
<PAGE>
4. DUTIES OF THE FUND. The Fund agrees to make its legal counsel
available to IBT for instruction with respect to any matter of law arising in
connection with IBT's duties hereunder, and the Fund further agrees that IBT
shall be entitled to rely on such instruction without further investigation on
the part of IBT.
5. FEES AND EXPENSES.
(a) For the services to be rendered and the facilities to be
furnished by IBT, as provided for in this Agreement, the Fund will compensate
IBT in accordance with the fee schedule attached as APPENDIX 3 hereto. Such fees
do not include out-of-pocket disbursements (as delineated on the fee schedule or
other expenses with the prior approval of the Fund's management) of IBT for
which IBT shall be entitled to bill the Fund separately and for which the Fund
shall reimburse IBT.
(b) IBT shall not be required to pay any expenses incurred by
the Fund.
6. LIMITATION OF LIABILITY.
(a) IBT, its directors, officers, employees and agents shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the performance of its obligations and
duties under this Agreement, except a loss resulting from willful misfeasance,
bad faith or negligence in the performance of such obligations and duties, or by
reason of its reckless disregard thereof. The Fund will indemnify IBT, its
directors, officers, employees and agents against and hold it and them harmless
from any and all losses, claims, damages, liabilities or expenses (including
legal fees and expenses) resulting from any claim, demand, action or suit (i)
arising out of the actions or omissions of the Fund; (ii) arising out of the
offer or sale of any securities of the Fund in violation of (x) any requirement
under the federal securities laws or regulations, (y) any requirement under the
securities laws or regulations of any state, or (z) any stop order or other
determination or ruling by any federal or state agency with respect to the offer
or sale of such securities; or (iii) not resulting from the willful misfeasance,
bad faith or negligence of IBT in the performance of such obligations and duties
or by reason of its reckless disregard thereof.
(b) IBT may apply to the Fund at any time for instructions and
may consult counsel for the Fund, or its own counsel, and with accountants and
other experts with respect to any matter arising in connection with its duties
hereunder, and IBT shall not be liable or accountable for any action taken or
omitted by it in good faith in accordance with such instruction, or with the
opinion of such counsel, accountants, or other experts. IBT shall not be liable
for any act or omission taken or not taken in reliance upon any document,
certificate or instrument which it reasonably believes to be genuine and to be
signed or presented by the proper person or persons. IBT shall not be held to
have notice of any change of authority of any officers, employees, or agents of
the Fund until receipt of written notice thereof has been received by IBT from
the Fund.
(c) In the event IBT is unable to perform, or is delayed in
performing, its obligations under the terms of this Agreement because of acts of
God, strikes, legal constraint, government actions, war, emergency conditions,
interruption of electrical power or other utilities, equipment or transmission
failure or damage reasonably beyond its control or other causes reasonably
beyond its control, IBT shall not be liable to the Fund for any damages
resulting from such failure to perform, delay in performance, or otherwise from
such causes.
(d) In no event shall IBT be liable for special, incidental or
consequential damages, even if advised of the possibility of such damages.
<PAGE>
7. TERMINATION OF AGREEMENT.
(a) The term of this Agreement shall be three years commencing
upon the date hereof (the "Initial Term"), unless earlier terminated as provided
herein. After the expiration of the Initial Term, the term of this Agreement
shall automatically renew for successive one-year terms (each a "Renewal Term")
unless (i) the Fund delivers a notice of non-renewal to IBT no later than six
months prior to the expiration of the Initial Term, or (ii) IBT delivers a
notice of non-renewal to the Fund no later than one year prior to the expiration
of the Initial Term.
(i) Either party hereto may terminate this Agreement
prior to the expiration of the Initial Term in the event the other party
violates any material provision of this Agreement, provided that the violating
party does not cure such violation within 90 days of receipt of written notice
from the non- violating party of such violation.
(ii) The Fund may terminate this Agreement during any
Renewal Term upon six months written notice to IBT. IBT may terminate this
Agreement during any Renewal term upon one year notice to the Fund. Any
termination pursuant to this paragraph 7.1(b) shall be effective upon expiration
of such notice period.
(b) At any time after the termination of this Agreement, the
Fund may, upon written request, have reasonable access to the records of IBT
relating to its performance of its duties as Administrator.
8. MISCELLANEOUS.
(a) Any notice or other instrument authorized or required by
this Agreement to be given in writing to the Fund or IBT shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
To the Fund:
Deutsche Portfolios
c/o IBT Trust Company (Cayman) Ltd.
P.O. Box 501
Cardinal Avenue
Georgetown, Grand Cayman
Attention: Carmen Thompson
With a copy to:
Deutsche Fund Management, Inc.
31 W. 52nd Street
New York, NY 10019
Attention: President
To IBT:
IBT Trust Company (Cayman) Ltd.
P.O. Box 501
Cardinal Avenue
Georgetown, Grand Cayman
Attention: Carmen Thompson
<PAGE>
With a copy to:
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02117-9130
Attention: John E. Henry, General Counsel
(b) This Agreement shall extend to and shall be binding upon
the parties hereto and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable without the written consent
of the other party.
(c) This Agreement shall be construed in accordance with the
laws of the Commonwealth of Massachusetts, without regard to its conflict of
laws provisions.
(d) This Agreement may be executed in any number of
counterparts each of which shall be deemed to be an original and which
collectively shall be deemed to constitute only one instrument.
(e) The captions of this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
9. PROPERTY OF THE FUND AND CONFIDENTIALITY.
9.1 The Fund's records, including all those maintained hereunder by
the Bank, whether in magnetic media, hard copy, film form or other format, shall
be the Fund's property for all purposes, and the Bank shall treat confidentially
and as proprietary information of the fund all such records and other
information relative to the Fund which is not independently available to the
Bank or in the public domain, and shall use such records only in connection with
the performance of its duties hereunder and for no other purpose. In particular,
the Bank agrees:
(a) that all information and data so acquired by it or its
employees, agents or contractors under this Agreement, or in contemplation
thereof, shall be and shall remain the Fund's exclusive property;
(b) to inform its employees, agents or contractors engaged in
handling such information and data of the confidential nature of such
information and data;
(c) to limit access to such information and data to authorized
employees, agents or contractors of the Bank and the Fund who have a need to
know and use such information and data in connection with this Agreement and the
services to be supplied herein;
(d) to keep, and have their employees, agents and contractors
keep , any and all such information and data confidential;
(e) not to copy or publish or disclose such information and
data to others or authorize their employees, agents, contractors or anyone else,
to copy or publish or disclose such information and data to others without the
other party's prior written approval, except if required by a state or federal
court or agency, and in such an event prompt written notice of such disclosure
requirement shall be provided to the other party if permitted by law; and
(f) that upon termination of this Agreement, all records and
other confidential information of the Fund in the possession of the Bank shall
be returned to the Fund or its designated
<PAGE>
successor custodian, offshore agent, administrator, subadministrator or fund
accountant, as provided herein.
The confidentiality provisions noted above will survive termination of
this Agreement for a period of two years.
The parties further agree that this Agreement will be considered
confidential during the term of its existence, that access to it will be limited
to those employees, agents, contractors or other persons who have a need to know
of or utilize the Agreement (including, without being limited to, the fund's
Trustees or Trustees, the auditors and counsel to the Fund, and Deutsche Fund
Management, Inc. or any of its affiliates), and that neither party will publish
or disclose the Agreement to others without the other party's prior written
approval except if required by a state or federal court or agency, and in such
event prompt written notice of such disclosure requirement shall be provided to
the other party if permitted by law.
9.2 RELIEF. The Bank recognizes that the property and proprietary
information of the Fund is unique, and that the Fund cannot be fully compensated
by money damages and would be irreparably harmed by the disclosure of its
confidential information and data in violation of the provisions of Paragraph
9.1. The Bank therefore agrees that the Fund may seek immediate relief at equity
for any failure to comply with Paragraph 9.1 hereof, in addition to any other
remedies the Fund may have in law or in equity.
10. CONFIDENTIALITY OF IBT INFORMATION. The Fund agrees that any
non-public information obtained hereunder concerning IBT is confidential and may
not be disclosed without the prior written consent of IBT, except as may be
required by applicable law or at the request of a governmental agency. The Fund
further agrees that a breach of this provision would irreparably damage IBT and
the Fund accordingly agrees that IBT is entitled, in addition to all other
remedies at law or in equity, to an injunction or injunctions without bond or
other security to prevent breaches of this provision.
11. USE OF NAME. The Fund shall not use the name of IBT or any of its
affiliates in any prospectus, sales literature or other material relating to the
Fund in a manner not approved by IBT prior thereto in writing; provided however,
that the approval of IBT shall not be required for any use of its name which
merely refers in accurate and factual terms to its appointment hereunder or
which is required by the Securities and Exchange Commission or any state
securities authority or any other appropriate regulatory, governmental or
judicial authority; PROVIDED FURTHER, that in no event shall such approval be
unreasonably withheld or delayed.
12. SIGNATURE LICENSE. IBT shall remain a licensee of Signature
Financial Group, Inc. with respect to the trademarks of Hub(R) and Spoke(R)1 and
related proprietary rights during the term of this Agreement.
- --------
1 "Hub" and "Spoke" and "Hub and Spoke" are registered trademarks of Signature
Financial Group, Inc.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed and delivered by their duly authorized officers as of the date
first written above.
DEUTSCHE PORTFOLIOS
By:
Name:
Title:
IBT TRUST COMPANY (CAYMAN) LTD.
By:
Name:
Title:
<PAGE>
APPENDIX 1
PORTFOLIOS
Provesta Portfolio (US Dollar)
Investa Portfolio (US Dollar)
Japanese Equity Portfolio (US Dollar)
Global Bond Portfolio (US Dollar)
European Bond Portfolio (US Dollar)
Top 50 World Portfolio (US Dollar)
Top 50 Europe Portfolio (US Dollar)
Top 50 Asia Portfolio (US Dollar)
Top 50 US Portfolio (US Dollar)
US Money Market Portfolio (US Dollar)
<PAGE>
APPENDIX 2
SERVICES
Registration with Cayman Authorities
Filing and maintenance of governing documents, offshore registration documents,
and offshore regulatory reports
Maintenance of telephone line
1 Provision of authorized signatures
1 Authorization and filing of financial statements
1 Filing of tax return and N-SAR
1 Cayman legal compliance
1 Approval of annual expense budget
1 Authorization of expenses (with Treasurer approval)
1 Distribution of Board materials
1 Authorization of fund distributions (omnibus accounts)
1 Distribution of dividends and capital gains (omnibus accounts)
1 Authorization of shareholder trades (omnibus accounts)
1 Distribution of shareholder statements, tax forms, and shareholder
reports (omnibus accounts)
1 Maintenance of shareholder register (omnibus accounts)
1 Maintenance of necessary offshore books and records
1 Maintenance of omnibus accounts
1 Receipt and response to literature requests
FUND ACCOUNTING AGREEMENT
AGREEMENT made as of this ___ day of _________, 1997, between the
Deutsche Family of Funds, Inc., a Maryland corporation (the "Fund") and IBT Fund
Services (Canada) Inc. ("IBT").
The Fund, an open-end management investment company desires, on behalf
of the funds listed on APPENDIX A hereto, to retain IBT to perform certain fund
accounting services for the several portfolios of the Fund currently existing
and hereafter established (the "Portfolios"), and IBT has indicated its
willingness to so act, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. DEFINITIONS. Whenever used herein, the terms listed below will have
the following meaning:
1.1 AUTHORIZED PERSON. Authorized Person will mean any of the
persons duly authorized to give Proper Instructions or otherwise act on behalf
of the Fund by appropriate resolution of its Board, and set forth in a
certificate as required by Section 4 hereof.
1.2 BOARD. Board will mean the Board of Trustees of the Fund.
1.3 OFFICERS' CERTIFICATE. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
1.4 PROPER INSTRUCTIONS. Proper Instructions shall mean instructions
(which may be continuing instructions) regarding matters signed or initialed by
an Authorized Person. Oral instructions will be considered Proper Instructions
if IBT reasonably believes them to have been given by an Authorized Person. The
Fund shall cause all oral instructions to be promptly confirmed in writing. IBT
shall act upon and comply with any subsequent Proper Instruction which modifies
a prior instruction and the sole obligation of IBT with respect to any follow-up
or confirmatory instruction shall be to make reasonable efforts to detect any
discrepancy between the original instruction and such confirmation and to report
such discrepancy to the Fund. The Fund shall be responsible, at the Fund's
expense, for taking any action, including any reprocessing, necessary to correct
any such discrepancy or error, and to the extent such action requires IBT to
act, the Fund shall give IBT specific Proper Instructions as to the action
required. Upon receipt by IBT of an Officers' Certificate as to the
authorization by the Board accompanied by a detailed description of procedures
approved by the Fund, Proper Instructions may include communication effected
directly between electro-mechanical or electronic devices provided that the
Board and IBT agree in writing that such procedures afford adequate safeguards
for the Fund's assets.
2. CERTIFICATION AS TO AUTHORIZED PERSONS. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with IBT his or her
certification to IBT, in such form as may be acceptable to IBT, of (i) the names
and signatures of the Authorized Persons and (ii) the names of the members of
the Board, it being understood that upon the occurrence of any change in the
information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the new, additional or omitted names or signatures. IBT will be
entitled to rely and act upon any Officers'
<PAGE>
Certificate given to it by the Fund which has been signed by Authorized Persons
named in the most recent certification received by IBT.
3. MAINTENANCE OF RECORDS AND ACCOUNTING SERVICES. The Bank will
maintain records with respect to transactions for which the Bank is responsible
pursuant to the terms and conditions of this Agreement, and in compliance with
the applicable rules and regulations of the 1940 Act. The books and records of
the Bank pertaining to its actions under this Agreement and reports by the Bank
or its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the 1940 Act.
4. FUND EVALUATION AND YIELD CALCULATION
4.1 FUND EVALUATION. IBT shall compute and, unless otherwise
directed by the Board, determine as of the close of regular trading on the New
York Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by the
Board, the net asset value and the public offering price of a share of capital
stock of each Portfolio, such determination to be made in accordance with the
provisions of the Declaration of Trust and By-laws of the Fund and the
Registration Statement relating to each Portfolio, as they may from time to time
be amended, and any applicable resolutions of the Board at the time in force and
applicable; and promptly to notify the Fund, the proper exchange and the NASD or
such other persons as the Fund may request of the results of such computation
and determination. In computing the net asset value hereunder, IBT may rely in
good faith upon information furnished to it by any Authorized Person in respect
of (i) the manner of accrual of the liabilities of the Fund and in respect of
liabilities of the Fund not appearing on its books of account kept by IBT, (ii)
reserves, if any, authorized by the Board or that no such reserves have been
authorized, (iii) the source of the quotations to be used in computing the net
asset value, (iv) the value to be assigned to any security for which no price
quotations are available, and (v) the method of computation of the public
offering price on the basis of the net asset value of the shares, and IBT shall
not be responsible for any loss occasioned by such reliance or for any good
faith reliance on any quotations received from a source pursuant to (iii) above.
4.2. YIELD CALCULATION. IBT will compute the performance results of
the Portfolios (the "Yield Calculation") in accordance with the provisions of
Release No. 33-6753 and Release No. IC-16245 (February 2, 1988) (the "Releases")
promulgated by the Securities and Exchange Commission, and any subsequent
amendments to, published interpretations of or general conventions accepted by
the staff of the Securities and Exchange Commission with respect to such
releases or the subject matter thereof ("Subsequent Staff Positions"), subject
to the terms set forth below:
(a) IBT shall compute the Yield Calculation for the Fund for
the stated periods of time as shall be mutually agreed upon, and communicate in
a timely manner the result of such computation to the Fund.
(b) In performing the Yield Calculation, IBT will derive the
items of data necessary for the computation from the records it generates and
maintains for the Fund pursuant Section 3 hereof. IBT shall have no
responsibility to review, confirm, or otherwise assume any duty or liability
with respect to the accuracy or correctness of any such data supplied to it by
the Fund, any of the Fund's designated agents or any of the Fund's designated
third party providers.
<PAGE>
(c) At the request of IBT, the Fund shall provide, and IBT
shall be entitled to rely on, written standards and guidelines to be followed by
IBT in interpreting and applying the computation methods set forth in the
Releases or any Subsequent Staff Positions as they specifically apply to the
Fund. In the event that the computation methods in the Releases or the
Subsequent Staff Positions or the application to the Fund of a standard or
guideline is not free from doubt or in the event there is any question of
interpretation as to the characterization of a particular security or any aspect
of a security or a payment with respect thereto (e.g., original issue discount,
participating debt security, income or return of capital, etc.) or otherwise or
as to any other element of the computation which is pertinent to the Fund, the
Fund or its designated agent shall have the full responsibility for making the
determination of how the security or payment is to be treated for purposes of
the computation and how the computation is to be made and shall inform IBT
thereof on a timely basis. IBT shall have no responsibility to make independent
determinations with respect to any item which is covered by this Section, and
shall not be responsible for its computations made in accordance with such
determinations so long as such computations are mathematically correct.
(d) The Fund shall keep IBT informed of all publicly available
information and of any non-public advice, or information obtained by the Fund
from its independent auditors or by its personnel or the personnel of its
investment adviser, or Subsequent Staff Positions related to the computations to
be undertaken by IBT pursuant to this Agreement and IBT shall not be deemed to
have knowledge of such information (except as contained in the Releases) unless
it has been furnished to IBT in writing.
5. FEES. For the services rendered pursuant to this Agreement, the Fund
agrees to pay IBT the fees set forth on APPENDIX B hereto.
6. ADDITIONAL SERVICES. IBT shall perform the additional services for
the Fund as are set forth on APPENDIX C hereto. APPENDIX C may be amended from
time to time upon agreement of the parties to include further additional
services to be provided by IBT to the Fund, at which time the fees set forth in
APPENDIX B shall be appropriately increased.
7. LIMITATION OF LIABILITY.
7.1 Notwithstanding anything in this Agreement to the contrary, in
no event shall IBT or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold IBT and the Indemnified Parties
harmless from and against any and all loss, damage, liability, actions, suits,
claims, costs and expenses, including
legal fees, (a "Claim") arising as a result of any act or omission of IBT or any
Indemnified Party under this Agreement, except for any Claim resulting solely
from the negligence, willful misfeasance or bad faith of IBT or any Indemnified
Party. Without limiting the foregoing, neither IBT nor the Indemnified Parties
shall be liable for, and IBT and the Indemnified Parties shall be indemnified
against, any Claim arising as a result of:
(a) Any act or omission by IBT or any Indemnified Party in
good faith reliance upon the terms of this Agreement, any Officer's Certificate,
Proper Instructions, resolution of the Board, telegram, telecopier, notice,
request, certificate or other instrument reasonably believed by IBT to genuine;
(b) Information relied on in good faith by IBT and supplied by
any Authorized Person in connection with the calculation of (i) the net asset
value and public offering price of the shares of capital stock of the Fund or
(ii) the Yield Calculation; or
<PAGE>
(c) Any acts of God, earthquakes, fires, floods, storms or
other disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, nuclear fusion, fission or radiation, the interruption, loss or
malfunction of utilities, transportation, the unavailability of energy sources
and other similar happenings or events.
7.2 Notwithstanding anything to the contrary in this Agreement, in
no event shall IBT or the Indemnified Parties be liable to the Fund or any third
party for lost profits or lost revenues or any special, consequential, punitive
or incidental damages of any kind whatsoever in connection with this Agreement
or any activities hereunder.
8. TERMINATION.
8.1 The term of this Agreement shall be three years commencing upon
the effective date of the Fund's registration statement (the "Initial Term"),
unless earlier terminated as provided herein. After the expiration of the
Initial Term, the term of this Agreement shall automatically renew for
successive one-year terms (each a "Renewal Term") unless (i) the Fund delivers a
notice of non-renewal to IBT no later than six months prior to the expiration of
the Initial Term, or (ii) IBT delivers a notice of non-renewal to the Fund no
later than one year prior to the expiration of the Initial Term.
(a) Either party hereto may terminate this Agreement prior to
the expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the non-violating party
gives written notice of such violation to the violating party and the violating
party does not cure such violation within 90 days of receipt of such notice.
(b) The Fund may terminate this Agreement during any Renewal
Term upon six months written notice to IBT. IBT may terminate this Agreement
during any Renewal term upon one year notice to the Fund. Any termination
pursuant to this paragraph 7.1(b) shall be effective upon expiration of such
notice period.
8.2 The Fund shall reimburse IBT for any reasonable expenses
incurred by IBT in connection with the termination of this Agreement.
8.3 At any time after the termination of this Agreement, the Fund
may, upon written request, have reasonable access to the records of IBT relating
to its performance of its duties as hereunder.
9. PROPERTY OF THE FUND AND CONFIDENTIALITY.
9.1 The Fund's records, including all those maintained hereunder by
the Bank, whether in magnetic media, hard copy, film form or other format, shall
be the Fund's property for all purposes, and the Bank shall treat confidentially
and as proprietary information of the fund all such records and other
information relative to the Fund which is not independently available to the
Bank or in the public domain, and shall use such records only in connection with
the performance of its duties hereunder and for no other purpose. In particular,
the Bank agrees:
(a) that all information and data so acquired by it or its
employees, agents or contractors under this Agreement, or in contemplation
thereof, shall be and shall remain the Fund's exclusive property;
<PAGE>
(b) to inform its employees, agents or contractors engaged in
handling such information and data of the confidential nature of such
information and data;
(c) to limit access to such information and data to authorized
employees, agents or contractors of the Bank and the Fund who have a need to
know and use such information and data in connection with this Agreement and the
services to be supplied herein;
(d) to keep, and have their employees, agents and contractors
keep , any and all such information and data confidential;
(e) not to copy or publish or disclose such information and
data to others or authorize their employees, agents, contractors or anyone else,
to copy or publish or disclose such information and data to others without the
other party's prior written approval, except if required by a state or federal
court or agency, and in such an event prompt written notice of such disclosure
requirement shall be provided to the other party if permitted by law; and
(f) that upon termination of this Agreement, all records and
other confidential information of the Fund in the possession of the Bank shall
be returned to the Fund or its designated successor custodian, offshore agent,
administrator, subadministrator or fund accountant, as provided herein.
The confidentiality provisions noted above will survive termination of
this Agreement for a period of two years.
The parties further agree that this Agreement will be considered
confidential during the term of its existence, that access to it will be limited
to those employees, agents, contractors or other persons who have a need to know
of or utilize the Agreement (including, without being limited to, the fund's
Board of Directors or Trustees, the auditors and counsel to the Fund, and
Deutsche Fund Management, Inc. or any of its affiliates), and that neither party
will publish or disclose the Agreement to others without the other party's prior
written approval except if required by a state or federal court or agency, and
in such event prompt written notice of such disclosure requirement shall be
provided to the other party if permitted by law.
9.2 RELIEF. The Bank recognizes that the property and proprietary
information of the Fund is unique, and that the Fund cannot be fully compensated
by money damages and would be irreparably harmed by the disclosure of its
confidential information and data in violation of the provisions of Paragraph
9.1. The Bank therefore agrees that the Fund may seek immediate relief at equity
for any failure to comply with Paragraph 9.1 hereof, in addition to any other
remedies the Fund may have in law or in equity.
10. CONFIDENTIALITY OF IBT INFORMATION. The Fund agrees that any
non-public information obtained hereunder concerning IBT is confidential and may
not be disclosed without the prior written consent of IBT, except as may be
required by applicable law or at the request of a governmental agency. The Fund
further agrees that a breach of this provision would irreparably damage IBT and
the Fund accordingly agrees that IBT is entitled, in addition to all other
remedies at law or in equity, to an injunction or injunctions without bond or
other security to prevent breaches of this provision.
11. SERVICE LEVEL STANDARDS. Subject to the non-occurrence of an event
of force majeure and the performance of the Fund's obligations described in this
Agreement, the Company agrees that the services
<PAGE>
will be provided in accordance with the service level standards specified in
APPENDIX D hereto. IBT's fees will be adjusted based upon performance based
reductions as described in APPENDIX D.
12. NOTICES. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (i) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) had delivery with signature to such party at its office at
the address set forth below, namely:
(a) In the case of notices sent to the Fund to:
Deutsche Family of Funds, Inc.
c/o Deutsche Fund Management, Inc.
31 W. 52nd Street
New York, NY 10019
Attention: President
(b) In the case of notices sent to IBT to:
IBT Fund Services (Canada) Inc.
1 First Canadian, King Street West
Suite 2800
PO Box 231
Toronto, Canada M5X1C8
Attention:
With a copy to: John E. Henry, General Counsel
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
or at such other place as such party may from time to time designate in writing.
13. AMENDMENTS. This Agreement may not be altered or amended, except by
an instrument in writing, executed by both parties.
14. PARTIES. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of IBT or by IBT without the written consent of the
Fund, authorized and approved by its Board; and provided further that
termination proceedings pursuant to Section 8 hereof will not be deemed to be an
assignment within the meaning of this provision.
15. GOVERNING LAW. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
<PAGE>
17. ENTIRE AGREEMENT. This Agreement, together with its Appendices,
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any conflicting
terms or provisions of any other instrument and terminates and supersedes any
and all prior agreements and undertakings between the parties relating to the
subject matter herein.
18. LIMITATION OF LIABILITY. IBT is hereby expressly put on notice of
the limitation of liability set forth in the Declaration of Trust of the Fund
and agrees that the obligations assumed by the Fund hereunder shall be limited
in all cases to the assets of the Fund and that IBT shall not seek satisfaction
of any such obligation from the officers, agents, employees, trustees, or
shareholders of the Fund.
19. SIGNATURE LICENSE. IBT shall remain a licensee of Signature
Financial Group, Inc. with respect to the trademarks of Hub(R) and Spoke(R)1 and
related proprietary rights during the term of this Agreement.
[Remainder of Page Intentionally Left Blank]
- --------
1 "Hub" and "Spoke" and "Hub and Spoke" are registered trademarks of Signature
Financial Group, Inc.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
DEUTSCHE FAMILY OF FUNDS, INC.
By:.........................
Name:
Title:
IBT FUND SERVICES (CANADA) INC.
By:.........................
Name:
Title:
<PAGE>
APPENDIX A
FUNDS
Deutsche European Mid-Cap Fund (US Dollar)
Deutsche German Equity Fund (US Dollar)
Deutsche Japanese Equity Fund (US Dollar)
Deutsche Global Bond Fund (US Dollar)
Deutsche European Bond Fund (US Dollar)
Deutsche Top 50 World (US Dollar)
Deutsche Top 50 Europe (US Dollar)
Deutsche Top 50 Asia (US Dollar)
Deutsche Top 50 US (US Dollar)
Deutsche US Money Market Fund (US Dollar)
Deutsche Institutional US Money Market Fund (US Dollar)
FUND ACCOUNTING AGREEMENT
AGREEMENT made as of this ___ day of _________, 1997, between the
Deutsche Portfolios, a New York business trust (the "Fund") and IBT Fund
Services (Canada) Inc. ("IBT").
The Fund, an open-end management investment company desires, on behalf
of the portfolios listed on APPENDIX A hereto, to retain IBT to perform certain
fund accounting services for the several portfolios of the Fund currently
existing and hereafter established (the "Portfolios"), and IBT has indicated its
willingness to so act, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. DEFINITIONS. Whenever used herein, the terms listed below will have
the following meaning:
1.1 AUTHORIZED PERSON. Authorized Person will mean any of the
persons duly authorized to give Proper Instructions or otherwise act on behalf
of the Fund by appropriate resolution of its Board, and set forth in a
certificate as required by Section 4 hereof.
1.2 BOARD. Board will mean the Board of Trustees of the Fund.
1.3 OFFICERS' CERTIFICATE. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
1.4 PROPER INSTRUCTIONS. Proper Instructions shall mean instructions
(which may be continuing instructions) regarding matters signed or initialed by
an Authorized Person. Oral instructions will be considered Proper Instructions
if IBT reasonably believes them to have been given by an Authorized Person. The
Fund shall cause all oral instructions to be promptly confirmed in writing. IBT
shall act upon and comply with any subsequent Proper Instruction which modifies
a prior instruction and the sole obligation of IBT with respect to any follow-up
or confirmatory instruction shall be to make reasonable efforts to detect any
discrepancy between the original instruction and such confirmation and to report
such discrepancy to the Fund. The Fund shall be responsible, at the Fund's
expense, for taking any action, including any reprocessing, necessary to correct
any such discrepancy or error, and to the extent such action requires IBT to
act, the Fund shall give IBT specific Proper Instructions as to the action
required. Upon receipt by IBT of an Officers' Certificate as to the
authorization by the Board accompanied by a detailed description of procedures
approved by the Fund, Proper Instructions may include communication effected
directly between electro-mechanical or electronic devices provided that the
Board and IBT agree in writing that such procedures afford adequate safeguards
for the Fund's assets.
2. CERTIFICATION AS TO AUTHORIZED PERSONS. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with IBT his or her
certification to IBT, in such form as may be acceptable to IBT, of (i) the names
and signatures of the Authorized Persons and (ii) the names of the members of
the Board, it being understood that upon the occurrence of any change in the
information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the new, additional or omitted names or signatures. IBT will be
entitled to rely and act upon any Officers' Certificate given to it by the Fund
which has been signed by Authorized Persons named in the most recent
certification received by IBT.
<PAGE>
3. MAINTENANCE OF RECORDS AND ACCOUNTING SERVICES. The Bank will
maintain records with respect to transactions for which the Bank is responsible
pursuant to the terms and conditions of this Agreement, and in compliance with
the applicable rules and regulations of the 1940 Act. The books and records of
the Bank pertaining to its actions under this Agreement and reports by the Bank
or its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the 1940 Act.
4. FUND EVALUATION AND YIELD CALCULATION
4.1 FUND EVALUATION. IBT shall compute and, unless otherwise
directed by the Board, determine as of the close of regular trading on the New
York Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by the
Board, the net asset value and the public offering price of a share of capital
stock of each Portfolio, such determination to be made in accordance with the
provisions of the Declaration of Trust and By-laws of the Fund and the
Registration Statement relating to each Portfolio, as they may from time to time
be amended, and any applicable resolutions of the Board at the time in force and
applicable; and promptly to notify the Fund, the proper exchange and the NASD or
such other persons as the Fund may request of the results of such computation
and determination. In computing the net asset value hereunder, IBT may rely in
good faith upon information furnished to it by any Authorized Person in respect
of (i) the manner of accrual of the liabilities of the Fund and in respect of
liabilities of the Fund not appearing on its books of account kept by IBT, (ii)
reserves, if any, authorized by the Board or that no such reserves have been
authorized, (iii) the source of the quotations to be used in computing the net
asset value, (iv) the value to be assigned to any security for which no price
quotations are available, and (v) the method of computation of the public
offering price on the basis of the net asset value of the shares, and IBT shall
not be responsible for any loss occasioned by such reliance or for any good
faith reliance on any quotations received from a source pursuant to (iii) above.
4.2. YIELD CALCULATION. IBT will compute the performance results of
the Portfolios (the "Yield Calculation") in accordance with the provisions of
Release No. 33-6753 and Release No. IC-16245 (February 2, 1988) (the "Releases")
promulgated by the Securities and Exchange Commission, and any subsequent
amendments to, published interpretations of or general conventions accepted by
the staff of the Securities and Exchange Commission with respect to such
releases or the subject matter thereof ("Subsequent Staff Positions"), subject
to the terms set forth below:
(a) IBT shall compute the Yield Calculation for the Fund for
the stated periods of time as shall be mutually agreed upon, and communicate in
a timely manner the result of such computation to the Fund.
(b) In performing the Yield Calculation, IBT will derive the
items of data necessary for the computation from the records it generates and
maintains for the Fund pursuant Section 3 hereof. IBT shall have no
responsibility to review, confirm, or otherwise assume any duty or liability
with respect to the accuracy or correctness of any such data supplied to it by
the Fund, any of the Fund's designated agents or any of the Fund's designated
third party providers.
(c) At the request of IBT, the Fund shall provide, and IBT
shall be entitled to rely on, written standards and guidelines to be followed by
IBT in interpreting and applying the computation methods set forth in the
Releases or any Subsequent Staff Positions as they specifically apply to the
Fund. In the event that the computation methods in the Releases or the
Subsequent Staff Positions or the
<PAGE>
application to the Fund of a standard or guideline is not free from doubt or in
the event there is any question of interpretation as to the characterization of
a particular security or any aspect of a security or a payment with respect
thereto (e.g., original issue discount, participating debt security, income or
return of capital, etc.) or otherwise or as to any other element of the
computation which is pertinent to the Fund, the Fund or its designated agent
shall have the full responsibility for making the determination of how the
security or payment is to be treated for purposes of the computation and how the
computation is to be made and shall inform IBT thereof on a timely basis. IBT
shall have no responsibility to make independent determinations with respect to
any item which is covered by this Section, and shall not be responsible for its
computations made in accordance with such determinations so long as such
computations are mathematically correct.
(d) The Fund shall keep IBT informed of all publicly available
information and of any non-public advice, or information obtained by the Fund
from its independent auditors or by its personnel or the personnel of its
investment adviser, or Subsequent Staff Positions related to the computations to
be undertaken by IBT pursuant to this Agreement and IBT shall not be deemed to
have knowledge of such information (except as contained in the Releases) unless
it has been furnished to IBT in writing.
5. FEES. For the services rendered pursuant to this Agreement, the Fund
agrees to pay IBT the fees set forth on APPENDIX B hereto.
6. ADDITIONAL SERVICES. IBT shall perform the additional services for
the Fund as are set forth on APPENDIX C hereto. APPENDIX C may be amended from
time to time upon agreement of the parties to include further additional
services to be provided by IBT to the Fund, at which time the fees set forth in
APPENDIX B shall be appropriately increased.
7. LIMITATION OF LIABILITY.
7.1 Notwithstanding anything in this Agreement to the contrary, in
no event shall IBT or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold IBT and the Indemnified Parties
harmless from and against any and all loss, damage, liability, actions, suits,
claims, costs and expenses, including legal fees, (a "Claim") arising as a
result of any act or omission of IBT or any Indemnified Party under this
Agreement, except for any Claim resulting solely from the negligence, willful
misfeasance or bad faith of IBT or any Indemnified Party. Without limiting the
foregoing, neither IBT nor the Indemnified Parties shall be liable for, and IBT
and the Indemnified Parties shall be indemnified against, any Claim arising as a
result of:
(a) Any act or omission by IBT or any Indemnified Party in
good faith reliance upon the terms of this Agreement, any Officer's Certificate,
Proper Instructions, resolution of the Board, telegram, telecopier, notice,
request, certificate or other instrument reasonably believed by IBT to genuine;
(b) Information relied on in good faith by IBT and supplied by
any Authorized Person in connection with the calculation of (i) the net asset
value and public offering price of the shares of capital stock of the Fund or
(ii) the Yield Calculation; or
(c) Any acts of God, earthquakes, fires, floods, storms or
other disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, nuclear fusion, fission or radiation, the interruption, loss or
malfunction of utilities, transportation, the unavailability of energy sources
and other similar happenings or events.
<PAGE>
7.2 Notwithstanding anything to the contrary in this Agreement, in
no event shall IBT or the Indemnified Parties be liable to the Fund or any third
party for lost profits or lost revenues or any special, consequential, punitive
or incidental damages of any kind whatsoever in connection with this Agreement
or any activities hereunder.
8. TERMINATION.
8.1 The term of this Agreement shall be three years commencing upon
the effective date of the Fund's registration statement (the "Initial Term"),
unless earlier terminated as provided herein. After the expiration of the
Initial Term, the term of this Agreement shall automatically renew for
successive one-year terms (each a "Renewal Term") unless (i) the Fund delivers a
notice of non-renewal to IBT no later than six months prior to the expiration of
the Initial Term, or (ii) IBT delivers a notice of non-renewal to the Fund no
later than one year prior to the expiration of the Initial Term.
(a) Either party hereto may terminate this Agreement prior to
the expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the non-violating party
gives written notice of such violation to the violating party and the violating
party does not cure such violation within 90 days of receipt of such notice.
(b) The Fund may terminate this Agreement during any Renewal
Term upon six months written notice to IBT. IBT may terminate this Agreement
during any Renewal term upon one year notice to the Fund. Any termination
pursuant to this paragraph 7.1(b) shall be effective upon expiration of such
notice period.
8.2 The Fund shall reimburse IBT for any reasonable expenses
incurred by IBT in connection with the termination of this Agreement.
8.3 At any time after the termination of this Agreement, the Fund
may, upon written request, have reasonable access to the records of IBT relating
to its performance of its duties as hereunder.
9. PROPERTY OF THE FUND AND CONFIDENTIALITY.
9.1 The Fund's records, including all those maintained hereunder by
the Bank, whether in magnetic media, hard copy, film form or other format, shall
be the Fund's property for all purposes, and the Bank shall treat confidentially
and as proprietary information of the fund all such records and other
information relative to the Fund which is not independently available to the
Bank or in the public domain, and shall use such records only in connection with
the performance of its duties hereunder and for no other purpose. In particular,
the Bank agrees:
(a) that all information and data so acquired by it or its
employees, agents or contractors under this Agreement, or in contemplation
thereof, shall be and shall remain the Fund's exclusive property;
(b) to inform its employees, agents or contractors engaged in
handling such information and data of the confidential nature of such
information and data;
(c) to limit access to such information and data to authorized
employees, agents or contractors of the Bank and the Fund who have a need to
know and use such information and data in connection with this Agreement and the
services to be supplied herein;
<PAGE>
(d) to keep, and have their employees, agents and contractors
keep , any and all such information and data confidential;
(e) not to copy or publish or disclose such information and
data to others or authorize their employees, agents, contractors or anyone else,
to copy or publish or disclose such information and data to others without the
other party's prior written approval, except if required by a state or federal
court or agency, and in such an event prompt written notice of such disclosure
requirement shall be provided to the other party if permitted by law; and
(f) that upon termination of this Agreement, all records and
other confidential information of the Fund in the possession of the Bank shall
be returned to the Fund or its designated successor custodian, offshore agent,
administrator, subadministrator or fund accountant, as provided herein.
The confidentiality provisions noted above will survive termination of
this Agreement for a period of two years.
The parties further agree that this Agreement will be considered
confidential during the term of its existence, that access to it will be limited
to those employees, agents, contractors or other persons who have a need to know
of or utilize the Agreement (including, without being limited to, the fund's
Board of Directors or Trustees, the auditors and counsel to the Fund, and
Deutsche Fund Management, Inc. or any of its affiliates), and that neither party
will publish or disclose the Agreement to others without the other party's prior
written approval except if required by a state or federal court or agency, and
in such event prompt written notice of such disclosure requirement shall be
provided to the other party if permitted by law.
9.2 RELIEF. The Bank recognizes that the property and proprietary
information of the Fund is unique, and that the Fund cannot be fully compensated
by money damages and would be irreparably harmed by the disclosure of its
confidential information and data in violation of the provisions of Paragraph
9.1. The Bank therefore agrees that the Fund may seek immediate relief at equity
for any failure to comply with Paragraph 9.1 hereof, in addition to any other
remedies the Fund may have in law or in equity.
10. CONFIDENTIALITY OF IBT INFORMATION. The Fund agrees that any
non-public information obtained hereunder concerning IBT is confidential and may
not be disclosed without the prior written consent of IBT, except as may be
required by applicable law or at the request of a governmental agency. The Fund
further agrees that a breach of this provision would irreparably damage IBT and
the Fund accordingly agrees that IBT is entitled, in addition to all other
remedies at law or in equity, to an injunction or injunctions without bond or
other security to prevent breaches of this provision.
11. SERVICE LEVEL STANDARDS. Subject to the non-occurrence of an event
of force majeure and the performance of the Fund's obligations described in this
Agreement, the Company agrees that the services will be provided in accordance
with the service level standards specified in APPENDIX D hereto. IBT's fees will
be adjusted based upon performance based reductions as described in APPENDIX D.
12. NOTICES. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (i) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) had delivery with signature to such party at its office at
the address set forth below, namely:
<PAGE>
(a) In the case of notices sent to the Fund to:
Deutsche Portfolios
c/o IBT Trust Company (Cayman) Ltd.
P.O. Box 501
Cardinal Avenue
Georgetown, Grand Cayman
Attention: Carmen Thompson
With a copy to:
Deutsche Fund Management, Inc.
31 W. 52nd Street
New York, NY 10019
Attention: President
(b) In the case of notices sent to IBT to:
IBT Fund Services (Canada) Inc.
1 First Canadian, King Street West
Suite 2800
PO Box 231
Toronto, Canada M5X1C8
Attention:
With a copy to: John E. Henry, General Counsel
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
or at such other place as such party may from time to time
designate in writing.
13. AMENDMENTS. This Agreement may not be altered or amended, except by
an instrument in writing, executed by both parties.
14. PARTIES. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of IBT or by IBT without the written consent of the
Fund, authorized and approved by its Board; and provided further that
termination proceedings pursuant to Section 8 hereof will not be deemed to be an
assignment within the meaning of this provision.
15. GOVERNING LAW. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
17. ENTIRE AGREEMENT. This Agreement, together with its Appendices,
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any conflicting
terms or provisions of any other instrument and terminates and supersedes any
and all prior agreements and undertakings between the parties relating to the
subject matter herein.
<PAGE>
18. LIMITATION OF LIABILITY. IBT is hereby expressly put on notice of
the limitation of liability set forth in the Declaration of Trust of the Fund
and agrees that the obligations assumed by the Fund hereunder shall be limited
in all cases to the assets of the Fund and that IBT shall not seek satisfaction
of any such obligation from the officers, agents, employees, trustees, or
shareholders of the Fund.
19. SIGNATURE LICENSE. IBT shall remain a licensee of Signature
Financial Group, Inc. with respect to the trademarks of Hub(R) and Spoke(R)1 and
related proprietary rights during the term of this Agreement.
[Remainder of Page Intentionally Left Blank]
- --------
1 "Hub" and "Spoke" and "Hub and Spoke" are registered trademarks of Signature
Financial Group, Inc.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
DEUTSCHE PORTFOLIOS
By:.........................................
Name:
Title:
IBT FUND SERVICES (CANADA) INC.
By:...........................................
Name:
Title:
<PAGE>
APPENDIX A
PORTFOLIOS
Provesta Portfolio (US Dollar)
Investa Portfolio (US Dollar)
Japanese Equity Portfolio (US Dollar)
Global Bond Portfolio (US Dollar)
European Bond Portfolio (US Dollar)
Top 50 World Portfolio (US Dollar)
Top 50 Europe Portfolio (US Dollar)
Top 50 Asia Portfolio (US Dollar)
Top 50 US Portfolio (US Dollar)
US Money Market Portfolio (US Dollar)
SERVICES AGREEMENT
AGREEMENT made as of the ____ day of _______, 1997, by and between Deutsche
Family of Funds, Inc. (the Company), the series of which are listed on Exhibit
1, as may be amended from time to time (individually referred to herein as a
"Fund" and collectively as "Funds"), having their principal office and place of
business at Federated Investors Tower, Pittsburgh, PA 15222-3779 and having
approved a Distribution and Services Plan (the "Plan") and Deutsche Fund
Management, Inc., a Delaware corporation, having its principal office and place
of business at 31 West 52nd Street, 29th Floor, New York, New York 10019
("DFM").
1. The Funds hereby appoint DFM to render or cause to be rendered personal
and other services to shareholders of the classes of shares of the Funds set for
on Exhibit 1 ("Classes"), including (a) performing personal services relating to
shareholder accounts, including answering shareholder inquiries and providing
reports and other information to shareholders and financial institutions
("Financial Institutions") and performing other services related to the
maintenance of shareholder accounts (collectively, "Shareholder Services"), (b)
making payments to Financial Institutions that perform Shareholder Services, (c)
coordinating the activities of Financial Institutions that perform Shareholder
Services and providing Fund information to shareholders, potential investors and
Financial Institutions, and (d) performing other services related to the
foregoing which, in its best judgment (subject to the supervision of the Board
of Directors of the Company) are necessary or desirable for shareholders of the
Classes (collectively, "Services"). DFM hereby accepts such appointment. DFM
further agrees to provide the Funds, upon request, a written description of the
Services which DFM is providing hereunder. Any payment made by DFM to Financial
Institutions with funds received as services fees hereunder will be made
pursuant to the Mutual Funds Sales and Service Agreement entered into by DFM and
the Company's Distributor with such Financial Institution.
2. During the term of this Agreement, each Fund will pay DFM and DFM agrees
to accept as full compensation for its services rendered hereunder a services
fee at an annual rate, calculated daily and payable monthly, of 0.25% of the
average net assets of each Class listed on Exhibit 1.
For the payment period in which this Agreement becomes effective or
terminates with respect to any Fund, there shall be an appropriate proration of
the monthly fee on the basis of the number of days that this Agreement is in
effect with respect to such Fund during the month.
3. This Agreement shall continue in effect for one year from the date of
its execution, and thereafter for successive periods of one year only if this
DEUTSCHE FAMILY OF FUNDS 1 1997
<PAGE>
Agreement is approved with respect to each Class at least annually by the Board
of the Company, including a majority of the members of the Board with respect to
each Class who are not interested persons of the Company (within the meaning of
the Investment Company Act of 1940, as amended (the "1940 Act")) and have no
direct or indirect financial interest in the operation of the Funds' Plan or in
any related agreements ("Independent Board Members") cast in person at a meeting
called for that purpose.
4. Notwithstanding paragraph 3, this Agreement may be terminated
with respect to any Class as follows:
(a) at any time, without the payment of any penalty, by the vote
of a majority of the Independent Board Members or by a vote
of a majority of the outstanding voting securities of such
Class as defined in the Investment Company Act of 1940 on
sixty (60) days' written notice to the parties to this
Agreement;
(b) automatically in the event of the Agreement's assignment as
defined in the 1940 Act; and
(c) by any party to the Agreement without cause by giving the
other party at least sixty (60) days' written notice of its
intention to terminate.
5. DFM agrees to obtain any taxpayer identification number certification
from each shareholder of the Classes to which it provides Services that is
required under Section 3406 of the Internal Revenue Code, and any applicable
Treasury regulations, and to provide the Company or its designee with timely
written notice of any failure to obtain such taxpayer identification number
certification in order to enable the implementation of any required backup
withholding.
6. DFM shall not be liable for any error of judgment or mistake of law or
for any loss suffered by any Fund 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. DFM
shall be entitled to rely on and may act upon advice of counsel (who may be
counsel for such 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, trustee, partner, employee or agent of DFM, who may be
or become a member of the Company's Board or an officer, employee or agent,
shall be deemed, when rendering services to a Fund or acting on any business of
such Fund (other than services or business in connection with the duties of DFM
hereunder) to be rendering such services to or acting solely for such Fund and
not as an officer, trustee, partner, employee or agent or one under the control
or direction of DFM even though paid by DFM.
DEUTSCHE FAMILY OF FUNDS 2 1997
<PAGE>
This Section 6 shall survive termination of this Agreement.
7. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
8. Notices of any kind to be given hereunder shall be in writing (including
facsimile communication) and shall be duly given if delivered to any Fund and to
such Fund at the following address: Federated Investors Tower, Pittsburgh, PA
15222-3779 and if delivered to DFM at 31 West 52nd Street, 29th Floor, New York,
New York 10019, Attention: President.
9. This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject hereof
whether oral or written. If any provision of this Agreement shall be held or
made invalid by a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Sections 3 and 4, hereof, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and shall be governed by Pennsylvania law; provided,
however, that nothing herein shall be construed in a manner inconsistent with
the 1940 Act or any rule or regulation promulgated by the Securities and
Exchange Commission thereunder.
10. This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one and the same
instrument.
11. This Agreement shall not be assigned by any party without the prior
written consent of DFM in the case of assignment by the Company, or of the
Company in the case of assignment by DFM, except that any party may assign to a
successor 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 Section 11 shall prevent DFM from delegating its responsibilities to
another entity to the extent provided herein.
12. DFM acknowledges that this Agreement is a "related agreement" with
respect to the Plan within the meaning of Rule 12b-1 under the 1940 Act and
agrees to comply with the terms and conditions applicable to this Agreement
under Rule 12b-1 and the Plan.
DEUTSCHE FAMILY OF FUNDS 3 1997
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
Attest: Deutsche Family of Funds, Inc.
By:
Title:
Attest: Deutsche Fund Management, Inc.
By:
Title:
DEUTSCHE FAMILY OF FUNDS 4 1997
<PAGE>
EXHIBIT 1
DEUTSCHE EUROPEAN MID-CAP FUND, CLASS A AND CLASS B SHARES
DEUTSCHE GERMAN EQUITY FUND, CLASS A AND CLASS B SHARES
DEUTSCHE JAPANESE EQUITY FUND, CLASS A AND CLASS B SHARES
DEUTSCHE GLOBAL BOND FUND, CLASS A AND CLASS B SHARES
DEUTSCHE GERMAN BOND FUND, CLASS A AND CLASS B SHARES
DEUTSCHE TOP 50 WORLD, CLASS A AND CLASS B SHARES
DEUTSCHE TOP 50 EUROPE, CLASS A AND CLASS B SHARES
DEUTSCHE TOP 50 ASIA, CLASS A AND CLASS B SHARES
DEUTSCHE TOP 50 US, CLASS A AND CLASS B SHARES
DEUTSCHE U.S. MONEY MARKET FUND, RETAIL CLASS SHARES
DEUTSCHE FAMILY OF FUNDS 5 1997
DISTRIBUTION AND SERVICE PLAN
This Distribution and Service Plan ("Plan", which term includes both
the Distribution Plan and the Services Plan hereinafter defined) is adopted as
of ________, 1997 by the Board of Directors of Deutsche Family of Funds, Inc.
(the "Corporation"), a Maryland corporation, with respect to certain classes of
shares ("Classes") of the portfolios of the Corporation (the "Funds") set forth
in exhibits hereto.
1. This Plan is adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended ("Act"), so as to allow the Corporation (a) to
make payments as contemplated herein in conjunction with the distribution (the
"Distribution Plan") of Classes of the Funds ("Shares") and (b) to make payments
as contemplated herein to obtain services to holder of Shares, including
personal services relating to shareholder accounts, and other assistance
regarding the provision of Fund information to investors and financial
institutions ("Financial Institutions").
2. The Distribution Plan is designed to finance activities of Edgewood
Services, Inc. ("Edgewood") principally intended to result in the sale of Shares
to include: (a) providing incentives to Financial Institutions to sell Shares;
(b) advertising and marketing of Shares to include preparing, printing and
distributing prospectuses and sales literature to prospective shareholders and
with Financial Institutions; and (c) implementing and operating the Distribution
Plan. In compensation for services provided pursuant to the Distribution Plan,
Edgewood will be paid a fee in respect of the Classes of the Funds set forth on
the applicable exhibit.
3. Any payments to Edgewood in accordance with the Distribution Plan
will be made pursuant to the "Distributor's Contract" entered into by the
Corporation and Edgewood. Any payments made by Edgewood to Financial
Institutions with funds received as compensation under the Distribution Plan
will be made pursuant to the "Mutual Funds Sales and Service Agreement" entered
into by Edgewood and the Financial Institution (a "Financial Institution
Agreement").
4. Edgewood has the right (i) to select, in its sole discretion, the
Financial Institutions to participate in the Distribution Plan and (ii) to
terminate without cause and in its sole discretion any Financial Institution
Agreement with respect to the Distribution Plan.
5. The Service Plan is designed to compensate Deutsche Fund Management,
Inc. ("DFM") for (a) performing personal services relating to shareholder
accounts, including answering shareholder inquiries and providing reports and
other information to shareholders and Financial Institutions
Deutsche Family of Funds, Inc. Page 1 1997
<PAGE>
and performing other services related to the maintenance of shareholder accounts
(collectively, "Shareholder Services"), (b) making payments to Financial
Institutions that perform Shareholder Services, (c) coordinating the activities
of Financial Institutions that perform Shareholder Services and providing Fund
information to shareholders, potential investors and Financial Institutions, and
(d) performing other services related to the foregoing. In compensation for
services provided pursuant to the Service Plan, DFM will be paid a monthly fee
with respect to the Classes of the Funds set forth on the applicable exhibit
computed at the annual rate of .25 of 1% of the average daily net asset vaue of
the Shares of such Class.
6. Any payments made to DFM in accordance with the Service Plan will be
made pursuant to a "Services Agreement." Any payments made by DFM to Financial
Institutions with funds received as compensation under the Service Plan will be
made pursuant to a written agreement, which may be included as part of the
relevant "Mutual Fund Sales and Service Agreement."
7. DFM has the right (i) to select, in its sole discretion, the
Financial Institutions to participate in the Service Plan and (ii) to terminate
without cause and in its sole discretion any Financial Institution Agreement
with respect to the Service Plan.
8. Quarterly in each year that this Plan remains in effect, Edgewood
and DFM shall prepare and furnish to the Board of Directors of the Corporation,
and the Board of Directors shall review, a written report of the amounts
expended under the Distribution Plan and Service Plan, respectively, and the
purpose for which such expenditures were made.
9. This Plan shall become effective with respect to each Class (i)
after approval by majority votes of: (a) the Corporation's Board of Directors;
(b) the members of the Board of Directors of the Corporation who are not
interested persons of the Corporation and have no direct or indirect financial
interest in the operation of this Plan or in any related documents to this Plan
("Disinterested Directors"), cast in person at a meeting called for the purpose
of voting on this Plan; and (c) the outstanding voting securities of the
particular Class , as defined in Section 2(a)(42) of the Act and (ii) upon
execution of an exhibit adopting this Plan with respect to such Class.
10. This Plan shall remain in effect with respect to each Class
presently set forth on an exhibit and any subsequent Classes added pursuant to
an exhibit during the initial year of this Plan for the period of one year from
the date set forth above and may be continued thereafter if this Plan is
approved with respect to such Class at least annually by a majority of the
Corporation's Board of Directors and a majority of the Disinterested Directors,
cast in person at a meeting called for the purpose of voting on
Deutsche Family of Funds, Inc. Page 2 1997
<PAGE>
such Plan. If this Plan is adopted with respect to a Class after the first
annual approval by the Directors as described above, this Plan will be effective
as to that Class upon execution of the applicable exhibit pursuant to the
provisions of paragraph 6(ii) above and will continue in effect until the next
annual approval of this Plan with respect to that Class by the Directors and
thereafter for successive periods of one year subject to approval as described
above.
11. All material amendments to this Plan must be approved by a vote of
the Board of Directors of the Corporation and of the Disinterested Directors,
cast in person at a meeting called for the purpose of voting on it.
12. This Plan may not be amended in order to increase materially the
costs which any Class may bear for distribution pursuant to this Plan without
being approved by a majority vote of the outstanding voting securities of such
Class as defined in Section 2(a)(42) of the Act.
13. This Plan (or only the Service Plan or the Distribution Plan) may
be terminated with respect to a particular Class at any time by: (a) a majority
vote of the Disinterested Directors; or (b) a vote of a majority of the
outstanding voting securities of the particular Class as defined in Section
2(a)(42) of the Act; (c) in the case of the Distribution Plan, by Edgewood on 60
days' notice to the Corporation; or (d) in the case of the Service Plan, by DFM
on 60 days' notice to the Corporation.
14. While this Plan shall be in effect, the selection and nomination of
Disinterested Directors of the Corporation shall be committed to the discretion
of the Disinterested Directors then in office.
15. All agreements with any person relating to the implementation of
this Plan shall be in writing and any agreement related to this Plan shall be
approved by the vote specified in Paragraph 9(a) and (b) herein and shall be
subject to termination, without penalty, pursuant to the provisions of Paragraph
13 herein, provided, however, that the identity of a particular Financial
Institution executing any such related agreement may be ratified by the vote
required by Paragraph 9(a) and (b) herein at the next quarterly meeting of the
Board of Directors of the Corporation.
16. This Plan shall be construed in accordance with and governed by the
laws of the State of New York.
Deutsche Family of Funds, Inc. Page 3 1997
<PAGE>
EXHIBIT A
to the
Distribution and Service Plan
Classes in Distribution Plan
Deutsche European Mid-Cap Fund Class B Shares
Deutsche German Bond Fund Class B Shares
Deutsche German Equity Fund Class B Shares
Deutsche Global Bond Fund Class B Shares
Deutsche Japanese Equity Fund Class B Shares
Deutsche Top 50 Asia Class B Shares
Deutsche Top 50 Europe Class B Shares
Deutsche Top 50 US Class B Shares
Deutsche Top 50 World Class B Shares
The Distribution Plan is adopted by the Corporation with respect to the
Classes of Shares of the portfolios of the Corporation set forth above.
In compensation for the services provided pursuant to the Distribution
Plan, Edgewood will be paid a monthly fee computed at the annual rate of 0.75%
of the average aggregate net asset value of the Classes of Shares of portfolios
of the Corporation set forth above.
Witness the due execution hereof this day of
By:
President
Deutsche Family of Funds, Inc. Page 4 1997
<PAGE>
EXHIBIT B
to the
Distribution and Service Plan
Classes in Service Plan
Class A Shares and Class B Shares of:
Deutsche European Mid-Cap Fund
Deutsche German Equity Fund
Deutsche Japanese Equity Fund
Deutsche Global Bond Fund
Deutsche German Bond Fund
Deutsche Top 50 World
Deutsche Top 50 Europe
Deutsche Top 50 Asia
Duetsche Top 50 US
Retail Class Shares of
Deutsche U.S. Money Market Fund
The Service Plan is adopted by the Corporation with respect to the
Classes of Shares of the portfolio of the Corporation set forth above.
Witness the due execution hereof this day of
By:
President
Deutsche Family of Funds, Inc. Page 5 1997
DEUTSCHE FAMILY OF FUNDS, INC.
MULTIPLE CLASS PLAN
This Multiple Class Plan ("Plan") is adopted by DEUTSCHE FAMILY OF FUNDS,
INC. (the "Corporation"), a Maryland corporation, with respect to the classes of
shares ("Classes") of the portfolios of the Corporation (the "Funds") set forth
on exhibit(s) hereto.
1. PURPOSE
This Plan is adopted pursuant to Rule 18f-3 under the Investment Company
Act of 1940, as amended (the "Rule"), in connection with the issuance by the
Corporation of more than one class of shares of any or all of the Funds in
reliance on the Rule and to make payments as contemplated herein.
2. SEPARATE ARRANGEMENTS / CLASS DIFFERENCES
a. DESIGNATION OF CLASSES: The Funds, except Deutsche U.S. Money Market
Fund, set forth on exhibit(s) hereto offer two classes of shares: Class A Shares
and Class B Shares. Deutsche U.S. Money Market Fund Fund offers three classes of
shares: Institutional Class Shares, DB Class Shares and Retail Class Shares.
b. CATEGORIES/TYPES OF INVESTORS ELIGIBLE TO PURCHASE EACH CLASS OF SHARES:
Class A Shares and Class B Shares are sold to the same types of investors.
The investor is able to choose between a front-end sales load (Class A Shares)
or a contingent deferred sales charge (Class B Shares). Institutional Class
Shares are sold only to certain qualified investors as defined in the
prospectus. DB Class Shares are sold to small separate accounts. Retail Class
Shares are sold to clients of broker-dealers.
c. SALES LOADS: A maximum sales charge of 5.5% and 4.5% of offering price
is imposed on purchases of Class A Shares in the equity funds and the bond
funds, respectively. Certain purchases of Class A Shares are not subject to a
sales charge. As a result, Class A Shares are not subject to any charges when
they are redeemed, unless they were purchased with proceeds of a redemption of
shares of an unaffiliated investment company purchased or redeemed with a sales
charge and not distributed by Edgewood Services, Inc
Class B Shares are sold without an initial sales charge, but are subject to
a contingent deferred sales charge.
<PAGE>
d. 12B-1 FEES: Under the applicable Plan adopted pursuant to Rule
12b- 1 of the Investment Company Act of 1940, as amended, certain Funds are
authorized to pay distribution fees of 0.75 of 1% of the average daily net
assets of Class B Shares. Under the applicable Service Plan, certain Funds are
authorized to pay service fees of 0.25 of 1% of the average daily net assets of
Class A Shares, Class B Shares or Retail Class Shares.
e. MINIMUM INVESTMENTS: The minimum initial purchase for all classes
is $5,000 and the minimum subsequent purchase is $500.
f. VOTING RIGHTS: Shareholders of each Class are entitled to one vote
for each share held and fractional votes for each fractional share held on the
record date for the election of Directors and any other matter requiring a
shareholder vote. Shareholders of the Corporation will vote in the aggregate and
not by Fund or Class except (i) as otherwise expressly required by law or when
the Directors determine that the matter to be voted upon affects only the
interests of the shareholders of a particular Fund or Class, and (ii) only
holders of a Class will be entitled to vote on matters submitted to shareholder
vote with respect to the Rule 12b-1 Plan applicable to such Class.
g. SPECIAL SERVICES OR FEATURES RELATED TO PURCHASING OR REDEEMING
SHARES:
Shareholders who have redeemed their Class A Shares have the
privilege of reinstating their accounts by purchasing Class A shares of the
Funds, at net asset value without a sales charge, up to the dollar amount
redeemed. The privilege must be exercised within 90 days of the date of the
redemption request.
3. EXPENSE ALLOCATIONS
12B-1 FEES: Expenses incurred pursuant to the Rule 12b-1 Plan will be
borne solely by the relevant Class of the relevant Fund.
4. CONVERSION FEATURES
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.
5. MONITORING
The Directors will monitor the Corporation for the existence of any
material conflicts between the interests of the various Classes and will
Deutsche Family of Fund, Inc. 2 1997
<PAGE>
take such action as might be reasonably necessary to eliminate any such
conflicts. The Manager and the Distributor will be responsible for reporting any
potential or existing conflicts to the Directors and if a conflict arises the
Manager at its own expense will take appropriate action to remedy such conflict
up to and including the establishment of a new registered investment company.
6. EFFECTIVENESS
This Plan shall become effective with respect to each Class, (i) to the
extent required by the Act, after approval by a majority vote of: (a) the
Corporation's Board of Directors; (b) the members of the Board of the
Corporation who are not interested persons of the Corporation and have no direct
or indirect financial interest in the operation of the Corporation's Plan , and
(ii) upon execution of an exhibit adopting this Plan with respect to such Class.
7. AMENDMENT
Any material amendment to this Plan will be effective after approval by
a majority vote of: (a) the Corporation's Board of Directors; and (b) the
members of the Board of the Corporation who are not interested persons of the
Corporation and have no direct or indirect financial interest in the operation
of the Corporation's Plan.
Deutsche Family of Fund, Inc. 3 1997
<PAGE>
EXHIBIT A
to the
Multiple Class Plan
DEUTSCHE FAMILY OF FUNDS, INC.
Deutsche European Mid-Cap Fund
Deutsche German Equity Fund
Deutsche Japanese Equity Fund
Deutsche German Bond Fund
Deutsche Global Bond Fund
Deutsche Top 50 World
Deutsche Top 50 Europe
Deutsche Top 50 Asia
Deutsche Top 50 US
Class A Shares
Class B Shares
Deutsche U.S. Money Market Fund
Institutional Shares
DB Shares
Retail Class Shares
This Multiple Class Plan is adopted by Deutsche Family of Funds, Inc.
with respect to the Classes of Shares of the Fund of the Corporation set forth
above.
Witness the due execution hereof this day of , 1997.
DEUTSCHE FAMILY OF FUNDS, INC.
By:
President
Deutsche Family of Fund, Inc. 5
